Suggested Solutions to America's Economic Problems

The following 6,200 word article shows a series of methods used by governments, which are unable to solve the present crisis, but at the end is provided (the only) one that will work. This article was prepared by the author of this comment David Chester at chesterdh@hotmail.com

HOW THE ECONOMY RESPONDS TO GOVERNMENTAL ATTEMPTS TO OVERCOME SLUMPS

1. INTRODUCTION

National economies are continuously undergoing change and are never completely stable. A good indication of the degree of this activity is the paper-value of the total share-holdings that continuously expand or contract in size and is called a bulls or a bears market. But in certain circumstances this fluctuation does not remain small and one particular part of the macroeconomics system has prices that steadily increase. This unstable behaviour cannot last for ever and eventually these prices stop rising and then suddenly collapse. From this catastrophe the shock spreads across the whole system as a depression develops. At the stage being considered here, this failure has recently occurred and an economic slump is in progress. The total value of share-holdings has decreased dramatically and the stock-market trade has significantly shrunk. Reductions in the demand for produce have led to much unemployment and the increased withdrawals of savings have resulted in some bank failures.

In the great slump of 1929, it was first believed that the best governmental policy is to do nothing, because the robust nature of the market economy causes it to quickly right itself. But even after some changes were introduced this recovery took almost 10 years. Today most economists believe that the adverse effects of slumps should be eased by taking suitable measures. However, the choice of which changes to introduce, for creating a beneficial effect on the national economy as a whole, is not so obvious as when in 1936 John Maynard Keynes [1] first began to prescribe them. Experience and deeper analysis of these and other proposals has found that all but two are ineffective, and one of these at best, is remedial for a limited time. The situation is more complex and a change that favours a specific part of the social structure does not necessarily improve all of it. The following analysis shows why Keynes’s proposals are mostly unsatisfactory and determines which action produces better results.


2. DESCRIPTION OF THE SLUMP AND ITS INFLUENCE

The origin of these slumps is due to speculation within the building industry and the dynamics of the supply and prices of building-land. With every other kind of traded item, the ability to use similar but different products avoids the dictatorial influence of a perfect monopoly. (This freedom is expressed in the natural self-regulation of prices, by supply always equalling demand according to Say’s Law. Neither over-production nor under-production results; competition always ensures that the goods are traded close to their optimum price.) However, as Mark Twain proclaimed "Buy land, they’re not making it anymore", and the number of building-sites is severely limited. Consequently the land-owning cartel is absolute—there is no alternate suitable path that demand for this resource can take.

The ensuing steady rise in the prices of housing reaches a level where the landlords, banks and builders decrease in their participation and eventually stop investing or speculating in land-values. Builders no longer manage to sell their houses before they are completed and the land prices in the real-estate business cease growing sufficiently fast as to attract the speculators seeking short-term gains. Few investors or banks are now funding house-building, although it is not the cost of their construction which has dramatically changed but that of the land. At this stage in the business-cycle the system is ready to collapse and it takes only a small external shock to cause this. It inevitably comes from a different economic source, which has an independent effect on the community.

Recently and as an example, a sharp rise in oil prices causes the speculative value of out-of-town housing to fall, due to the greater cost of motoring to the more densely-populated centres of industry, commerce, learning and recreation. No longer is it desirable to reside where the more expensive travelling adds to the house-keeping bills. The reduced demand for this kind of real-estate lowers its price (and its rent), but existing mortgage payments remain unchanged and cease to be compatible. With the awareness of the speculative loss, a significant number of foreclosures follow and bank insolvencies result. As credit becomes harder to obtain, the recession of the associated economic activity spreads outside of this sector of the community, unemployment grows and many more families are unable to pay their regular fees for the rental or mortgage of their more modest homes.

The news of bank loses from the foreclosures warns the savers, with the result that many of them decide to transfer their money into non-interest paying current accounts or to withdraw it. The use of these sums by the banks is now inhibited, causing a “credit-squeeze” having high interest rates.

