Memories of the 28th Century
How To Ruin An Economy
by , 06-15-2013 at 04:20 PM (6176 Views)
In the last half century the economy of the United States of America has gone from strong and growing to shrinking and weakening, and that was with a lot of people trying very hard to improve the economy, or saying they were. It probably would have been possible to do more damage to the economy, but it would have required a strong dictator and a very, very complacent populace, and we have only had a bunch of knuckleheads trying to run the country and a populace that believed that the politicians were trying to help them . The roots of the present problems go much further back than fifty years, but it isn’t useful to complain about the invention of crop insurance about seven thousand years ago. If we restrict things to this country, then the biggest single contribution to the destruction of the U.S. economy was the creation of the Federal Reserve System in 1913; although others would claim that going off the gold standard was worse.
The Federal Reserve System was created for good reasons. The Panic of 1907 was disastrous. For period of time the banking system completely stopped working. The problem was that the clearing banks had gone down the tubes. Clearing banks are the institutions that clear checks and other transfer payments. If people can’t make payments, there can’t be much of an economy. The Panic of 1907 was brought to an end by the remaining banks pooling their assets to create and capitalize a new and (they hoped) stronger clearing bank. It got things restarted, but there was fear that the next time around that solvent banks would not have adequate capital to pull the country out. The economy was growing and the banks owned a smaller proportion of the whole.
It took a few years to get the enabling legislation through Congress, but something that might work was passed and signed, and there was hope for it at first. The principle tasks of the system were clearing transactions, which became progressively smoother as more and more banks joined the system. The Fed was mostly capitalized by member banks, which are required to deposit ten percent of their equity with the Fed, and for that they are paid a six percent dividend.
As a clearing bank the Fed is excellent, and as a lender of last resort it has been excellent when necessary. But over the decades it has also been assigned the task of keeping the currency stable, reducing recessions, and later with managing the currency, eliminating Treasury notes and issuing Federal Reserve notes; these functions have been problematic. The inflation rate has accelerated as the Fed took more charge for the currency, and recessions and, on the average, been more frequent and deeper than was the case in the 1800’s. The recession or series of recessions that started in 2007 is more severe than was the Great Depression; while it was not as deep, the greater length has med it more severe in general.
Not all of the problems with the U.S. economy can be laid on the Fed, because Congress has created a tax system that makes it more profitable to produce goods in other countries and ship them into the U.S. This policy has resulted in a higher level of unemployment, and unemployed people mean fewer consumers, so retailers cut back, and manufacturers cut back.
This is the stage that the U.S.A. is at in the Spring of 2013. We know how to further weaken the U.S. economy; just do more of the same. Improving the economy should be as simple as changing the tax code so that it will be more profitable to produce the goods that are sold in the U.S. made here as well. But that’s more complicated than it should be, because many programs are tied in some way to the income tax code, and there are unrelated matters that have been tied to employment, most notably recently the federal medical insurance program. Undoing Obamacare would be fairly easy, but getting rid of Social Security and other programs that are connected with employment would be more trouble. We will think of a way.
To summarize, the U.S. economy has been greatly harmed by having a central bank that controlled too much of the economy and by having a tax code that favored imports over domestic production. There also has been, and still is, the matter of greedy people, but there are always greedy people. We can greatly improve the economy by rewriting the tax code (and simply eliminating income tax might be adequate) and altering or eliminating the Federal Reserve System. It might also be a good idea to eliminate business corporations, because they allow owners to distance themselves from the business itself.
What do you think? They aren't easy directions, but this was how they blundered into it.
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