Thursday, December 11, 2008

Stimulus Stimulants

An economy, like the human body, needs a balance to run properly. If something gets out of balance, then the body will work toward getting back to equilibrium.

With wakefulness and sleep the body needs a good balance. The only way to know where the balance lies is to listen to the body as it tells you. The same is true with an economy, there must be a proper balance of spending and savings. The economy will likewise tell you where that balance is by adjusting prices, employment, inflation, and other factors. When the public is concerned about spending and decide to save more, the economy is signalling its fatigue and letting you know it’s time to “sleep” or start saving.

Unfortunately, current thinking in government circles (and thus most of the population) is that the only thing important in the economy is spending. Thus we see these ridiculous stimulus packages like Australia is giving out in December with the explicit instructions to go out and spend. This is like avoiding sleep by taking meth. It may appear to work for a while, but that sleep debt isn’t going away and the body is going to get back into balance, painfully if necessary.

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