Deficits, Inflation and other scary monsters in the closets of our minds

The study of economics is, like so many other fields of endeavor, fraught with convolutions and layers of double speak that can either explain or obscure truth depending upon the person doing the speaking.  One person who is trying to remove layers of misinformation and hype is Norton Garfinkle in his latest book: The American Dream vs The Gospel of Wealth.   The following article is based in large part on his excellent book.

Deficits cause massive inflation, true or false?

Well, the right answer is: it depends – we need more information to answer the question.  In almost all cases, with some significant exceptions like Weimar Germany, government deficits, or the amount a government spends that exceeds the amount a government takes in, do NOT cause rampant inflation.  This is because of two important principals:

1.  Most governments like the United States or Great Britain, cannot run out of money because they print the money.  But, you quickly ask,  if the government prints more money, it causes inflation, right?  Because if there is more money, it will make the money cheaper.  The answer is no.   Because of principal Number 2.

2.  Rampant or “hyper” inflation only occurs if an economy has peaked and there is no more demand for goods and services.  Then if a country prints more money you have a situation of too many dollars chasing too few goods.  People lose faith in the currency and will not hold on to money for fear it will loose more value in the future.  But, the United States is not anywhere close to this situation.  Companies are able to continue hiring and producing because demand is still high.  The problem is that people are out of work and scared.  That is when governments must step in with deficit spending to create more jobs and support programs so people will have the purchasing power and confidence to buy goods and services.  If a government backs away from deficit spending due to the misplaced assumption that national deficits are bad, the economy will suffer, demand will suffer, and the hyper-inflationary spiral that everyone worries about might actually occur because the government did not step in to create needed jobs to bolster the economy.

There are secondary layers to all of this.  Misguided and outright mistruths are being spread about, primarily by conservative think tanks and media outlets spreading fear and misinformation about the danger of large government deficits that will saddle future generations with terrible debt burdens and weaken the economy.  The exact opposite is the case.  Governments providing jobs will strengthen the economy, not weaken it.  The key to remember is that the government is not like a household.  A household has to live within its budget or it will go bankrupt.  A government can never go bankrupt because it prints its own currency.  As long as demand is strong, there will be no danger that inflation will generate a dangerous situation.   Demand for dollars will remain high and trust in the value of the currency will remain high.  Businesses are willing to hire workers and produce goods and services because there is demand for them.  Policies that weaken the middle class ability to generate that demand weakens the entire economy.

So what about those inflation periods that happened in the ’70’s and ‘80’s?  The answer is: that was a different kind of inflation caused by the deliberate scarcity  or control of the price of oil by the OPEC (Organization of Petroleum Exporting Countries) decisions to reduce their exports and increase prices.  There was no actual scarcity of oil at that time; it was a “deliberately manufactured” scarcity.  But because the cost of oil impacts the cost of almost everything else, we saw prices increase during that period.  The really bad part of the story is that this inflationary period brought back an evil priest class called “supply side” or “free market” economists and politicians like Martin Feldstein and Grover Norquist who succeeded with the Bush tax cuts and an attempt to bring back the “Gilded Age” of the wealthy class prior to 1929.

The Bush era tax cuts for the wealthiest classes along with his two illegal wars immediately eliminated the Clinton era budget surplus, creating the current enormous debt situation that the Republicans are now trying to blame on the Obama administration.  However, it is not the debt situation itself that has caused serious economic repercussions but the Republican fanatical belief in the gospel of free, self-regulating capital markets with no government intervention.  The Bush policies to either ignore or to actually aid Wall Street financial institution’s corrupt banking and trading practices caused the economic collapse of 2008.

Republicans are now trying to frighten the country into more tax cuts for the wealthiest classes who received windfall profits during the 2008 financial collapse and reduced support for the middle class, claiming that reducing public workers retirement plans,  Social Security and Medicare are the answers to the country’s financial problems.  With unemployment at record levels not seen since the Great Depression era, it is hard to imagine a more bankrupt or cruel attitude.  That many workers believe these lies is due to the smoke and mirror tricks of the corporate controlled media who do their masters bidding.

