Right Wing talking heads and corporate disinformation agents are working 24/7 to keep you from understanding what they're really doing to you. In order to make the most of the ammo this blog gives you to fight them, you need to have a good working knowledge of some basic terms and concepts. Here are the highlights:
Money Supply: The total sum of all items accepted at more or less face value throughout the economy as the legal medium exchange, store of value and unit of account. For an economy to be healthy, to expand, and to maintain a proper level of employment, the money supply must have integrity enforced by a strong central authority and society's system of exchanges and incentives must provide access to the most skilled producers of value-added tangible goods. Includes the very distict sub-categories of M2 and M3 (see below).
M2: A special sub-category of the money supply that includes not only had coinage and paper bills (i.e., classified as "M1"), but also bank deposits and non-institutional money market funds ("M2") guaranteed up to $250,000 by the Federal Deposit Insurance Corporation ("FDIC"). Generally this is the good stuff that helps the real economy work and drives the Velocity of Money (see below).
M3: Scarily, the Money Supply also includes a very poorly regulated category which is regularly counterfeited by Wall Street Cowboys called M3. This includes larger time deposits, repurchase agreements of longer than one day maturity and institutional money market funds. IMPORTANT NOTE: Unlike M2, this is NOT all guaranteed by the FDIC, meaning that its integrity is very dependant upon the integrity of the balance sheets of publicly traded companies and their exotic instruments. Highly correlated to changes in the Dow Jones Index. Too much of this stuff in relation to M2 is bad, bad news for any economy. See further discussion here.
Laffer Curve: Ostensibly, the formal articulation by professional economists that for any given economy there exists a theoretical optimal level of income taxation at which produces the best allocation of resources between the private and governmental sectors. But in actual practice this is the rhetorical fig leaf used by corporate disinformation agents to destroy democracy by defunding shared institutions. See further discussion here.
The Velocity of Money: A thumbnail statistic that shows roughly how efficiently financial capital is flowing through the real economy. Calculated as Gross Domestic Product ("GDP") divided by the M2 measure of money supply (see definition of M2 above). The higher the velocity of money, the better the economy. See further discussion here.
Fiscal Multiplier: The amount of total economic activity, as measured in dollars, resulting from the spending of one dollar in a particular sector or activity. This concept is closely related to 'The Velocity of Money' described above. Generally the higher multiplier the better for the overall economy. While the existence of this effect is broadly recognized, the precise quantification of the multiplier effect for specific activities or sectors is highly controversial. Guys like Grover Norquist try to tell you that spending by the private sector is always more efficient than that of the public sector, and guys like Mark Zandi, chief economist at Moody's will tell you that specific government programs often have higher multipliers than comparable activities conducted by the private sector. To get an overall sense of who's on the right track, I've calculated a rough multiplier factor for each major economic sector, using some simple high-level information publicly available at this blogpost. Guess who're the most productive and least productive segments of the economy? If you guessed federal government (i.e., 9.4 Velocity / Multiplier) and corporate finance (0.2 Velocity / Multiplier), respectively you're spot on!
