Whiting column: Economics is complex logic, applied | PostIndependent.com

Whiting column: Economics is complex logic, applied

Bryan Whiting
Personal Responsibility

Understanding economics can be difficult.

Sadly, most of our exposure is through partisan politics. Consequently, economic concepts are tweaked and tilted toward whatever point the political party or politician wishes to make. It can be difficult to know what to believe or is valid.

Given multiple stimulus, infrastructure and “build back better” bills costing trillions, many readers have expressed they don’t feel economically literate enough to make a sound judgment regarding their economic validity. Economics involves numerous principles, but I will attempt to explain one of the most impactive.

Our economic system is the reason we progress and provide at a rate higher than any other country as evidenced domestically and by an immigration level higher than all other countries combined. Our responsibility is understanding these concepts and advocating strategies promoting our economy creating employment opportunity. Voters consistently affirm their No. 1 priority is jobs. We must remember that unemployment is never 5% or some statistical percentage. It is either 0 or 100%; you either have a job or not. Economically, a surplus of jobs is necessary for employees to have the leverage necessary to command higher compensation.

If we take partisan bias out of the equation, economics is quite logical. It’s political implementation that’s difficult.

Economics is the movement of money. The more money moves, the better. Anything increasing this movement improves our economy by creating more jobs; anything slowing the movement is harmful.

Supply and demand are the dominant economic force, but their influence has changed. Demand is a direct function. If demand goes up, so will price. Supply is an inverse function. If supply goes up, price will go down.

Traditionally, demand was viewed as downward sloping — as price increased, demand decreased. Price was the dominant force. The last 25 years our society changed. Demand has become a function of our perception of “need” to the point it controls price. If we think we need it, we are willing to pay for it now, which generates demand and a movement of money. We all have “wants,” which do not have economic significance until transformed into need. That occurs when we are willing to use our scarce resource, money, to acquire it.

Today’s markets work hard to prove we “need” something rather than convincing us through price. When we “need” something, price, within reason, becomes irrelevant. When the economy is flooded with money, it enables more consumers to “execute” the buy, causing prices to rise further. Price drops only if demand decreases or the supply of the given product/service increases beyond demand level.

The same economic concepts apply to careers. Want to make more money? Reduce supply and increase need. A career that others don’t want to do or where “need” is greater than supply means higher pay. One can also decrease supply by being better than others at your career. Simplistically, that’s why Peyton Manning made millions. If your job is easy, doesn’t require unique knowledge/skills and anyone can do it, you will be paid, but you won’t have to worry about being in a higher tax bracket.

Employment is a function of movement of money. Something must be purchased. It can be a product or a service, but money must change hands. The more transactions the better.

Our economic system facilitates a multiplier effect. There is both a transaction-based and banking multiplier. The transaction multiplier is using the same money over and over. We are paid and spend $300 at the grocery store. The store spends that money on employees, inventory and bills. These employees and suppliers spend the same money again. This continues over and over creating profit and new capital. Money moving is the key; it’s not stuck in one place. It also doesn’t require more physical money. Remember higher supply means lower value, and this concept applies to our money the same as any other commodity.

With $500, it’s economically better to spend it on food than a painting on the wall. We consume food and must buy more, creating more transactions. The money is stuck in the painting until we resell it. The food creates more transactions, more new capital.

With $5,000, it’s better to spend $500 on 10 items than $5,000 on one: the more transactions the better. It also increases diversity in transaction, insulating our economy from downturn in a single industry.

Obviously, it takes money to create this transaction-based multiplier. We can’t multiply what we don’t have. Consequently, economists get concerned about a negative balance of payments; imports exceeding exports. Money leaving our country cannot be multiplied here. With a multiplier effect of three to five times, every dollar leaving the country is $3 to $5. The converse is better. Every dollar coming into our country through exports or tourists becomes $3 to $5. Money spent on foreign vacations or sent to a relative in a foreign country isn’t here to be multiplied or generate new capital. The same is true when our government provides foreign aid or buys oil from the Middle East. The need for the above is a separate issue, but any money leaving is an economic and employment detriment.

The same concept applies locally. Tourists create transactions spending $500; we multiply it. If we buy a $500 television in Denver, we lose the local economic effect of $1,500 to $2,500.

Economic principles are simple when we look beyond partisan interpretation. The difficulty comes in deciding what strategy best accomplishes them.

Bryan Whiting feels most of our issues are best solved by personal responsibility and an understanding of non-partisan economics rather than government intervention. Comments and column suggestions to: bwpersonalresponsibility@gmail.com.

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