Democrats
Set to Stimulate Economy into Soviet Style Collapse
One of the major reasons for the collapse of the late Soviet
Union was the continued infusion of money into obsolete heavy industry like
steel. The steel industry was well connected
politically and had the muscle to direct rubles its way. Similarly, Brezhnev made the strategic
decision to steal computer software from the West. A domestic software industry, the leading
edge technology of the day, implied an open society that the Soviets
abhorred. Unfortunately, by the mid
1980’s the Soviet military went to the leadership and told them that without a
domestic software industry, the Soviet Union would remain permanently behind
the West in weaponry. It was that
realization that led to the loosening of the restrictions that ultimately led
to the collapse of the Soviet Union’s dictatorship.
The same
thing is happening in the United States.
Faced with a faltering economy, the federal government and incoming Obama administration is proposing borrowing massive amounts
of money to spend on the obsolete infrastructure that is responsible for
getting the country into the current mess.
Bailing
out the automobile industry, the most pampered and subsidized industry in the
history of the so-called capitalist world, is an
outrage. Governor Jon Corzine of New Jersey is trying to drum up support for the
“bold” stimulus plan. What’s bold about
it? The price tag, $1
trillion.
How is
the money to be spent? On yesterday’s
news New Jersey’s Senator Robert Menendez held a press conference in front of
the 80 year old Pulaski Skyway to promote a $200 million rebuilding plan. The Senator tried to frighten everyone by
saying it had the same construction as the collapsed I-35 bridge in Minneapolis. Meanwhile, New Jersey Transit, the public bus
operator, has cancelled its free 800 information number because of “budgetary
reasons.” Now, anyone wanting to get bus
information on the phone, has to pay for a phone call
which can take five or ten minutes on hold.
Investing Tax
Exempt Government Borrowings in the Old Economy Bankrupted New York City in the
1970’s
Until the
1960’s, the economic base of New York City was manufacturing. The garment center, for
example. In the 1960’s, the Port
Authority of New York and New Jersey, a bi-state agency created by Congress in
1922 to rationalize operations in the Port of New York which is divided between
the two states of New York and New Jersey, got into the mass transit business
when it took over the money losing Hudson and Manhattan Railroad. The Hudson and Manhattan carried commuters
from Newark and Jersey City into lower Manhattan.
The
Hudson and Manhattan was profitable until massive expenditures by the Port
Authority of New York and New Jersey on motor vehicle tunnels and bridges (and
airports) lured the railroad’s commuters into buses and cars. It seemed logical for the Port Authority’s
surpluses to be used to subsidize the commuter services its facilities made
into money losers.
With
the Hudson and Manhattan, the Port Authority acquired two office buildings in
lower Manhattan. When the Port Authority
decided to build the World Trade Center on the West Side rather than the East
Side, it was the Hudson and Manhattan’s office tower sites that became the
building plot. Unfortunately for the
economy of New York and the world, the Hudson and Manhattan site was not big
enough to accommodate the gargantuan dreams of Governor Nelson Rockefeller and
the Port Authority. More than the Hudson
and Manhattan land was needed.
The
Port Authority, with its power to issue tax exempt bonds and condemn property
for “public purposes” cast its covetous eye on the surrounding
neighborhood. The Hudson and Manhattan’s
neighborhood was radio row, the heart of New York’s electronics industry. With the Hudson and East River piers becoming
out of date because of the advent of containerization of shipping cargo, the
old piers would have made perfect factories for the production of televisions,
radios, stereos and other electronic devices.
This would have provided manufacturing employment for the low skilled
immigrant and
minority ghetto dwellers who needed work.
Long
story short, the Port Authority destroyed the electronics industry, the
economic base of the last half of the 20th century, to build a
monument to the economic base of the 19th century. The World Trade Center was nothing but an
office building. The neighbors and
others fought against the misuse of eminent domain to take their businesses for
the construction of an office building (that, incidentally, never made
money.) In order to pretend that an
office building was related to the Port Authority’s core mission of
rationalizing operations in New York Harbor, the buildings were named The World
Trade Center.
