The Best Stimulus is no Stimulus

I said I would explain this quote in the next post, enjoy.

In my previous post, I said, “The best stimulus to our economy is no stimulus at all.”

I am a free market capitalist, meaning that I prefer complete government absence from the economy. Markets and businesses can take care of themselves best if left alone. We’ve never really experienced this yet, but that is beside the point.

In simple economic terms, think of it this way. There are two variables, supply and demand. Supply is how much of something you have at a given time, demand is how many people want what is supplied. The more demand there is for supply, the more it shrinks to nothing. The more supply there is, the less people want of it, because there is so much supply floating around. Big and small companies deal with this all the time, hence why they try to find a nice median range to stick in.

That is a brief explanation of economics. Now lets apply this in a business sense and I will show you the meaning behind the quote I gave.

Businesses are here to make money, if they cannot generate a profit, the business will close shop. If they are able to generate a profit, they will stay around and grow into a bigger company. At this point, there are two possibilities. They might be bought out by another company, thus merging into that company and growing it bigger, or they will control a majority of the market, thus becoming a monopoly. Monopolies tend to last for a while, then implode, or become passed by from another company. This back and forth, from closing shop to a monopoly, is the way to finding a median. A median meaning making enough of a profit to continue, but not so large that they are a monopoly.

Are you noticing how businesses are self-regulating themselves? They are taking care of themselves, purging businesses that don’t work and knocking down monopolies in the effort that all the businesses in that industry share a happy median. There will always be this back and forth between companies in every industry. But what if that were not so? What if someone controlled whether your company lived or died?

Say that one person said one business was better then the rest, and killed the others in that industry, leaving that one. Is there room for improvement? How is that business to know whether it is doing a good job or not? Simply put, they have no idea. There is no competition, hence no improvement or measure to go off of. But what if that person let this competition and noticed one company dying. Say that person throws that company a lifeline, thus preserving the company. The company does good for a while, but then flounders around again. Why? It could be that the goods or service that company was providing was not working and no one was interested in buying what they had to offer. It could also be internal problems going on inside the company, thus an implosion is inevitable. Did that person do a good job helping out that company, or did it just prolong the suffering?

Are you starting to notice the meaning behind my quote? If you are able to understand well enough, you will come to notice that this is prolonging the suffering to the market as a whole. This is not allowing the markets to purge that which needs to be purged, thus preventing our economy as a whole to return to a happy median.

Economic Stimulus Package

Ok, let me get one thing out of the way before I begin. I am opposed entirely to this notion, partly because I am a free market enonomist and partly because I can see right through the red tape in the government.

From a general standpoint this looks like a good idea right? True, but here is some history. The money you hold in your hand is worthless, look at what it says, “Backed by the full faith of the US Government”. It started when it was taken off the gold standard in 1971. All you hold in your hand is a piece of paper, fiat currency for a better term. The government can print as much money as it wants now, dumping it in as fast as it can print.

In simple economic terms, think of it this way. There are two variables, supply and demand. Supply is how much of something you have at a given time, demand is how many people want what is supplied. The more demand there is for supply, the more it shrinks to nothing. The more supply there is, the less people want of it, because there is so much supply floating around. Big and small companies deal with this all the time, hence why they try to find a nice median range to stick in.

That said, apply the same to the government printing money. If more and more money is printed (supply), the less people will want of it (demand). It will literally become worthless if there is too much of it. If you understand this concept, you are on solid ground.

Now back to the topic at hand: the Stimulus Package. Think this will work, applying what you just learned? Absolutely not and here is why. Throwing money at a problem will not fix the economic mess we are in. If anything, it will make it worse. You are once again bumping the supply factor out more to the point where the demand is less and less. Secondly, this is not going to create jobs or stimulate the economy. Why? This money is just going to places to try and bring it back into the black. The majority of it will not reach there though. Why? Greed. I can smell it written all over this package, literally it reaks of the odor.

If this was really a “stimulus package”, here is where it should go. It should be going to the local economies to help prop up the businesses there. Strong businesses mean a stong local economy. Stong businesses mean more money is flowing around to the various areas. Strong businesses also mean they can support more employees, hence they hire more people. See what I am saying?

Although the best piece of advice regarding this whole matter is… “The best stimulus to our economy is no stimulus at all.” I’ll explain this quote in my next post. In the meantime, what do you think about this? Anything you care to add, anything you need clarified? Comments are open.

#88: Current Economic Conditions, Why Most Businesses Fail, and Feedburner Hacked!

In Episode #88 you will learn about the current economic situation, as well as give you some homework. In Business I speak about why most businesses fail and how it is linked sometimes to hearing the dreaded “No”. In Technology I speak about the newly discovered flaw in Feedburner. Another hack to add to the archives I would say…

For Your Homework, head on out to #28: Taylor Marek Podcast #85

The articles used in today’s show can be found at:
http://www.geeknewscentral.com/archives/008148.html
http://thenextweb.org/2008/08/04/feedburner-hack-how-to-get-2500-subscribers-overnight-video/

If you have any questions, comments, or ideas about anything mentioned during the show, or to give your two-cents on a topic, call our toll-free line at 1-866-TMP-2860.

Podcast: Play in new window | Download (Duration: 14:58 — 6.9MB)