Macroeconomics For Dummies

Macroeconomics for Dummies
C 2003 – Abridged 2009

Gower D. Talley MBA

The Northwest Boardroom www.thenorthwestboardroom.com
The paper, Macroeconomics for Dummies, was initially published in 2003. It was referred to in my book “5 Things I learned on the Road to the Dream” and has been requested by several readers of the book. This is an abridged version. I reproduced it because thepublic’s understanding of even the most basic economic principals seems to be even poorer today. This paper addresses the basic concepts of wealth creation and consumption from a layman’s perspective and illustrates why government spending does not have even the hypothetical potential of growing the economy.

Government

controlled “collective economics” based on some arbitrary standard of “fairness”has failed – every single time it has been tried. There are absolutely zero historical exceptions. The largest experiment in collective economics (the communist government of the Soviet Union) imploded under the weight of its own failed economy. Even the tiny experiments (the communes of the 60s) have largely been abandoned. North Korea is economically imploding as we speak, they have a per personaverage yearly income of less than $800. (And by the way, North Korea is almost identical in almost every way except governmental-economic form to their neighbor to the south, which is a thriving, almost western country.) China is moving toward market capitalism as fast as it can to avoid the same fate. The concept of “from each according to his abilities, to each according to his needs”, theconcept of government redistribution of wealth and resources based on some more “noble” set of criteria, is fatally flawed. Socialism, if clung to till the last, has always resulted in total bankruptcy. Always. Despite people’s best intentions, eventually, there is no Macroeconomics for Dummies

wealth left to redistribute. And yet, experiments continue. There seems to be a continuing belief that“this time” will be different. Undeterred by the fact that one cannot find a single historical success to pattern a new experiment in “sharing” and “fairness” by, we have another go at it. We take from those who have “too much” and give to those who have “too little”. And again, if unchecked, there will eventually be nothing to take and nothing to give. The well meaning among us are left wondering whois to blame and wondering why their noble attempt failed again. The intent of this paper is to explain why. The short answer is that socialism, even limited or partial socialism is simply impossible. Not difficult, not complicated – it is at its core, mathematically impossible. It defies the basic laws of “economic physics.” It is an attempt to build an economic perpetual motion machine. Itassumes that the business engines that produce great wealth will continue to do so, every bit as energetically, even as we systemically confiscate their resources, even as we slowly take away the reasons business ventures began in the first place. It also assumes that government systems to redistribute those Page 1

confiscated resources will be frictionless and perfectly efficient. These concepts:the indefinite conservation of momentum, perfect efficiency, and the complete elimination of friction, are as impossible in economies are they are in physics. Just like a perpetual motion machine, a socialist economy will eventually come grinding to a halt under its own weight. Unfortunately, these seem to be difficult concepts to convey to the American public at large. The concept of wealthcreation in business is a difficult one to wrap ones brain around. The understanding of what wealth actually is and where it comes from is just as complicated. It is just too easy to see those who have “too much” and see those who have “too little” and believe the thing to do is spread the wealth around a little. There are those in our government who support socialism, in one form or another, who...