RUN YOUR OWN LABOR AND JUSTICE CANDIDATE!!!
I wanted to give an update to remind people what the problems really are and ask 'DO YOU HEAR YOUR INCUMBENT SHOUTING LOUDLY AND STRONGLY AGAINST THESE PROBLEMS? We hear nothing but debates on spending cuts and revenue!
Below you see an article that identifies what should have, could have happened in 2009 if we had an FDR style President. We were sold on that, but we all see we were duped. Still, we want to work towards these solutions and remember, suspending Rule of Law in these cases suspends statutes of limitations as well......we will recover all that wealth!!
Quantitative Easing for the People: Default on the Public Debt, Nationalize the Banks, and a Dividend for Citizens
Posted on March 8, 2013 by Administrator Ellen Brown • www.commondreams.org • March 7, 2013
Comedian Beppe Grillo was surprised himself when his Five Star Movement got 8.7 million votes in the Italian general election of February 24-25th. His movement is now the biggest single party in the chamber of deputies, says The Guardian, which makes him “a kingmaker in a hung parliament.”
Grillo’s is the party of “no.” In a candidacy based on satire, he organized an annual “V Day Celebration,” the “V” standing for vaffanculo (“f—k off”). He rejects the status quo—all the existing parties and their monopoly control of politics, jobs, and financing—and seeks a referendum on all international treaties, including NATO membership, free trade agreements and the Euro.
…Steve Colatrella, who lives in Italy and also has an article in Counterpunch on the Grillo phenomenon, has a different take on the surprise win. He says Grillo does have a platform of positive proposals. Besides rejecting all the existing parties and treaties, Grillo’s program includes the following:
• unilateral default on the public debt;
• nationalization of the banks; and
• a guaranteed “citizenship” income of 1000 euros a month.
It is a platform that could actually work. Austerity has been tested for a decade in the Eurozone and has failed, while the proposals in Grillo’s plan have been tested in other countries and have succeeded.
WE HEAR ALL KINDS OF EXCUSES FOR FAILURE TO GIVE JUSTICE.....NONE OF THEM TRUE. YOUR THIRD WAY CORPORATE DEMOCRAT COLLUDED IN THIS PROCESS AND WORKED FOR THE WEALTH INEQUITY AND THEY HAVE NO INTENTION IN WORKING TO BRING IT BACK. WE MUST HAVE RULE OF LAW REINSTATED AND TO DO THAT WE MUST NOT ELECT THE FARM TEAM......
RUN AND VOTE FOR LABOR AND JUSTICE CANDIDATES NEXT ELECTIONS!!!
The Lie that Prosecuting Bank Fraud Will Destabilize the Economy Is What Is REALLY Destroying the Economy
December 25th, 2012
in Op Ed
Failing to Prosecute White Collar Crime Guarantees a Weak and Unstable Economy … and Future Financial Crashes by Washington's Blog
The Departments of Justice and Treasury are pretending that criminally prosecuting criminal banksters will destabilize the economy.
The exact opposite is true.
Failing to prosecute criminal fraud has been destabilizing the economy since at least 2007 … and will cause huge crashes in the future.
After all, the main driver of economic growth is a strong rule of law.
Nobel prize winning economist Joseph Stiglitz says that we have to prosecute fraud or else the economy won’t recover:
The legal system is supposed to be the codification of our norms and beliefs, things that we need to make our system work. If the legal system is seen as exploitative, then confidence in our whole system starts eroding. And that’s really the problem that’s going on.
I think we ought to go do what we did in the S&L [crisis] and actually put many of these guys in prison. Absolutely. These are not just white-collar crimes or little accidents. There were victims. That’s the point. There were victims all over the world.
Economists focus on the whole notion of incentives. People have an incentive sometimes to behave badly, because they can make more money if they can cheat. If our economic system is going to work then we have to make sure that what they gain when they cheat is offset by a system of penalties.
Nobel prize winning economist George Akerlof has demonstrated that failure to punish white collar criminals – and instead bailing them out- creates incentives for more economic crimes and further destruction of the economy in the future.
Indeed, professor of law and economics (and chief S&L prosecutor) William Black notes that we’ve known of this dynamic for “hundreds of years”. And see this, this, this and this.
