2150 A Sheep Story

Monday, November 8, 2008

Suppose you live in a small town in the boonies, where there's little actual money and a lot of bartering of sheep. Suppose you go into debt to your neighbor, for a new roof, say, and he's hassling you for payment, 10 sheep. But your sheep haven't been reproducing well, and you don't have 10 sheep you can spare.

Suppose I am very rich, live in the huge mansion on the hill, with a large flock of sheep. You come to me for help, and I say, "No problem", and I sit down at my desk and write a slip of paper saying that I will take care of your debt, that this piece of paper represents 10 sheep. (Or maybe I write 10 slips of paper worth one sheep each.) Note that I don't actually give you 10 sheep. The paper just says it's good for 10 sheep.

You take the paper to your neighbor, and he is satisfied. He takes the paper to his grocer, and the grocer is happy to take the paper in exchange for bread and milk, because, after all, he can look up the hill and see the sheep in question browsing in my fields. I'm still shearing the sheep and keeping the wool, but that's ok. He can redeem this slip for a sheep when he needs it.

Unfortunately, your neighbor also still owes for the materials he used for your roof, and having bought the groceries and being out of spare sheep (his also are not reproducing well), he comes to me and asks for help. I sit down and write some slips of paper that say, "Don't worry, I'll cover for 10 sheep." Note that if anyone actually redeems the paper for sheep, you and your neighbor would have to replace the sheep.

There's been a general infertility problem. Nobody's sheep are reproducing well. That's called "recession". The sheep are depressed or something. Pretty soon, there are little slips of paper all over town. If everybody redeems the paper for sheep, then everybody owes me sheep, which they don't have. And they are starting to look up the hill and realize that there are more little slips of paper out there than I have sheep. A lot more. I've covered for more sheep than I have. But it doesn't bother me, because - hey, I still have the sheep! I'm doing fine.

Eventually it dawns on people that if they brought this paper to me to collect the sheep, for each one-sheep slip, they might get a third of a sheep, not a whole sheep, because there aren't enough sheep. So they start asking for three times as many slips when one sheep is owed. And it also dawns on them that if they do try to collect sheep for those pieces of paper, I'm going to start calling in the loans at the rate of one sheep per paper, and nobody can afford that, because, well, the sheep aren't reproducing.

And that's inflation.

You know that $800 billion the big house on the hill handed out? There are no sheep. The government (well, actually, the federal reserve, which is NOT a government entity, it's a private enterprise, and the taxpayers are in debt to them, but that's another story) simply sat down at their desks and wrote up 800 billion slips of paper redeemable for sheep no one has.

The only way to fix it is to get the sheep reproducing. We need to make more things of value, export more sheep. Get off our duffs and start creating sheep. But the banks have most of the rams, and the rams are suddenly more valuable, so they're not renting them out for stud at fees we can afford, so we are forced to eat our sheep, and with fewer sheep we are firing shepherds, and with fewer shepherds we can't take care of our sheep as well (they are notorious for difficult births even when we have access to a ram), so it spirals down.

And we all go into a depression.

Moral of the story - Elect shepherds who can count. And invest in farms that have their own rams.
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