Draining the pool

Oh no, you groan, is Zen about to blat on about the monetary system again?

No, you're okay, I'm going to discuss how my swimming pool works instead.

Here it is. I have a pump, right? It sucks water out of the pool, runs it through a filter and then puts it back in the pool. While it's on, it does this continually, so that other things being equal, the level of water in the pool stays the same.

But other things are not equal. It's hella hot here, so a fair amount of water evaporates over time. So from time to time, I have to run water in through a hose to top up the pool.

Simple, right? Even Joe Hockey could get that, right?

Right. So someone tell him that this is precisely how money works. You put money into the economy; you take it back out. If you run it at equilibrium, you lose money to your current account deficit, which means less money. Slightly more complicated, people also save. It's as though they dip a bucket in and take the water away. Sometimes they tip it back in by investing (which is a form of spending, of course), but sometimes they keep it in the bucket.

Now, water's a problem here in Queensland. We have limits on how much water there is in our ecoystem. It's probably hard for people in England or other relatively mild and wet climates to understand that you can run short of water. I mean, you guys have shitloads of it.

We don't. When it rains, it often does it in the wrong places, or all at once over a weekend, or not enough and not often enough.

Not so long ago we had a prolonged drought that severely stressed our water system. We were wondering whether our reservoirs might actually run dry. They were down to levels so low we were close to functionally being without water. These are the perils of living in a conurbation of nearly three million people in an area that has consistent water for less than a million.

Luckily -- or very unluckily depending on whether you live in our rivers' floodplains -- we had heavy rain, which caused horrific flooding but refilled our reservoirs and some relatively wet years. But we are again facing woe because the upcoming figures to be an extremely hot but horribly dry summer -- we live in a place that seems more rain in summer than winter -- I know, it's all upside down, right? And we could soon enough see that dry summer turning again into another drought -- they tend to be cyclical here, and our ever increasing population might again find itself wondering whether it will go thirsty.

Even more luckily, money is not in fact a precious resource. Our government doesn't even need to turn on a tap to fill the swimming pool. It can do it by magic, by simply crediting bank accounts and...

Oh wait, you don't get this, do you? You have been misled by idiots into thinking money is something. You think that when your bank account has $1000 in it, there's some $1000 somewhere that is yours. The bank has like money and shit in a vault, or gold or something, to the value of your thousand bucks. Or, like, because you've heard some nonsense about fractional reserve banking, there's a hundred bucks somewhere that's yours, or a small lump of gold, or something.

No, sorry, there is just an entry in a computer file. No tangible thing whatsoever. If someone could sneak in, change the figure to $2000 without anyone knowing, you would in fact have $2000 and nothing else in this world would have changed. No one would have lost a thousand bucks. No gold would be destroyed.

This is, in fact, how our government spends money. Every fortnight, Centrelink credits my bank account with money. It simply instructs Westpac to do it. It does not send the money from its money pile. It does not count out gold coins to cover it.

Now do this for an experiment. Get out your calculator. Press the 8 key until you are tired of it. You wrote a lot of 8s, right? But there are just as many 8s still left. You in no way exhausted the supply of 8s. You can get more just by pushing the key.

Got it?

Now, let me tell you, in case you are not aware, the single most pressing problem in every Western economy: there is not enough spending. What does not enough spending mean? It means no one is putting enough water into the pool. What can governments do about that?

Well, across the Western world, we're told, the best thing to do is for governments to spend less, and our clownish friends on the soft left tell us that the best thing is for governments not to spend less but to pump out more water in taxes.

Wrong. We do not have enough water. The best thing is for the government to pump more in. Spend more. Not tax more. That's insane. Spend more. The single best thing the G20 could agree tomorrow is that they should all run a six-month tax holiday beginning on Monday.

We would enjoy a boom the like of which we have never known, and all those people whose talents and skills are being wasted, all those young people whose potential is being wasted, all the women who wish they could return to work but are discouraged by the sluggish demand for jobs, all of us who want work but cannot get it, would have it.

Now ask, if Dr Zen, who is a not particularly smart bear, can figure this out, why can't the very smart bears who advise our politicians? And perhaps we will have to answer, they can but they don't want to. And when we ask why...

Well, now, this is the question.

posted by Dr Zen @ 11:07 pm