In
the last half century the economy of the United States of America has
gone from strong and growing to shrinking and weakening, and that was
with a lot of people trying very hard to improve the economy, or
saying they were. It probably would have been possible to do more
damage to the economy, but it would have required a strong dictator
and a very, very complacent populace, and we have only had a bunch of
knuckleheads trying to run the country and a populace that believed
that the politicians were trying to help them . The roots of the
present problems go much further back than fifty years, but it isn’t
useful to complain about the invention of crop insurance about seven
thousand years ago. If we restrict things to this country, then the
biggest single contribution to the destruction of the U.S. economy
was the creation of the Federal Reserve System in 1913; although
others would claim that going off the gold standard was worse.
The
Federal Reserve System was created for good reasons. The Panic of
1907 was disastrous. For period of time the banking system completely
stopped working. The problem was that the clearing banks had gone
down the tubes. Clearing banks are the institutions that clear checks
and other transfer payments. If people can’t make payments, there
can’t be much of an economy. The Panic of 1907 was brought to an
end by the remaining banks pooling their assets to create and
capitalize a new and (they hoped) stronger clearing bank. It got
things restarted, but there was fear that the next time around that
solvent banks would not have adequate capital to pull the country
out. The economy was growing and the banks owned a smaller proportion
of the whole.
It
took a few years to get the enabling legislation through Congress,
but something that might work was passed and signed, and there was
hope for it at first. The principle tasks of the system were clearing
transactions, which became progressively smoother as more and more
banks joined the system. The Fed was mostly capitalized by member
banks, which are required to deposit ten percent of their equity with
the Fed, and for that they are paid a six percent dividend.
As
a clearing bank the Fed is excellent, and as a lender of last resort
it has been excellent when necessary. But over the decades it has
also been assigned the task of keeping the currency stable, reducing
recessions, and later with managing the currency, eliminating
Treasury notes and issuing Federal Reserve notes; these functions
have been problematic. The inflation rate has accelerated as the Fed
took more charge for the currency, and recessions and, on the
average, been more frequent and deeper than was the case in the
1800’s. The recession or series of recessions that started in 2007
is more severe than was the Great Depression; while it was not as
deep, the greater length has med it more severe in general.
Not
all of the problems with the U.S. economy can be laid on the Fed,
because Congress has created a tax system that makes it more
profitable to produce goods in other countries and ship them into the
U.S. This policy has resulted in a higher level of unemployment, and
unemployed people mean fewer consumers, so retailers cut back, and
manufacturers cut back.
This
is the stage that the U.S.A. is at in the Spring of 2013. We know how
to further weaken the U.S. economy; just do more of the same.
Improving the economy should be as simple as changing the tax code so
that it will be more profitable to produce the goods that are sold in
the U.S. made here as well. But that’s more complicated than it
should be, because many programs are tied in some way to the income
tax code, and there are unrelated matters that have been tied to
employment, most notably recently the federal medical insurance
program. Undoing Obamacare would be fairly easy, but getting rid of
Social Security and other programs that are connected with employment
would be more trouble. We will think of a way.
To
summarize, the U.S. economy has been greatly harmed by having a
central bank that controlled too much of the economy and by having a
tax code that favored imports over domestic production. There also
has been, and still is, the matter of greedy people, but there are
always greedy people. We can greatly improve the economy by rewriting
the tax code (and simply eliminating income tax might be adequate)
and altering or eliminating the Federal Reserve System. It might
also be a good idea to eliminate business corporations, because they
allow owners to distance themselves from the business itself.
What
do you think? They aren't easy directions, but this was how they blundered into it.
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