With less money being spent, the productive sectors of the macro-economy reduce their prices so as to encourage the purchase of more consumer goods. But this does not overcome the problems of high interest rates on loans nor return the monetary commerce to its former level. Consequently the system enters into a depressed state, with progressively lower degrees of macro-economic activity.

These experiences and the places or kinds of individuals that feel them are described below. The logical arrangement of this dissertation is complicated by the combinations of the various parties involved, together with the different ways that they are affected. The hardships caused by the slump simultaneously influence the macro-economy in four basically different ways.

2.1 Decreased Demand for Goods and Less Employment in Industry
The curtailed programme of house-building, the diminished credit and the reduced purchasing by would-be householders and other consumers, result in less economic activity and smaller demands for many kinds of goods items. The unit cost of their manufacture rises, whilst the available sums for their acquisition shrink and lower outputs are the result. After trying to stimulate the demand by reducing prices, the managers in industry and commerce are reluctant to retain labour with little or nothing to do. So they shorten the length of the working-day, temporally lay-off some of their workers and eventually have to dismiss them. Many manufacturing concerns fail to provide dividends on their shares which fall in value, whilst some companies cannot even manage to stay in business. The level of unemployment grows. Petty crime increases, due to the rising levels of poverty and boredom.

2.2 Smaller Pensions
With pension funds, the process of saving and withdrawing is a continuous one. Some of the out-flowing money comes from contributions by younger subscribers, but much of the funding is taken from the dividends on prior investments made at the stock-exchange. After these have slumped there is less money available for paying regular pensions, even though some of the losses are spread by insurance. The managers of the funds want to avoid disproportionately high withdrawals and the result is that smaller sums are paid out. Consequently the pensioners have less income to meet their needs and they buy smaller quantities of consumer goods and services.

2.3 Bank Insolvency
The multiple-credit structure of the finance-system is now under heavy stress. With slump conditions prevailing, some of the investors and speculators are defaulting in the return of their credit, due to their inability to sell the land and buildings even for the sums at which they were purchased many years before. In parallel with this, due to the reduced level of production and wages, savings are being withdrawn at greater rates, because the reduced average rate of consumption is still more than the reduced average rate of earnings. These effects add to the credit squeeze.

The use of fixed-term savings accounts, where the money is placed in fractional-reserve bank-deposits, provides the banks with credit and it usually circulates at a good rate. Only a small proportion of the savings, from which the banks previously borrowed, are stored in their vaults. The rest is credited to the newer investors (at greater rates of interest than the savers can obtain, which normally enables the banks to become rich). But now the banks have difficulty in calling in sufficient credit for its return to the savers, some of whom have panicked and are pulling out their loans in the form of cash or placing it in current accounts having greater liquidity. These banks are forced to sell their long-term holdings at reduced prices, in order to balance their income with the greater outflow, since they have no-one else from whom to borrow. Money demand can no longer be easily met by its supply and the short-term rate of interest on credit rises. The money starvation at the banks causes some of them to declare insolvency and to become bankrupt, which results in the return of the credit being deferred, if in the closing-down process these savings have not been lost.

The irony is that later when the slump begins to ease, much of the money that is now in the hands of the nervous savers will again need to find investment opportunities and it will be returned to the banks deposit accounts. So the bank crisis is temporary and is partly due to the psychological state of these savers.

2.4 Reduced National Income
Much of the money that is collected for the public purse comes from taxation. However the slump has resulted in less macro-economic activity of the kind from which these taxes are usually raised. Consequently in matters of national finance there is also a shrinking of available funds. The Government badly needs to help itself as well as the whole social system, to escape from the effects of this national depression.


