ADDICTION TO UNSUSTAINABLE GROWTH

Any stimulus package involves a government cutting taxes and increasing spending, thereby generally increasing the money supply in the market.

But this measure has an inflationary cost associated with it. The free market has a tendency to devalue anything that is in excess. This leads to depreciation in the value of the currency and, as a result, commodities become expensive.

By definition, currency is a unit of exchange that facilitates exchange of goods and/or services. It can be anything from paper, gold, silver, copper, brass, seashells and even tobacco leaves.

In fact, tobacco leaves were legal tender in Virginia, Maryland and North Carolina during the 17th century, before lack of portability, excessive supply and variability of value led to their demise in the early 18th century.

The excessive supply of currency apparently fuels the economy and it grows at a staggering rate. But, I believe that this growth rate is completely unsustainable as it breeds inflation and creates bubbles, which eventually burst.

Now that the bubbles have burst, the government is bailing out the high rollers in the casino. Suppose you went to a casino being well aware of the risks associated with gambling and lost all your money.

Obviously, there are winners and losers in a casino. Now you want the casino regulator (government) to bail you out and provide you with some more chips to play with, so that you can make up for the losses incurred.

The American automakers are a classic example of this phenomenon. They expanded capacity, hired an excessive workforce, built inefficient cars based on the prediction that people will change cars every five years and gas will remain cheap.

I have never come across a mathematical model that can accurately predict the behavior of people. Thus, they knew the risks associated with their bets, they simply lost out. So why should they be rescued with the money of honest taxpayers?

Nobody comes to my rescue when I lose out in a casino. Well, let us just take the example of a city where people decided to settle down on land near bushes prone to wild fire. They took this decision with the knowledge of the risk associated with the venture and must have paid a reasonable price according to the nature of the property.

Now suppose there is a wild fire and a few houses were burnt. In this case, it is not justifiable to provide relief through the government as it essentially means taking money from wise people who did the right thing and did not build their house near the area prone to the wild fires and paid a premium for their property.

And now, additionally, they have to pay for the gamblers who got their property at a discount due to the inherent risk. In a fair system, one should be rewarded for virtue and punished for bad behavior.

I strongly feel that recession is the cure for the disease. It is like a medicine to eliminate the root cause of the problem. And the sooner the medicine is administered the better the results. Let us say, for example, somebody had a heart attack and requires open-heart surgery which obviously is a painful procedure.

However, as it is painful, the patient takes steroids, which, although relieve the pain, do nothing to improve the individual's health. Eventually such a person will die. It is a human tendency to ignore what is true but painful and embrace what is false but comforting.

Recession is a market phenomenon to punish people who made the wrong choice as a result of greed. The best thing that can be done by the government is to remove trade barriers and subsidies. The government should not offer any protection to private conglomerates; in fact, the strong should get the least protection.

The welfare programs need to be reviewed because no prudent government can afford to hand out money without getting any productive work in exchange. People should be allowed to innovate and grow. A free market has always produced wealth and prosperity.

One of the great mistakes is to judge government programs by their intention and not by their result. Hence, even though the stimulus packages are designed with the best of intentions and by wise men in positions of power, they do not solve the problem but just ease the pain and delay the day of reckoning.

Why are we so addicted to a high growth rate? We need to grow in a sustainable, organic way, without imposing an excessive burden on our limited resources. The economic growth rate is essentially required to feed, nurture and improve the living standards of an ever-growing population.

We need to control this population growth in order to preserve our limited resources, environment and human dignity. Because anything in excess loses value.