Money For Nothing
You’d think, being that the country is facing economic hardship, people would pay closer attention to a presidential candidate with an understanding of economics, unheard of for someone running for that position. That is apparently not the case, but that doesn’t stop Dr. Paul from spreading his important message.
Notice how David Asman points out technological advancements that have allegedly resulted from our fractional reserve banking system and unearned dollars merely printed by the Federal Reserve. He fails to make the connection to that policy and the current economic crisis, and he also erroneously assumes that advancements like these could not occur in a free market with an honest monetary policy.
Assuming the flawed policy touted by Asman (and many others) was truly a benefit to society without any consequences, why then shouldn’t the Fed pump MORE money into the system, or directly fund — with freshly printed dollars — extravagant public works that would otherwise not be feasible?
Imagine the government printing $20 trillion to build an ultrafast, high capacity, underground transportation network throughout the country — or whatever enormous, and possibly desirable project you can imagine. It could be done, but that doesn’t mean that it should be done in that manner. The companies involved with the project would reap the benefits of the newly created money, but the value of the dollar would be destroyed by the time it trickled down to the less affluent. In other words, the money pulled out of thin air must come at some cost. And that cost is usually borne by the middle class and the poor.
That is an extreme example, but the even the much subtler methods employed by the Fed in which rates are artificially lowered or raised by tinkering with the money supply have a significant impact on the overall economy. Look, for instance, at the damage done by the bursting housing bubble which was encouraged by the government through credit expansion and a variety of government programs aimed at getting as many Americans as possible to purchase homes.
The creation of money can never be a substitute for true production, and the temporary prosperity that may results from it must eventually come to end, setting us further back from where we began. The credit is not available for large projects when we don’t have the productivity level to accommodate such undertakings. This is not to say that these projects will never come to fruition. On the contrary, if government regulation and interference is removed from the process, there would be much less trouble getting these things off the ground in the first place. But even if it means waiting for the market to provide services that theoretically could be provided now, it’s still better than creating an economic disaster that is surely to result from the artificial (government induced) stimulation of such ventures.