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An informal, stream-of-consciousness reflection on business ideas, events and issues in modern business, modern life and with some specifics to the web-software industry by Paul Tomori, Internet Entrepreneur

Stimulus Money For The Masses
a response to a CBC radio program of April 20

By Paul Tomori
Tuesday, April 21, 2009 at 15:45:56 (EDT)

I was listening to the CBC yesterday and heard the hosts speaking about how misplaced the government stimulus dollars were. They were of the shared opinion that the government should just cut checks to all of the citizens instead of to select failing companies.

Their reasoning was that if people were given money to spend, that they would then "stimulate" the economy much more effectively than giving the cash over to car manufacturers who are failing because they produce cars that no one wants to buy.

I found this to be a strange line of reasoning on several levels.

First, hasn't the public already spoken? Over the last decade or two, the public already "voted" for the car companies of choice when they spent their hard-earned dollars on Hondas, Toyotas, Mazdas, etc... instead of Chevy's, Fords and Chryslers. The public already has had their say... and they have spoken loudly.

Second, isn't it economically naive to think that all the world needs is more consumption to fix the recession (aka depression)? The CBC hosts suggested that 14 Billion spread across all citizens of Canada would be tremendous. No thought was spoken as to where that money is to come from. It was like the government needs to just print more money and then hand it out so people can spend it... and that THAT alone would solve the problems. However, money itself is just paper... It is merely a token of exchange. In reality, each dollar of printed currency is SUPPOSED to be backed up by actual created goods and/or services. There used to be a gold standard in place so that there was actually a little bit of gold locked up in Fort Knox to represent each dollar that was printed by the U.S. government (I don't know what Canada's equivalent was). That has since been abandoned along with so it seems... the notion that money needs to have tangible value somewhere. Let's look at this way: Using the CBC commentators' logic, if 14 Billion dollars would do a lot of good, wouldn't 50 Billion dollars do even more good? And if 50 Billion in freely distributed wealth would be so much better, why stop there? How about 100 Billion for the masses? Think of all the stimulus we'd have then?! Except... EXCEPT for one thing. All existing cash would instantly be devalued by exactly the same level that fake wealth was printed by the government presses... OR WORSE... at some point, our children would be saddled with creating all the goods and services needed to represent those fake dollars. In that case, our children would be stuck with a kind of outstanding loan... or a DEBT! A government debt! Heaven forbid! Yet, that is precisely where those 14 Billion dollars lent to troubled companies must come from. ... Our children. So sure, we can get the government to print more cash, if we don't care about our children.

Truly, what we need is for people to "create more", not to "spend more".

It's a subtle but important difference. When goods or services are created, then wealth is generated and the net worth of the country (actually of the 'create-ers') goes up. When the net worth rises, people trade their creations with others WHO HAVE THEMSELVES CREATED SOMETHING OF VALUE. They conduct the trade using paper money... The money just becomes a token of exchange and as a way to store one's wealth. If you get a bunch of people just spending free money and no one actually creating value, then the money would become value-less in a hurry. Put it this way, why not have the government give everyone enough money to live on for the next year so that none of us have to work. What a party!? All that money floating around would be great simulus to people to keep passing the money around... BUT at some point, what would they obtain with those dollars? Nobody would be actually producing anything... they'd all be just spending.

When people are creating wealth, they then are empowered to trade. Creation of goods and services is the only true stimulus. Only people who create or who legitimately obtain the wealth of someone who did create have a right to spend the wealth that has been created. If people spend wealth that hasn't yet been created, we call it a loan. So sure, the government can just print money, but then we'd be spending wealth that wasn't yet created and as such, we'd be digging a deep hole into debtorsville.

Really... if all we needed were for people to spend more (not create more), I am sure we'd find a lot of willing people who if given enough free cash, would just spend their days spending... and never creating. That would lead to economic collapse in no time.

Is anybody out there with me on this? Were the CBC commentators naive or what?

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