When the Money Runs Out

Local governments that were quick to shut down businesses in response to the flu are now suddenly finding themselves without any income. This shouldn't have come as a surprise to anyone. However, many local politicians seem to be genuinely puzzled by the sudden drop in revenues. It is as if they didn't make the connection between local businesses and their own well being, and that this fundamental connection has yet to fully dawn on them. When they shut down the local economy, they shut down their own lifeblood. Their simplistic view of the world in which economy and health are two separate entities is fundamentally flawed. Without a healthy economy, there can be no public services. The two are fundamentally linked.

The only sound strategy going forward for local governments is to allow the economy to re-start. However, this is an unappealing option to most politicians. Letting free commerce take care of the situation is the last thing they want. They will therefore try to find a way around the situation. They will beg state and federal government for bailout money, which they most certainly are going to get, because state and federal politicians are no more fond of free enterprise than the average local politician.

The central bank will come to the rescue again. It will generate trillions of fresh dollars in order to feed the federal government with the required cash to bail out local governments. But this will not help, because the real problem is not a lack of cash. Their lack of cash is due to a lack of production. It reflects the lack of resources available in the local economy. Getting a bunch of fresh dollars from the federal government isn't going to magically produce any of the resources now lacking locally. What good is a bunch of dollars if the resources required are unavailable or in very short supply? It will merely send the price of things soaring without alleviating the shortages created by the economic lock down.

The local economy has to be re-started. There's no other way. But politicians will try absolutely anything before they will let the free market sort out the mess they've created. Going forward, we're likely to see tremendous inflation before politicians finally give up their iron grip on the economy.

By Bundesarchiv, Bild 183-R1215-506 / CC-BY-SA 3.0, CC BY-SA 3.0 de, Link