Do you want to have a successful civilization?  Form a limited government that encourages lawful and productive behavior.  Sounds simple, right?  We actually did that for a while here in the U.S.

Then post-modernists tore it apart over about, say, five decades. We used to have simple principles, the core basis of which might just be morality, or the Old Testament’s Ten commandments.  But who needs that kind of old thinking anyway?  We have a new way of doing things today that doesn’t require obeisance to external forces (other than to woke ideologues).

On the lawful behavior front, we have replaced blind justice with a fractionated, multi-tiered justice system that considers race, sex, gender (I never knew these were two different things until this year), sexual identity and political affiliation as factors in the administration of law.

Thus crime is up some 50-200% depending on what crime you consider and where you live.  And let’s not even think about corporate malfeasance.  It’s no longer “too big to fail,” but rather “big enough to break the law and tell world governments what to do.”

Abandon truth and justice evaporates.  So much for the little guy.  He is no longer able to challenge Goliath in court.  So keep your mouth shut and try not to get noticed by the wrong three-letter agency, giant corporate entity, or life-canceling cabal of woke extremists.

On the Productivity front, consider how much we ask of people who opt out.  Not a lot.  It’s still enticing to work hard and be productive for those of us with ambition, energy and desire.  We play life’s game and take on challenges and go to bed tired, but internally and externally rewarded for our efforts—mostly.

That was then. But suddenly we were awakened to a “pandemic” that forced us to glimpse beyond the looking glass where everyone stayed home except so-called essential workers. We got a taste of relaxed un-productivity.  And a lot more of us joined the unproductive class, by choice or by force.

But there again was the government to save us from the destruction created by unfettered, unchecked government.  Our PPP checks arrived. And here is the heart of the matter with today’s inflation:  Free money.

Maybe it was my degree in Economics from Harvard that caused me to ponder what I’ve witnessed with productivity over the last three decades, or maybe just curiosity.  But it always puzzled me how we maintained our amazing increases in aggregate productivity while also sustaining a welfare state of unparalleled size and scope.  I wondered: is there a limit to this?

For the purposes of discussion with my peers and acquaintances, I split monetary transactions into TYPE ONE (T1) and TYPE TWO (T2), where T1 transactions involved the exchange of money in return for a good or service of value.  "Here is a sandwich; here is $10.”  "I just did your taxes, that will be $950" (maybe not the best example).

T2 transactions involve no reciprocal exchange of a valuable good or service:  "Here is your welfare check, you just embezzled $50,000.”  "Here is your retirement check for your career as a 20-year government employee."

I always wondered what ratio of T2/T1 a well-functioning society could have before an implosion.  Clearly zero T2 isn’t required.  There is probably some value to small amounts of wealth and income redistribution.  But certainly once T2 transactions get to be a substantial percentage of all transactions, money itself degrades.

Money is an abstract way to account for productivity.  It has meaning only to the extent that it exerts influence over the behavior of other people.  Money grants access to the basket of goods and services created by the aggregate productivity of a society.  For the exchange of money (T1), you can reach into the basket and take what you most desire, so long as you can afford it.  In order to afford it, the game is to put things into the basket in exchange for money (T1 again).

At the point where the ratio of T2/T1 is infinitely high, money becomes completely meaningless because it no longer inspires behavior.  The masses reach into the basket without putting anything back into the basket at all.  The items remaining in the basket dwindle and their cost increases proportionally with their scarcity.  This is where we are today.

Interest rates have nothing to do with today’s inflation (so raising them will NOT stop it).  We had thirteen straight years of near-zero percent interest and strong growth with no inflation.  It’s all T2 money. 

I know this because my very successful firm got a PPP check for nine million dollars.  We followed all the government’s rules to the letter.  The money was free—PURE SWEET T2 MONEY.  And we don’t have to pay it back.  This infuriated me.  Why would nine million free dollars infuriate me?  Because I knew I wasn’t the only one to get it; many others did too, even if they didn’t “need” it.

So today’s test should yield some pretty good data on what ratio of T2/T1 can be withstood.  It has already created some pretty awesome inflation (which you know is more like 40% per annum if you remodel your house or do building construction). A few hundred billion in student loan forgiveness should sweeten the T2 pie to the point of diabetic inflation.  Good luck, America.

Damon H. Petty, M.D. is a Nashville sports medicine credentialed orthopaedic surgeon practicing with an independent firm and is also a physician for an NFL sports team. His practicing physician guiding principle has been his Cleveland Clinic mentor’s advice: “Always do what is right for the patient.”  That principle should also be applied to our country.

Image: Library of Congress, via Picryl // no known restrictions