By popular thinking, the key driver of economic growth is increases in the total demand for goods and services. It is also held that the overall output increases by a multiple of the increase in expenditure by government, consumers and businesses.
Following this way of thinking it is not surprising that most commentators are of the view that by means of fiscal and monetary stimulus it is possible to prevent the US economy falling into a recession. For instance, by increasing government spending and central bank monetary pumping it is held that this is going to strengthen the production of goods and services, i.e., the overall supply.
It follows then that by means of increases in government spending and central bank monetary pumping the authorities can grow the economy. This means that demand creates supply. However, is it the case?
Shrinking Savings Poses a Threat to US Economy
We suggest that without the expansion and the enhancement of the production structure, it is going to be difficult to increase the supply of goods and services in accordance with the increase in the total demand.
The expansion and the enhancement of the infrastructure hinges on the expanding pool of savings. (This pool comprises of final consumer goods). The pool of savings is required in order to support various individuals that are employed in the enhancement and the expansion of the infrastructure. Given all the past and present reckless fiscal and monetary policies, we have estimated that the US pool of savings is currently most likely under severe downward pressure (see chart).
Furthermore, neither government activities nor monetary pumping generates wealth. Consequently, within all other things being equal, in the absence of increases in wealth it is not possible to have increases in savings as a result of increases in government outlays and increases in the money supply.
Why Supply Precedes Demand?
Now in the free unhampered market economy, wealth generators do not produce everything for their own consumption. Part of their production is used to exchange for the produce of other producers. Hence, in the free unhampered market economy production precedes consumption. This means that something is exchanged for something else. This also means that an increase in the production of goods and services sets in motion an increase in the demand for goods and services.
Increases in government spending result in the diversion of savings from the wealth-generating private sector to the government thereby undermining the wealth generating process. Likewise, monetary pumping sets in motion the wealth diversion from wealth generators towards wealth consumers by setting an exchange of nothing for something. Now, since government activities do not generate wealth these activities amount to consumption without the preceding production of wealth. Likewise, increases in money supply sets in motion consumption without the preceding production; i.e., an exchange of nothing for something. Hence, increases in government outlays and increases in monetary pumping result in consumption without the backup from production.
Therefore, increases in total demand because of government spending and central bank monetary pumping is bad news for economic growth. Note that the unbacked by production consumption results in the decline in the flow of savings. This in turn weakens the capital formation process thus undermining prospects for economic growth.
Shortages and Monetary Pumping
We suggest that the currently observed massive shortages of various factors of production such as labor and raw materials are in response to enormous monetary pumping by the Fed and massive increases in government outlays.
Again, the aim of these measures has been to stimulate overall demand and in turn, overall output. We hold that in a free unhampered market the emergence of shortages signifies that the market did not clear. Once the clearing takes place, the so-called shortages disappear.
We hold that huge government outlays and massive monetary pumping caused large increases in the demand for goods and services. This increase was not supported by a corresponding increase in the supply. As a result, this generated enormous increases in the prices of goods and services.
Supply shocks on account of the lockdowns have further intensified prices increases. What we have here is more money per goods and services. Observe that a price of a good is the amount of money paid per unit of the good. Note that in February this year the yearly growth rate of our monetary measure AMS for the US jumped to 79 percent against February 2020 of 6.5 percent. The average increase in this period stood at 43 percent.
As a result, the yearly growth rate of the CPI climbed to 6.8 percent in November this year from 1.2 percent in November 2020 (see chart).
Also, note that, the yearly growth rate of workers’ wages in the private sector adjusted for the yearly growth rate of the consumer price index (CPI) stood at negative 2 percent in November against negative 1.4 percent in October and 3.3 percent in November 2020 (see chart).
Now, the labor market is subject to various regulations and controls, i.e., does not adjust quickly to various large outside changes such as massive increases in the total demand because of colossal monetary pumping and very large increases in government outlays.
Consequently, at a given real wage, there is currently a much greater number of workers demanded versus the number of workers willing to be employed. Hence, the workers shortages is at the given real wages.
This means that once an upward adjustment in workers’ real wages is going to take place the labor shortages are going to decline. Moreover, the government generous handouts during the lockdowns have further contributed to the stifling of the labor market. Many workers found it beneficial to them to have more leisure than to work in particular when the growth rate of real wages displays a visible decline.
What we are currently observing is not supply shortages because of the COVID19 as the popular thinking has it but shortages because of government and central bank responses to the COVID19 and the absence of free markets.
Most commentators are of the view that the massive government outlays and enormous monetary pumping by the Fed have kept the US economy strong. We suggest that this so-called strength is in terms of real gross domestic product (GDP). The yearly growth rate of this indicator stood at 4.9 percent in Q3 this year against 2.3 percent in the Q3 2020. We hold that the increase in this indicator is because of aggressive government and the Fed’s measures. Hence, the increase in the growth rate of real GDP reflects the consumption of savings.