This is the opposite of what is needed, which is government spending to create more jobs and more support for unemployed and those reaching retirement age.  The simple reason is that cutting taxes on the wealthiest class and increasing financial burdens on the middle and lower classes will reduce business ability to provide more jobs or produce more goods and services because there will be no demand (i.e. no money) to buy anything.  As the pool of goods shrinks, inflation will almost certainly return to cause further misery.  

Yet the liars and high priests of corporate greed continue to blame us: the middle and lower income classes for the problems, as though the small retirement pensions of teachers and firemen are bankrupting the system.  Could anything be more ludicrous?  Yet people believed that Saddam Hussein had weapons of mass destruction too.  Sadly, if a lie is shouted loudly enough and long enough, many people will begin to accept it as reality. 

The simple truth is that there is no such thing as a capitalist  “free” market economy.  A “free” market economy will destroy itself through its own greed as happened several times in this country’s history.  A capitalist market economy requires government to provide limits and oversight to protect the public from the rampant greedy speculation that always occurs if no limits are in place.  This does not mean “socialism” or “communism” or any other scary label.  It means that government must intervene in the capital economy to protect the working people by providing fair labor laws, fair retirement compensation laws, public health care, and affordable quality education for all. Part of government responsibility is to also provide a fair progressive tax structure so that the wealthiest classes, who can easily afford it, pay at a higher tax rate than lower income classes.  And if necessary, government must step in to provide jobs when the private sector cannot or will not do so.  When a government supports the common people, their confidence and trust will build back to a point where they can provide the demand that is the engine of a thriving economy.

So how can the government provide jobs?  The list is long; the creative ideas are out there:  alternative energy; rebuilding national infrastructure; public health care; education including the sciences, arts and technology; public transit systems; restoring natural ecosystems; cleaning up our air and water; rebuilding our soil to name but a few.  And this means that the government must spend more, not less, in support of the middle and lower income classes, the working people.  To do otherwise is to court disaster, pure and simple.

The Republican Agenda: To Destroy Democracy

Does that sound harsh?  Are the Republicans really trying to destroy Democracy?  Well, let’s examine the evidence.  First, at the risk of preaching, a wise person once said “People who fail to learn from history are doomed to repeat it.”  This country wasn’t always powerful with a strong middle class and a healthy democracy.  At the beginning of the last century, women and most African Americans could not vote and most people, including young children worked over 60 hours a week in terrible conditions.   Writers and academics wrote long essays and novels about the suffering of the working class.  The field of economics was still in its infancy but the idea first expressed by Abraham Lincoln, that government was of, by and for the people was revisited and a new concept began to emerge, articulated by men like Maynard Keynes.  Keynes is perhaps the most noted teacher of “demand side” economics.  This idea: that a strong economy required a strong middle class that could create the demand for goods and services and thus more and more jobs has since that time been supported by over 50 years of evidence that it works.  Franklin Roosevelt put these economic theories into practice in the late 1930’s and 1940’s in a program hailed as the New Deal and pulled the country out of a spiraling depression which had scarred generations of Americans.  Of course, many factors were involved in this amazing recovery and the wonder years of the 50’s and early 60’s when the middle class grew, most people owned their own homes, children had access to excellent affordable colleges and universities, and Social Security and Medicare provided a safety net for people in their old age.  But the key factor was that the federal government, through fiscal and social programs, provided strong support for the middle class, including a progressive income tax that taxed the wealthiest individuals at a higher rate than lower income families.