(Review of the data on accounting fraud confirms that fraud goes up as criminal prosecutions go down.)
The Director of the Securities and Exchange Commission’s enforcement division told Congress:
Recovery from the fallout of the financial crisis requires important efforts on various fronts, and vigorous enforcement is an essential component, as aggressive and even-handed enforcement will meet the public’s fair expectation that those whose violations of the law caused severe loss and hardship will be held accountable. And vigorous law enforcement efforts will help vindicate the principles that are fundamental to the fair and proper functioning of our markets: that no one should have an unjust advantage in our markets; that investors have a right to disclosure that complies with the federal securities laws; and that there is a level playing field for all investors.
Paul Zak (Professor of Economics and Department Chair, as well as the founding Director of the Center for Neuroeconomics Studies at Claremont Graduate University, Professor of Neurology at Loma Linda University Medical Center, and a senior researcher at UCLA) and Stephen Knack (a Lead Economist in the World Bank’s Research Department and Public Sector Governance Department) wrote a paper called Trust and Growth, showing that enforcing the rule of law – i.e. prosecuting white collar fraud – is necessary for a healthy economy.
One of the leading business schools in America – the Wharton School of Business – published an essay by a psychologist on the causes and solutions to the economic crisis. Wharton points out that restoring trust is the key to recovery, and that trust cannot be restored until wrongdoers are held accountable:
According to David M. Sachs, a training and supervision analyst at the Psychoanalytic Center of Philadelphia, the crisis today is not one of confidence, but one of trust. “Abusive financial practices were unchecked by personal moral controls that prohibit individual criminal behavior, as in the case of [Bernard] Madoff, and by complex financial manipulations, as in the case of AIG.” The public, expecting to be protected from such abuse, has suffered a trauma of loss similar to that after 9/11. “Normal expectations of what is safe and dependable were abruptly shattered,” Sachs noted. “As is typical of post-traumatic states, planning for the future could not be based on old assumptions about what is safe and what is dangerous. A radical reversal of how to be gratified occurred.”
People now feel more gratified saving money than spending it, Sachs suggested. They have trouble trusting promises from the government because they feel the government has let them down.
He framed his argument with a fictional patient named Betty Q. Public, a librarian with two teenage children and a husband, John, who had recently lost his job. “She felt betrayed because she and her husband had invested conservatively and were double-crossed by dishonest, greedy businessmen, and now she distrusted the government that had failed to protect them from corporate dishonesty. Not only that, but she had little trust in things turning around soon enough to enable her and her husband to accomplish their previous goals."
“By no means a sophisticated economist, she knew … that some people had become fantastically wealthy by misusing other people’s money — hers included,” Sachs said. “In short, John and Betty had done everything right and were being punished, while the dishonest people were going unpunished.”
Helping an individual recover from a traumatic experience provides a useful analogy for understanding how to help the economy recover from its own traumatic experience, Sachs pointed out. The public will need to “hold the perpetrators of the economic disaster responsible and take what actions they can to prevent them from harming the economy again.” In addition, the public will have to see proof that government and business leaders can behave responsibly before they will trust them again, he argued.
Note that Sachs urges “hold[ing] the perpetrators of the economic disaster responsible.” In other words, just “looking forward” and promising to do things differently isn’t enough.
Robert Shiller – one of the top housing experts in the United States – says that the mortgage fraud is a lot like the fraud which occurred during the Great Depression. As Fortune notes:
Shiller said the danger of foreclosuregate — the scandal in which it has come to light that the biggest banks have routinely mishandled homeownership documents, putting the legality of foreclosures and related sales in doubt — is a replay of the 1930s, when Americans lost faith that institutions such as business and government were dealing fairly.
Indeed, it is beyond dispute that bank fraud was one of the main causes of the Great Depression.
Economist James K. Galbraith wrote in the introduction to his father, John Kenneth Galbraith’s, definitive study of the Great Depression, The Great Crash, 1929:
The main relevance of The Great Crash, 1929 to the great crisis of 2008 is surely here. In both cases, the government knew what it should do. Both times, it declined to do it. In the summer of 1929 a few stern words from on high, a rise in the discount rate, a tough investigation into the pyramid schemes of the day, and the house of cards on Wall Street would have tumbled before its fall destroyed the whole economy.
