July 12th, 2008

The Economy: Like a Bag of Potato Chips


photo credit: JUD

You’re at a grocery store, shopping for items for your upcoming family picnic. You stroll through the aisle with chips and cookies, and grab a nice, big bag of Lays potato chips. The bloated bag feels like it contains enough snackage to feed your family with some left over for lunches throughout the week. You arrive at the destination of your picnic, get settled, and then open the bag. To your dismay, the bag is only half full.

We’ve become accustomed to this type of packaging, where the container is deceitfully enlarged to mask the true amount of content contained inside. Chips are the best example, since in some cases literally half of the bag is full of air. We’ve likewise become accustomed to an economy that is packaged and presented in exactly the same way.

Fractional reserve banking is one of the largest culprits in perpetuating this monetary deception, since banks operating within this system keep only a small fraction of your deposited money and loan out the rest. Thus, with an initial deposit of $1,000, a bank is able to create thousands of new dollars out of thin air. The 45-minute “Money as Debt” video explains this quite well.

Our elected leaders (who grant themselves authority to “lead” the economy while they’re at it) often praise our economy, speak of its growth and size, pay homage to its power, and create policies that they think will help guide it forward. Government, however, is an external economic force. As true economy involves individuals (and the products and services they create and provide), government can only negatively act as a third party, destructive force. Appropriately applied (for example, to enforce contracts), this process works well. But any deviation from proper and moral procedure is like filling the bag of potato chips with even more air. Inflating the economy with newly printed dollars, for example, will make the bag (economy) a bit bigger, but there comes a point when the force is too much and the bag explodes at the seams.

This event is not far distant for the American economy, if we proceed along the same course we have pursued since 1913.

Just as many people don’t know how to read the labels on our food to know what’s inside, so too are many being fooled as to the real health of the economy. Politicians and pundits alike try to reassure Main Street that “all is well”, for in that deception lies the only chance the economy has of perpetuating itself in its current form. Any lack of faith or question of its integrity leads to bank runs and collapses, like the one we saw just yesterday.

Buying potato chips is not a bad thing, but the wise consumer must know what he is getting in return for the cost incurred. Likewise, there are many good things about our economy, but to be financially sound we must be aware of all the hot air and bloated packaging surrounding the good.

16 Responses to “The Economy: Like a Bag of Potato Chips”

  1. Daniel
    July 12, 2008 at 10:22 pm #

    I thought the economy was like a box of chocolates.

    It’s not exactly deceitful. I think they put air in the potato chip bag to protect the chips from breakage. If you read the package, you can see the weight of the chips you’re getting.

    I think I could extend this into your economy metaphor, but right now I can’t be faffed.

  2. Helaman
    July 13, 2008 at 5:37 pm #

    Is there too much Government intervention in the economy?

    It’s rather disconcerting to read this and then think about my own job and what I get as benefits. It’s made even worse when you hear about how bad some of these companies do – all that air and the chips still break.

    On a side note.

    I read an article about how Walmart is forcing companies to change it packaging ideology.

    Here’s the article.

  3. Chris
    July 13, 2008 at 8:56 pm #

    Ok, I agree with the post but remember bags of potato chips have always been inflated with air and its not done to be deceitful. The air acts as a blanket so the chips don’t break as easy in shipping.

  4. Connor
    July 13, 2008 at 9:57 pm #

    The air acts as a blanket so the chips don’t break as easy in shipping.

    They could package them in thin yet structured boxes. No air necessary. :)

  5. Kelly W.
    July 14, 2008 at 7:52 am #

    Like Pringles.

  6. Sean
    July 14, 2008 at 8:10 am #

    Helaman,

    I agree that CEO pay tends to be too high, especially since it isn’t tied much to pay-for-performance. But that trend is largely the result of corporate welfare: various tax breaks, subsidies, and other benefits that large companies tend to receive over smaller ones. Corporations are larger than they would be in the absence of these subsidies; therefore, the CEO tends to be further removed from the workers than he/she would in a truly free business market. If you work for a 10-person small business, the head guy can’t get away with nearly this kind of ridiculous pay, right?

  7. Reach Upward
    July 14, 2008 at 12:42 pm #

    There is a market for CEOs just as there is a market for engineers, janitors, teachers, taxi drivers, computer programmers, prostitutes, etc. CEO pay is set by the market, just as it is for other jobs.

    You want to hire a good engineer? You’re going to have to pay the market rate in your area for that person. You want to hire a good CEO? You’re going to have to pay the market rate for that person. And since the job of CEO is highly volatile, you won’t attract quality applicants without providing a good security (golden parachute) package up front.

    Unfortunately, part of the reason CEOs are worth so much comes down to their ability — as Sean notes — to extract as much benefit from government as possible. When government exceeds its mandate of providing a secure structure for competition it distorts the market.

