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Arm chair economic analysis by Robert Ashworth
Help, help, It's a money flood

When excess water has to go somewhere, it causes a flood.  What happens when there is excess money?  Can it cause a flood also?

Capital is "sloshing" around

Watch out, people are being flooded out of house and home by rising real estate values.  Where is F.E.M.A. when we need it?  I recently read an article, from the New York Times, that spoke of people having to sleep on an all night transit bus, that they nicknamed "the rolling hotel," because they were flooded out of affordable housing due to rising property values.  These were not your regular bums.  Many were people earning around $25,000 per year, but they were hard pressed to afford rents, or home ownership, where many 1 bedroom homes are selling for $750,000.  That's one bedroom homes! 

Where was this happening?  The article was about San Jose, CA; a city that was flush with "dot.com" money in the late 1990s. 

This money flood also affects Wall Street.  Excess money "sloshing" around contributes to volatility.  Stocks go way up and then come way down with out a very clear "game plan."  There is just lots of money out there that needs to be "parked" somewhere.  It just seems to be aimlessly sloshing around at times.

Like water, money is a life giving ingredient, but also, like water, money can do a lot of damage if it floods into the wrong places.  Ask the average person trying to rent, or buy, a home in locations where property values have skyrocketed. 

Money can be good for society when it brings us things like improved facilities, or scientific research.  Money becomes a problem when it just pushes up prices for existing things with little or no improvement.  A house that sold for $85,000 back in 1980 is not that much better just because it sells for $850,000 in 2002.  There is just too much money chasing the same old houses.  That's inflation.  Population growth and density zoning issues also contribute to this run away inflation, but the money flood is a factor. 

Excess capital isn't all bad however.  It seems like much of our nation's information highway has been build by moneyed investors looking for a place to park their billions.  Data centers were built, fiber optic cables laid.  Much of this investment has not paid that much back to the original investors, but our nation got it's fiber optic network anyway.

Now, in the beginnings of the 21st century, internet giants are filing for bankruptcy left and right, but they are still running.  Bankruptcy gets them off the hook for the vast capital outlays of their original investors.  After some paper shuffling, new investors can buy the company, often for pennies on the dollar, and keep in business.  The new investors can use multi-billion dollar fiber optic networks as if they only cost several million to build; what a bargain! 

Basically we have a nice information highway that was practically given to us by these rich investors, though I don't think they intended it to be that way.  If the government had built the system, at taxpayers expense, conservatives would be bitching.  Instead, much of the system was built by private investors who had enough money to burn and still not have to take up residence in a homeless shelter. 

I can say, "thank you rich investors for practically giving us the network."  "Sorry it didn't pay off as well as you expected; at least in the short run."  "Now we can go about the business of using this great gift for, in many cases, not very profitable, but spiritually fulfilling uses."

Money can be a benefit, or a harm, to society.  It just depends on where it is flowing.  Unfortunately, too many people just say, "the more money everyone has, the better."  This is a philosophy behind always supporting tax cuts no matter what.  In reality, money is just a medium.  It can create social harm as well as good.  We need to pay more attention to how money is used in society.  It is good to have some idea of a "game plan."  No I don't mean something like a socialist "5 year plan."  Free markets can be good, but people need to think more about what good the money is doing, rather than just saying, "the more the merrier."