In 2004, the FBI warned publicly of “an epidemic of mortgage fraud.” But the government did nothing, and less than nothing, delivering instead low interest rates, deregulation and clear signals that laws would not be enforced. The signals were not subtle: on one occasion the director of the Office of Thrift Supervision came to a conference with copies of the Federal Register and a chainsaw. There followed every manner of scheme to fleece the unsuspecting ….
This was fraud, perpetrated in the first instance by the government on the population, and by the rich on the poor.
The government that permits this to happen is complicit in a vast crime.
Galbraith also says:
There will have to be full-scale investigation and cleaning up of the residue of that, before you can have, I think, a return of confidence in the financial sector. And that’s a process which needs to get underway.
Galbraith recently said that “at the root of the crisis we find the largest financial swindle in world history”, where “counterfeit” mortgages were “laundered” by the banks.
As he has repeatedly noted, the economy will not recover until the perpetrators of the frauds which caused our current economic crisis are held accountable, so that trust can be restored. See this, this and this.
No wonder Galbraith has said economists should move into the background, and “criminologists to the forefront.”
The bottom line is that the government has it exactly backwards. By failing to prosecute criminal fraud, the government is destabilizing the economy … and ensuring future crashes.
Postscript: Unfortunately, the government made it official policy not to prosecute fraud, even though criminal fraud is the main business model adopted by the giant banks.
Indeed, the government has done everything it can to cover up fraud, and has been actively encouraging criminal fraud and attacking those trying to blow the whistle.
THIS HAS ACTUALLY BEEN GOING ON FOR A DECADE AND YOU CAN TELL IF YOUR POLITICAL ACTION ORGANIZATION IS REALLY WORKING FOR YOU BY WHEN THEY STARTED TO TALK ABOUT THIS ISSUE. MOST ARE ONLY NOW PUTTING OUT THESE WARNING EVEN AS CONGRESS AND OBAMA ARE GETTING READY TO LEGISLATE ON THESE ISSUES. THAT IS WHAT IMMIGRATION REFORM IS ABOUT....CORPORATE TAX REFORM, HEALTH REFORM.......ALL OF THIS HAS TO DO WITH THE PACIFIC RIM TRADE AGREEMENT.
HAS ANYONE STATED THAT? I HAVE BEEN SPEAKING ABOUT IT FOR YEARS!!!
AS I SAID THIS IS HUGE BECAUSE THEY ARE GOING TO TELL US THAT NONE OF THE ISSUES TIED TO THESE TRADE DEALS CAN BE CHANGED BY ELECTED OFFICIALS. THAT MEANS THEY ARE TELLING US CITIZENS WILL NOT BE ABLE TO LEGISLATE THROUGH THEIR ELECTED POLS......AND THIS IS ILLEGAL AND UNCONSTITUTIONAL.
I SPOKE A YEAR AGO WITH PUBLIC CITIZEN ABOUT THIS AND THEY ARE JUST B
TPP: Corporate Power Tool of the 1%
Have you heard? The Trans-Pacific Partnership (TPP) “free trade” agreement is a stealthy policy being pressed by corporate America, a dream of the 1 percent, that in one blow could:
- offshore millions of American jobs,
- free the banksters from oversight,
- ban Buy America policies needed to create green jobs and rebuild our economy,
- decrease access to medicine,
- flood the U.S. with unsafe food and products,
- and empower corporations to attack our environmental and health safeguards.
Closed-door talks are on-going between the U.S. and Australia, Brunei, Canada, Chile, Mexico, New Zealand, Peru, Singapore, Malaysia and Vietnam; with countries like Japan and China potentially joining later. 600 corporate advisors have access to the text, while the public, Members of Congress, journalists, and civil society are excluded. And so far what we know about what's in there is very scary!
THIS IS A GOOD PRESENTATION OF THE STRUCTURAL PROBLEMS OF UNEMPLOYMENT. WE KNOW THAT SMALLER THINGS LIKE THE FEDERAL RESERVE'S POLICIES AND HUGE THINGS LIKE WEALTH INEQUITY ARE THE LARGEST CONTRIBUTORS.
