The Long Depression is Here
July 4th, 2010The Long Depression is coming to a store near me and you. This( these days ) is the part that will subsequently be referred to as “the good old days.” Why is that? Are we not tapped out? Have we not spent our last dime and tasked our children with picking up what we can’t pay for?
Well, yes. We’ve done that. But if I owed you a lot of peanuts, I could take a peanut, open it, cast away the shell, give you the two peanuts inside, and say that I now owe you two fewer peanuts.
So that’s what we’re going to do. In fact we’ve started. Of course we owe more than peanuts, but that what our creditors are going to get. We’re handing out peanuts. There is no secret. Right now, everyone who has followed our recent descent into fiscal paralysis know just how we’re going to manage to pay everyone we owe. We’re going to print more money.
Now there is nothing special about the number of dollars in circulation in the world. That number was once thought to be tied to the amount of gold held by the government, or something rather like that. If we owned 100 ounces of gold and valued gold at $32 per ounce, we’d print up 3,200 one dollar notes, or the equivalent, and get those dollars into circulation.
While it never worked precisely that way, it is a reasonable, though simplified, explanation of how most people feel we once tried to tie the number of dollars in circulation to some measure of wealth.
That was then; this is now. Now, the dollar has value only because I can use one to take a bus ride to the strip mall where I work putting lamps and chairs on a sales floor, for which effort I am periodically given more dollars than it costs me to get to work.
Here’s the important part. If, when I got on the bus, the bus driver told me that the cost of a ride was two dollars, I would have to pay, but I would think less of the dollar. At some point, if my landlord and my grocer and my wardrobe designer all were to take similar actions, I would go to my employer and say that while I truly love going into the back of the store and bringing lamps out to the front of the store, I am going to have to ask for more dollars to do that.
The reason that this is important is that my employer’s response has changed. In times gone by, my employer and I might discuss the situation. Eventually, however, the employer might, perhaps to a very limited extent, grant my request for more dollars.
Today, I would likely be told that while I did a fine job of bringing out the lamps, many other people wanted to bring out those very same lamps to the front of this very same store, and were ever willing to bring out more lamps per week than I am bringing out. Each of these people, my employer would explain, is willing to do this for fewer dollars than my employer now gives me.
And so, if I had no other way to get more dollars than by bringing out lamps from the back of the store, which you could pretty much assume anyway from the fact that few people grow up with that employment goal in mind, I would have to make changes. I would have to tell my clothing designer that I have enough clothes for the time being, but I’ll call her when I want more. I would have to consider whether it might do me some good to walk to work, or sometimes use a bicycle. And I would have to stop buying lamps for myself, even if I truly believed that you can never have enough good lamps.
That’s what now is like.
But I still need to add a bit more clarity to the situation. My employer, now selling fewer lamps because bus rides cost more, would eventually come to me and tell me that even though I was quite good at putting those lamps in just the right place, customers were not moving those lamps out of the store as quickly as before. Somehow, in ways he could not even begin to imagine, people were getting by with less illumination in their lives . So, although he was quite saddened by this turn of affairs, he is going to have to give me fewer dollars for my shining efforts. Or perhaps even let me go.
Now, in a reprise so brief I wouldn’t print it if it were not true, not long ago our present administration sought to change this picture by giving banks the money to lend to stores to build even bigger lamp showrooms, which both the banks and the stores knew were not needed. So they did what prudent people would do in a similar situation and paid their debts, bought other banks, or lamp stores, that were attractively priced for pennies on the dollar, and socked the rest away an case even fewer dollars would be coming their way in the future.The store owner is now in the process of lowering his price for lamps. Here comes Christmas, and if other stores sell lamps for less, he’s not going to be able to pay his bills.
Well, that’s about it. Lamp prices are falling, wages are falling, we’re printing more money, and other countries are telling us to stop printing money or they’ll have to do it, too.
What we are hoping is that if the dollars we print in any way correspond to what we have for sale and how much we’re asking, more dollars will mean that other countries will be able to spend less of their money to get dollars to buy our lamps and we’ll sell more lamps and I’ll get my job back at the lamp store and the store might even hire someone to help me with the lamps.
But there sure are a lot of lamps in the world, and you know? This country doesn’t even make the lamps we sell. China does. So we want China to make lamps, sell them to us cheap, let us mark the price up a lot, and then have China buy back the lamps from us. They’ve actually done this for a while to help out while we got our act together. They have also lent us money at very low rates to build lamp stores and pay me and other folks to bring lamps out from the back to the front. So in a way they’ve been nice to us. But they have a lot of people to feed, and when you get right down to it, China makes lamps and wants to sell them, too.
Let me make clear that this was not my idea. This plan came out of the University of Chicago’s School of Economics. Makes you wonder what else they have in mind.