Is Free Money Bad? Sometimes, Yes, it Can Be

Many would argue that all Democrats are in favor of funding the poor by extracting taxes from the rich. While this often appears to be the case, I for one and many of my Democratic colleagues are cringing right now as free money giveaways lately seem routine.

The Biden administration’s unemployment supplements, California COVID-19 relief packages and Los Angeles city free utilities, rent and cash have all contributed to eroding the value of money itself. Economic assessments indicate our inflation rate is at over 5% this year.

Extra money for everyone means those on a fixed income have less buying power.

A surplus of funds also means the wealthy, who own assets and the means of production, are unaffected as they can charge more to keep pace with inflationary increases.

In my last Signal submission, I griped about how my business operations are desperately seeking to hire more staff. Given extended unemployment benefits, sincere job candidates are rare and tend to overrate their value, often refusing reasonable employment.

Truck drivers, retail staff and restaurant workers are still in short supply nationwide. There are more job opportunities than job seekers. These manpower shortages continue as potential employees are still at home waiting for their benefits to run out.

Free money has initiated a pool of disinterested manpower, which necessitates businesses to pay more for labor, and therefore charges to consumers are passed along to you and me.

Since June, rental rates, home prices, gas costs, retail prices and food have all dramatically increased because many have more to money spend.

The just-announced Los Angeles city free-money giveaway is among another disturbing trend. The pilot program intends to give away $1,000 a month to 3,000 households for one year.

While we may think this plan enacted by our giant neighbor to the south would have little effect on us up here, this Los Angeles plan will be just another useless folly disguised as an anti-recession measure.

The L.A. plan is to disburse $6 million. At the end of one year, those recipients who stop receiving free cash will revert back to earlier want and financial struggle.

The only good news here is that retailers will have sold a ton of new flatscreens, shoes and high-end cell phones.

As an MBA candidate studying economic theory, I was taught that the value of money is what the public thinks it is. Electronic digits represented in your online bank account or paper with a number on it have no actual value. Those numbers are simply a representation of hope — hope that someone else will accept this numerical value as you do. Crypto currency illustrates this point perfectly. Bitcoin for example, like currency, is a concept. The value of Bitcoin is driven by what people think it will be worth. Bitcoin has no assets nor is it backed by any government, but is valued based on hope.

Speculation drives the increased and decreased value of money. If many think money is rare or will be more valuable, its worth increases.

If many think money is in ample supply or will devalue, its worth is less.

The good news is that economists and the Federal Reserve know these observations about the money supply and labor.

Despite our short-term anguish, I applaud the concept of massive cash injection into the economy. True, the labor pool is feeble, moderate inflation is upon us, and money is perceived as having less value.

But the Fed’s moves have not only saved hundreds of thousands of businesses from closing, but also have averted a massive recession. A broad recession weakens everyone’s financial position — creating more destruction than mild temporary inflation.

As uncomfortable as these policies have been, the choices were clear.

On the one hand, we would have a little bit too much aid for a while. One the other hand, we would promote the shuttering of millions of businesses, wiping out personal savings of half the nation, and disabling much of the economy for the long term.

In 2022 I expect interest rates will go up, opportunities for free cash will vaporize and unemployment subsidies will dry up.

These manipulations will indicate money has greater value and inflation will subside.

While I take issue with the recent Los Angeles attempt to try to bribe people out of poverty and some similarly wanton state initiatives, in fact the Joe Biden administration is on the right track.

In the coming months we will see subsidy programs end and our economy, more powerful than before, flow freely once again.

Jonathan Kraut directs a private investigations agency, is the CEO of a private security firm, is the COO of an accredited acting conservatory, a published author, and Democratic Party activist. His column reflects his own views and not necessarily those of The Signal or of other organizations.