THE IMPORTANT THING TO SEE FROM THIS IS THAT WE HAVE A DEMOCRATIC PARTY THAT IS CAPTURED BY CORPORATE INTERESTS. THIRD WAY WORK FOR WEALTH AND PROFIT AT THE EXPENSE OF LABOR AND JUSTICE, YET WE MAKE UP 80% OF THE DEMOCRATIC PARTY. STOP ELECTING THIRD WAY......THE DEMOCRATIC NATIONAL COMMITTEE (DNC) IS RUN BY THIRD WAY....DO NOT SUPPORT THEIR CANDIDATE..
RUN YOUR OWN LABOR AND JUSTICE CANDIDATE!!!
The Sources of Unemployment
Posted on 2 January 2013 by admin by Lindsey Grant, Negative Population Growth, Inc.
If over the past three decades the United States had deliberately set out to create unemployment, it could hardly have done a more thorough job. The sources of the problem lie in our immigration policy, foreign trade policy, the failure to deal with rising productivity, and our reliance on public and private debt. I will suggest specific solutions. They require a fundamental change in our national thinking to recognize that go-go economic growth is no longer possible at this stage in history.
Our present unemployment problem is not transitory, and it is not confined to the United States. It is much more intense in many countries, particularly the poorest ones, and that in turn will lead to more intense migratory pressures. The more prosperous countries – not just the United States – will need the discipline to match their populations and their policies to their job opportunities, their resources and their food supply. They will need to develop and enforce effective controls over migration, trade and debt to survive amidst unprecedented challenges.
Unemployment is the most corrosive and most desperate aspect of economic downturns such as the Great Depression or the current Great Recession. It affects all other economic activity. Beyond that, it destroys the very identity, the sense of confidence and purpose, of the people it strikes. It is worth asking ourselves: what has led to the present situation, and what can be done about it?
The immediate cause of our present employment problem was the financial collapse of 2008. Economists are grinding out a whole literature of efforts to explain the particular financial arrangements and failures that led to that collapse. I will not try to enter that arcane jungle but will instead start from the premise that the system was a house of cards that collapsed in 2008, and try to identify the underlying sources of the weakness.
Blame is frequently put upon the national drug addiction, or failed schools, or the breakdown of family. Perhaps so, but those things are as much the result as the cause of unemployment. I think a much better case can be made against our immigration policy (or lack of one), our commitment to free trade, and the shrinkage of employment that comes from rising productivity. The “school” solution to unemployment – public stimulus programs to revive economic growth – becomes less and less effective as we grow beyond our natural means. And our huge Federal debt has made such programs fiscally dangerous.
Mass Immigration in an Era of Unemployment
The most important thing about mass immigration to the United States is that it drives our population growth, because of the sheer numbers of immigrants and because of their relatively high fertility. More immediately, it is (along with trade policy) the most pervasive force depressing wages and exacerbating unemployment. Most of the immigrants compete for unskilled and semi-skilled jobs – the most vulnerable sector of the work force. Those two aspects of immigration are interconnected. An immigration policy that addresses unemployment would also address population growth. Yet all the political debate about immigration, now and in the past three decades, has been about secondary issues, and there has been near-total silence on both those issues.
Paradoxically, the best measure of unemployment is the number employed. It is more comprehensive than the narrowly defined official figure for unemployment (which stood at 8.9% in 2011). Employment peaked at 146 million in 2007 and dropped to 139 million in 2010 – a net loss of seven million jobs in the U.S. economy. It recovered only 805 thousand of those jobs in 2011. Meanwhile, the total adult (16+) U.S. civilian population rose by 7.75 million. The proportion employed declined from 63% to 58.4%, which suggests a growth of about 11 million people who need jobs.(1) That is a remarkable loss of jobs in a very short time. Employment will fluctuate, but there is no evidence to suggest that it is going to reach the 2007 ratio in the foreseeable future.
