Think about this. Why did industrial revolution generated far more prosperous societies, economies, nations and countries, as compared to the agriculture based economies, that existed before it? Why the industrialized countries are still richer then non-industrialized or industrializing countries? The reason was, and is, a much higher level of creativity, innovation and invention, in industrialized countries. This higher level of creativity, generates novel and better products and services, which result into the origination of new businesses, product manufacturers and service providers. They hire people and create jobs. These people with new or better jobs spend their money in economy, which increases demand, as a whole for every thing, and service like food, apparel, housing, education and health. So everyone else and every other existing business benefits. These new and better businesses, products and services, also generate or improve, new supply chains including distributors, retailers, advertisers, education and training institutions, and communication and transportation networks. These new and improved supply chains hire more workers and fuel more money into the economy, increase demand, cause business expansion in every part and aspect of economy. This perpetual cycle goes on and on with more and better jobs being created, raising the over level of production or GDP and standards of living.
If you have a slightest awareness of history, you would agree that it never happened, successfully, the other way around, as might be suggested by a Keynesian. That alternative Keynesian scenario would be that demand got increased, for whatever reason, which resulted in overall growth of economy. As a matter of fact, I used the word, successfully, for a reason. It is because this has been tried, but, not successfully, of course. Socialist countries, raised the demand by guaranteeing certain necessities, to all their citizens. This created three major effects, which ultimately resulted into the failure of those governments.
1. More government spending, increasing deficits and debts, and ultimate bankruptcies of those governments.
2. Distortion of markets, due to the preference for certain amenities, as opposed to the genuine creativity and incentive.
3. Gradually, people becoming more and more dependent on government and ultimately losing their productivity and competitiveness.
So, demand is not, and cannot be generated out of thin air. It requires new and improved products and services, generating new and improved markets. This is the reason why unmatched creativity, innovation and inventions of our nation, always kept us at the top. From light bulb to assembly lines, to computers, Internet and software, it was the new and improved supply chains which created the jobs, mostly high paying, in our nation and around the world. As a matter of fact, the new and improved products and services, at home and abroad, generated demand, here, at home, and abroad.
Unfortunately, Obama administration keeps insisting on the failed model of generating artificial and market distorting demand. Some of the key effects of their policies are already obvious, even to the most staunch supporters of these policies:
1. So called stimulus and recovery money, has not been able to stimulate or recover the economy, so far. Most of that money end up in big banks and corporations, which are still sitting on it, and we and our next generations will have to pay back that debt.
2. Quantitative easing attempts from federal reserve are not stimulating investments, either. New investments lag far behind the supply of money, and the return on that money is dismal. It is just devaluing dollar and causing inflation, resulting in to higher cost of living and further fall in standards of living.
As usual, these Keynesian policies are distorting markets and delaying the market adjustments and recovery. The usual classical and natural course would have been a reduced demand, resulting into drop in prices, reducing cost of creativity, innovation, invention, production and doing business. This reduced cost of production and doing business, would have resulted in business and production expansion, creating and improving jobs and increasing demand. Right now, the artificial supply of money is causing inflation, distorting markets and preventing the natural correction cycle from happening. Current economic and financial crisis cannot be resolved without deflation, and deflation is not possible with increased supply of money.
The lesson that must be learned with current crisis, the hard way, is that governments must stop rewarding the losers. Bailouts, are basically the policies of rewarding the losers and punishing the honest and competitive. Trillions of dollars of tax payers, and borrowed money, which tax payers have to pay back, was rewarded to the losers and the corporations, actually responsible for crisis. These bailed out losers have the following negative effects on economy:
1. They are sitting on trillions of dollars of bailout money and not lending it to the businesses that can actually improve supply side to truly benefit the economy.
2. They have extensively used the bailout money to buyout and kill the honest and fair playing, smaller competition. They have not only regained their oligopolies and too big to fail status, they have made it even stronger then before. This is a recipe for another crisis. Sooner and later these banks, financial institutions and corporations will start abusing their oligopolies and too big to fail status, creating the illusion for more tax payer sponsored bailouts.
If the big loser banks, financial institutions and corporations were allowed to fail, the smaller, honest and fair playing competitors would have replaced them, with more competitive, level plain field, abolishing the need for bailouts, in future.
Of course, that did not happen. Another big reason behind these ridiculous big bailout policies is purely political. Both, so called major political parties are running their multi- billion dollar campaigns with the help of their corporate sponsors and lobbies. Does it surprise you that they keep preferring corporate interests over ours, and national interests. I don’t know, why American people are still not getting it? Probably, this is because of media, which is, by the way, owned by same corporations, hype about these two political parties. If we really want to have real, obvious and common sense solutions for our problems, then, we must start thinking and acting, independent of big media.
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