Economics as an Auction
by Jeff Limpert from Ohio
When you spend money, consider that you are participating in a grand and invisible auction. Every decision to purchase a thing or service is done in unspoken competition with other people buying the same things and services. I do not mean to say we are all going after the same loaf of bread, video game, or gallon of gasoline, but rather the cumulative effect of our buying decisions have a direct impact on the final selling price.
When manufactures and retailers see that a product is selling well, they can be confident the inventory in their possession will "turn" at a quick enough pace to allow a set return on their investment (for a retailer a turn occurs when something on the store shelf sells). The quicker it sells and is replaced by another to sell the higher the number of turns the store is making on its investment.
A small retailer selling fishing rods may only have a few turns a year on seasonal equipment.
A baker on the other hand would not be in business very long if the shop's inventory of bread took three months to sell off before more bread could be baked.
Enter the 2008 Tax Rebate Stimulus package
Imagine we are all in one store deciding what goods and services we want to buy today. Imagine now, while we are weighing the merits of each purchase someone else begins walking throughout the store handing out small packets of money to each shopper. We buyers are suddenly emboldened. We are rich, if only for a moment. Impulses cause us to buy an extra toy we had been hesitant about since we have other more important things to buy. Other shoppers are doing the same thing and cash registers start to ring. When we run out of our extra money the nice stranger placed in our hands, we find that we didn't really get all that much out of it, compared to what we could have if we had slowed down and asked ourselves, "are there were better ways to spend this gift?". Our children have a couple of toys they otherwise wouldn't have, and we may have had a nice vacation, or paid off a credit card, but that's about it. The money that each of us has spent quickly winds up as large pools of wealth in bank accounts of the people and companies who will make more of the same stuff that got us into this mess.
Look at this from another angle:
Move the setting into what you imagine a real auction to be: we are all in one room bidding on items we wish to purchase and we each have a bucket of money. Someone starts moving around the room dropping more money into each of our buckets. All of a sudden the amount of bidding increases. Items are going for higher rates because we all have more money to buy the things we want. In the end, we don't get any more "stuff"; we just paid more for it.
Both examples illustrate an underperformance in results. How could the extra money be applied?
Let's Participate in a Different Type of Auction
When the nice person hands you your rebate check, walk out of the store that has all that extra money in it and go to another store that has less traffic, less demand, and could actually help you prolong the availability of the money to you and your neighbors.
We are asking people to buy from other people in their community (who will perform a benefit to you the purchaser) and at the same time let the person we bought from have a chance to buy from another person in our community. This is keeping the money near us where it can do the most good.
We are sure you have heard about how large cities need sports arenas and tourist dollars to spur the local economy. The argument goes on to say that each dollar brought in from outside the city can circulate three or more times before moving back to the larger economy. We can use the same logic here to justify our belief that if you consciously spend your money by giving it to people in your local community, and they also spend it locally, there will be a cumulative improvement in the amount of wealth and prosperity for each locality which adopts this practice.
For Example
Given a town of 10,000 (let’s assume there are 4,000 households with 3,200 marriages and 800 single people).
At the time of this writing the married couples might each receive $1,200 and the single people $600 each. Parents will receive $300 for each child under 17.
That gives us:
| 800 | (singles) | x | $600 | for | $480,000 |
| 4,000 | (married) | x | $1,200 | for | $4,800,000 |
| 5,000 | (children) | x | $300 | for | $1,500,000 |
| ========= | |||||
| For a grand total | of | $6,780,000 | |||
If we assume the dollars circulate in our town three times before leaving for the larger world, they would generate a total of $20,340,000 before leaving. |
What could your family and friends do with 20-odd million dollars?
|| IRS Economic Stimulus Payment Calculator ||
In Conclusion
In the big store we get more of the same.
By using the rebate money in our local community, we can get our roofs fixed, help with yard work, plumbing, and all the other things that small businesses do for us every day.
Make no doubt about it; we will still have to buy our usual goods and services from major retailers as normal, but let's decide to use this gift to make a better world beginning in our own neighborhood.
Now the choice is ours. We can either stay in the big store and send all of our rebate money to the people who make the things we already buy, or we can use this new money to enrich ourselves and those around us by branching out in our local communities to buy other goods and services.
It's a gift, America, use it well. Will you join us? - Jeff
