Our economy

[D_Raay]

United States Congressional Record - March 17, 1993 - Vol. #33, page H-1303 - Speaker- Rep. James Traficant, Jr. (Ohio) addressing the House:

"Mr. Speaker, we are here now in chapter 11. Members of Congress are official trustees presiding over the greatest reorganization of any Bankrupt entity in world history, the U.S. Government. We are setting forth hopefully, a blueprint for our future. There are some who say it is a coroner's report that will lead to our demise."

Imagine for a moment that someone inherits a farm. Let's say that the farm has good topsoil, a good well, good breeding stock, good seed, and excellent farm equipment in good repair. Prior to passing into the control of the present owner the farm did a good business selling vegetables, meat, and dairy products to the local market, and it made a small profit.

But let us suppose for a moment that the present owner of the farm doesn't understand farming, or isn't even really interested in learning. The present owner has no objection to standing around looking good, so he stays at the farm, standing in front of it, looking good to passers by.

Of course, the bills still come in, so our farmer puts them on his credit card. When that bill comes due he uses another credit card, Then another. Pretty soon the interest payments alone are higher than his bills and the banks get nervous and call him. No problem. Our farmer sells the tractor, takes the money around to the various credit cards, the food store, the utilities, and pays off all his bills. Then he stands around in front of the farm looking good to passers-by, the lord of his domain.

Will, the bills still come in. Again the credit cards get loaded up. So, this time our farmer sells the harvester. Then later on, the cattle, then the chickens, then the seeds, then he leases the well to his neighbor and finally sells the top soil from his farm to another farm down the road whose soil is getting tired. The cash is taken around to the various creditors, the food store, the utilities, etc.

Now at this point, our farmer thinks everything is okay. The bills are paid, he has a little cash in his pocket, and everything is fine.

Of course, you know better. The farm simply does not exist any more; it's just an empty lot with a few buildings, and soon they will be gone as well. The path from the farmer's present condition to seizure of the property for unpaid taxes is a foregone conclusion, even if the farmer doesn't look far enough ahead to see it.

Poor, dumb, stupid farmer.

That farmer is our government, and our business leaders.

Just as our hypothetical farm has lost its soil, livestock, seed, and farm equipment, America has lost its manufacturing ability. Short sighted business leaders, with as little interest in manufacturing as our farmer had in farming, decided their own personal bonuses would be higher if they simply sold their factories rather that ran them. After WW2, the 27 American TV companies including Zenith, Emerson, RCA, GE, etc. led the world in TV technology. Then, the owners of the patents on TV technology decided they didn't need to dirty their hands by actually making the TV sets themselves any more, and they started selling licenses to manufacture, which the Japanese bought.

By 1987, the only remaining American TV company is Zenith. The patent holders get their money, but the American products which can be sold overseas are gone, along with the jobs to make them.

To cover the loss of manufacturing jobs, our government has invented the catch phrase "service economy". This is the idiotic notion that we don't need to actually sell manufactured products; that we can grow and prosper our nation by doing each other's laundry. To conceal the loss of manufacturing jobs, the government has legislated into existence thousands upon thousands of useless paper-shuffling jobs, and declared their necessity by fiat. The most obvious is the income tax which has been so obfuscated by the government that half of you had to rely on an outside expert to figure out just what all those incomprehensible words really meant. By this device, the government has replaced those jobs that made products to sell with an equal number of jobs that produce nothing whatsoever of any worth, except to keep the unemployment figures down. This over-burdening of the American people with gratuitous regulations and paperwork has accomplished nothing except to obfuscate the loss of manufacturing jobs, and to transform the American character from innovators and inventors creating new products to that of minor clerks, peeking under each other's seat cushions for lost change.

So, with most of our manufacturing now gone, just what DOES America make? Trouble, mostly. With 4% of the world's population and 18% of the economy, we have 50% of all the lawyers, all looking to make a killing by looting those few industries that still call America home (like Microsoft). Kids don't want to be scientists and engineers; they've seen how little such people are valued in our country. Based on recent history, kids see the "big bucks" are in corporate law, specifically investment banking, leveraged buyouts, greenmail, junk bonds, in short what other countries describe as "trying to make money grow by shaking it side to side".

With America's ability to actually produce products that can compete on the open world market in decline, it's no wonder that the balance of trade is the problem it is. Nobody buys our export products because we just don't make that many any more, and like or not, we have to buy our appliances from the people who make them, which are NOT Americans. (When Ampex invented the VCR, they didn't even bother trying to find an American company to make it, they immediately sold the rights to Japan).

So, what do all these countries on the plus side of the trade imbalance do with their surplus billions? Well, they have been loaning it right back to us!

Our government engages in a practice politely called "deficit spending". Other terms which would aptly describe the practice include "counterfeiting" and "check kiting", but it all comes down to the same thing; spending money one does not actually have.

In short, the United States is in deep trouble. We have lost a huge amount of our manufacturing capacity, and those products we still make do not compete well on the world market, despite the steady devaluation of the dollar. In short we have vast debts to pay and little to pay them with. Like the foolish Farmer we have sold the machinery that allowed us to prosper, and we stand around shaking our investment portfolios back and forth in the hopes that the money inside will somehow grow all by itself. It won't. It never has. The very best that can be said is that money gets moved from one person to the other.

[brendan]

but "we've turned the corner," "the economy is strong," "it's hard work." freedom's on the march...kerry's a flip-flopper.

[Ace42]

I remember there being a quote to the effect "when a debtor can't pay his debts it is his problem. When a debtor can't pay trillion-dollar debts, it is the bank's problem"

[bdavid]

You're kind of all over the board there. So the government coined the term 'service economy' in order to cast a fog over the eyes of the American public? Lawyers and Republicans are ruining the country. The irony here being that if you polled Congress you'd probably find that more Republicans than Democrats support tort reform.

