Building a Strong Economy
Conservative politicians and pundits tell us that the economy will never fully recover until Washington gets rid of the “uncertainty” that is spooking the markets and the business community. Banks won’t lend and corporations won’t hire because they are “fearful” of new taxes, regulation and government oversight. This stubborn denial of the clear evidence that tax cuts, deregulation and the lack of oversight are responsible for our current economic mess is shockingly irresponsible.
Today (8-5-2010), corporate profits are up 40%. The private sector is sitting on $2.7 trillion in cash, but they still won’t hire or invest in America. But they do invest, build and hire overseas. According to one economics professor, business has declared war on the government. I guess that makes America and the American people are collateral damage.
Business is using its most powerful weapon against the government and the American people -- the “capital strike.” A capital strike is a situation where capital and investment are removed and withheld from the economy. A capital strike will result in a recession or even a Great Depression. This is the weapon that was used against Franklin D. Roosevelt to punish him for the New Deal. The battlefield was the economy and the American people were collateral damage then, too. This economic blackmail is the real reason the Great Depression dragged on for ten miserable years. For those who don’t believe me, I suggest an Internet search of the words “capital strike.”
It is no secret that many in the business community decided that American workers make too much money and profits can be maximized if production, services, as well as research and development, are moved to a low wage, deregulated environment. The politicians stripped away the laws that protected American workers and the American economy from the obvious threats that globalization and deregulation posed. It was determined that American manufacturing would be shut down and replaced by the financial services “industry.” The FIRE sector: Finance, Insurance and Real Estate was supposed to be the new engine of economic growth.
And it was, until the folly of this plan became clear, in 2007, when the global economy came crashing down.
Before I offer my proposals for building a strong economy, I want to debunk some common myths about how an economic system works. To save time and space, the list will be far from complete and I will be as brief as possible.
Myth: “Government can’t create jobs. Only business can create jobs.” Not only can government create jobs, it can create jobs without borrowing capital or using tax dollars. Article 1, section 8, paragraph 5 of the U.S. Constitution makes this possible. The jobs created by the government with debt free money (see Treasury web site below) would be the best jobs in the world. The workers wouldn’t have to compete with the lowest wages in India or China. Government regulation and oversight would be no problem. Safety and the environment wouldn’t have to be sacrificed in order to be competitive with companies that are willing to kill their workers and with countries that are willing to poison their citizens in order to be competitive in the global economy.
Myth: “Only business can create wealth.” Wealth is based, ultimately, on money. The Federal Reserve creates money based on U.S. government debt. Or, the Federal Reserve can simply print money. This is called “quantitative easing.” On the other hand, business can destroy wealth. This was clearly demonstrated when the global economy crashed in 1929 and 2007. It is a little known fact that debt free money can be created by the U.S. Treasury. $300 million of Treasury issued, debt free United States Notes (Greenbacks) are currently part of our national money supply. [see: U.S. Treasury - FAQ: Legal Tender Status of currency] If I am elected on November 2, I will send a letter to the Federal Reserve. This letter will ask Chairman Ben Bernanke why the Federal Reserve refuses to put this money into circulation.
Myth: “Banking and insurance are industries.” Banking, financial services and insurance are private sector bureaucracies. Industries produce things -- cars, steel, airplanes. These are useful products. Banks produce a “product” called debt. Debt is not a product. Debt is a problem. This was clearly demonstrated in 2007 when the global economy crashed because “credit dried up.” A bank’s primary function is, supposedly, putting money into the economic system. This can be accomplished much more efficiently and much more cheaply by the government. If the government controlled the money supply, crashes, economic instability, recessions, destructive boom and bust “business cycles,” and massive public and private debt would be nothing but a bad memory.
When the world realized that AIG, an insurance company, couldn’t pay the claims on the policies (derivatives) that it sold around the world, this caused a “liquidity crisis” that some say threatened to wreck the entire American financial system. True or not, the liquidity crisis resulted in a massive government bailout. In reality, the function of banking and insurance is collecting money. The insurance industry simply administers money. The money that isn’t paid out in claims is invested. When less money is paid in claims, more money can be invested and this produces more profit. It is easy to see that there is a direct conflict of interest between the insurance company and the “customer.” This conflict of interest made headlines in the recent scandal involving the death benefits of soldiers killed in Iraq and Afghanistan.
A government administered insurance system would have no conflict of interest and no need to make a profit. Such a system, social security, is the ideal insurance system with one glaring flaw. Politicians can raid the money and spend it. Economists, before the 2007 crash, complained about America’s low savings rate. I have never heard an economist admit that the $2.5 trillion raided from the social security “trust fund” and spent was the savings of the American people.
If I am elected on November 2, I will find out how we can lock our money up so the politicians can’t spend it. And then, we can replace the money that the politicians have “borrowed” with debt free money issued by the U.S. Treasury.
In January 1945, Senator James Murray, a Democrat, introduced the Full Employment Bill of 1945. It proclaimed the “right of all Americans to regular full time employment.” The bill directed the federal government to encourage the private sector to accomplish this objective. However, if the private sector failed, as a last resort, the federal government would accomplish this goal.
The Senate passed the bill but when the bill got to the House of Representatives, a fierce battle broke out between liberal Democrats and conservative Republicans. Lined up with the Democrats was organized labor. On the Republican side was the Chamber of Commerce and the National Association of Manufacturers. The Republicans denounced the bill as dangerous communism that would destroy the free enterprise system. The Republicans won the battle.
These historical facts pose an interesting question: Wouldn’t full employment be good for business? A quote from an economics article that I read many years ago sticks in my mind. “High unemployment is good because it creates a pliable workforce.” This cold blooded perspective is Economics 101. It’s the owners/shareholders against the workers. In this context, “workers” include engineers, scientists, doctors and managers as well as production workers.
The Full Employment Bill of 1945 gave the private sector the freedom to produce full employment, but the offer was declined. Today, the same situation exists. The private sector has all the capital it needs to produce full employment in America. But instead, the capital is invested overseas or it sits idle. The time has come for politicians to stand up and start fulfilling their duty as specified in the U.S. Constitution.
The Constitution requires Congress to “promote the general welfare” of the American people. Congress can do this by acting in the spirit of the Full Employment Bill of 1945. Although Congress gutted and watered down the original bill when they passed the renamed Employment Act of 1946, the politicians certainly have the power to produce full employment -- if they want to. What about salaries and wages? Needless to say, we want jobs that pay well. The supply side, trickle down, free market, globalized economy is a disaster for America.
President Franklin Roosevelt faced a similar situation in 1933 to what president Barack Obama is dealing with today. F.D.R. knew exactly what to do in order to fix the Great Depression. But there was a problem. Conservative Republicans and conservative Democrats did everything they could to stop him and spoil his accomplishments. What would have happened if F.D.R. could have implemented the entire New Deal the way he wanted? The Great Depression would have ended in 1933. The global economy would have revived and the worldwide social instability that resulted from the global depression would have subsided. Adolf Hitler’s rise to power and World War II (with 50 million killed) would have never happened. F.D.R. had a simple fix for the Great Depression: put everybody back to work and pay them good wages. Organized labor has been trying to do this since the eighteenth century.
Today, using Treasury issued debt free money, the government can hire all the laid off workers to do all the work that needs to be done. Debt free money can be injected into community banks and they can make low interest loans to small businesses and any entrepreneur with a good idea. When we have full employment and we start running out of things to do, we can shorten the work week and take more vacations.