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.ā€

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.