Thursday, December 1, 2011

How Things Work - Economies

Found this graph and couldn't pass it up.
Let's say I'm a farmer, and I have some potatoes. I'm asking $900/truckload for my potatoes. They begin to depreciate as soon as they are dug up, and my price declines to $700. Then the government, seeing that the price of potatoes is in decline, prints a bunch of money and gives it to state and local governments.

I recognize that the value of the money is diluted, and raise the price of my potatoes to compensate to $1200/truckload. I'm selling potatoes, but not quickly enough for the government who prints another load of money and repeats the previous feat.

I raise the price of the remaining potatoes to $1350 to compensate, and continue to sell at lower prices as time goes on.

Oddly enough, the $1200 I'm currently getting has the same purchasing power as the $400 I would have been getting by now if the government had done nothing.

For all this effort, the government expects to get re-elected.

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