Yes, business has been "growing" over the past ten months or so, but 1) it's only replacing inventory, and 2) America's industrial base, even if it reached full output, is a shadow of its former self. There are few people alive today who remember (or who bother to find out) that in 1933 — generally considered the worst year of the Great Depression — industrial output was "recovering," showing gains in a number of months. Of course, the economy suffered another serious downturn three years later when the Federal Reserve raised its rates to dampen down the overheated economy because the authorities decided that the recovery was proceeding too fast.
Adding to the problem is the anticipated cost of the new health care mandate. The Obama administration appears to have failed to take into account that ordering employers to pay for workers' health care is a tremendous incentive to get rid of workers and replace them with cheaper foreign workers or more efficient (or at least cheaper and more tractable) technology. The "write down" controversy pales in comparison with the uproar that will ensue when workers find themselves priced out of the labor market.
If that were not enough, business folk as well as the speculators on Wall Street are desperately trying to predict when Federal Reserve Chairman Bernanke is going to raise interest rates. (This may also account for the reported rise in business activity, as businesses rush to borrow now at low interest rates in anticipation of a raise in rates, hoping that they will be able to sell what they have produced.) Raising interest rates is the standard tool the Federal Reserve uses to reduce lending for speculative purposes, presumably preventing bubbles from forming. The problem is that putting on the brakes by raising all interest rates means starving the productive private sector for credit in order to inhibit or prevent speculation.
Financial institutions are then forced into an "Asset-Liability Mismatch." They seek out places to put their money that have higher (and increasingly speculative) returns in order to cover the higher cost of that money. This, in part, is what led to the savings and loan crisis of the 1980s. As that experience demonstrates, raising interest rates to inhibit or prevent speculation actually encourages speculation — and, as happened in the mid-1930s and early 1990s, precipitates an economic downturn . . . at a time when we are still in the process of trying to recover from the last one.
We might be tempted to say that the "mini-depression" of the mid-1930s and the recession of 1990-91 weren't all that bad. After all, the economy recovered, didn't it?
Yes and no. The monetary and fiscal policies of the New Deal didn't bring the country out of the downturn of the mid-1930s. World War Two did that. As for the savings and loan debacle, that directly affected only a relatively limited sub-sector of the financial markets. While the final bill was large, in the neighborhood of $160 billion, and is blamed for precipitating the recession of '90-91, most of the economy remained more or less sound, making for a relatively rapid recovery.
That is not the case today. We do not have an Adolph Hitler to start a genocidal war that requires full mobilization of all resources to give us a fighting chance to survive. Neither do we have a basically sound economy to cushion us from the failure of a relatively limited portion of the financial sector. What we do have is an economy, such as it is, from which a large measure of productive capacity has been taken away, and which the State seems intent on further undermining. Perhaps that is what Geithner sees, and why he appears to be so intent on excusing himself and trying to fix the blame elsewhere for the United States pursuing its current suicidal economic policies. He doesn't want to be strung up from a lamppost when the inevitable crash occurs.
What is the solution? Obviously, we need to rebuild what Harold G. Moulton termed "America's Capacity to Produce" (Washington, DC: The Brookings Institution, 1934). That, however, is not enough. We also have to rebuild "America's Capacity to Consume" (Washington, DC: The Brookings Institution, 1934). This will require a full mobilization of resources such as we have not seen since World War Two — but it can be done. Both of the goals can be accomplished at the same time by implementing Louis Kelso and Mortimer Adler's "Proposal to Free Economic Growth from the Slavery of Savings." Every man, woman, and child must be given the opportunity to produce through direct ownership of both labor and capital, thereby supporting the consumption from which the demand for capital is derived.
Consistent with Say's Law of Markets, producing in a way in which everybody participates through ownership in and of itself restores consumption to the necessary sustainable level, building and maintaining a sound economy. This is the program outlined in Capital Homesteading for Every Citizen, a copy of which should go to every Congresscritter and Senator on Capitol Hill.
What can you, personally, do to help bring about a sound economic recovery before the powers-that-be manage to fumble the ball and lose the game in the few remaining seconds? Open doors for the CESJ core group to make a presentation of Capital Homesteading to prime movers, or those who can get members of the core group to prime movers. You never know just what connection is going to pay off — and your political chips increase the more you connect the right people, as "Dinner at the Madison" demonstrates.
What have we been doing? As much as we can, even though many things have slowed down, both because of the holiday weekend, and because of our preparations for the annual peaceful rally at the Federal Reserve:
• The annual peaceful rally at the Federal Reserve is scheduled for Thursday, April 15, 2010. Reservations are not required, but let us know if you plan to attend so we can send you directions and instructions. Contact information is on the CESJ website.Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
• CESJ has received an inquiry about its internship program from Johns Hopkins University in Baltimore. CESJ is always seeking motivated self-starters for its internship program.
• If you are not pursuing a formal course of study, or you do not need credit hours yet have a Just Third Way project or want to help carry out an existing initiative (such as door opening, research, arranging a speaking engagement, or getting coffee and making copies), consider becoming a CESJ volunteer.
• CESJ's research library recently obtained a rare copy of Harold G. Moulton's The Recovery Problem in the United States (1936). The book contains many insights on the Crash of 1929, the Great Depression, and the missteps in the New Deal recovery programs.
• We received a most encouraging telephone call this week from a retired lady in New Jersey, who told us how helpful the current "Own the Fed" series was in helping her understand how the central bank of the United States had been diverted from its original mission of providing the private sector with an elastic currency sufficient to meet the needs of industry, commerce, and agriculture without inflation or deflation. Her only problem was that she was having difficulties in getting people sufficiently interested in what we have to say to go to the CESJ website and this blog. This is door opening on an individual level, and can be the most effective way to get the ball rolling — you never know who may be listening.
• As of this morning, we have had visitors from 48 different countries and 47 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, the UK, Brazil, and India. People in Venezuela, France, Rwanda, Finland, and Ghana spent the most average time on the blog. The most popular postings are "Thomas Hobbes on Private Property," Guy Stevenson's "Expanded Capital Ownership Now," "The Crash of 1929" in the "Own the Fed" series, "Henry Ford and John Maynard Keynes," also in the "Own the Fed" series, and "A Rare Chance to Remake the Fed."