The Enemy is Us

By George P. Brockway, originally published March 13, 1995

1995-3-13 The Enemy is Us title

HARDLY A DAY goes by without your being asked by a political party or a news organization or some other public-spirited body to name the three or five or 10 most urgent problems facing America today. If you subsequently reflect on your answers, you are likely to realize, whether sadly or cynically, that little or nothing will be done about any of the problems, even those that have a large majority worried about them.

The reason is simple: We don’t have the money.

Everyone knows we can’t have universal health care; we can’t have a welfare system we’re not ashamed of; we can’t have a superaccelerator; we can’t improve our schools and colleges; we can’t keep our libraries and museums open as long as they were 60 years ago; we can’t clean up the pollution of our air and water; we can’t fix our roads and highways; we can’t clear our streets of garbage; we can’t hire enough cops and judges or build enough jails to curb crime – because we don’t have the money. Everyone knows this, and everyone, from the President to this year’s kindergarten graduate, says it every day.

But everyone is wrong. What we don’t have is intelligence. What we don’t have is good will or strong will or, honestly, any will at all. What we don’t have is the ability to learn from our experience. We don’t even have common sense and ordinary decency. Pogo was right: We have met the enemy and they is us.

“Enemy” suggests a couple of lessons from World War II. When Germany started the War, the papers were full of prophecies that despite its possible superiority in tanks and airplanes and training, it would surely lose. You could try all day and never guess why; so I’ll tell you. Germany would lose because its gold reserves were too low, even though Hjalmar Horace Greeley Schacht had been trying to conserve them by bartering instead of paying cash for the things it needed. It didn’t have the money. All we had to do was to sit back and wait for it to collapse.

Five and a half desperate and bloody years later, collapse did come, but not because the Germans lacked gold. They lacked manpower. At the end, they tried to defend their “heartland” with half-trained regiments of teenagers and retirees. They were overwhelmed.

During the War we had a money problem too. After all, when Germany attacked Poland we were slowly pushing our way out of the Great Depression. Then as now, the Federal budget deficit was on everyone’s lips. We were on the road to serfdom (at the time inflation was more a promise than a threat). By 1945 the national public debt reached $235.2 billion, or 111 per cent of Gross National Product. That sounds like bankruptcy if you have heard Warren B. Rudman and Paul E. Tsongas making a fuss over the present ratio of 66.8 per cent. Given our clearly not having the money to pay for the War, we should have surrendered and undertaken the close study of German and Japanese management practices from the ground up.

Yet somehow, before the year was out, we won the War. More than that, as we demobilized our Army and Navy, we enacted the GI Bill of Rights, enabling the wartime generation to be the first in history to have a college education and to buy their own homes. Two years later we still didn’t have the money, but we started the Marshall Plan and saved Europe. Afterward we enjoyed a quarter century of more rapidly rising wages than we’ve had since, higher corporate profits after taxes than we’ve had since, lower inflation than we’ve had since, and lower unemployment than we’ve had since – all at once. We could have done more (President Truman tried to get universal health care almost a half century ago, but was blocked by the American Medical Association and the Republican Party); nevertheless, what we did do was better than we have managed lately.

Let’s look at a somewhat less impersonal situation. Think about the Baby Boomers. Their parents and grandparents won the War and passed the GI Bill and saved Europe with the Marshall Plan. Of course, this increased the national debt left to their children. Now I ask you: Would the Boomers have been better off if they had not been saddled with a victorious America, prosperous parents, and a recovered Europe?

Next, let’s think about the Boomers’ children – the present younger generation that we are worried about saddling with debts we don’t have the money to pay. Are we doing them (or the nation) a favor by cutting the deficit so that those who happen to survive the measles (we don’t have the money to vaccinate them all) will grow up half educated and in dangerous, squalid surroundings? Or will we do anyone a favor by leaving children essentially uncared for while we force their mothers to work at jobs that won’t pay enough to lift them out of poverty?

Finally, think of your own children. Where are you going to find $125,000 apiece to send them through college? Should you go into debt, along with them, or should you give the whole thing up? And what about your mortgage? If you have one, it is because you want a better place to live and to raise your children than you could otherwise afford. If you die before the mortgage is paid off, your estate will have to pay the balance and your children’s inheritance will be diminished. Is that mortgage against your children’s interests?

