Stimulus or Sidestep?

I imagine many of you have received or are expecting your "Economic Stimulus Payment" - a tidy gift of several hundred or several thousand dollars from our wonderfully benevolent government. This seems like a nice gesture, but before we get too excited about Uncle Sam's newfound generosity, lets take a moment and ask where this money comes from.

The government obtains money in one of two ways: taxation and printing. While many people who will raise a hue and cry over excessive taxation, they tend to regard the printing of money as essentially harmless, and few understand that printing is actually another form of taxation, and a particularly insidious one at that. Without a fixed basis of value, it is easy for the purchasing power of currency to erode quickly as the amount of currency is increased.

Austrian economists tend to view fiat increases in the money supply as particularly pernicious in their real effects. This view typically leads to the support for a commodity standard of a very strict variety where all notes are convertible on demand to some commodity... -Wikipedia

If you have studied economics, you will recognize the phenomenon described above as inflation. For the rest of us, what is inflation, and how does it work? Well, imagine you live in a small town where the total currency in circulation consists of 100 blue marbles. The mayor is in charge of minting more marbles incrementally, in order to keep the value of the currency stable as the town grows. However, it's very tempting for the mayor to cast more than necessary, especially when he can place them directly in the township treasury and spend them himself. Before you know it, it starts taking more and more blue marbles to make purchases: the greed of the government has crippled the buying power of the public. You can think of inflation as an infection of the economy: it makes things cost more because it makes your money worth less. If inflation is allowed to spiral out of control, it will eventually collapse the economy.

While I can hardly complain about receiving a $478 check, I would prefer the government stop bothering with pacifiers that only exacerbate the problem and concentrate instead on restoring the strength of the dollar. The government can cut taxes left and right and give away all the money it wants to, but until they succeed in curtailing federal spending and stop printing money by the truckload, the economy will continue to suffer and all we'll be left with is a lot of money that isn't worth anything.

Anyway, I'm looking forward to receiving my stimulus payment around the end of the month, and then sending it right back in the form of 2nd-quarter estimated taxes. It sure is an absurd little game we play with Uncle Sam.

Image courtesy of socalbubble.com