Immigration contributed to the stagnation of U.S. wages since the 1970s. It became a critical problem with the sudden contraction of employment in 2008. Immigration totaled some 8.7 million people in the 1980s, 13.2 million in the 1990s, and 13.9 million in the 2000-2010 decade. In the 1990s, they moved into a growing job market. In the past decade, the market peaked and collapsed. Most of those 13.9 million (plus various aliens working here on “non-immigrant” visas) are competing for jobs in that smaller market, and not always successfully. Immigrant unemployment in 2009 was somewhat higher than the overall official U.S. rate. They continue to come because conditions here are still better than where they came from, and because the migratory pattern is now well established. There are family and friends here to help the newcomers adjust. Net immigration may have declined in 2009 and 2010 because of the poor job market, but tentative figures for 2011 suggest that the decline has stopped.(2)
The drive for more immigration comes from big businesses (“multinationals” or “MNCs”), commercial farmers, the construction and hospitality industries seeking cheap labor. They are assisted, unwittingly, by well-meaning people who believe that others should have the opportunity to come here, as our ancestors did. I sympathize with those feelings but believe that they are misguided. We owe something to our own unemployed and to future descendants, and unlimited immigration is a sure way to impoverish our own country.(3)
Growth in the labor force would not be a problem if they could be accommodated. The central feature of this past decade has been the accumulation of evidence that we have overstrained our natural support systems. I have summarized the evidence before and will simply direct the reader to two of the relevant papers.(4) Growth as we have known it is coming to a close as fossil energy runs down, natural resources grow scarcer and less accessible, and the growth of food production is reversed by shortages of fertilizers and water, desertification, loss of arable land and an increasingly hostile climate. If our “leaders” and their economists would study the evidence, I hope they would realize that further growth of the labor force promises only greater unemployment and poverty.
What Can Be Done? I believe the remedy is apparent: make immigration policy serve the broadest national interest, not the interests of the powerful. In part, that would be achieved simply by enforcing the laws on the books. We need to enforce broader rules requiring employers to check social security numbers to weed out illegal aliens in the work force. We need to weed out “sanctuary” cities that protect illegal immigrants. We need to change our immigration law to reduce the numbers in times of high unemployment, as some other countries do.
Most important, since most immigration is legal immigration, we must bring the annual numbers down from nearly a million to about 200,000. NPG has listed a number of measures that would bring immigration under control.(5)
This is all relatively simple, in theory. In practice, however, it has not happened because of a hopelessly divided nation’s unwillingness to take action. The first need is to educate ourselves – and particularly our political “leaders” – as to the real consequences of mass immigration.
… a formidable task, given the power of the interests who seek cheap labor. Money talks to politicians. Without deliberate policies to restrict immigration, we can only hope that the paucity of jobs will itself cause migration and fertility to decline, as it did in the Great Depression.
“Free trade” in an Unbalanced World.
Our pursuit of free trade is second only to our immigration policy as a source of our unemployment problems. Immigration increases the demand for jobs. Free trade sends the jobs abroad.
It took a masterpiece of bad policy to go from the producer of half the world’s goods just after World War II – with full employment and a trade surplus that we could keep in balance only by giving away massive aid – to our present situation as the world’s leading mendicant, deep in debt to China, Japan, and the rest of the world. Free trade was a major part of that policy. Advocated by multinational corporations (MNCs) intent on expanding their profits by finding cheaper labor and wider markets, it was sold on the basis that we would retain the higher paying high tech jobs. That didn’t happen. It has nearly demolished the United States as a producer of real goods, as that work goes abroad. Employment in manufacturing has declined 37% since 1980. Our foreign trade surplus turned negative in the 1970s. We ran an annual deficit over $600 billion in most of the past decade. In 2010, after the 2008 crash, it was $500 billion, or 21% of our total imports of goods and services.
I raised the question in 1996: “How do we maintain our living standards in a world with free movement of capital, technology, management, marketing systems, and goods? The multinationals can produce where the labor is cheap and docile, and then sell the goods back here. Eventually, we won’t be able to afford them, but then the MNCs will find something else to do. Any proposal to address the problems of joblessness and alienation is dead on arrival if we do not take another look at the American free trade shibboleth.”(6)
Sixteen years have reinforced that conclusion.
What Can Be Done? We should tone down our free trade rhetoric – which we already ignore when national or corporate self-interest dictates. We should review our tax code to avoid encouraging the out-sourcing of jobs. We should enforce the rules against dumping, and write labor standards into our trade agreements, plus such protections as a compensatory tariff to help equalize the labor costs in the participating countries. That will not be an easy task. Such agreements are dictated by the MNCs that seek them, and they will not be at all interested in protections for U.S. labor.
