Friday, September 12, 2008

Billionaire Bailout

There is a logic behind the federal government forcing the U.S. taxpayer to foot the bill to bail out gamblers, speculators, and the super rich. It is, however, a logic based on a false premise. If you're as fed up as us, you might want to read the following letter to the Wall Street Journal, and send something similar to the Journal as well as to
your local paper.

Yesterday's "Review & Outlook" column ("Bailout for Billionaires," WSJ, 09/11/08, A14) accurately identifies the problem with the current system of what might ironically be called political economy. Serious deficiencies in our economic institutions are being manipulated for the benefit of politically powerful individuals and groups. The most significant flaw is the fixed belief, a virtual dogma in Keynesian economics, that the savings of the rich are absolutely necessary to finance the formation of capital.

According to Keynes, only the rich are able to save and thus provide financing to form capital. The rich necessarily reinvest what they can't spend, thereby creating jobs for ordinary people. When the rich consume, they can only do so by hiring other people to satisfy their needs, creating even more jobs. Thus, within the Keynesian framework, the richer a small elite becomes, the better off everyone is. Whatever favors the rich presumably benefits everyone.

There are two fundamental problems with Keynes' assumption. One, the rich don't need the labor of the poor to satisfy their own needs. Adam Smith believed otherwise, but Smith failed to take into account the effect of advancing technology, an understandable oversight in 1776. Keynes had no such excuse, as he could observe the displacing effect technology has on labor, replacing human beings with cheaper and more efficient machines. Keynes' answer was to run up government deficits, redistribute through the tax system, and use the central bank to create money for the State to spend, thereby increasing effective demand with no commensurate increase in production: inflation.

Two, despite Keynes' fixed belief that money could not be created for financing the formation of capital (only for financing government deficits), the commercial banking system of the United States did just that between 1830 and 1930, a century which saw periods of the greatest industrial, commercial, and agricultural expansion in history. Dr. Harold Moulton of the Brookings Institution demonstrated in The Formation of Capital (1935) that the financing of this growth did not come from non-existent savings, but from the expansion of bank credit, that is, out of "nothing" — except the inherent productive capacity of the American economy monetized by banks of issue.

The "Billionaire Bailout" is the logical end of the Keynesian system. In order to give the rich the incentive to reinvest their capital incomes and thereby create jobs for the rest of us, they must be protected at all cost, even if the cost is blatantly unjust, and a heavy charge on the very people the system is supposed to benefit: the American taxpayer. The only problem is that what jobs are created are frequently in other countries, and advancing technology takes care of the rest.

What is needed is a complete overhaul not just of the tax system, but of the government's whole approach to political economy. A program such as Capital Homesteading for Every Citizen has the potential to turn this situation around — if the politicians have the courage to correct the serious flaws in the system and change things for the better.

Donations to CESJ are tax deductible in the United States under IRC § 501(c)(3)

1 comment:

Jether said...

Do I have your permission to translate this letter to Portuguese and post it in my blog?