So what happened?  I refer you to excellent analysis on this subject by Norton Garfinkle in his 2006 book The American Dream vs. the Gospel of Wealth The fight for a productive middle class economy.  This brief article cannot do this complex subject justice but I would like to touch the high points.  First,  Mr. Garfinkle shows that there is strong, empirical evidence that the Keynesean ideas of progressive tax policy and programs to support the middle class like unemployment insurance, Social Security and Medicare work.  During the period after WWII until the mid 60’s the country was stable with a strong and growing middle class.  Things started to go sideways when President Johnson developed the Great Society programs which were designed to support the transition of the poor into the middle class, ideas that were developed by a group of “neo-Keynesian" economists and supported by a large majority of the country.  Unfortunately Johnson, who deserves credit for his Great Society programs also forced the country into the Vietnam War without raising taxes.  A situation aptly called “Guns and Butter” which forced the government to vastly increase the level of the deficit.  The country subsequently lurched from one deep recession to another while the government tinkered and refused to raise taxes.  President Reagan did raise taxes slightly but to no avail.  The country had to wait for Bill Clinton to finally raise taxes enough to eliminate the deficit and create a national surplus and a rejuvenated middle class.  This surplus would have been enough to protect Social Security for the foreseeable future. 

But, unfortunately, people are foolish and easily misled.  The Republicans had not been asleep during these years.  They were busily working on an answer to Keynes and Demand side economics; it was called “Supply side” economics, a theory supported primarily by politicians like William Kristol and earlier by industrialists like Andrew Carnegie.  It was a philosophy that said basically the unfettered free market must be allowed to function without government restraint (i.e. taxes and regulations).  A cruel second layer to this idea was that the costs of social programs to support the poor and middle class like unemployment insurance, Social Security, Medicare, education and research funding, etc. were too expensive and must be eliminated.  The Republicans have been pushing this agenda for decades.  But there is zero empirical evidence that these policies work; that the country gains productivity or well-being when these policies are followed.  There is strong evidence that the opposite is true; one only has to look at the George W. Bush administration to see what has happened.  When Bush slashed taxes on the richest 2%, it wiped out the country’s budget surplus in one year.  The country fell back into deep deficit spending mode.  When regulations over Wall Street and banks were eliminated, the greedy sharks set up shop to prey on innocent and ignorant ordinary citizens who were trying to live up to the American Dream of their parents by running up huge credit card debt and taking equity out of their homes.  Bush also thought he could start two illegal wars and not raise taxes.  Sound familiar. 

The whole house of cards crashed in 2008 and the country has been mired in the worst recession since the Great Depression of the 1930’s.  We now have the strange spectacle of the Republicans frantically trumpeting that the only way out of our situation is to slash social programs for the poor and middle class and reduce taxes on the rich – the exact opposite of what Keynes taught, and presidents Roosevelt, Eisenhower, Kennedy, Johnson, and Clinton believed and followed to the great benefit of the country as a whole. I repeat, there is no evidence that unfettered free market capitalism works. There is ample evidence that unfettered free market capitalism does not work.  The Republicans do not want people to know this and spend millions of dollars trying to pull the wool over the public’s eyes.  The Republican Party is the party of the elite moneyed class.  They use their money to corrupt the debate for the American people, using scare tactics about “terrorism,” and “illegal immigration” and “Planned Parenthood” and phony political arguments like “Supply side economics” and  “elimination of the deficit by eliminating social programs” to support their blatant effort to control the country and destroy the middle class. 

People!  Wake Up!  Are we sheep or are we free men and women?”  Do not fall for these evil tricks and lies.  Look at the evidence.  Our economic situation is complex and filled with challenges but clearly giving the most powerful, wealthiest class a free ride not to pay their fair share and letting them spend millions to control the political debate is the wrong path.  Listen to Lincoln’s words—that the American promise was universal prosperity and betterment for all.  That our government was: “of the people, for the people and by the people.”  Do not let it perish!