Our “free trade” agreements such as NAFTA devote more space to assuring the access of U.S. MNCs to the other countries than they do to free trade. We should systematically re-examine them to see whether either objective serves our national interest. President Obama in his 2012 State of the Union message called for changing our tax code and subsidies to reward companies for keeping employment here, rather than for outsourcing it abroad. That is a beginning.
The Penalties of Rising Productivity.
There is a subtler but still important way in which our present economic policies cause unemployment. Our “leaders” seem to think that rising productivity is always a good thing. Historically, it has been good because, in successful economies, it has generated a rising standard of living. But, as Wassily Leontief pointed out decades ago, we have reached a point where we cannot mobilize the resources that modern productivity at full employment could use, or make use of all the services that it can generate. Leontief advocated a massive transfer of money from the employed to the unemployed, but
permanent public support of a large fraction of ablebodied but idle people is neither an attractive prospect nor politically possible.
Modern productivity helps us to deal with the aging of the population that is integral to modernization. Properly managed, it can assure that the old have enough to live on. But it condemns a fraction of working age people to unemployment. The present so-called recovery from recession is a case in point. Employers have resorted to investing in machinery to produce additional goods, rather than rehiring the people they laid off. That is why massive unemployment persists in the face of rising GDP.
Part of the rise in productivity is real. Part of it is illusory. We have moved from producing real goods and services into more nebulous “services”. We have dodged Leontief’s dilemma by employing more people in those sectors even as employment has plummeted in manufacturing and stalled in agriculture. The “leisure and hospitality” sector has doubled since 1980. It is now larger than manufacturing, but with average earnings only about one-third of those in manufacturing. Employment in the “financial activities” sector has grown 52%, particularly in private investment banking and speculation, which produce very little social good and which generated the crisis from which we are trying to escape. We need banks, but how much of that activity do we need?
To make matters worse, the profits of rising productivity since the 1970s have gone exclusively to management and capital, while hourly wages have stagnated. This is directly contrary to the U.S. historical experience, when labor shortages enabled working people to demand a share in the growth of labor productivity. We need to get back to that situation.
Eventually, we may again want to increase productivity. Its future is murky. Technology and the digital revolution will tend to drive it up, but the decline of cheap energy will tend to require more labor to replace energy in agriculture and other “real” sectors, driving labor productivity down. The prevalence of unemployment itself suggests that we are not there yet.
What Can Be Done? It is dangerous for modern politicians to be seen as anti-technology “Luddites”. Government is not likely to restrain the growth in productivity and thus encourage the creation of jobs. Indeed, that would be an intrusion into corporate management that would go against the American mindset. I don’t believe that a direct attack on productivity is wise. Be it noted, however, that my earlier proposal to restrict mass immigration would stop the growth of the work force. That at least would help to drive unemployment down, and wages up, whatever happens to productivity.
Debt as a Non-Solution. At every level, from government to entrepreneurs and speculators, to households, we have come to rely increasingly on debt. A rising national debt is not a cause of unemployment so long as it works, but at some point – now – it becomes a danger rather than a convenience. It ties our hands as we try to deal with the unemployment crisis. U.S. fiscal policy has gotten us so far in debt that “fiscal stimulus” programs to generate employment, or long term help to the unemployed, risk driving inflation if economic activity does rise, and it could get away from us.
The country went off the gold standard in 1933 and substituted “managed currency” – i.e. fiat money. When capitalism found ways to encourage growth by generating paper money, it couldn’t stop. The United States’ federal debt has grown from $116 billion in 1930 to $15.27 trillion now – a 130-fold expansion. It seemed to work for a time because of inflation – we pay interest on the debt in depreciating dollars. (A dollar now is worth less than 7 cents in 1930 dollars.) And because of economic growth during the energy boom.
… but not forever. We lecture Europe about its debts and temporize about our own. Our debt was 18% of GDP in 1930; it has now passed 100%. Compare that to the percentage figures for the ostensible fiscal malefactors: Japan at 240%, Greece at 143%, Italy at 119%, Portugal at 93%, Spain at 60%. France, at 82%, has just been downgraded by credit rating agencies, to join us. (The Maastricht Treaty sets a maximum of 60% for European Union members but cannot enforce it.)
