This may seem like a rhetorical question, and it should be.  Unfortunately, the economic ignorance of a large portion of the population is so bad that some of them really do think something like this.

They don’t literally think it is magic, but they think that food will just keep appearing no matter what government actions are taken.  They believe you can shut down the entire economy, yet food will still appear on the shelves.

To be sure, there are many people with some sense who will say that we need to keep “essential” things open so that food is produced, packaged, and delivered to the grocery stores.  They at least understand there is a chain of production and that there are multiple players in making food appear.  They probably haven’t read I, Pencil, but at least they have some basic understanding that things still have to be produced.

I have long said that in order to consume something, it first has to be produced.  This is such a basic economic point, yet there are so many people who just don’t get it.  It took Elon Musk, who has been a proponent of government subsidies for his work in the past, to point out this basic point.  If you actually want things, then they first have to be produced.

I saw a meme floating around Facebook saying, in part, “If a medically-informed response to a pandemic creates economic hardship so serious that the economic impacts are more deadly than the virus, you change your f***ing economic system not your response to disease.”

My response: “Is this in reference to our economic system where people work and produce things and food appears on the shelves at grocery stores?”

The purpose of this meme is not to criticize the anti-liberty aspects of our economic system, such as the Federal Reserve, massive government spending, and government regulations.  The purpose is to criticize the free market aspects.

The “response” creates “economic hardship” because businesses have been shut down by governors and mayors across the country.  Businesses have been forced to close that otherwise wouldn’t have, and people are forced out of jobs who otherwise wouldn’t have been.  On top of that, now the rest of the productive class (those who are allowed to keep working) has to support all of the people not working.

There are now something like 38 million people collecting unemployment benefits who were not collecting in February.  These people are being paid to sit home and produce nothing.  Even if they weren’t the highest skilled people, and they were working in jobs deemed “non-essential” (by the dictator politicians), they are still producing nothing as compared to before.  That is a lot of production out the window.  So even if food keeps showing up on the shelves at grocery stores, there are many goods and services no longer being produced that were previously being produced.

An even worse aspect is that the local and state governments chose the winners and losers here. In a more normal economic downturn, even if originally caused by central bank monetary policy, at least the businesses going bankrupt and people being laid off are being chosen by consumers, to the extent there is still a free market.  In the current situation, there will be some businesses closed down permanently that would not have closed down in a more typical economic recession.

Stimulus and Production

The most basic economic point that must be understood is that you can only consume what is first produced.  It is simple to understand, yet this basic point is being overlooked.

There is a second point that must be understood.  It should be simple, but even many economists seem to not understand it, or they choose not to address it.  The point is this: Central bank inflation does not produce anything of value.

The central bank – the Federal Reserve (the Fed) in the United States – can create all of the new money out of thin air that it wants, but it doesn’t produce anything. It doesn’t grow food.  It doesn’t package food.  It doesn’t deliver food.  It doesn’t create any new wealth.  It doesn’t produce anything that can be consumed.

Central bank monetary inflation does redistribute wealth.  It can enable some to live at the expense of others.  When the government hands out “stimulus” checks to nearly everyone, it is a form of wealth redistribution.  It doesn’t create any new wealth.

In fact, the central bank inflation will actually serve to destroy wealth, as it misallocates resources.  Instead of savings and investment going towards the highest demands of consumers, it just redistributes the existing wealth and prevents money from being saved and invested. Without this savings and investment, wealth creation will be greatly harmed, and society as a whole will be poorer for it.

I was watching a YouTube video of someone discussing the various plans in Congress to provide additional stimulus in the form of direct payments to individual Americans. The person on the video seemed to favor additional stimulus.  He is obviously no libertarian, but I want to emphasize that he isn’t someone who would typically be labeled a leftist.  He would criticize the so-called democratic socialists, yet he seemed to favor more government stimulus in the form of direct payments.

It may be preferable to see direct payments as opposed to some government program that flows through a massive bureaucracy that results in major corruption and just a tiny fraction of the funds actually reaching the people who were supposedly the beneficiaries.  Still, anyone who favors liberty should not be cheering on more stimulus, unless you are taking the position that you just want to see a quick collapse of the whole system (i.e., the federal government).

When I read the many comments to this video on YouTube, most of the people were demanding more stimulus.  I saw many comments saying that $1,200 (the original stimulus) wasn’t enough.  One person said it didn’t even cover his mortgage for a month.

In the video, the presenter mentioned that food prices had gone up 40%.  I think this is an annualized number, although I have discussed how I saw the price of chicken go up by about 50% over the course of about a week.

Unbelievably, while there was all of this clamoring for more checks from the government, someone commented on the outrageous price hikes in food.  The person asked rhetorically why this is not considered price gouging.

I saw no responses to this person’s comment.  I didn’t feel like getting involved because I have to pick my battles.

Did nobody commenting on there see the irony in this?  Businesses have been shut down (involuntarily) and 38 million people have essentially been forced into unemployment.  The federal government responds with trillions of dollars in bailouts, including direct payments to Americans.  This is all being financed by the Fed, which is buying the debt with newly created money.  And while people are clamoring for more, someone comments about the outrageous increase in food prices.

Where do these people think the money comes from?  Can they not stop for one minute and think about the costs?

It seems like a rhetorical question to say: “Why not give everyone a million dollars?”  This is supposed to be a reductio ad absurdum, although I fear it may eventually come close to reality.  Still, it is a useful question to get people to answer.  If you encounter someone who favors more massive government spending, ask why the government shouldn’t just give out a million dollars to everyone?  See if you can get a serious answer.

If someone is willing to have a serious conversation about it, it is an important question for them to answer.  They will have to admit that there is a cost to it.  Don’t let them get away with saying, “Well, I don’t want a million dollar stimulus check.  I was just talking about a couple thousand dollars.”  Pin the person down and get them to explain why a million dollar check to everyone would be a bad idea.

Conclusion

You can’t consume something until it has first been produced.

Central bank inflation does not create any new wealth.