This week, very late in the game, the big banks revised down their economic growth forecasts. Bloggers (which many times means economists that are not on the paid staff of corporations or the government) have been predicting this for perhaps six months. Of course, getting people to buy financial instruments generally requires a certain optimism.
We are at a point where ordinary policy prescriptions seem fruitless. Take for example this post by Gonzalo Lira, which points out exactly that fact. After a long and commendable preamble, Gonzalo has some suggestions for drastic steps. For example:
If I were absolute dictator of the United States, I would ignore both of these policy “choices”. Instead, for the sake of the long term health of the American economy, and the other world economies intimately connected to it, this is what I would do:
•Allow interest rates to float at the whim of supply and demand. The Fed would provide liquidity, but only at market rates, never subsidized.
•Impose a flat tax across the board of 15% for individuals earning any income over the minimum wage, 25% for corporations, a 20% national VAT, and impose a capital gains tax of 40%, with no loopholes, subsidies, tax breaks or tax write-offs—not even amortization or depreciation.
•Cut government spending to the bare bones, until the budget is balanced. Cut military spending to 10% of what it is today.
•Eliminate Social Security and Medicare/Medicaid, and impose a private but highly regulated pension and health care system, like the ones here in Chile (which are damned good, BTW, and which were also, unsurprisingly, imposed by a dictator—but are still going strong 20 years after he left)
•Cut the Fed’s life-support of the Too Big To Fail banking system, and let those zombies die already. While we’re at it, prosecute the banksters.
•Finally—and this is the tough part—let the economy crash: Let the asset prices collapse to sustainable levels, and let aggregate demand collapse to sustainable levels.
If the above measures were imposed, and the U.S. economy were allowed to crash quickly, harshly, unemployment as measured by U-6 would spike to 50% or 60%, and hang around 35% for a good six months before slowly settling to 20% in a year or so—which is where we are now. Half the S&P and all the Too Big To Fail banks would go broke. Imports would evaporate. The idea of America as a consumer society would be gone almost overnight. There’d also be riots and general civil unrest for a year or two, but nothing that terrible—Americans are a remarkably docile people.
What would happen after that? What would the U.S. get for this short-term pain and suffering?
The two thing needed for true long-term prosperity, from where the U.S. economy is today: Asset price levels would collapse. And aggregate demand levels would also collapse.
It would mean that trading—in whatever assets—would cease to be financially beneficial, and instead production would reassert itself as the form of social wealth creation.
It would also mean that mindlessly consuming would also cease to be a macroeconomically beneficial policy priority, much less a personal goal. It might even lead to a truly Green economic mentality—true conservation, as opposed to the pseudo-brand, where buying more and more “green” stuff is supposed to be “helping the environment”, when of course it isn’t.
These measures would all be very painful—adaptation always is. But this approach—what I would call Free Market Redux—would be the healthiest way to rebuild the U.S. economy, and frankly American society.
While these particular prescriptions are just some of many options, what strikes me is that to implement them requires a disregard of the current powers that be, the First and Second Estates. There would be fallout and it would hit those classes.
Our own Jerry J made another suggestion in a comment a couple days ago, which also strikes at the heart of the current power structure, albeit in a different way.
I am surprised that there were no comments on the obsolete character of the American Third Estate. This relates to the link by 14th to a Salon column by Michael Lind titled ” Are the American People Obsolete” by Michael Lind.
Lind sees that Americans will allow outsourcing of employment to their absolute detriment and that Americans no longer have the ability to sustain marketing of goods and services in the US. He is correct but omits a massive parameter. What are the per capita parameters of all US sourced claims on persons , corporations, states and state units? Similarly, what are the same parameters applied to other states that would replace future marketing of goods and services sought by the US population?
No matter what, first estate wealth survival requires the generation of personal income to amortize the claims on these US persons and groups over and above some personal income level to enable the desire to amortize the claims over a number of generations.
The elites destroy themselves. In doing so, they collapse the existing system. If the third estate is obsolete, then the third estate could politically cause all debts to be forgiven as well. Our kind of Terror could be via currency. Easily done constitutionally. Probably as easy as the Weimar Enabling Act of 1933. Congress may grant sums to the citizen. Congress say, authorizes United States Notes again. Grant each citizen United States Notes as universal legal tender. Pick up the money at the post office. How about a grant to natural citizens of $2 million each. The posting of the money at a central point forces issuance of say a mortgage release. The elites and their institutions then have all cash in the form of US Notes they can spend. Almost all are free and clear and own their assets outright. Obsolete is obsolete. Ha Ha, I could not resist this one. Sounds ludicrous? Why, if the natural person American national is obsolete from a discussion point? For years now, the right wing has been saying the US government cannot pay back it’s debt when , in point of practical fact,government debt functions as a currency form at the top. All that prevents full circulation is the fact that Treasuries are registered. Registry is only around 35 years old. Before that most Treasuries were bearer as were corporate debentures. Amend the IRC and remove the registry requirement.
Seriously, the always ignored aspect in these types of commentary is that elite wealth almost totally depends on claims from other Americans. Indeed, the shoe is on our foot because we owe trillions to the other nations who would wind up with legal tender too!
The elites are simply destroying themselves in the US: In a fashion that is remarkably close to broad spectrum Marxist expectations.
Comrades come rally…………..?
Again, this prescription defies conventional wisdom. To sum it up, everyone is given a pile of cash with which they then use to repay in full all their indebtedness to the elites. The elites then have a pile of worthless money and everyone else is debt free and has no more house payments. Instead of the Feds inflating its way out of its debt in a way that is carefully formulated to preserve the First Estate, it does so in a way that liberates the Third. Interesting thought experiment. In the resultant turmoil a lot of people get hurt, but it is not only the Third Estate. A lot of people are helped. The reformulation of the economy would create enormous economic activity.
I put these thoughts out only to point out that we have self-limiting economic beliefs that foreclose almost any option other than the slow rot of our system by the protection of the status quo. Economic suckers all, we realize not that our prosperity has already been outsourced by the very transnational companies and their executives that cry out, “Free Enterprise, Free Enterprise!”, a sort of revealed wisdom myth that they use to their advantage while ensuring their personal security by looting the system.
Nothing should be done in haste. But Washington should adopt a new credo. Listen to the radicals. Listen to the people. Listen to the elites and then give their point of view no more credence than the others. Standing in the way? Our system of non-representative government where gerrymandered incumbents don’t really have to deal with free elections. From our Declaration of Independence:
That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness.
Our system of government could restore its promise. In gerrymandering districts our states have done a huge disservice to the people of this nation. The trading off of one minority seat for five majority seats may have once served a purpose, now it has been abused. Brave judges should throw out the principle underlying the design of congressional districts by elites. Every seat should be up for grabs in free and fair elections. If the populace had the opportunity to drive major change in the House of Representatives, perhaps 200 new members instead of 50 with party shifts in 150 districts, then the government would be more responsive to the people. That was how it was designed to be. The Senate provided the term stability. The House was responsive to the current mood of the country. The White House and Judiciary provided checks and balances. Now seats are sold out. Further, hindrances to third and fourth parties should be abolished. A multi party system would bring greater diversity of thought to Washington.