Good books to read to learn more:

The American Dream vs. the Gospel of Wealth The fight for a productive middle class economy by Norton Garfinkle 2006

Griftopia Bubble Machines Vampire Squids, and the Long Con that is Breaking America by Matt Taibbi 2010

Aftershock The Next Economy and America’s Future by Robert B. Reich 2010

Bradley Manning and America's Shame

Whether you believe that Bradley Manning is guilty of treason or is a whistle blower like Daniel Ellsberg (the Pentagon Papers,) I think anyone will have a hard time justifying the Obama Administration’s treatment of him.  According to all reports, Bradley Manning is being tortured; there is no other name for being placed in solitary confinement 23 hours a day and forced to stand naked before one’s captors.  This is not being done by some dark government in Pakistan, Tajikistan or Uganda; it is happening here, in the United States, home of the brave, land of the free.  This has been going on for almost a year and yet no charges have been brought forward and no opportunity given for Manning to face his accusers and defend himself as provided by the US Constitution.  He is just being forced to sit in solitary confinement with no contact with anyone from the outside world.  I thought this sort of thing was what happened in the dreaded “Communist” USSR.  We were supposed to be the good guys who lived in freedom and security knowing that we could not be held in prison without being charged and given the right to defend ourselves.  What happened? 

After 9/11, the Bush regime bullied Congress into passing laws that eliminate many of the freedoms we have for so long taken for granted.  Now, any one of us could be “disappeared” just like Bradley Manning and held indefinitely based on the new terrorist paranoia corrupting our country.  The fig leaves Obama flaunted during the election about bringing “change” to the country; about bringing back the protection of our constitutional and civil rights—that was all just so much hot air and window dressing.  If Obama really cared about these things, he would not stand for the torture of Bradley Manning for one minute.  I expect nothing from Republicans who long ago sided with the corporate class and care nothing about the rights of the common people but it shames me to see how low the Democrats have fallen.  I think it is time for another party to come forward, a people’s party of progressive thinkers who do not ignore science for their own convenience, who do not torture people, who provide public health care for all citizens, who do not make war on other countries that have not attacked us but work with the international body of the United Nations to resolve issues, who establish clear policies for protection and restoration of the environment for future generations, who show compassion and humility to all living beings and who establish clear regulations to control the rapacious, blind greed of the capitalists.

Thank You David Ray Griffin

This article is written with unabashed admiration for David Ray Griffin and his tireless efforts to expose the lies and dangerous, deceitful behavior of the federal government and the media regarding the cover-up of the truth behind the 9-11 attacks.  Can there be any thoughtful person who has reviewed the evidence that has now reached tremendous proportions and still deny the fact that 9-11 was an inside job perpetrated on the American people by the Bush-Cheney organization?  Beyond this, the frothing hysteria that emerges from official media and federal agencies whenever the 9-11 cover-up issue is mentioned provides further evidence that the truth is being hidden.  The latest victim of this hysteria was Richard Falk who was castigated by UN officials and Secretary of State Clinton (see http://www.911truth.org/article.php?story=20110201185751747) for making a reference to the official 9-11 cover-up on his own blog.  I was unable to find, through a Google search, any reference to this event being reported by the LA Times or any other media journal.  The cover-up continues.

However, I digress.  I wanted to express my appreciation to Mr. Griffin for his amazing efforts to expose the 9-11 cover-up.  I won’t list all his books that document this cover-up because anyone can search and find them quite easily.  However, the latest book, Cognitive Infiltration, An Obama Appointee’s Plan to Undermine the 9/11 Conspiracy Theory, published in 2011 is a concise and brilliant masterpiece.  I recommend it to anyone who wishes to understand the extent of the official lies we are struggling with.  It is an intelligent, well documented, and brilliantly written critique of an essay by Cass Sunstein, Harvard and Chicago Law School professor and Obama appointee as administrator of the President’s Office of Information and Regulatory Affairs.  The Sunstein essay, apparently co-written by another Harvard law professor, Adrian Vermeule titled “Conspiracy Theories” and a shortened version “Conspiracy Theories, Causes and Cures,” were posted on line in 2008.  The gist of the articles, as explained by Griffin is to outline how to discredit conspiracy theories, and specifically the 9-11 conspiracy theory supported by the 9-11 Truth movement.  Needless to say, Griffin unmasks this trumped up collection of dangerous nonsense with towering logic and skill.  Using his expert knowledge of existing 9-11 evidence and logic, he explodes every element of this essay, graciously writing his exposé in a way that appears to grant Mr. Sunstein credit as a clever magician who has hidden messages that lead the careful reader to the conclusion that he was actually saying that the “official 9-11 conspiracy” is the dangerous, false one.  I am not sure that I am convinced that Mr. Sunstein  is that smart but I am convinced that David Ray Griffin is a consummate gentleman who has kindly chosen to portray Sunstein in this light while completely destroying Sunstein’s arguments.  The fact that Sunstein was appointed by Obama to such an important position is troubling.  The deep sadness I feel, watching Obama slip further under the dark waves of official lies and deceit bears no repeating.  Can we hope that David Ray Griffin’s idea of Sunstein as a chameleon who actually supports the 9-11 Truth Movement is the reality?  You must decide for yourselves.

