Most people would naturally assume that an individual who was a member of President Ronald Reagan's cabinet, a former associate editor of the Wall Street Journal, and a former contributing editor for the right-wing National Review would be the last person to stand up and say the U.S. went astray while the Republicans were in charge.
But they would be wrong.
In fact, Paul Craig Roberts has made it clear in numerous columns through the years that the decisions made while the now-outgoing administration was in charge have been an unmitigated disaster for the United States and its future as global leader. So when he asks in his latest commentary, "Will There be a Recovery?" you can bet he's not standing there shaking his head up and down.
Economists will scoff at the question in the title. But that’s because they are trying to fit the present into the past.
In the past recoveries were routine, because recessions were temporary restraints resulting from the Federal Reserve putting the brakes on an overheating economy. By restraining the supply of money and credit, the Fed caused inventory buildup, layoffs, and a halt to price rises and union wage demands. With the economy cooled by unemployment, the Fed would take off the brakes. Interest rates would decline, money would flow, consumer demand would rise and workers would be called back to the factories.
In those days when workers borrowed to spend, they were borrowing against rising real wages from rising productivity. In economic downturns, few workers actually lost their jobs. They were laid off from their jobs for temporary periods. Workers seldom lost their homes or cars, thanks to union funds and unemployment benefits.
Today the situation is different. In the 21st century real wages have not risen. Workers have spent more by accepting deteriorating household balance sheets. They have maxed out their credit cards and spent the equity in their homes. Imitators of the US government, American consumers borrow to pay their bills.
The expansion of household debt relative to income created the illusion that the economy was sound. But the consumer economy was as much of a credit-based bubble as the real estate bubble and the financial sector bubble. The economy has lost its real basis.
Today it is difficult to stimulate consumer demand by lowering interest rates. Consumers are too heavily in debt to borrow any more. Financial institutions are too impaired to want to lend to anyone except those who don’t need to borrow. As the Keynesian macroeconomists used to say, “you can lead a horse to water, but you can’t make him drink.”
And there’s another problem. Much of what American consumers purchase today is made offshore. Stimulating consumer demand in America puts factories back to work, but those factories are located elsewhere in the world.
How does an economy consume more than it produces? Previously, this question applied only to poor third world countries. These countries would consume by the grace of World Bank loans. From time to time they would pay for their consumption by being put through an IMF restructuring program that would curtail their consumption to make them repay their loans by forced saving.
The United States has so far avoided such humiliation, because its currency is the world money. The US has been able to borrow endlessly, because it can pay its debts in its own currency.
This ability might be coming to an end. The US has been using up the bulk of the world’s supply of saving for years in order to finance its consumption. Considering the outlook for the US economy and dollar, the productive nations of the world and those with oil have more dollars and dollar-denominated assets than they want. The US, with its collapsing economy, its bailouts of financial institutions, and its wars, is facing the largest government budget deficit in its history, both in absolute amount and as a percentage of national income. The easy monetary policy, which the Fed hopes will arrest deflation, threatens inflation and further deterioration in the dollar. Foreigners simply do not want to lend more large sums to a country that, from all appearances, has no way to close its trade and budget deficits. They certainly do not want to lend when the interest rate offered is close to zero and the reserve currency status of the dollar is in doubt.
Economists and the policy-makers they advise are thinking in the past, a time when low interest rates stimulated consumer and investment demand, thus lifting the economy. Today the low interest rates threaten the dollar, discourage foreigners from lending more to the US, and deprive Americans of interest income necessary to their ability to pay their bills.
In the second half of the 20th century, American economic supremacy was a gift of World War II, which destroyed the productive capacity of the rest of the developed world. American economic supremacy also owes much to communism in Russia and China and to socialism in India, which rendered these large countries economically impotent. The United States did not have to compete for its economic hegemony. It simply inherited it from the choices made by the rest of the world.
The situation is different today. Unlike the US, other countries are free of the hubris of being the “indispensable nation.” They know how hard it is to be successful and do not treat success as their birthright. They do not give away their economy for nebulous foreign policy goals or for short-term profits. They look ahead 20, 30 years while America’s CEOs look to the next quarter’s profits.
The United States is walking on quicksand. It is dependent on foreigners for the funding to conduct the day-to-day operations of its government. Its economy is a hollow shell reduced to dependence on a financial sector that is discredited worldwide. America’s government believes that its foreign wars of aggression are more important than any domestic needs, including the health care of its population.