The
construction of the World Trade Center was such a bad economic decision, that
in the beginning the State of New York had to lease 50 of its 200 floors for
state offices. The construction of the
Trade Center and the misuse of its power of eminent domain and issuance of tax
exempt bonds was fought in the courts all the way to
the Supreme Court, twice. The powers
that be decided that the manufacturing jobs in electronics would be exported to
low wage nations with no environmental laws like Japan, Korea and China; while
New York would become a financial capital and the low skilled workers would
become unemployed welfare recipients or illegal drug suppliers for the white
collar workers in the finance industry.
The misuse of
public powers to subsidize the obsolete economy of the past and destroy the
high employment economy of the future drove New York City into bankruptcy in
1975, coincidentally the year the World Trade Center was completed. It also provided a template, being followed
now by the Democrats, for how to use misuse public assets to drive a
governmental entity into bankruptcy.
Demographics
and Trusts, the Real Cause of the Economic Collapse
In the past,
old people died. Now, they live on and
on in declining health and increasing expense.
This is a problem of success, namely the success of the medical profession
in prolonging and improving people’s lives.
Nevertheless, longer life has unintended economic consequences that have
not been factored into the model.
Clearly, people need to extend their working lives. One can not go to school until age 25, work
until age 55, and live until age 85 and expect the numbers to add up. No thirty year work life is productive enough
to support twenty-five years of school and thirty years of retirement.
Another
consequence is that in the past when people died their money passed on to their
heirs. The heirs then either squandered
the money on sex and gambling, or created new ventures which either failed or
succeeded and employed people, creating jobs and tax revenue. Today, even when people die, they are likely
to have put their money in trust to avoid taxes. So, the heirs, while owning the money, do not
control it. Consequently, there has been
no venture capital available in the past thirty years to create the new
industries necessary to replace the currently collapsing economy.
Too
much of the capital in the United States is controlled by a small coterie of
investment bankers and lawyers all of whom are constrained by fiduciary duties,
not even necessarily to the beneficiaries, but to their unborn children or
grandchildren. These lawyers and
professional investment advisors are required to not take risks in order to
preserve the capital for future generations.
In effect, this means that all the accumulated wealth has only been able
to go to two places, real estate and stocks of existing companies. Using trust funds for venture capital is
“risky” and therefore, forbidden.
Naturally,
this structure of finance has resulted in the inflation of stock and real
estate prices while people with good ideas for new industries or products in
the real physical economy have no chance of getting funding to put their ideas
into practice. So, the most richly
rewarded executives of the past two or three decades have not been the people
who produce jobs and products, but the people who built financial pyramids for
buying and selling stocks and financial instruments, the mergers and
acquisitions mavens. The current proposal to create more debt to spend on
supporting real estate and stock prices and rebuilding existing infrastructure
is, like the Soviet funding of the steel industry, doomed to failure. This is
why the markets are failing to respond to the bailout proposals. People are not fools.
The nation is in desperate need of venture
capital. The collapse of the financial
system is not a financial problem, it is an economic problem. The good old economy of the
1960’s. 1970’s, 1980’s and 1990’s has done its job. It’s time for something new. But like the Soviet system, the two party system is so inert and set in its ways that it is unable to
respond. A major reason was the stolen
election of 2000, where a bunch of lawyers thought the 538,000 vote margin of
Al Gore didn’t matter. Bush took his
victory as a sign he didn’t have to listen to anyone, and didn’t. Now, we have to clean up the disaster of the
past eight years without the hundreds of billions of dollars needed to retool
but that were squandered enriching the richest 10% and being flushed down the
drain in Iraq. That’s why we’re in the
worst economic crisis for eighty years.
A
Way Forward
More than
thirty years ago, Chief Naval Machinist’s Mate Joe Schaffer told former Master
Chief Machinist’s Mate (SW) John E. Kraft, Sr. “If you come to me with a
problem, and you don’t have a solution in sight, they you’ve become part of the
problem.”