“We have met the enemy and he is us” Walt Kelly, creator of Pogo comic strip

This week there were several articles in the January 3, 2011 issue of the Nation magazine that have made me consider why it is that people will willingly believe and passionately defend complete lies that are against their own personal self interest, in the face of hard facts and truth.  Here are a few examples:

1.      George Bush won the 2000 election

2.      9-11 was perpetrated by a few radical Muslims based in Afghanistan

3.      The WTC twin towers collapsed due to fires caused by jet fuel

4.      WTC Building 7 collapsed due to fires from fuel tanks in the basement of the building

5.      The Pentagon was hit by a commercial airliner on September 11

6.      We invaded Afghanistan to eliminate the Al Qaida terrorists

7.      Having a public health insurance option would result in death panels

8.      Global warming is a liberal conspiracy

9.      Obama is a Muslim

10.  The press is controlled by liberal Democrats

11.  Homosexuality threatens the integrity of family values

12.  Social Security is bankrupt

13.  Cutting taxes for the wealthiest 1% will stimulate the economy

14.  Government is too big and must be reduced in order to protect the American way of life

…and so on and on

These outrageous lies have been and are continuing to be expounded by the corporate controlled media and Washington spin machines to convince the public of their validity.  Yet examination of any one of these lies exposes a host of untruths and misstatements and ridiculous assumptions that would make a third grader blush.  They are regurgitated over and over by pundits and spokesmen and women controlled by powerful special interests.  Al Gore, in his eloquent book Assault on Reason, explains that one of the main reasons these lies are accepted as truths is the fact that American media, primarily television is owned and controlled a small cabal of powerful corporations whose sole interest is to muzzle opposition to their own greed.  These corporations have one goal: to keep the American public fearful and weak with only one way to assuage that suffering – buy stuff.  The Republic party is a willing partner in this true conspiracy against the American people. 

So how does one combat this tsunami of lies and fear mongering?  It isn’t easy.  There are a few dedicated individuals who make it their mission to expose these lies but their voices are small whispers that cannot compete with the corporate/Republican hysteria/lie machine. It is also difficult to combat these lies when President Obama himself appears to bow before the wind of these false trumpets, exaggerations and outrageous behavior.  He calls it compromise but it seems more like capitulation to most people; capitulation to liars and callous political maneuvering.  Obama’s weakness and failure to stand against these evil forces is almost as great a disservice to the people as the corrupt Bush regime was in perpetrating the worst attack on the American constitution since the country’s founding. 

In the face of a corporate/Republican controlled media that perpetrates these falsehoods as truth, we have one powerful advocate to shine a light into this darkness.  The President of the United States can become the educator, establishing a dialogue that exposes these lies for what they are. Without real courage and leadership from a dedicated president who stands for truth and justice for all, we are doomed; our country is doomed and the world as we know it is doomed.  But I am reminded of another quote from that wonderful philosopher Pogo, “We are confronted with insurmountable opportunities.”