Our sinking economy: administration has head in the sand
By Worth F. Crouch
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12:01 a.m. PT May 4, 2008
The economist Milton Friedman argued that if the money supply was held steady, nations wouldn't have depressions.
Management of interest rates by way of the rediscount rate would be all that was needed and if government didn't interfere with business, then inflation, unemployment and production would adjust themselves by self -regulating market forces.
Unfortunately we are now experiencing the failures of interest rate adjustments and supposed self regulation intended to effectively manage our economy.
Monopoly capitalism is not self-regulating and oil companies allied with their international oil cartel do not guarantee a healthy economy, but instead only healthy corporate profits.
Consequently, the increased cost of gasoline is boosting the price of everything transported, and the resulting inflation is reducing the money Americans spend on products employing our workers.
Thus, the increased unemployment results in even less spending, which produces more unemployment.
In addition, because of NAFTA, the United States workforce is forced to compete with foreign workers who are grossly underpaid or be outsourced.
If this wasn't bad enough, the leading explanation for the Great Depression was the concentration of wealth in the hands of a few. And according to recent statistics, the richest 1 percent of the population now has more wealth than the combined other 90 percent and the distribution is more unequal than ever before.
Moreover, 70 percent of our economy is based on consumer spending and when consumers are saddled with growing debt, unemployment and the kind of poverty that prevents families from paying their mortgage, the economy becomes depressed. This results in an increased downward spiral of housing foreclosures, more unemployment, and business failures that can't simply be cured by tinkering with interest rates.
The inevitable collapse of Milton Friedman's economic house of cards was triggered by the ripple effects from the sub-prime lending debacle that damaged the construction and banking industries and increased unemployment.
There has also been a steady rise in the national debt, which again reduced American buying power. Our debt has about doubled to over $9.3 trillion and the cost of a $600 billion Iraq war is also constricting domestic spending.
Additionally the federal government isn't priming the pump of the depressed economy by creating infrastructure jobs, which is the best method of economic stimulation.
Ironically, in his stimulus package, the president wants the middle-class to spend us back into prosperity. However, the middle-class is tapped out and is spending money for food, gas, and their enormous credit card and other debts owed to partially deregulated banks that have practiced gouging the public for years.
Herbert Hoover ignored our economic collapse during the Great Depression and kept saying "prosperity is just around the corner."
Stubbornly the administration is also ignoring the fundamentals of America's economic meltdown, which is our enormous disproportionate distribution of wealth. Good jobs are not being created for citizens whose buying power has been reduced by unemployment, downsizing, outsourcing, unfair NAFTA competition, the cost of gas, inflation, deregulation, debt and a costly war.
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Worth F. Crouch lives in Auburn.
