This is inspired by Thomas Paine, who wrote:
What we obtain too cheap, we esteem too lightly; it is dearness only that gives everything its value.
This is my postulate:
Speculative bubbles get over inflated due to people wanting value with minimal or no effort on their part.
Here are supporting examples:
- Gambling - For the minimal effort of playing a game of chance, a person hopes to win more than they spent. Gambling is the "founding father" of the delusion leading to "value for no effort" thinking.
- Lotteries - Gambling for the masses. For the small price of a ticket, a person hopes to get a very large winning.
- The Stock Market - For the price of a share of stock, you hope the company holding the stock will give you big returns while you do nothing. I was sucked into this one even though I hated working at a public company and hearing all the time about providing value to share holders while working my butt off and barely scraping by. The light bulb went on recently when I was explaining my stock strategy to my daughter and she asked "Isn't that gambling?". I rationalized what I was doing, yet have found that she was right.
- Credit Cards - By giving someone a small plastic card with your name on it, you can receive goods and services without any effort. I'm also a victim of this. Although I convinced myself that I was smart by paying off the balance every month, I was actually stupid since I was experiencing the separation between value and effort. (We have recently put our credit cards away).
- Home Equity Loans - Once again getting cheap, easy money. (I must confess that I am not innocent of this example).
- Ballot Initiatives - By simply marking "yes" on the ballot next to your favorite cause with no thought were the $100 million is actually coming from (In my home state of California, this would be building a hospital for the orphans of war veterans using recycled grocery plastic bags and run entirely by solar panels and wind mills. It would also employee all of the people who recently lost their jobs in an unrelated industry, provide housing for the poor and a habitat for an endangered desert rat all while alleviating traffic congestion).
- Bailouts - Legislatures spends days carefully crafting a law that results in the expenditure of way too much money that will take countless generations to pay for it. (I sure wish someone like Mitt Romney was crafting these bail outs).
- Pensions - A person works for a company for many years and upon retiring receives a comfortable pension. This is a dream of many Americans. Do the retirement wages represent only contributions made by the company during the person's employment? I'm guessing that some percentage comes from the value produced by someone actively working somewhere.
I repeat Thomas Paine's words: What we obtain too cheap, we esteem too lightly.
What are the consequences of these examples?
Let's imagine that you find a $100 bill tucked in the pages of an old book. This is money that has not been circulating in our economy and therefore has not been providing stimulus for many years. You decide to take your family out to dinner. You end up tipping big and spend the entire $100. What happens to it? It goes to the suppliers of the food, pays a portion of the utilities and mortgage for the restaurant. The waiter takes his/her tip and wages and spends it else where. The restaurant owner takes their profits and also spends it. The supplier pays their suppliers and buys the fuel to deliver the produce. And so on.
Basically, the $100 get spent over and over again and creates a magnified boost to the economy.
Likewise, the above examples of "value without effort" result in economic stimulus in the form of increased consumption, excess growth in businesses, etc.
In Physics, the Law of Conservation of Mass says that the mass of a closed system will remain constant, regardless of the processes acting inside the system. In other words, matter cannot be created/destroyed, although it may be rearranged.
In economics, I would assume there are similar principles. However, the "pay later" invention of mankind has made it possible to complicate the Law of Conservation of Money by making our closed system include the future. Excess now means deficiency later.
Blah, blah, blah. I'm sure no one made it this far due to boredom. I'm tired and I'm going to bed ;-)