The Quiet Revolution
The government's attempt to inflate the money supply won't work if the people won't buy.
by James Leroy Wilson
December 18, 2008
We have an interesting paradox.
But according to Simmons & Company, even when the price of oil was over $140, it was too low. If nothing else, oil producers need massive refurbishing of their infrastructure; the oil wells are getting rusty. And we don't really know how much oil is left in the world.
But consumers will not hear of it. Gas prices got too high for their tastes and needs, so they drove less. And fears of recession and the disappearence of jobs and savings caused people to spend less, curtailing demand of the goods which require oil to be shipped to them.
At the same time, the Federal Reserve cut interests rates as far as they can be cut. They're betting the low price of oil will hide the inflationary effect on the dollar. Yet, upon news of the Fed rate cut, the dollar dropped to two-months lows against international currencies.
And of course, this Autumn we saw $400 billion deficits jump to over a trillion as Congress decided to bail out Wall Street. And Obama is proposing a trillion more in spending. Just as the Fed thinks it can lend our way to prosperity by printing up dollars out of thin air, Obama thinks the federal government can spend its way to prosperity.
The question is, well the people fall for it?
Obama may enter the Presidency with high approval ratings, and he may sustain them for a lengthy honeymoon period if people like his rhetoric and believe he is "doing something" to "fix" the economy.
But Obama can't force people to spend their own money if they don't want to. If Obama throws money on "infrastructure" (which used to be called pork), will that mean vendors will start ordering more from suppliers? Is it poor roads that prevent goods from being shipped?
Nonsense. Goods aren't being shipped because they're not being ordered, and they're not being ordered because nobody wants to buy anymore. They'd rather hunker down and pay off debts. Better roads would be nice, but poor roads aren't the cause of our economic woes.
And even those who are hired via public works projects and other deficit-enlarging "stimulus packages" won't necessarily be spending much more than they would have if they still lived off unemployment checks. They, too, will probably be focused on getting their own financial house in order.
Only the people, by refusing to spend on what they don't need, can drive prices down. The price of oil may very well be too low right now, but the people are in no mood to seeing it rise. In the same sense, the government may try to jumpstart the economy through inflation and deficits, but if the people refuse to spend the newfound dollars circulating in the economy, prices won't rise.
The people ultimately drive any market. The market is itself a form of democracy. You can withhold your "vote" (i.e., dollars) if you believe something is too expensive. If necessities do see a price rise, you can stop spending on non-necessities.
And I suspect this may happen. The country may very well go into a "Depression," and a President Obama may start desperately grab-bagging for solutions as Herbert Hoover and Franklin Roosevelt did from 1929 to 1941. Just because Obama or the Fed makes more money available won't mean the people will use it. The people may say they like Obama, but if they fundamentally distrust the financial system, there's nothing the government can do to rescue it.
The Quiet Revolution will involve the people acting in their own self-interest and putting an end to unnecessary consumption. And the result of this Revolution will be a new financial system. One based on created wealth, not on borrowing to finance future wealth. And one that doesn't rely on government debt and inflation to survive one day to the next.
If the people work together to make sure that no one starves or freezes to death in the meantime, this Revolution against excessive consumption may very well create a more sustainable economy, a better environment, and a stronger civil society.
About the Author:
James Leroy Wilson is author of Ron Paul Is A Nut (And So Am I). He blogs at Independent Country and writes for DownsizeDC.org. Views expressed here do not represent the views of DownsizeDC.org.
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