The Tricky Money Flow Problem

The seriously diligent should read this One, but following the Story line is not for the faint of heart. Foster and Catchings were basically wrong, but so to some degree was Hayek. The later failed to utilize Creative Destruction in his analysis, chiefly because its principles had not been explored at the time of Writing. The newer Concept has reality, and serves as the moderating mechanism to ensure that Consumption Demand always matches innovative Production Supply. This means that Savings can never destabilize the basic balance of Consumption. Savings is only a rerouting of Capital into other forms; even putting Cash under the mattress simply translates into lower Material Costs (Dis-Savings), while modern Capital formation substitutes for the power of the money absent from the Economy. Eventually spending the Cash has the opposite effect of raising Material Costs while raising the Cost of borrowed funds. Is this easy to understand? Well, just accept that Savings will never have the Effect asserted by Foster and Catchings, whether new Capital formation is economically sound, or a misappropriation of funding.

Here is a sensible man with a truly intelligent analysis. I could go into a vastly intricate rationale to explain that no Stimulus package has ever provided funds to necessary sectors, but will simply say that the Market model remains an extremely rationale distribution mechanism, which demands a slowdown of expenditure of certain segments of the economy, to bring other segments of the economy into Profitable alignment (equalization of Profit ratios). Helping Those who are already overextended will not help the Economy, and will actually hinder the Allocation process by requiring a longer Period of distress to equalize structural mal-distributions within the Economy. Translated, this means that substitute payment for loss of what were excessive Profits will only continue uneconomic practices which suppress economic performance.

I can always depend on Dean Baker to present a reliable example for my needs. The systemic economic Costs of the Drug industry are admittedly too high, basically because of monopolistic pricing and the ancient practice of ‘feather-bedding’. Everyone knows that Research facilities are overstaffed, and their budgets are a functional Lie, with their declared Costs almost 250% of actual practice; all for purposes to minimize Taxes, and to justify the monopoly pricing. The Drug industry, on the other hand, will be the major beneficiary of any Stimulus program, ready with an already developed Price Increase schedule. Stimulus packages are only Predators who smile innocently. lgl