Economic Lessons of SouthPark

by Sean Doherty, publisher
www.TheConstitutionalReporter.com


I hope President Obama wasn't watching SouthPark the other night, because if he had seen this episode, he may have picked up on some rather poorly drawn economic lessons.

The episode to which I'm referring involves an extraterrestrial visit to the small town of SouthPark, Colorado. One of the main characters, Stan, and his father, are charged with being the human liaisons between the spacemen and earth. The aliens “leave behind” an entire ship-full of 'space dollars' and the people of earth split this money up between several countries. Mexico immediately spends the space dollar money and builds something like thirty-two new hospitals and a few recreational water parks.

The economic lesson drawn here is that by simply expanding the supply of money, or by adding in a new supply of a different fiat currency -space dollars- the wealth of nations would effectively increase as well. As interesting as this premise is, and as funny as the SouthPark is, the premise is wrong, wrong, wrong.

Economist Murray Rothbard dealt with a similar example of the expansion of money supply, though he called his model the 'Angel Gabriel' model. Having listened to Rothbard lectures before, I was intrigued to see the 'Angel Gabriel' example illustrated through Southpark.

To sum up the economic errors of this episode, simply having more money does not increase the standards of living and wealth of a country. Nor does the addition of new money create more prosperity for the world. If that were the case, then the central banks around the world need only kick their printing presses into overdrive and everyone would live comfortably. But simply adding additional paper dollars into an economy does not account for limited resources. Because resources are limited, additional money means that the various available resources, materials, finished goods, and yes, even labor, are bid up to account for the extra money. Inflation. Price levels rise. Inflation happens as a result of more, new money injected in an economy to chase after the same amount of goods. If the money supply was doubled, then everyone would not be twice as rich and able to buy twice as much; instead, prices would double along with the money supply.

But the great economist Murray Rothbard went one step further and pointed out what many mainstream economists fail to recongize: the doubling of the money supply, even if it were to happen overnight, would not affect everyone equally with a corresponding doubling of prices. If it did, then there would be no point to it- everything would remain in equal proportion though at a higher price to match the larger money supply. What Rothbard clearly emphasized was that even if the money supply were to double overnight in equal portions to all participants, the smartest chaps would rush out right away and spend the money before prices adjusted.

Meanwhile, some of the more prudent folk would save the extra money thinking it better to hold on to. When they finally became ready to purchase, prices would have already roughly doubled, meaning that the early spenders were made wealthier while other spenders realized too late that prices adjusted and their new money could only keep up with inflation. The late spenders find themselves in the exact position that they were before, and it was only the 'early adopters' who seized the opportunity to gain from an increase in the money supply. And those in the middle, those who saved ½ of their new money and spent the other ½, would find prices adjusting upward and each dollar being able to buy less and less.

In the SouthPark example, Mexico is the early adopter and early spender. Since Mexico went on an immediate spending spree to build hospitals and some fancy water theme parks, their country would, on the surface, be made wealthier from taking advantage of the extra cash. And yet for most of the people in Mexico, they will be no better off or stand to be substantially worse off. But their many construction projects would quickly bid up the price limited resources like steel, concrete, chlorine, labor, timber, etc.

As a result, the remaining countries would face higher prices in those areas and would realize less benefit from their new moneys. And if each country began to spend that money at different times, then the countries to go last would notice that prices had jumped to nearly match money supply, meaning that any new wealth they had hoped to realize from the extra paper space dollars had evaporated. Those countries would be left with the same purchasing power as they had before, and Mexico would laugh all the way to the bank.

But wait- don't be fooled. Mexico does not, by any substantial means, come out ahead of the other countries. While their quick spending and project construction did allow Mexico to bid away limited resources before anyone else could, the people of Mexico will still be no better for it. The money spent will go to directly benefit the friends of the Mexican government, undoubtedly those in the health care industry, and to those employed by the new projects. But the nice things that the new 'space dollars' can buy will not be felt by everyone in Mexico—just those involved and working in the 32 new hospitals and few water parks. For everyone else, they will be left with the bill in a very real sense. Prices will adjust upwards and the people of Mexico will be faced with those higher prices, but they will only be armed with their incomes from the pre-'space dollar' price levels.

This means that the money people earn for their work will now buy less and less as a result of the increase in prices to match and keep up with an increase in the money supply! As necessary and as important as hospitals are, what good are they if your paycheck that fed four mouths every day can now only feed two?!?

At the end of the episode, the aliens depart from the SouthPark residents with some “progressive” words of wisdom, saying that “the space dollars only had as much value as you gave to them.”

But I find the words of Murray Rothbard to provide more clarity in this situation:

“It is clear that while everyone would be euphoric from their seeming doubling of monetary wealth, society would in no way be better off: for there would be no increase in capital or productivity or supply of goods.”

Simply having more paper dollars does not, in any way, change the economic reality of limited resources, nor will those additional paper dollars change the productivity of any economy. At the end of the day, those dollars are, well, just pieces of paper.

The real lesson to be drawn from this SouthPark lesson should have been that we cannot print or borrow our way out of a recession.