Of course companies outsource to other countries. But lets all heed the call of the socialist left- "tax the companies! Spread the wealth! Union yes!"

That'll get em to stay.

[Ali]

It's happened before (http://www.phatnav.com/wiki/index.php?title=Great_Depression#The_Credit_Struct ure) and it's happening again.

In 1929 the world's most prosperous nation was the United States. But despite the confidence in the United States and the apparent economic well-being in other countries, the world economy was in an unhealthy state.

The U.S. economy had been showing some signs of distress for months before October 1929. Commodity prices had been falling worldwide since 1926, reducing the capacity of exporters in the peripheral, undeveloped economies of Latin America, Asia, and Africa to buy products from the core industrial countries, such as the United States ...

A fundamental maldistribution of purchasing power, the greatly unequal distribution of wealth throughout the 1920s, was a factor contributing to the depression. Wages increased at a rate that was a fraction of the rate at which productivity increased. As production costs fell quickly, wages rose slowly, and prices remained constant, the bulk benefit of the increased productivity went into profits.

An increase in margin buying, the act of borrowing money from money lenders in order to buy stocks, helped many people invest in the roaring stock market of the 1920s. When the stock market began to decline, the lenders panicked and demanded their money back. This increased the sales of stocks to pay off the loans, but many people remained in debt and the lenders couldn't get their money back.

Another factor was the serious lack of diversification in the American economy of the 1920s. Prosperity had been excessively dependent on a few basic industries, notably construction and automobiles; in the late 1920s, those industries began to decline. Between 1926 and 1929, expenditures on construction fell from $11 billion to under $9 billion. Automobile sales began to decline somewhat later, but in the first nine months of 1929 they declined by more than one third. Once these two crucial industries began to weaken, there was not enough strength in other sectors of the economy to take up the slack.

Farmers, already deeply in debt, saw farm prices plummet in the late 20s; their land was already mortgaged, and crop prices were too low to allow them to pay off what they owed. Small banks, especially those tied to the agricultural economy, were in constant crisis in the 1920s as their customers defaulted on loans; there was a steady stream of failures among these smaller banks throughout the decade.

Another factor contributing to the Great Depression was America's position in international trade. Protectionist impulses would drive nations to protect domestic production against competition from foreign imports by erecting high tariff walls. The Hawley-Smoot Tariff Act of June 1930 raised U.S. tariffs to unprecedented levels. It practically closed U.S. borders and, with retaliatory tariffs from U.S. trading partners, caused the immediate collapse of the most important export industry, American agriculture. American foreign trade seriously declined, and the volume of world trade steadily decreased.

The debtor nations put strong pressure on the United States in the 1920s to forgive the debts, or at least reduce them. The American government refused. Instead, U.S. banks began making large loans to the nations of Europe. Thus debts (and reparations) were being paid only by augmenting old debts and piling up new ones. In the late 1920s, and particularly after the American economy began to weaken after 1929, the European nations found it much more difficult to borrow money from the United States. At the same time, high U.S. tariffs were making it much more difficult for them to sell their goods in U.S. markets. Without any source of revenues from foreign exchange with which to repay their loans, they began to default.

The high tariff walls critically impeded the payment of war debts. As a result of high U.S. tariffs, only a sort of cycle kept the reparations and war-debt payments going. During the 1920s the former allies paid the war-debt installments to the United States chiefly with funds obtained from German reparations payments, and Germany was able to make those payments only because of large private loans from the United States and Britain. Similarly, U.S. investments abroad provided the dollars, which alone made it possible for foreign nations to buy U.S. exports.

By 1931 the world was reeling from the worst depression of all time, and the entire structure of reparations and war debts collapsed.

In the scramble for liquidity that followed the Great Crash, funds flowed back from Europe to America and Europe's fragile economies crumbled.

In the United States, President Herbert Hoover made only half-hearted efforts to control the situation, and hindsight shows that at first, he gravely underestimated the severity of the crisis, (even announcing to Congress on December 3, 1929 that the worst effects of the recent stock market crash were behind them and that the American people had regained faith in the economy). Sound familiar? Conditions are not exactly the same and there's no longer the Gold Standard (the Oil Standard, maybe), but the rest sounds pretty much identical to what's happening now.

Time to buy property, methinks.

Oh, and it was not until the U.S. entered World War II that Roosevelt's ideas for massive public expenditures and deficit spending truly began to bear fruit. Roosevelt's administration, of course, had little choice but to increase expenditures, given the war effort. Even given the special circumstances of war mobilization, New Deal policies seemed to work exactly as predicted, winning over many Republicans, who had been the New Deal's greatest opponents. When the Great Depression was brought to an end by the Second World War, it was obvious that the turnaround had been caused primarily by the reinforcement of business through government expenditure. Wasn't the US economy experiencing a downturn just before 9/11? Time for a war, chaps! That worked last time...

[D_Raay]

You're kind of all over the board there. So the government coined the term 'service economy' in order to cast a fog over the eyes of the American public? Lawyers and Republicans are ruining the country. The irony here being that if you polled Congress you'd probably find that more Republicans than Democrats support tort reform.

Of course companies outsource to other countries. But lets all heed the call of the socialist left- "tax the companies! Spread the wealth! Union yes!"

That'll get em to stay.
What are you talking about? How did this become a left vs right vote? I am simply stating the problems I see with our economy not how the left or right may vote on tort reform. I am all over the board huh? I don't quite see it.