Friday, May 22, 2015

Why doesn’t our economy work for everyone?

This is a bit of a rant. Thanks to Duane for getting me focused on what I really wanted to say. 


Due to the anemic recovery of our economy from the Great Financial Crisis (GFC) of 2008, too many people are struggling. They have little hope of regaining their former economic condition or climbing out of poverty. But, we wouldn’t know it from the rosy reports of the mainstream media (MSM). It offers seemingly optimistic headline unemployment rates as evidence of recovery.

Apparently the MSM does not recognize that the total industry capacity utilization is below 80% and falling. Also, the civilian labor force participation rate is at a 40-year low and decreasing. Over 10 million people are unemployed or underemployed, and most current income increases are going to the top 1%. Worst of all, many children needlessly go hungry. Yet, politicians and pundits are hell-bent on cutting government spending as if it were a problem.

Civilian Labor Force Participation Rate

An old Mark Twain quote seems appropriate:

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

The unquestioned premise that federal austerity is good policy, which the MSM supports, has gone on too long. In 2010 President Obama established the so called Deficit Reduction Commission and appointed two deficit hawks, Alan Simpson and Erskine Bowles, as co-chairmen. In his testimony before the Commission renowned economist Professor James Galbraith rejected the austerity premise outright. 

More recently, in March the US Senate Committee on the Budget held hearings titled “The Better Way: The Benefits of a Balanced Budget.” Despite the biased title, a distinguished political economics professor, Mark Blyth, testified that there are no such benefits. Moreover a balanced budget would harm the economy. 

Contrary to widely accepted theory and worldwide experience, the MSM clings to the false austerity premise. Its basis is the neoliberal paradigm codified in 1989 by the ten commandments of the Washington Consensus. These commandments are not applicable, because they fail to recognize that our economy uses a fiat monetary system not a gold-standard. 

Deficits and debt-to-GDP ratios have preoccupied mainstream economists, politicians, and the MSM. Consequently, they missed the most important point; exploding private debt caused the GFC. Only a few heterodox economists foresaw it, because they focused on the whole economic picture including private debt. A retrospective study by Richard Vague, co-founder of two credit card companies, has shown that financial crises worldwide are caused by rapid increases in private debt.

The austerity required to implement the neoliberal commandments, since the GFC, has weakened economies around the world. Because of its fiscal stimulus in 2008, America has fared better than most. But, thanks to its commitment to these commandments, America takes the prize for inequality of income and wealth. 

The MSM should ask: “Who benefits from reduced government deficits and debt when the real culprit is private debt?” And, “Who benefits from reduced financial and environmental regulations?” Also, “Who benefits when underfunded public programs fail, so they “need” privatization?” The answer to each is, the financial elite!

With a fiat monetary system, a country can manage its economy for shared prosperity with full employment and stable prices. Why then would the “best Congress that money can buy” continue thinking and acting like we still have a gold standard?

The answer lies in this self-indicting quote recalled from the real gold-standard days of 1863. To their associates in New York, the Rothschild brothers of London wrote,

“The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.”

Financial interests, supported by a compliant MSM, are ruling our world while leaving millions of people in financial servitude. To grow our economy we need to get rid of the gold-standard, neoliberal paradigm that works only for the elite and take advantage of our existing fiat system that will work for everyone.

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