Policy makers pretend they are practicing Keynesian economics. It is a false claim. Keynes envisaged a cyclical pattern of budget surpluses in good times and deficits to encourage growth in recessions. Since 1960, the Federal budget has showed a surplus only in the last three years of the Clinton administration.
The electorate went along. As a nation, we want the Government to do everything for us, but we don’t want to pay for it. There are good things we can’t afford, like Medicare, unless we are willing to raise taxes. There are bad things we can’t afford, such as the Vietnamese war and “nation building” in Afghanistan and Iraq.
Government takes the easy path. In good times, it is hard to pass austerity measures or higher taxes. “Why rock the boat?” In bad times: “this is no time for austerity.”
Well-meaning Democrat-leaning economists such as Paul Krugman seem also to have forgotten Keynes’ advice. They are calling for looser money, to revitalize the economy, promote economic growth and mitigate unemployment. Their hearts are in the right place, but their thinking is in the wrong century. Fifty years ago, that would have been good advice, but that was when our debt was far lower, and we were in the midst of the oil boom. Now, as our Federal expenditures (at $1.3 trillion) outrun income by 50%, our national debt passes $15 trillion, and food and commodity prices rise, we don’t have that option. We have reached a point on the planet where physical growth is constrained by the unavailability or increasing cost of the resources on which we depend. Pouring paper money into a limited physical system raises the price of the resources. If we continue an expansionist fiscal policy in pursuit of the illusion of limitless economic growth, we run the risk of generating uncontrollable inflation and soaring interest rates, instead. Paper money, unbacked, is worth as much or as little as people think it is worth. Even now, the dollar holds its value because we are the only game in town – aside from some limited havens such as Switzerland. Money is unlikely to take flight to the Euro, right now.
Meanwhile, the Federal Reserve can increase the supply of money without limit. The Fed is the final arbiter and creator of dollars. It has nearly quadrupled its holdings of public and private debt, and perhaps much more, since 2007.(7)
Investment banks have been making loans with little or no backing, thereby expanding the credit in the system. Banks that loan $5 for every dollar they own (5:1 leverage) were considered prudent. By 2007, some investment banks and funds were operating with leverage of 35:1. They invented “securitized” mortgage packages a few years ago. It was a fraud because they bundled dubious mortgages – debts – into saleable packages and called them assets. And that further multiplied the fictitious assets in the system. Competition drove the excesses, as well as greed. In a competitive market, leverage pays, and those who don’t keep up lose their investors.
And then they came running to Treasury and the Fed to save them. The total money supply (M1) includes demand accounts based on those loans, along with rising Federal stimulus spending and debt. It grew at an unprecedented pace, nearly 60% from 2007 to 2011. That is a lot of new money chasing resources, goods and services. Right now, people are cautious, and money velocity is low, but that money means more inflationary pressure when we get more rambunctious. And the prospect is about nil that that new money can be retired in the foreseeable future, given our fiscal prospects.
A structure built on debt is inherently unstable because of the snowball effect when enough debtors cannot keep up their payments. In a more solid structure, investment would be based on prior earnings.
What Can Be Done? I do not propose a return to the gold standard. It would be too inflexible a strait jacket for a modern economy. But we must learn other ways to discipline ourselves. This is a subject for the financial experts, but I believe we need
• a return to reliance more on savings and less on debt to finance new investment,
• a requirement for a balanced Federal budget over the business cycle,
• enforceable guidelines that relate money growth to real growth (or decline),
• the return to a separation of investment banking from commercial banking (as the Glass-Steagall Act of 1933 used to require, and former Federal Reserve Chairman Paul Volcker advocates.)
• and tight controls over leverage, particularly in investment banks.
At this point in history, debt-financed economic growth will not cure unemployment. We must reduce unemployment by reducing the demand for jobs, which means reducing immigration and, over the longer term, reversing population growth.
Such a turnaround will not come easily.
The Perpetual Growth Myth and the Economics of Greed.