    A friend of mine thinks Republicans are evil because “they are in the pocket of big business.” His mind was boggled when I showed him that big business is donating far more to Democratic coffers than GOP coffers at present. Big business pays the politicians that they think will bring in the most government largess.

  8. Kelly W.
    September 20, 2008 at 1:24 pm #

    It wasn’t that long ago that John McCain was going about the country stating the economy was strong and sound. Bush would echo McCain in saying the economy was robust. We were told that we should suck it up, because it was all in our heads and we were whiners. It was politically incorrect to utter the R word (recession).

    Now McCain and Bush have flip-flopped. They are saying the economy is on life support, and if we don’t pass a $700 billion bill through Congress, the whole economy would die within days. McCain claims he’d fire a person or two, and Obama claims he’d fire the whole department.

    Seems that all the politicians and pundits were 100% wrong (or lying through their teeth) and all the nuts on the internet with tin foil hats were correct after all!

    If every man, woman and child would empty their wallets, and if all real estate in the USA were sold, and if all the assets of all the banks were pooled, it would NOT be enough to satisfy the national debt. In other words, the national debt cannot be repaid, and the USA is already bankrupt.

    To think that at the end of Clinton’s term, he handed over a surplus to the incoming Bush administration. That surplus was quickly turned into a debt and now the debt has increased over the last 8 years to totally wipe out the country.

    One has to wonder if this is part of the Shadow Government’s secret plan. The Shadow Government never had any intention of paying down the debt. By purposely destroying our economy, we will gladly give up our sovereignity and accept an alliance of the North American Union, complete with an new currency.

    With the country at war to the tune of 2 billion dollars per week, and the crash of our Federal Reserve Notes, we ought to look to the prophets’ counsel ASAP. (But perhaps we have put off the day of our repentance a bit too long).

  9. Bil
    September 21, 2008 at 6:14 pm #

    We first need to remember that no one OWNS anything. In spite of the federal government’s recent actions, neither does the government.

    The Lord has chosen to make us stewards over some of HIS property. To those who would abuse that power of stewardship, I believe He is giving them ample rope.

    Despite Bill Clinton’s claims, we have not had a truly balanced bundget since Kennedy. Clinton shifted funds to make it look like there was a surplus. But the bottom line in all accounts is the national debt. Granted, we did not see the huge rises during his administration as we saw in the Reagan and Bush eras. But we still saw a small growth in debt. So to say he had a surplus was bogus.

    Kelly, you cited the war as the reason for the current economic bubble. Do a search on “David Walker Economy” on YouTube. Watch all his videos.

    I’ll wait . . .

    Now that you’re back, do you see what the real problem is? It is in cold hard numbers. Welfare, social security, all these services are killing our country. But it is unfortunate that our elected officials believe that we “can’t handle the truth”.

    Many believe it is already too late and there is NOTHING we can do to stop the inevitable demise. Ron Paul forsees a “reset” similar to what the Soviet Union saw over a decade ago. But David Walker believes there is still something that can be done. But time is running out.

    I find it interesting that it took full scale Communism to bring down the “evil empire”. But all it takes is some socialism mixed in with a corrupt government and an oblivious populace, and we will see the same collapse just 50 years later.

    President Benson, while Secretary of Agriculture under Eisenhower was told by the then Premier of the USSR, ‘You Americans are so naive. You think you live in a capitalist nation. But all we have to do is feed you small doses of socialism until, by the time you realize what is happening, you will wake up in a Communist nation.”

    His response was,”I will do all in my power to keep that from happening.”

    Is there anything that we lowly citizens can do anymore when our elected officials believe we simply “can’t handle the truth”?

  10. Kelly W.
    September 21, 2008 at 7:21 pm #

    Bil, I don’t think I disagree with you. I was not supporting the Clinton claim of a “balanced budget.” I was merely pointing out the huge amount of further debt aquired by the Bush Administration. It has been beyond staggering. I think it is sad that our elected officials believe we can’t handle the truth, so they give us lies instead?

    After all, that was my point exactly – we all got a huge amount of lies and no truth for the real reasons we now find ourselves in such an economic pickle. The illegal wars we are fighting is not the only reason we find ourselves in such debt, I only use it as an example of how we can supposedly find gobs of money for war, but cannot find any money for peace. It boggles my mind that Utah’s Mormons and other Republicans all over the country can justify billions to fight an illegal, dead-end war but cannot imagine using the same amount of money to really help out our own country’s children and middle class.

    BTW, I didn’t watch your videos. Sorry. Maybe later. I’m still in mourning over the six thousand dollars my 401k has lost since last week.

  11. Joshua R.
    September 24, 2008 at 7:34 am #

    Just one quick comment on something Kelly W. said

    If every man, woman and child would empty their wallets, and if all real estate in the USA were sold, and if all the assets of all the banks were pooled, it would NOT be enough to satisfy the national debt. In other words, the national debt cannot be repaid, and the USA is already bankrupt.

