Trump is a socialist. Let’s not kid ourselves: He thinks that government and business should be connected, and he’s going to try to spend a lot of money to stimulate the economy. I don’t know what he’s thinking as Keynesian Theory has been pretty much debunked and any economist worth their salt is a free-trade free-market capitalist. Nevertheless, Trump is apparently not paying attention to what they have to say.
Granted, Trump appears to want to cut taxes and regulations, or at least simplify them. That action alone may bring enough real economic growth to offset whatever his socialist spending plans are. And a growing economy would rather keep government far away from it, so if we do see America growing again, he will have a hard time finding good companies to “partner” with.
This post is about various ways countries can try to fund their socialist ambitions. I’m going to cover what happens when you try each one, and then make my amateur recommendation. I hope someone close to Trump is listening.
The first way to fund Socialism is, obviously, through taxes. You raise taxes, you spend it, and you do it again and again. The problem with this is, obviously, taxes hurts economic growth, and thanks to the Laffer Curve, we know that if you raise taxes too high, you get less revenue. So go ahead and try to raise taxes. I’ll tell you what will happen. First, you’ll see the black market boom. And second, you’ll see businesses close their doors and jobs disappear. The economy will be in shambles when you’ve hard your way long enough.
So taxes are out. You can only bleed so much money from the economy, and if you’re smart, you’ll find that magic number and set taxes there or perhaps lower to encourage growth. But that doesn’t solve the problem of funding socialist spending policies.
The next idea is to borrow the money. Hey, we borrow, we grow, then we have more money and paying back the loan is no problem, right? Wrong. Japan’s been doing this for a very long time and what has happened is they have had basically no growth except in their national debt. Unfortunately, when government borrows money, it basically sucks money out of the economy, the same as if they had taxed it. See, people would normally save their money or invest it in businesses, but because government is offering a better deal, they put their savings and profit into government bonds. (And if they didn’t offer a better deal, they couldn’t raise any funds by borrowing it.)
So, borrowing is out. It’s almost like government has a certain amount of money to play with and no more.
Well, there is one more way to get money without taxing and without borrowing. It’s called the printing press. Congress has the power to print money. They can print as much as they want, and they only need to pass a bill to do so. Government could literally print all the money it wants and no one can stop them.
Why don’t they? The answer is simple: The Federal Reserve. This privately-owned and operated “bank of banks” has been given permission by congress to print as much or as little money as they want, and then to graciously loan it out to other banks. Those other banks can then offer loans many, many times larger than their savings. This dishonest scheme is called “fractional reserve banking” and says that banks can loan money that they don’t have. It wouldn’t work if it weren’t for the Federal Reserve and its blank check that congress gave it.
You can fund your socialist projects with free money. The way you do it is you shut down the Federal Reserve and you end the practice of fractional reserve banking. You stop giving the banks the power to print money, and you let congress print the money.
There is a problem, though: If you print too much, you get inflation. Print too little, deflation.
Again, it’s almost as if you can’t really have more than a certain amount of money.
My recommendation is simple.
- Lower taxes to 0.
- Lower regulations to the bare minimum.
- End the Federal Reserve and fractional reserve banking.
- Print as much money as needed to ensure a very small growth in the money supply vs. demand. This would be roughly comparable to the economic growth in the economy.
- Spend that money as fast as possible.
This pattern should lead to infinite growth and maximum government expenditures. No debt, no borrowing, no taxes, but all the money you can possibly spend, no more or less.
Could you make more money by taxing businesses? No, in fact, I believe you would make a lot less.
What about borrowing? I have already established that borrowing is similar to taxes, so this is no good either.
Printing money is the safest bet, the easiest to enforce, and the sure gamble.
Now, here’s to some science and math. Well, not a lot, just a little. Let’s take apart what is happening in the economy to see why we need to print money at all.
The first rule of the economy is people will do what they think is best. The second rule is that as long as we let them do what they think is best, we can do no better. People in DC don’t know more about your job than you do, in other words.
Every time two people trade with each other, provided they aren’t lying to each other, wealth is created. See, each person goes into the trade with less than they come out with. That’s because if it weren’t so, they wouldn’t trade. Think about this for a moment: You go to the store, buy some food because you’d rather have the food than your money. The store, on the other hand, would rather have your money than the food. And so both of you profit from it.
These profits add up. A lot. And they add up really fast. As people give away the things they don’t want in exchange for the things they don’t want, they will increase the value of things already in existence. The best way to understand this is to think about how valuable food is when it is in the field, versus how valuable it is in the marketplace. Out in the field, you can probably sell your food for a little bit of money, but in the marketplace, you know you are going to get the best price you could ever get. As that food is moved from place to place through trade, it literally increases in value. And everything else increases in value as well. Granted some things are consumed, and they disappear, but what’s really going on is people are trading Mother Nature one thing to get another. For instance, a farmer “gives” Mother Nature his seeds, water, fertilizer, and some good ground to grow in, and in exchange, Mother Nature gives him a hopefully bounteous harvest. Or, a trucker burns up fuel shipping something from one city to another because those things are far more valuable at the destination than at their origin.
As the value of things increase, you need to increase the supply of money that mark the value of those things. If you don’t, then the limited amount of money will become more and more valuable itself. This is deflation. Under deflation, prices fall but people try to hoard cash and save it or invest it. The end result is the poor have no money and the rich have all of it. That’s obviously not desirable, so we need to make sure that at least the money doesn’t increase in value. And the only way to do that is to make more and more of it.
This is the reason, by the way, why no modern economy uses the gold standard. The supply of gold simply cannot keep up with the rate at which modern economies grow, and those economies who stuck to the gold standard saw deflation rob them of potential growth time and again.
Now, if you print too much money, then the value of money falls and the price of goods go up. People tend to buy more but save and invest less, which is bad for its own reasons. Too much inflation can lead to chaos and disorder.
Ideally, you’d peg the value of the money so that it does not change over time. If people knew and trusted that the money would not change in value, it would be a lot easier to do math and we wouldn’t have to talk about inflation-adjusted dollars.
Now, to what do we owe the fact that the money supply needs to increase? Who should be given those new dollars? We owe that growth to the people who made it possible through their shrewd trading practices and industry. We should probably just divide up the money and hand it out to those who have made the most profit over the past year. Since that would be really hard to track down, I think the next best thing is to give it to the government and let them choose how to spend it. It should be important to note that as a conservative, I really don’t care what they spend it on, as long as they spend it.
But I think the worst idea of all is to give all the money to the banks and let them choose who gets what. This is nothing short of a conspiracy designed to give power to a few at the expense of the many.
So there you have it, a simple explanation of why we need to print new money at all and why I think the government should do it.