A few days ago, the news broke that the House of Representatives and Senate passed a bill. It was the second COVID relief bill, with first one being passed in the Spring. The bill itself was overall a terrible one. The nearly billion dollar budget goes mostly overseas to special interests. All the American people got was about 150 billion or basically 600 dollars if you qualify. But this post is not about the bill itself. Obviously the disaster caused an outrage on social media, from nearly every side. Whether you were for or against getting money or sending money overseas, there was something to hate about it. I don’t really know how I should start but I suppose I will just show you a screenshot of the tweet that gave me my inspiration. Here it is:
Ok, so there is A LOT to unpack here. The quoted tweet is not wrong. There is also nothing wrong with how poor and rich people use their money. In fact, when you hear about rich people they usually manage their money in way that the money works for them. This means investing in high risk, high reward assets. It also means finding higher interest rates on your savings. All perfectly sound things to do, make your money work for you. Now the person who did the Quote tweet above has a whole mess.
Like I just said, there is nothing wrong with saving money at a high interest rate. Its smart. Lets work backwards since the person’s last point is wrong and easy to correct. First of all, a savings account doesn’t function like your mattress or safe at home does. Savings accounts are where the bank gets it money to loan out to other people. Thats why nearly every bank saving account pays out interest. (In a lot of cases its .01 percent because of the Federal Reserve, fuck them.) My point is that putting it in a savings account doesn’t just enrich that person. On the topic of enrichment, what’s the point accepting money if not to be richer?
Alright now we go on to the first half of that tweet. The person is claiming that 600 dollars given to a poor person will have multiplier effect. You might be aware or at least vaguely by the title that “multiplier effect” is from the infamous economics John Maynard Keynes. Keynes studied economics (presumably, I don’t find him to be particularly correct on much of anything) and created a type of economics called Keynesian economics. Its not hard to understand Keynesian economics because the whole basis is on interest rates set by a central bank. Keynes somehow ignores the most important part of the economics, the part where voluntary interactions take place. If you don’t know, then you should know that the Federal Reserve and US Government both subscribe to the Keynesian economic style. (As well does the EU and EU central bank) So you might ask me why is this person wrong about the multiplier effect?
Let’s start out by explaining what Keynes meant by the multiplier effect. Its simple, its the idea that if a person or government were to spend or give an amount of money, the worth of that money would multiply as more people use it to purchase goods and services. But you see here are the two big problems: 1. Government Money 2. Taxes (theft). I think the best way to explain is by example: Let’s say the government gives 100 taxpayer paid dollars. The person who receives that pays income tax on that money so we’re down 70 (30 percent tax rate for easy maths). Then that person purchases some goods from a local shop totaling 70 dollars with sales tax. Lets says the sales tax rate is 8 percent so about 65 dollars actually spent. That local shop owner might purchase school supplies for his children with that 65 dollars. So far we’re up to 40 dollars in taxes taken out from that original 100 dollars originally from taxpayers. In the end after just 12 more transactions, the 100 dollars will completely cancelled out by taxes collected if we’re to assume the next person would spend 60 then 55 and so on. Its a very a simplistic example, yes. But my point is fairly obvious: Its a double negative, cancellation of value of the 100 dollars.
You might say but why double negative? Remember the stimulus money is coming from Government who forces you to pay taxes. So the government steals the money first, then redistributes it. Then the government double dips, stealing it once isn’t enough, they got to steal more. Whether it be income tax, sale tax, property tax or any tax. So in reality the so called “multiplier effect” should be called the government ponzi scheme effect. Its a load of crap. Now I won’t deny that many people might receive value from that stolen money but its not clean. Two wrongs don’t make a right.
You may ask but what if the multiplier effect didn’t have any government interference? In this case, I would agree that it could actually work. If a wealthy person donates money to be used by less fortunate people who didn’t get taxed, it would actually increase its value. Not only to the people using it but the money itself. I don’t think this is a hard concept to understand. The lesson here is don’t take keynesian economics as gospel. Its all bad faith number twisting.
Thank You For Supporting
This part is unrelated to the Keynesian magic trick. In this section, I want to thank all the readers over the past year. To every single visitor to this site in 2020, I want to personally thank you for reading and hopefully enjoying my blog. Its been a pleasure to write with this post, 50 posts. My blog has had its MOST SUCCESSFUL YEAR EVER. Its all thanks to the readership. We had 1,676 views, 1,258 visitors. 34 likes, and 28 comments on the day this was written, December 27th. I am hoping to do even more in 2021, my goals include simple things like changing up the look, getting a domain, possibly taking some donations, doing some kind of vocal blog posts. I absolutely love writing this blog. Right now I make zero dollars on my blog so rest assured, that I am just truly appreciative that someone wants to read my work.
I will just ask one favor for next year…. please consider hitting that follow blog button in the top right corner. It will allow to receive alerts when I post. Thank you again!
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