Like all good rhetorical questions, these have obvious answers. The resulting problems have equally obvious solutions, if we stop long enough to consider the distinguishing marks of the capitalist system we praise so mindlessly.

MODERN CAPITALISM depends on ongoing indebtedness to support ongoing investment in ongoing production that will provide ongoing income. This is something quite new under the sun. For convenience we will call what we previously had mercantilism. To be sure, the two systems have run together, and certainly are not disentangled yet, but let’s try to focus on their differences.

To begin with, rather than burdening themselves with ongoing indebtedness, good mercantilists followed Polonius‘ advice: “Neither a borrower nor a lender be.” If they did borrow, they did so for a specific purpose and paid off the loan as quickly as possible. In contrast, AT&T, industrial giant though it is, rolls over its massive debt as that comes due. Alexander Hamilton foresaw that a national debt, widely held by prominent citizens, would be a stabilizing and unifying element in the new republic, and so it has been.

Second, instead of investing in ongoing enterprises, mercantilists looked for big deals where they could make a killing. The merchants of Venice took shares in a particular voyage of a particular galley. As recently as a hundred years ago, most American corporations were chartered in New Jersey or Delaware because other states would grant charters only for limited and specific purposes. In contrast, a modern corporation is usually at least moderately diversified and is, theoretically anyway, immortal.

Third, because of its ad hoc investing, the characteristic mercantilist form of profit is the capital gain, which is realized when the investment is withdrawn and the enterprise ceases. In contrast, the characteristic capitalist investment continues indefinitely, produces a regular flow of goods, yields regular dividends, offers regular employment, and pays regular taxes.

When money was gold or silver or some commodity, or was convertible to some commodity, the amount of borrowing that could be done in an economy was limited by the amount of the money-commodity. Today, when money is realized credit or debt, the amount of borrowing is limited by the amount of unused resources, especially labor, available to the economy[1].

In the United States at present we have upwards of 17 million potential workers who are either unemployed, underemployed, discouraged, or turned off. That’s about an eighth of our work force and represents an enormous available resource, greater than the labor power of most nations of the world. We also have all the urgent, if not desperate, needs we mentioned in the beginning. Our problem is to use this resource to meet those needs.

Modern capitalism has tried to do that and has failed. It has been an enormous economic success in many ways, but the market, as economists rather coolly admit, has imperfections. The state, therefore, has to create the jobs – and that will take money. Let’s say it will take $20,000 for each of the 17 million people in our “resource,” or $340 billion.

Well, $340 billion sounds like a lot of money, but it is really only 5 per cent of the current Gross Domestic Product (GDP). It is little more than half of what I call the Banker’s COLA (the extra interest the Federal Reserve Board encourages lenders to charge to “protect” themselves from inflation, which is itself a principal cause of inflation).

Most of the money would be borrowed, just as businesses borrow the money they require. During World War II the Treasury and the Federal Reserve cooperated to keep the prime rate at 1.5 per cent. If the government borrowed the entire fund at 1.5 per cent, the interest would be $5.1 billion per annum – less than one tenth of 1 per cent of the GDP. The additional taxes paid by newly employed workers would far more than cover that[2].

There remains the nagging mantra: We don’t have the money. Do we not? What do you think has pumped up Wall Street so that bored TV anchors tell us “trading was moderate” on days when half again as many shares change hands as in the frenzy of the Crash of 1987? Why must brokers and bankers weary themselves thinking up $14 trillion worth of “derivatives” (three times as much as our total national debt) for people who don’t know what to do with their money, while others search out ways to speculate on growth industries in Tashkent, now that they have ruined Mexico? No, we have the money, all right. What we lack are brains and guts.

The New Leader

[1] Ed.:  I’m sure this is accurate but I don’t follow.  If a reader could comment with an explanation I’d be obliged

[2] For each 10% of tax the people earning the newfound $340 billion pay $34 billion is returned to the Treasury vs an interest cost of $5.1 billion

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