If the pool of savings is still expanding then the government and the Fed’s aggressive policies are going to result in the strong real GDP growth rate. If however, the pool of savings is declining then the so-called real economic activity is going to follow suit. As we suggested at the beginning of this article, we hold that the pool of savings is at present under strong downward pressure.
By popular thinking, increases in government spending and central bank monetary pumping strengthens the economy’s overall demand. This in turn, it is held, sets in motion increases in the production of goods and services, i.e., increases in the overall supply. What we have here that “demand creates supply.”
This view is questionable if individuals did not allocate enough savings in order to support increases in the production of goods and services. Also, note that to be able to exchange something for goods and services individuals must have this something. This means that in order to demand goods and services individuals must produce something useful first. Hence, supply drives demand and not the other way around.
We also suggest that the currently observed shortages of workers and materials coupled with the large price increases of goods and services is because of aggressive monetary pumping of the Fed and massive government outlays. These huge increases coupled with various impediments in particular in the labor market have prevented rapid individuals’ responses to counter these surges.
Article cross-posted from Mises.
Big Pharma’s Five Major Minions that Everyone, Vaxxed or Unvaxxed, Must Oppose
This is not an “anti-vaxxer” article, per se. It’s a call for everyone to wake up to the nefarious motives behind vaccine mandates, booster shots, and condemnation of freedom.
The worst kept secret in world history SHOULD be that the unquenchable push for universal vaccinations against Covid-19 has little if anything to do with healthcare and everything to do with Big Pharma’s influence over the narrative. Unfortunately, that secret has stayed firmly hidden from the vast majority of people because of the five major minions working on behalf of Big Pharma.
What’s even worse is the fact that Big Pharma’s greed is merely a smokescreen to hide an even darker secret. We’ll tackle that later. First, let’s look at the public-facing ringleaders behind the vaccine push, namely Big Pharma. But before we get into their five major minions, it’s important to understand one thing. This is NOT just an article that speaks to the unvaccinated. Even those who believe in the safety and effectiveness of the vaccines must be made aware of agenda that’s at play.
Let’s start with some facts. The unvaccinated do NOT spread Covid-19 more rampantly than the vaccinated. Even Anthony Fauci acknowledged the viral load present in vaccinated people is just as high as in the unvaccinated. This fact alone should demolish the vaccine mandates as it demonstrates they have absolutely no effect on the spread of the disease. But wait! There’s definitely more.
This unhinged push to vaccinate everyone defies science. Those with natural immunity may actually have their stronger defenses against Covid-19 hampered by the introduction of the injections which fool the body into creating less-effective antibodies. Moreover, the push to vaccinate young people is completely bonkers. The recovery rate for those under the age of 20 is astronomical. Children neither contract, spread, nor succumb to Covid-19 in a statistically meaningful way. What they DO succumb to more often than Covid-19 are the adverse reactions to the vaccines, particularly boys.
All of this is known and accepted by the medical community, yet most Americans are still following the vaccinate-everybody script. It requires pure cognitive dissonance and an overabundant need for confirmation bias to make doctors and scientists willingly go along with the program. Yet, here we are and that should tell you something.
Before I get to the five major minions of of Big Pharma, I must make the plea for help. Between cancel culture, lockdowns, and diminishing ad revenue, we need financial assistance in order to continue to spread the truth. We ask all who have the means, please donate through our GivingFuel page or via PayPal. Your generosity is what keeps these sites running and allows us to expand our reach so the truth can get to the masses. We’ve had great success in growing but we know we can do more with your assistance.
Who does Big Pharma control? It starts with the obvious people, the ones who most Americans believe are actually behind this push. Our governments at all levels as well as governments around the world are not working with Big Pharma. They are working for Big Pharma. Some are proactive as direct recipients of cash. Others may oppose Big Pharma in spirit but would never speak out because they know anyone who does has no future in DC.
This may come as a shock to some, but it’s Big Pharma that drives the narrative and sets the agenda for the “experts” at the CDC, FDA, WHO, NIH, NIAID, and even non-medical government organizations.
Most believe it’s the other way around. They think that Big Pharma is beholden to the FDA for approval, but that’s not exactly the case. They need approval for a majority of their projects, but when it comes to the important ones such as the Covid injections, Big Pharma is calling the shots. They have the right people in the right places to push their machinations forward.
That’s not to say that everyone at the FDA is in on it. Big Pharma only needs a handful of friendlies planted in leadership in order to have their big wishes met. We have seen people quitting the FDA in recent weeks for this very reason. The same can be said about the other three- and five-letter agencies. Too many people in leadership have been bribed, bullied, or blackmailed into becoming occasional shills for the various Big Pharma corporations. Some have even been directly planted by Big Pharma. That’s the politics of healthcare and science that drives such things as Covid-19 “vaccines.”
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JD Rucker – EIC