Tuesday, June 30, 2015

In Which I Discuss Political Economy With a Ten Year Old

The Girl is ten -- almost eleven, she would prefer I say -- and curious.  The book she was reading last night contained a reference to the Great Depression.  I was in the room at the time.  Conversation ensued.  In my defense, this was entirely impromptu.

TG: Dad, what was the Great Depression?

Me: It was a period of about ten years when the economy really didn’t work well.  There weren’t enough jobs, and lots of people were poor.

TG: Why?

Me: It’s complicated.

TG: Tell me!

Me: Okay, well, people sort of ran out of money, so they stopped buying things.  When that happened, businesses couldn’t sell things, so they stopped making things and they fired the people who had made things.  Then those people couldn’t buy things, so it got worse.

TG: How did they run out of money?

Me: Well, they borrowed too much, and couldn’t pay it back.  Then they stopped buying things, and the companies that make things went out of business.  Then the people who worked at those companies lost their jobs, so they stopped buying things, and so on.

TG: It’s like a spiral.

Me: Exactly.

TG: How did we get out of it?

Me: World War Two, mostly.  And the New Deal.

TG: World War Two?  How did that help?

Me: The government borrowed a lot of money, and used it to pay soldiers, and to pay people who worked in factories making planes and guns.  Once people had money, they spent it, which created demand for stuff.  Then companies had to hire more people to make stuff, and the spiral moved upwards.

TG: So a war did something good?

Me: Unintentionally, yes.

TG: What was the other thing?

Me: The New Deal?

TG: That!

Me: A lot of programs.  It was when Social Security started.  That’s where the government gives money to retired people or old people.  The idea is that they’ll spend it on stuff.  That will create demand for stuff, so companies that make stuff will have to hire people.  

TG: But didn’t they always do that?

Me: No.

TG: So what did retired people do?

Me: Lived with their kids, mostly.

TG: That’s stupid.  Where do they get the money for Social Security?

Me: Taxes, mostly.  And some they borrow.

TG: Why?  Why can’t they just print money?

Me: It doesn’t work like that.

TG: Why not?  They have machines that print money.  I saw them at the mint!  Remember?

Me: Well, yeah, but if they print too much, it becomes worthless.

TG: What?

Me: Some countries tried that, and it didn’t work.  You needed a wheelbarrow full of money to get a cup of coffee.

TG: But the government is money!  Why do they have to tax people for it?  They can just make more!

Me: Imagine if everyone had all the money they wanted.  Would anyone go to work?

TG: Oh yeah.  I guess nobody would make anything.

Me: Exactly.  With lots of money but nothing to buy, money is worthless.  They can’t just print it whenever they want more.

TG: Oh.  I wonder what’s in Area 51...