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Opinion: The Growing Crisis of the American Economy and Political System

Last year at this time, America was in an economic boom. From the beginning of October to the end of 2019, the S&P 500 went up over 10 percent, and the Dow Jones Industrial Average reached its record height. By March 23rd, the Dow had fallen 10,000 points, led by large industries including American Airlines, Boeing, Apple, General Motors, and Microsoft. Immediately, the American government had a new solution straight from the post-Keynesian economics books: lock down the States to supposedly prevent the spread, and send economic relief in the form of stimulus packages to families and big businesses . Trillions of dollars were sent out to families. Trillions more to large corporations that were hit by the virus so hard that they had been bleeding money for 10 years. (These companies, including Boeing and Delta Airlines, had been poorly managed long before the virus hit, but are being bailed out by the government anyway.) On top of all of this, the Federal Reserve cut interest rates extraordinarily low, in order to finance both the government’s nearly 4 Trillion dollar deficit and supposedly increase economic incentives for investment. But were these the right choices? Did sending out 1200 dollars really help that many people in the long run?


The bigger question is this: where did all of that money come from? Most of it came from a huge budget deficit as well as inflation. In fact, the year-to-date money supply (We'll use M1, adjusted, for the sake of simplicity) has gone up nearly 40%. Although the short-term effects of this are debatable (Conservative monetarists correctly argue that, because of the American Federal Reserve and banking system, banks can keep volatility low, but this is limited to a short period of time when huge inflation occurs, ultimately ending in heavy inflation, likely stagflation.) The Milton Friedman equation MV=PQ, (Money Supply x Volatility= Price x Quantity) holds that an devaluation of the dollar is dependent upon how many times that money changes hands, or volatility. Because the Fed is keeping rates intentionally low, which also encourages debt, confused by investors for real loanable funds, even though it's just inflation it is also keeping volatility low. But because the Keynesian-controlled. Fed can no longer hold Volatility down without explicitly hurting the economy further, high inflation will almost certainly appear in the coming years. And inflation is theft: it is the theft of the value of the American dollar from the citizens. For the average working family, this inflation will overreach the 1200 dollar "gift" of the government, making families worse off in the long run by stealing the value of their future cash savings.


Even the large companies should never have received government bailouts. It is, afterall, economic recessions that eliminate those companies which are not efficient. Boeing, for example, should have gone into bankruptcy. Boeing was a terrible company, and the planes were clearly never going to fly. The jobs wouldn't have been lost, in the long term! It's called chapter 11 bankruptcy... the company's assets are liquidated, the stock goes to zero, and the debt-holders get what's left of the company. The free market system is what eliminates the bad companies, in favor of profitable ones which promote innovation, and with innovation overall economic growth. If the government had followed the basic, conservative economical ideals of Laissez-Faire, we would be vastly better off in the long run. If the government had followed the ideas of classical economists and politicians such as Hayek, or Mises, or even of Bastiat or Sowell, we would have gone through a small recession, which would eliminate bad businesses such as Boeing or American Airlines. After several years, these companies would be reborn, likely under different names, providing the incentive for economic growth and production of what people demand, encouraging the economic and social prosperity that comes with the implementation of classical, free market ideals. Instead, in seeking short-term relief (Because, as Keynes himself put it, "On the long run, we're all dead") the government implemented neo-Keynesian policies once again, the effects of which we will feel in American society for decades to come.


Data on the economy over the last 2 years was gathered from Barron’s Financial and Investment journal. The economic theory of the mentioned Classical economists was sourced from The Mises Institute.


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