While on winter break I was able to able to be reunited with my classmates from high school. During our traditional winter break reunion we regaled each other with stories of the successes and failures of our previous schoolmates. After catching up on the gossip of the day we then entered into reminiscing of our high school glory days, and recollected various amusing stories about either shenanigans we or others participated in or other experiences that we will remember for the rest of our lives. Upon further reflection I came to realize how very much students are like businesses and banks in that we each act in accord to our own whims and wishes based out of our own self-interest, and that our teachers were largely subjected to our passions rather then reverse.
In school, at any educational level, a teacher is placed in charge of teaching a classroom full of students. Now, students act in very different ways in accord to their own individual agendas. The teacher will sit down and create a curriculum and will try their best to lead the class in best accord with his or her plans. However, depending on the student’s personal agenda will determine if the teacher can successfully be able to teach everything on his or her curriculum. However some students will attempt to brown nose in order to gain favor with the teacher, and thus the teacher will be more willing to bend the rules or curve a grade to see that particular student succeed. Other students will be loud and disruptive in hopes to either frustrate the teacher or amuse themselves because they have no particular interest in learning what the teacher has assigned to them. As such the teacher has to stop the lesson to discipline the uncooperative student taking time away from lesson plan therefore forcing the teacher to change his or her plans in hopes to teach everything on the curriculum. The teacher will try the best he or she can to keep the class on the path he or she has created but in the end they will find the experience to be a lot like herding cats. However other things like weather conditions or school assemblies can be sprung on our teachers thus forcing them to make changes to their lesson plans. The lesson to take away from this example is that whether or not he or she will be able to teach everything on his or her curriculum is completely out of their hands and therefore out to of their control.
In our economic system banks and businesses will act much like the students in the class. They will act in accord to what they perceive is their best interest, or at least what is on their agenda regardless of what the central planner has set up for them. In the realm of economic theory central planners always fail to address the information problem. A free market is guided by the basic principle of supply and demand. However there are unlimited amounts of variables that can affect this relationship at quite literally faster then the speed of light. Humans are not omnipresent and cannot process and interpret every variable that is affecting this relationship let alone implement any sort of plan. When they do interfere with this interaction, resources are misplaced, and all sorts of hell break loose and what results are inflation, unemployment, and economic stagnation.
The Federal Reserve is an instrument of central planning. In our country the Federal Reserve can literally pick and choose which bank or companies can succeed or fail due largely to how our banking system is set up. The Federal Reserve is supposed to be the “lender of last resort,” however what history has taught us it that the Federal Reserve plays a much larger function. In the past the Federal Reserve merely printed money, out of thin air, in order for businesses and banks to spend. In doing so increasing the money supply which then devalues our currency. The devaluation of money leads to inflation, which hurts those who have their money saved in certificates of deposit, also known as CD’s, or savings accounts. This inherently reduces the purchasing power of those who have their money saved while at the same time increases the prices of goods and services. However, presently with the creation of QE2, the Fed does not even have to print money it simply electronically manipulates digits in the bank accounts of different banks and businesses. Regardless of how the “money” is created the end result is the creation of various boom and bust cycles, which leads to economic recessions and depressions.
The Federal Reserve is by its very nature a tool of the economic central planners. As mentioned above the Fed has the power to play God in the respect that it can determine which businesses or banks succeed or fail or at the very least which institutions receive the Fed’s “money.” However what central planners always fail to recognize is the fact that they are not God, but rather they are controlled by mere mortals like ourselves. The central planners have it in their heads that they can better allocate resources better then the free market can, however history and reality has shown us that that is very far from the truth.
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