Here
are three common sense ideas to help revive the economy, not one of which is
being floated by the current crop of office holders. 1. The
entire economy except for the government bureaucracies operate on a 24/7
basis. Banks, supermarkets, stores,
everything is open ten, twelve, fourteen, twenty-four hours a day, six or even
seven days a week. The government is
open five days a week from 8:30 to 4:30, or 9 to 5, and is closed weekends and
all major holidays. Our elected
officials are surrounded by an iron curtain of security that makes
communicating with them impossible. To
say they are out of touch is the understatement of the century.
The
government needs to be open and accessible like the rest of the economy. That will make it much more productive, even
if it consumes the same amount of money.
Cutting the cost of government will do almost nothing, because it is the
way it operates that is having a negative impact on the economy. This includes the schools. Only 70% of the students are graduating from
high school, and the schools are only open 50% of the year, also from 7 or 8 to
2 or 3. Getting out of this mess means
everyone is going to have to work harder and smarter. Those in the private economy already work all
the time. The only people who don’t have
government jobs. It’s time for the
government to catch up with the rest of us.
2. There needs to be new sources of
revenue. Primarily, trusts need to be
taxed, not on their income, but on their net worth. The tax code should be rewritten to encourage
money held in trust to be distributed. The had of the dead has too big a role in determining
current economic policy. There needs to
be a wealth tax on trusts some of which should be made available for venture
capital on a competitive basis. From
this fund, along with university and industry research and development
spending, the new industries for the new jobs and the new economy should emerge
from the natural competitiveness and risk taking of ordinary people.
3. Drugs like marijuana, cocaine and heroin need
to be legalized and taxed. (If you tax
hard drugs high enough, no one will be able to afford them on a regular basis.)
This will not only create a new source of revenue, it will result in massive
savings because many of the people in American prisons are non-violent drug
offenders. It will also reduce the
revenue stream to organized crime, including the Taliban that uses drug
proceeds to buy weapons to kill American soldiers. This will enable massive savings in the
prison system and free up a lot of valuable court time so that white collar
criminals, like Bernard Madoff, can be caught and
prosecuted before they bring the world economy to its knees. When a person goes to prison, his or her
family suffers. Most relatives of
criminals are innocent people. When I
taught in the inner city all my serious behavior problems were either born in
jail or had parents in jail. Only
violent criminals should be incarcerated.
Furthermore,
recent studies show that marijuana use in Holland, where it is legal, is lower
than in the United States, where it is illegal.
Why? One reason is that in
Holland, when someone is stoned, the parents or friends can openly criticize
the pot head, ridicule him or her and get them help or just tell them, in
public, to stop. Being legal also
diminishes the allure of doing something forbidden. In the United States, the criminal justice
system doesn’t deter crime, it profits from people’s misfortunes. For example, the child molestation laws have
been written so that therapists are required to turn in someone who comes to
them for help. This is a big
disincentive for people to seek help for friends or relatives who they know are
offending or doing drugs. No one wants
to turn their children or parents into criminals.
There is not a law
enforcement solution to every problem.
An economy is nothing but communication and exchange. To surround every communication and exchange
with security burdens the economy with extra costs without compensating
efficiencies. It also reduces the number
of exchanges possible because it discourages and slows them down. Turning every school into a prison neither
increases security nor improves education.
There has never been an external attack on a school in the United
States. Every attack has come from
students already in the school. The
biggest threat to students comes from deviant teachers, so almost all the
school security expenditures are a waste of money. So in addition to the former structural
causes of the economic collapse, the post 9/11 mania for security everywhere is
another contributing cause. In the wake
of the 9/11 attacks Osama bin Laden said his goal was to bankrupt the United
States. Maybe he understood the American economy better than we do.
This is not a
comprehensive program, and some parts might even be wrong. But what they illustrate is that the
Republicans and Democrats brains have ossified.
There is no creative thinking.
All they can come up with is driving everyone deeper in debt to continue
to do what we have been doing that brought us this catastrophe in the first place. If you have other ideas, I’d be happy to add
them to this article.
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