What is an Unhealthy Economy?

What does it mean to say the economy is unhealthy? Essentially, an unhealthy economy is one in which there is not enough money circulating. A healthy economy is like a lake with a river running through it; the river keeps things fresh and active. When the river dries up, the water in the lake is no longer circulating and it grows stagnent. The plants and fish eventually die and the water gets worse. This is like an unhealthy economy.

When the economy is down the basic problem is that there is not enough money moving around. There may be enough money but people are not spending it freely enough. If one day everyone were to close their bank accounts and burry all their money in coffee cans the economy would come to a grinding halt; that is essentially what happens (albeit in less dramatic fashion) when the economy slows down.

If a large enough group of people guard all their money and burry it in coffee cans then they are not buying shoes. If they are not buying shoes then the shoe store has to lay off its employees and eventually close. If the shoe store closes then the shoe factory will close and layoff its employees. If the shoes factory closes then the leather and rubber companies will close down and layoff their employees. The situation spirals out of control now because all these laid off employees are no longer getting a paycheck and so are no loger buying products and that is even less money in circulation. Less and less money is circulating and more and more companies are forced to lay off employees and close down. The problem is that there is not enough money circulating.

In the days immediately following the September 11th attacks the American people were shocked, scared, and grieving; they stayed at home as much as possible. The economy took a hit because people stopped spending money. President Bush addressed the American people on tv and essentially told them that it was their patriotic duty to go shopping; they listened and economic disaster was averted.

An unhealthy economy is one in which money is not circulating enough. How to cure an unhealthy economy is a question for a future post.

From: JWKraft.com