    This is a bit hyperbolic and akin to saying that because I can’t sell all my assets and come up with a positive value then I’m bankrupt. The problem with the assumption is that debt is given on the basis of our future ability to repay it, not our present ability to repay it. As long as I am working and able to make the payments, even if I’m upside down in the value of my house for example, I’m still solvent. If I lose my job then I’m in trouble.

    I’m certainly no defender of the status quo but I think we sometimes, myself included, assume the worst when we look at a given situation.

    My personal opinion is that we shouldn’t be taking on debt as a country unless it’s for infrastructure or things that will still be here when the debt is paid off. If we take on debt for things like highways then I’m fine with that because we should still be using that highway 30 years down the road when the debt is paid off. If we use it to fund social programs and income-redistribution schemes then that is pointless because that money is gone and spent as soon as it’s given out and there is no tangible good that the next generation can use.

    To liken to our own lives. I have no problem with taking on debt for a house, a car or an education because all of those things will still be mine at the end of the payment period and I will still be using them. It is, however, asinine to incur debt to take a vacation because I’ll still be paying for the vacation even after it is over and there is no ongoing benefit from it. If we don’t have the discretionary income to do the extra-curricular activity, then we suck it up and stay at home or go to work to earn the money we need to do it.

  12. Kelly W.
    September 24, 2008 at 8:03 am #

    Joshua,

    Agreed, good logic and wisdom.

    Does this mean you are FOR or AGAINST the proposed $700 billion bailout – money that I don’t think USA has right now – unless they just spool up the printing presses?

  13. Joshua R.
    September 24, 2008 at 12:38 pm #

    Kelly W.,

    I am adamantly opposed to government bailouts. I think the scaremongers are too free with our money. I believe that there are very few things that Congress is empowered to do and rather than stick to their knitting they try to justify their income, pensions and positions by looking busy. And the best way to look busy is to create solutions and then invent problems to attach them to. If they actually stuck to the limits in Article I, Section 8 we likely wouldn’t have half the problems that seem to plague us now. Now THAT would be revolutionary. Oh yeah, we already had that revolution. ;-)

    Josh

  14. Joshua R.
    September 24, 2008 at 12:44 pm #

    I’m also very concerned that they are going to spool up the presses. I also believe that the Federal Reserve, which has to answer to no one (another topic for another time perhaps), should be required to publish M3 so we can see what the broader impact on us is with inflation. It’s the easiest way for us to tell how much dollar-devaluing currency is being introduced into the system.

    Josh

  15. Bill
    September 24, 2008 at 6:25 pm #

    Kelly,

    I really wish you had looked at those videos.

    To sum it up:

    David Walker is the former Comptroller General for the US. He quit is 16 year appointment early because he was horrified by what he saw. I felt confidence in what he was saying because he gave up a lucrative job that was garanteed for another 5.5 years so that he could tell the people directly (because our representatives weren’t listening) about the problem and raise public awareness.

    Points he made:

    1) Even the highest number that anyone has come up with for the cost of the war is just a drop in the bucket.

    2) The thing that is going to kill us is when the baby boomers start filing in to the social security office (which was 2008) then later get medicare/medicaid (2011). The amount we are currently spending on these programs is irresponsible. But the future obligations are insane. The debt we will acrue will make us insolvent. Joshua, by insolvent I mean that even if we were taxed at 100% and saw unprecedented growth, and only spent tax dollars on the debt, we would never be able to pay it off.

    Once this happens (and I’m not saying “if” anymore) either our leaders will finally face the truth and admit we are insolvent or one of our debtors (say, oh, I don’t know, CHINA) will start complaining and say “hey pay up!”

    When we can’t — there’s WWIII with all our debtor nations coming to collect. Will Britain and Canada stay by our side when they, too, are our financers?

    We were at the point where we could take on all of our enemies in an offensive war. We would be unbeatable in a defensive war. But when even our allies are our enemies, what then? Are we a defensible nation? It will be awfully close.

    Don’t get the impression that I’m a malitia type. I’m not. But I’m working hard to get my carry permit, and I’m loading up on weapons as part of my emergency preparedness. I hope I’ll never have to use them.

    But If riots break out, there are just enough people who know I’m Mormon and that Mormons have food storage.

    I’ve got to care for my family first.

  16. Kelly W.
    September 24, 2008 at 6:38 pm #

    Bill, I will make an effort to watch those videos. While I have been concerned with and tried to read up on the economy during the past 2 or 3 years, I am certainly no expert. What I see happening now is frightening to me only in the regard that what I was thinking might come to pass in the next few years is already happening.

    However, I have to wonder still if the situation is being blown out of proportion on purpose (as propaganda) so the corrupt people in government can hurry through some heinous legislation out of fear and panic, the same way they rushed through the hideous PATRIOT act.

    BTW, would a dummy in economic things understand those videos? Much of what is going on now is over my head.

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