Lies! Economic theory contains more half-truths and lies than any other scientific study. Bad economists present their errors to the public better than good economists present their truths.
The challenge for non-experts is that the result of economic theory is rarely seen in an observable time frame. This fact opens up endless opportunity for manipulation of the uninformed by the devious, the powerful, and the greedy.
Economic collapse is already happening, in slow motion. Stay ahead of the doomsday curve. More important than firearms, more crucial than food stores, more urgent than seed collecting, understanding economics could help you predict a collapse before it happens.
7 Economic Rules for Preppers is a series of blog posts to help you clear the fog and understand what may be the single most important factor in your preparedness strategy.
Rule 1: Destruction begets depression.
Consider these four truths:
- War is never good for an economy in the long term.
- Rebuilding what is destroyed by crime or nature is of no new value.
- The consequence of every dollar created or destroyed is connected to every other dollar in the system.
- Wealth is only created through adding value to the system, never by rebuilding what was already there.
Politicians love to brag about what projects they “won” for their community. They argue that the contract for building the latest military vehicle is a blessing for an otherwise stagnant local economy. They boast about the new car assembly plant that moved from Michigan to Alabama as if it were creating something new and everyone will benefit.
We get countless news reports of new Government contracts to resurrect an aging bridge or a once bustling downtown area. Politicians are often proud to brag on how they brought jobs into an area to save the economy after the devastation of a storm like Hurricane Katrina or an earthquake. War fighting is commonly known as a booster for struggling economies. None of these instances produces anything.
When money changes hands to restore something to its original glory, nothing new is created. The funds and the work completed are simply rotating in the same circle with little or no creation of new value. Remember that the capital had to come from somewhere. Capital is not just cash. Capital can mean workers, goods, machinery, and knowledge.
Assume a bridge collapsed after a storm. The capital to create that bridge were already exended somewhere in the past. The bridge is now gone so a new set of funds much be accessed. The common method to access such funds are things like municipal bonds, corporate endowments, new taxes on citizenry, or an unlikely savings account of the State.
Regardless of where the funds are sourced, the result is the same. Instead of building the new school, a new road to access businesses, tax breaks, or something of new value, the funds are sunk costs. Sunk costs are considered money spent where nothing of new value is created.
Since the State must sink the money into the collapsed bridge, it cannot spend the money on other necessary projects. The school never gets built so the teachers never get hired. The teachers never get hired so new homes, restaurants, fuel stations, never get constructed to service the teachers and the school.
When the new facilities do not get built, the State suffers. Consider every person that would earn a wage by participating in or work for the new facility.
When none of these workers get hired, no income taxes are paid. Since no supporting businesses are built, no sales taxes are paid. This means the entire tax base for that single effort was never realized.
The result is not only that the state lost value by having to rebuild the bridge but it lost countless dollars in tax revenue. In this case, the transfer of funds from a school project to rebuild a bridge resulted in millions of dollars in lost revenue and thousands of jobs never realized.
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