The driving force behind current policies is a state of mind. Forgive me for returning to an old theme: There are two warring paradigms or world views in conflict today. The dominant one is the belief in unending economic growth, beloved by entrepreneurs because it serves their immediate interest. The second one is the finite Earth paradigm, which recognizes the limits to growth in any finite system. Some sectors may grow, as technology and demographics change, but the overall scale will be depressed by resource limits.
The first paradigm is, at some point, a mathematical absurdity, but post-Keynesian economics assumes that unlimited resources and wealth are available for the taking, and that it is up to the ambitious and capable to appropriate and expand them. It is a theory built on unrestrained individualism and on greed, as its inventor John Maynard Keynes himself admitted. The problem is that greed is not self-limiting. We are living through the consequences of that belief right now.
A certain level of inflation serves that mindset. It erodes the savings of the prudent, as the currency loses value. But entrepreneurial gamblers – and debt-ridden governments – like it, because it enables them to pay the interest on their debts with cheaper money. The Federal Reserve Bank likes a 2% annual inflation rate. Other central banks set it as high as 4%. That is a dangerous game. At 4% inflation, money loses half its value in 17 years, destroying savings. Runaway inflation destroys jobs and eventually the economy, as Germany learned in the 1920s.
It was like a gigantic Ponzi scheme built on growing debt, a collaboration between government and private financiers, to the benefit of politicians and, particularly, financial speculators. Until now, the wage earning classes have gone along with it, partly because they didn’t understand it, partly because they hoped to join in the bonanza, and partly because they themselves were prospering as they rode the petroleum wave, until the 1970s. Wages were rising, and more and more wives were joining the paid labor force. Perhaps most important psychologically: we were living in an increasingly egalitarian society. In 1928, the top 1% of income earners received 23.9% of all income. That declined steadily for decades, until in 1975 the figure was down to 8.9%. In other words, wage earners were getting more of a growing pie. It was a quiet, massive social revolution, started by the New Deal. That turned around in the Reagan years, and by 2007 the top 1% were back up to 23.5% of total income.(8)
When real hourly wages stagnated, many working people (now euphemistically called “the middle class”) tried to support their new consumption habits by increasing their mortgage debts – until the housing bubble burst.
The proponents of growth profited until, like Ponzi schemes, it collapsed.
What Can Be Done? We cannot solve our employment problem, or the stagnation of wages, or the growing scarcities of resources, or the creep of inflation until as a society we stop pursuing the myth of perpetual growth and learn the finite Earth paradigm instead. Our natural system is finite, and we have approached or passed its capacity to support our demands. We must adjust the demands, not try to force growth. Our task is to bring our system around to that mindset.
The Inchoate Revolution.
Labor is coming to recognize, in a still inchoate way, that it is being had. The current Republican primaries are helping to educate the electorate by showing how little the rich pay in taxes. Recent news stories are showing us that Apple – the investors’ darling – produces its iPhones overseas (often in very bad labor conditions) and contributes very little to American employment. The Occupy Wall Street movement showed that many people have begun to realize that the astonishing growth in the wealth of the financiers, amid poverty and unemployment, is not divinely ordered. They are angry, but not yet focused.
We are mired in controversy. The Republicans seek less government, lower taxes, and more inequality. Their right wing would sharply reduce immigration, but the money interests don’t agree. The Democrats profess to be worried about unemployment, but they propose to reduce unemployment by means we cannot afford, and they condone record-breaking levels of immigration. Clearly, they think they are courting the “Hispanic vote”, but they may be wrong. So-called Hispanic leaders, many of them unelected, call for more immigration, but they do not reflect the feelings of most Hispanics.(9) In New Mexico, the new Governor is the daughter of Mexican immigrants, but she ran on a platform calling for denying driver’s licenses to illegal immigrants, and she won handily – in a state that is nearly half Hispanic. Centrists predict a “revolution from the center”, but few of them identify the real problems or their solutions. We have yet to see the finite Earth paradigm formulated into a coherent program by any political party or political organization. I imagine that that will change, but it is likely to be lost in the tumult of sharpening class antagonisms. The current scene does not look propitious for the emergence of sane policies.(10)
Only a few small countries seem to have been able to develop a social consensus around a recognition of limits. Perhaps they could teach us something, or perhaps they can do it precisely because they are small and homogeneous. That is hardly applicable to the United States.