Now that its supply route to feed its war of aggression in Afghanistan is threatened, the American government has the delusion that it will be able to supply its army in Afghanistan through thousands of miles of Eastern Europe, Russia, and Central Asia. Only a government totally oblivious to reality would imagine that Russia’s Putin, whose nose is rubbed in excrement every day by the US government, will permit America to transit Russian territory to resupply US imperial legions in Afghanistan.
What we are witnessing is a once great power engaging in fantasy to disguise from itself that it is a failed state.
for one thing the economy is never sound if sound presuppose
status quo (steady as she goes).The economy is constantly
transforming ,changing and destroying the old social relations
this change is gradual & unseen by those who live in it,it involves
everything and every one,the old way of doing things are replaced
by new ways,the build up is slow and when completed it explodes to
the complete surprise of one & all.
Posted by: roger | January 06, 2009 at 11:23 PM
The federal government and State Legislatures may want to loan money to manufacturing companies that make products in our country. Some of the companies could be foreign owned. Some of the companies could be small companies. This may increase our economic growth and help us reduce the national debt over time. Companies that make products in our country may produce less air pollution, water pollution, and land pollution on our planet than companies that make products in China.
If the federal government is serious about growing the economy and creating jobs, it should stop taxing interest from savings accounts, dividends, capital gains, and estates. Individuals and businesses would have more money to spend. Individuals and businesses would be more likely to invest in poor parts of our country. Businesses would have an easier time obtaining loans and investments for hiring workers, research and development, and plant and equipment. Middle class people, union members, and government employees who have mutual funds would benefit from capital gains and dividends not being taxed. Wealthy people and others might be more willing to donate money to homeless shelters, soup kitchens, and food pantries.
I graduated from the University of New Hampshire in 1992 with a BA Degree in Political Science and a minor in Economics.
I ran for United States Senate in 2002.
I posted comments after Matthew Leiphon's "STATE BUDGET WOES" located at http://www.newgeography.com/content/00497-state-budget-woes
The United States of America, Mexico, and other countries should legalize, regulate, and tax the sale of marijuana, heroin, and cocaine for people who are at least 18 years old. We should allow farmers in Afghanistan to grow opium. Terrorists in Afghanistan may obtain less money from their opium and we may have more farmers who live in Afghanistan as friends.
If the United States of America and Mexico legalize, regulate, and tax the sale of marijuana, heroin, and cocaine for people who are at least 18 years old, they may be able to spend less money fighting violent drug gangs. If Mexico is able to spend less money fighting drug gangs, Mexico may be able to spend a lot more money on its economy. If Mexico's economy grows a lot, fewer illegal immigrants may come to the United States of America, many illegal immigrants may leave the United States of America, and many more Mexicans may be able to buy products and services from the United States of America. Most non violent drug offenders should be released from prison to make more room for violent criminals. If state governments are able to spend less money fighting violent drug gangs, dealing with illegal immigrants who are a major expense for them, and dealing with non violent drug offenders, they may be able to reduce their sales taxes.
The federal government should sell a lot of the land it owns to raise capital, reduce the national debt, help fund Social Security and Medicare, and do other things. If you type federal government owned land on a search engine, you might be surprised at how much land the federal government owns. State governments should obtain some of the money the federal government obtains from the sale of the lands. I would expect Americans and foreigners to buy some of the lands. Local governments may be able to obtain more property taxes from these lands.
Congress should consider passing a 2 percent national sales tax placed on most items other than food, shelter, health care, and education. If a national sales tax is adopted, the federal income tax on individuals and businesses should be reduced. Some of the money taken in from a national sales tax could be used to fund Social Security and Medicare.
Article 1, Section 8 of the United States Constitution says Congress has the power
"To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures"
Congress should consider backing our currency with gold, silver, and other commodities.
Congress should eliminate the Federal Reserve or veto many of its decisions. If the Federal Reserve continues to exist, 2 members of the House of Representatives and 2 United States Senators should sit on the board of the Federal Reserve. If 3 of these members of Congress wants a Federal Reserve decision to be vetoed, it should be vetoed. If the majority of the United States House of Representatives wants a Federal Reserve decision to be vetoed, it should be vetoed. If the majority of the United States Senate wants a Federal Reserve decison to be vetoed, it should be vetoed.
My website is http://www.myspace.com/kennethstremsky
Posted by: Ken Stremsky | January 08, 2009 at 09:53 AM