Wow, hello friends and strangers. It is once again time for a blog post, because I have something (that I think is interesting) to share. I haven't posted in forever, mostly because I have been without inspiration I think, and not feeling worthy because I was not performing well with my veganism. But lucky you, I am feeling inspired. Economics often does that to me. :)
Alright, so this post may cater to those of you (not many, I presume) who like economics! But perhaps it is more especially for those of you who have not yet developed an appreciation for it. Perhaps I can foster some.
Although I didn't really realize it until I took a class in college, I have enjoyed economics since I was little. I've just always enjoyed being economical... saving my candy, collecting "rations" like wild berries and feathers when we were outside playing house, recycling, etc. It just makes sense to and is fun for me.
Economics is really just common sense, because it's the study of human action, and it's often performed through "thought experiments" on how people (including oneself) would react to certain situations. This means that anyone can understand basic principles of economics, because all people are economic actors. We make economic decisions all the time, like how we spend our time, money and effort. There are definitely a lot of mumbo-jumbo figures and terms that are over my head (I'm guessing some of yours as well), but don't let those things scare you, because true economics is fairly simple.
There are a few different major schools of economic thought. My school teaches Austrian Economics, which is definitely not as mainstream, and is based very basically on the proven idea that government controls and regulations (for example tariffs, subsidies, legal tender laws, lots of regulations on businesses like hair-cutting and childcare restrictions, etc.) hamper the economy, which functions well on its own. Libertarian. Ronald Reagan. Ron Paul. It's not as mainstream, in part because many powerful special interests can profit from regulations like those mentioned above, and these interests will pay or vote for politicians who keep or implement these policies, often promoting the regulations as protections for consumers.
THE BOOM / BUST CYCLE
Even if you knew nothing about economics before this post, you may have heard of a particular housing boom, tech bubble or other such event. Even more likely is that you've heard people saying we're in some sort of recession (we're not). These phenomena are parts of a boom or bust in the economy. A follow-up idea that goes along with the, as they say, "praxeological" causal-realist view that Austrian Economists adhere to, is that the Boom/Bust cycle of the economy is not inherent, but is caused by the US Central Bank inflating the money supply (printing or electronically creating more money). That's bad. Basically, here's what goes down:
BOOM PHASE
The Central Bank creates money out of thin air, then by buying Treasury Bonds, increases the reserves of commercial banks. Commercial banks then lend out this new money to entrepreneurs or businesses looking to expand production. This is called an economic BOOM! because there's a lot of production going on and people are spending money and everything seems to be going well. But it's not.
Here's the problem. In order to lend this money out, commercial banks have to decrease the interest rate. This decreased rate is artificial and doesn't reflect reality because it is a result of the new money supply and not a result of people's preferences (time preference, to be exact).
So when entrepreneurs examine the rate of interest on a loan vs. the rate of return on a project they are considering undertaking, their calculation of whether or not a project will be profitable is totally thrown off. For example: say the rate of interest on a loan would normally be 8% and the return on a project is 6%. It is obvious that that project is not going to be profitable because the loan would cost more than the project will generate (6% < 8%). But say the interest rate is artificially lowered to 5%. Then it looks as if the project will be profitable because 6% > 5%. They end up undertaking a lot of projects that will not be profitable. This is called "mal-investment".
WOW GUYS SORRY THIS IS A BIT COMPLEX FOR BEGINNERS. I DIDN'T MEAN FOR IT TO BE. WE'RE ALMOST THERE, I PROMISE. The connection to going vegan is coming up.
If the Central Bank keeps on printing more money, and banks keep loaning more money to these poor entrepreneurs, no one will know that there's something wrong until we hit hyperinflation and everything crashes down. But this economy, even though it seems to be working well, is really sick and messed up. People are producing things that nobody wants (unprofitable projects). They're wasting money on these things when it could be spent on things that people do want.
BUST PHASE
But if the Central Bank slows money creation down, and so less loans are available, the BUST! phase will happen, and a Recession will occur, because the consequences of the mal-investments will finally to be realized. Entrepreneurs and Producers will want more loans to finance their projects because consumers aren't buying their products/using their services. But now, banks won't have enough loans to go around and so these businesses will incur losses or go bankrupt. This, although painful, is necessary for the economy to regain its health because without it, people would go on wasting resources and therefore making everyone poorer than they could be.
Ben Bernanke (the chairman of the US Central Bank and NOT an Austrian Economist) might say, "See? Inflation of the money supply is necessary and good. Do you see what happens when we stop inflating the money supply? We go into a Recession." But the Austrian Economist says, "No! The Recession occurs because of the inflation of the money supply. It is only when inflation is slowed or stopped that the consequences are realized, and only then can the healing process from inflation begin."
GOING VEGAN
How does this relate to veganism? I hope you're able to see. [I'm talking to myself as well, when I say that] if you have been eating a lot of animal foods or relying on caffeine etc. etc. for energy, and then switch to a plant-based vegan diet, you can expect to feel poorly. Your body is getting rid of toxins and the results of eating a lot of foods that our bodies are not optimally designed to use. It's normal to feel tired or gross during this "Recession". But stick with it and as time passes (we're talking not just a week here) if you are eating enough good lower-fat plant-based food, you will feel better and stronger than you were. :) Go Econ.
Tootles ~
SB
