I’ve been talking to a lot of very ignorant people lately who have very strong opinions of why our economy is faltering. However, they seem to have no foundation for their opinions, more like they heard a Fox news report and decided that opinion was good enough. So for those of you that are ignorant of general macroeconomics, I’d like to give you a brief introduction. Let’s start with some definitions:
Economy: All the stuff that we buy and sell, all of the financial transactions that occur, and pretty much all things monetary.
Economist: This is a person that was too stupid to become an accountant, but too smart to be a journalist. Economists are usually used to justify stupid decisions that other people made, because no one actually does what an economist says, if they know what’s good for them. As Truman said “If you line all the economists in the world up, they wouldn’t make a straight line.”
“The Fed”: The Federal Reserve Bank, also known as the people that actually control the economy, as opposed to the president, who is the person that takes credit when the economy is good, and says it’s not his fault when it’s bad, and who in all reality has very little to do with the economy except that he occasionally buys stuff.
Monetary Policy: This is the decisions that “The Fed” get to make, for instance, how high should the interest rate be. This is done through a highly scientific system using complicated models and what economists like to call “pulling numbers out of their butts.”
Overnight Rate: This is the interest rate that banks charge each other, which is determined by charging as much as possible until the other bank throws gasoline on them and lights them on fire.
Fed Funds Rate:This is the interest rate that “The Fed” charges banks for money, which in turn the banks loan out to you.
Rate: This is the interest rate that the bank charges you, which is calculated by taking your age times your credit rating divided by the cosine of Pi.
Inflation: This is what happens when too many people have money. It’s bad. Or so the goverment would have you believe. When everyone has lots of money, and there’s only so much crap for them to buy, the stores can raise the prices of everything, and everyone will still buy it, and before you know it, prices get doubled twice a day. The solution to this problem is making sure that a lot of people don’t have any money… ie “unemployment.”
Unemployment: “The Fed’s” method to keeping inflation under control. This is done by raising interest rates until no one can afford to borrow any money, thus meaning that companies don’t need to produce anything, which means they don’t need any employees, which means they lay everyone off, which means inflation goes down, which means “The Fed” can lower interest rates, which means that people have money again, which means more products are needed, which means everyone that was laid off gets rehired. Rinse. Repeat.
Depression: The feeling of sadness that comes when all of your tech stocks plummet in value until they are worth the same amount as a bucket of weasel spit.
Data: These are numbers in a spreadsheet that an “Economist” makes up based on his “gut” of what will happen in the future.
Gut:”Gut” is how economic decisions are made. Whatever course of action causes the least diarrhea is the one chosen.
Equilibrium: This is when there are as many “Consumers” trying to buy goods as their are “Goods” to buy, and they all agree on a “Price.”
Consumers: A consumer is someone that buys stuff, ie people that have jobs, ie not you.
Producers: People that make shoddy dangerous stuff for consumers to buy, who in all likelihood will be too dead from using the product to sue them.
Goods: The shoddy dangerous stuff.
Price: Price is the amount of money agreed upon for a transaction between a consumer and a producer. Typically, the consumer will want a price of 0$, and the producer will want a price of a Googleplex$, and eventually they will settle on 29.99$.
Every six weeks or so, “The Fed” looks at “data” to see what consumers are buying, and the inflation rate, and they make adjustments to the rate, which means that someone is always being screwed. Sometimes it’s businesses, sometimes it’s consumers, and sometimes it’s both. Thanks to “The Fed” we no longer have to worry about depression.
Tomorrow, we’ll discuss Microeconomics.