Saturday, April 2, 2022

How the economy works


The real interest rate in the USA today is -4%. Meaning that if I buy land on credit, it will cost less than the nominal price today. Who is subsidizing me? The Fed i.e. the Government, that is society. Why? They want to stimulate activity, commerce, and investment. In fact, by incentivizing anything I want to do, they are "forcing" me to do things, to be active in the economy. By doing, I'll pay taxes, I'll create jobs, I'll invent new products. Just by buying land, I create turnover and pay taxes, which probably compensate for the subsidy I am receiving.  High-interest rates freeze economic activity. It all devolves to the physical health and intelligence of the human population "doing" the economy. 


The corollary is that society pays me to own a house for free because ownership is a burden. Counterintuitive. Thinking it over, I know lots of people who rejected or let go of promotions or leading positions (including myself, more than once). There are many abandoned houses in Argentina and here too. In my time, Paraguay gave 5000 hectares of land in the Chaco to anyone promising to fence it and live there for five years. No one I know of took up the offer.  

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