Monday, March 23, 2020

A Soviet-Style Economy in America?

America may be headed toward a Soviet-style economy, with permanent pervasive shortages and waiting lines.

This is because Congress and the media believe that massive money creation can offset the massive reductions in production and supply caused by government prohibitions on working.

(The government’s alleged relief and bailout programs all boil down to just one thing: create new and additional money and dump it into the economic system. Even send it to people directly in the mail, in the form of government checks.)

The truth is that increases in money and spending combined with reductions in supply are a double-barreled blast that works to drive prices up. But the rise in prices is already prohibited by anti-“gouging” laws, to which overt, comprehensive price controls may well be added.

The combination of price controls, more demand, and less supply means shortages everywhere that spending strives to increase in the face of less production and supply. In the best-case outcome, i.e., if price controls are removed, or not imposed, it means a surge in prices.

A surge in prices, of course, would mean yet a further decline in the value of accumulated savings on top of the plunge in the stock market and which may be further worsened by a plunge in the bond market.

When one takes account of the consequences of the government’s efforts to combat the Coronavirus, it looks increasingly like the government’s action has served to make a bad situation even worse.

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