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Saturday, November 29, 2014

What Most People Don't Understand about Economics

What Most People Don't Understand about Economics

By Jim J. McCrea

Generally, the "left" is concerned about social programs that help the disadvantage, and the "right" is concerned that the free market makes business thrive.

I believe that the government should step in to help those who cannot help themselves and where private charity is not capable of the task. However, the free market economy is necessary to make this happen.

Dollars in circulation only represent a given quantity of goods and services available in the system. Dollars do not have an intrinsic value on their own.

With the free market, businesses if not unduly hindered, create jobs to produce goods and services in the system. The money that these jobs pay, allow employees to buy other goods and services, expanding other businesses, creating more jobs, creating more pay, to buy additional goods and services, creating more demand, and producing more goods and services, and so on. This is how the economy grows, and material wealth is created in the system.

If the free market is hurt unduly, jobs are reduced, demand is reduced, and goods and services are reduced in the system, overall. When this happens, the available dollars are worth less because they are backed by less goods and services, thus creating inflation - or - to avoid inflation, the number of dollars in the system have to be reduced.

With this, we can look at the irony of many on the left who unduly hurt business (perhaps through unnecessary regulation and high corporate taxes), and take a "soak the rich" stance (the rich are often the ones who provide the capital to start and expand business). Then these people on the left wonder why there is never enough money for needed social programs and infrastructure.