This current economic mess is a pretty simple problem to get out of. There is no chance we will do the right thing to fix it though because too many people have the wrong idea about why we have an economy at all, or even money. Understanding that is the key to understanding or current mess and the obvious solutions.
OK, so the first thing to realize is that we did not get invaded or bombed or hit peak oil or had a catastrophic ecological disaster, yet. So our problem is a wholly man made problem and, as opposed to an oil spill or industrial accident, wholly one in a fictitious world.
Let me back up a minute to say something that will shock many people. Economics is no more real than the rules to baseball or Texas Holdem. I know, I know. The economy is how our world functions, the “Invisible Hand,” communism doesn't work, blah, blah, blah. The “The Tortoise And The Hare” is also fiction. It doesn't mean it's not useful, it just means that it's fictional. There is no theory of gravity equivalent in economics just like there is no formula for winning a football game. And there lies the solution to this whole mess.
Just go with me for a while that economics is just a bunch of made up rules to a game we all agree to play. First, what is real in this game? In soccer, the players are real, the ball is real, the field is real, but the rules are fantasy. In economics, production capacity is real, workers are real, consumer goods are real. What is not real? Money, loans, bonds, stocks, inflation, these are all by-products of the game. Just like offsides, holding, pass interference are by-products of the rules to American Football.
Why Won't We Fix This?
So, like I said earlier. Nothing fundamentally has changed. Everything is still there. Factories are still there. Workers are still alive. Consumers still want stuff. So what's the big deal? The big deal is money. Who has it, who can get it, and who controls it. This is the focus everyone is so fixated on. The real question is what do we want and how do we get it. Money is only a tool to facilitate the production and distribution of goods and services. Money itself is pointless. You can't eat it. You can't drive it to work. You can't wear it, though I know someone who would try. So it's just pointless pieces of paper. It used to represent gold, but that's even dumber. Suddenly finding a ton of gold does not increase production and so does nothing to actual wealth. Losing a ton of gold does not reduce the production. Right now we have lost a ton of gold and have shut down the economy while we all scramble around looking for it. It's the most insane thing I could imagine doing. The house is on fire and we are throwing money on the fire thinking that since money can buy water it's the same as throwing water on the fire!
We are so afraid of inflation and debt we are letting real things stop making real things. My dad has bought into one of the right wing talking points, and I don't blame him. It goes like this. We are in this mess because U.S. consumers went too deep into debt to try to fund a lifestyle beyond their means. OK, but my response is this, It couldn't have been beyond their means because we could make the stuff. So, forget about money for a minute. If we have the productive capacity to make all this stuff, then it is not beyond anyones means to have it. Imagine this, because it really happened during the Great Depression. Farmers have fields full of produce and people are starving in the city because of lack of money. Does this scenario make any sense? It does if the prime importance is a little slip of paper, but it's nonsense if it is your child dieing in your arms. To say that the parents are to blame for having kids they could not feed is not only callous, but incredibly stupid. The food is there. The work was done. Somebodies idiotic fiscal policy drove all the slips of paper away. That is why the child is starving to death.
So Where Did All The Money Go?
Here's the biggest secret to this whole mess. The money that disappeared never existed in the first place. When you ask the bank for a loan, it hands you a check to go against whatever you are going to buy. That check, if you or I wrote it, would bounce higher than the moon. It is written on nothing! As our productive capacity increases, and our population, we need more and more money to keep the economy running. The US in its infinite stupidity decided that the best place to get money is for everyone to borrow it. The more money borrowed, the more money in circulation, the more goods and services produced, and consumed, and workers get paid not quite enough to pay for all this. Through the brilliance of trickle down economics, the workers go deeper into debt to those who don't need any more money, but who's money rests solely on the workers being able to borrow and spend more every year. It's just an elaborate version of the old sharecropper scheme.
When the consumer can no longer borrow more or repay what they have borrowed, they get punished even though the economy rested on this very thing happening. If the consumer had gotten wise and been more prudent, this same scenario would have played out, but the complaint would have been consumer hording, which is exactly what happened and exactly the accusation hurled in Japan. The problem in both is the same and the solution in both is the same.
One more point about trickle down economics. In my previous post I pointed out that a boom is too many investment dollars chasing too few investment opportunities, the investment equivalent of inflation. When the wealth is concentrated so much as it is now, it is inevitable that we will have a huge series of bubbles. One bubble just replaces another as stocks of the 90s became housing became oil futures until everything collapses and that string of clever deals unravels and nothing was based on nothing was based on nothing. Now we are in a crises, not because of the plight of the workers, but because of the plight of the wealthy.
So, Einstein, How Do We Fix It?
Print more money!
Every year we grow our production capacity. Every year we grow in population. Every year we need more money. Our national debt grows to cover projects that are getting done and work we think is important. Our trade deficit grows for all the new demand of goods and services that are being done. It's time to see money for what it really is, a tool. If we need more of it, just print the stuff. We did this with colonial script and with the green back. The LETS system is a variant of the idea. Take the idea of borrowing out of the monetary surplus equation.
But we can't do that! After all, this system has been around for about 100 years and we've only had one, and now maybe two, great depressions, recessions every half dozen years, bank failures, S&L failures, wall street failures, booms, busts, stagflation, inflation, gold speculation, and it's working just fine. Printing money would be just like Weimar Germany!
No it wouldn't. Weimar Germany printed money to get out of the obligations of the treaty of Versailles. It was not done as a gesture of being a good steward of the economy. Spain endured inflations and recessions after the new gold and silver from the new world ravaged their economy. Rome experienced booms and busts based on foreign conquests. Britain rose and fell through colonial exploitation and the economic upheavals caused by that. Every banking disaster of the last and this century has occurred at the end of low taxes for the wealthy producing a housing bubble. Being helpless in the face of a nations monetary base hasn't worked. It is time for us to take direct control of our monetary reserves. Trickle down economics is much more like Weimar Germany than taking our own control of the monetary base. Trickle down economics allows the printing of free money by those with the power to do so. Issuing new stocks, new lines of credit, new mortgages, are all methods of printing more money, and more money is clearly needed. That is how we grow. However, this form of creating currency comes at too high a cost. We are in effect renting our circulating capital from private enterprises.
Our economy was doing OK, though pretty lethargic at previous levels of money. Let's print what we lost and call it even.