Money Prolongs Recession

Updated: Apr 24, 2020

When the production of goods and services halts, it must accompany a contraction in the money supply. If you give people money to buy things that are already in short supply, it ends only one way- inflation. And this is exactly what governments are doing. Producers can hike up prices when people have more money to spend than they have products to sell.

You may call them opportunistic but not all are. They, too, have to satisfy their liabilities. Their costs have also increased because of inflation. If they don't increase their prices to compensate for rising costs and declining sales, they will go broke. Then, economic activities recede because a "morally good" supplier left the supply side, further cutting the supply of goods, and a few have lost their jobs. They can't spend anymore. And this is the cycle that prolongs recessions.

Free money is not the correct solution. The moment the majority starts spending that money, they will compete for a limited supply of goods, driving up prices. A few rich men will outbid the average majority, no matter how much money the government prints. However, the more your print, the more inclined an average consumer will be to spend. Thus, the market will inflate much quicker or recover much later than it would've. In addition, inflation makes everyone poorer because money loses its buying potential. In short, free money is like Room Freshener. It hides the infestation until it becomes a rot. The more you hide it, the more rotten it gets.

The problem is a short supply of goods. If you fix the supply side, you can go much farther with the same amount of money. For example, here in India, if the government stops taxing fuel as much, a normal price can be half of what it is. That reduces the price of -- EVERYTHING. This means Indians can buy a lot more stuff with the same amount of cash they have.

The simplest thing that countries can do right now is to repeal the minimum wage, labor regulations, and occupational licensing so people can work, instead of begging for unemployment money. Taxes must be reduced to the minimum. These are the things that can restore the supply of goods and services (which you eventually buy with money). As production increases, goods get cheaper and your money gains buying power. Giving free money, however, is like giving drugs to the unemployed or giving alcohol to the alcoholic and wishing that he would recover.

Some want the stimulus out of fear. So what happens when the money runs out? People would have to help each other get off the system of money and rediscover their collective strength. People would have to come up with creative and innovative solutions to produce products and substitutes. They can produce valuable goods and do barter. They can quit consuming things they don't need. This dependence on money, however, is the very cause of the insecurity that the lack of money has produced.

For example, my laptop's wifi went out but I can't get a wifi adapter because the market is shut down. Online retailers are also out of stock. Here, I can beg the government for money so I can import at a high price or I can reach out to people in tech who can help me repurpose old hardware. This is how people can help themselves by creating new solutions, and by not doing things that enabled the recession-- reckless consumption and no savings. You can't solve a problem via the means it was created.

Revision April 24, 2020

As expected, food prices increased in the beginning until local stores and shopkeepers started selling groceries instead of whatever they were selling before. For example, street food vendors now sell vegetables. This is the market's self-healing mechanism. Suddenly, people were no longer buying useless things and demanding real food. The market adjusted accordingly. The supply increased, and the prices started to stabilize.

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