3. DISCUSSION – ATTEMPTS TO OVERCOME THESE FOUR MAJOR DIFFICULTIES

"Business cycles" of this kind are not new to our society. Various suggestions have previously been made about what a Government should do to reduce the adverse effects of slumps. The following proposals and discussions about them are presented from a holistic Finance-Ministry (or Treasury) viewpoint, where the complete system is considered taking into consideration all of the affected parts, as taught by Henry Hazlitt [2]. Various attempts to restore the macro-economy are examined below, passing from what appears to be the obvious remedy, up to some more-complicated solutions.

3.1 Call for Price Reductions and Price Controls
Usually there is a delay until the depression is recognized by the Government. The reasons for this are purely political, but as soon as it is official the first Government response is to call for a reduction in the prices of commodities. This is followed by the imposition of price controls to fix the amount charged for the more basic consumer goods, with some of them being subsidised. In fact, many of these prices have already been cut, due to the reduced demand and the need for the smaller businesses to compete and remain viable. Some of the monopolistic concerns, particularly those partly owned or controlled by the Government, need to receive formal notice before their bureaucratic systems of organization can make these changes. The effect of the lower prices is to increase the quantity of goods being consumed, which has a small positive effect on the employment figures. But for this type of commerce, the amount of money in circulation scarcely increases, so this change does not directly result in a significant improvement in the value of goods traded within the macro-economic system.

Lower prices do ease the pensioner’s problem to a degree, although nothing more is done for them and much harm may yet be caused to their savings.

3.2 Direct Attempts to Increase National Income or to Reduce the National Expenditure
The Government wants to enact new statutes to give direct benefit to the ailing parts of the system be they pensioners, industrial concerns, workers or banks. However, to achieve this aim the Government must first increase its own income (which has recently declined) and reduce its spending (which has recently increased, due to the greater numbers of unemployed workers being paid doles, or subsidies). The proposed ways for reaching this preliminary objective are to:

#1 borrow from the public and raise the National Deficit,
#2 change the amount of taxation,
#3 reduce the Governmental expenditure and
#4 deliberately inflate the currency, by printing more money.

With the exception of deliberate inflation, these changes are regarded as being temporary and their effects can be stopped or reversed after the slump has passed. These four methods of modifying the distribution of the national finances are described in more detail below.


3.2.1 To Borrow from the Public and Raise the National Deficit
The National Bank with the cooperation of the Treasury offer for sale some new national bonds, as well as the continuing re-issue of recently redeemed ones. These bonds, which are guaranteed Governmental loans, can be purchased like the preference shares of a new public company and they are traded similarly, until their duration has been reached and their face-value is redeemed. The new low-interest paying bonds are presently regarded as being safer than other kinds of share-investment and they attract clients who otherwise prefer to hold their savings in current “mattress” accounts. The psychological pressure from this offer assures and encourages these nervous savers to re-invest. The interest on this loan is borne by the Government and tax-payers.

The expanded National Deficit enables the Government to pay for the execution of additional public works, thereby providing the employment which the building trade can no longer sustain. This also has a significant indirect effect, to be described in a later part of this work.

Alternatively the Government can use these sums to relieve the banks from their risk of bankruptcy. It returns to them some liquidity and allows them to weather the storm of heavy cash withdrawal. The recipient banks pay a normal or sometimes a high rate of interest for this special loan, so the Government and tax-payers are not penalized by the interest on the credit from issuing the bonds, whilst the favoured banks are obliged to service their loans. This action avoids the personal losses suffered by its remaining clients, after the faltering bank otherwise would have to declare bankruptcy.

Providing that these loans are obtained neither by greater taxation nor by inflation, they do not seriously damage the macro-economy, although it does slow down until the debts are cleared. It allows the banks to get past the difficult period, but if they default on their interest or fail to return their loans as arranged, then the public purse is raided once again. When the slump is past its worst point, confidence returns and the savers re-invest in shares. Then the greater flow of money through the banks allows them to return what they borrowed from the Government, which subsequently reduces the magnitude of the National Debt.

In the situation where big industrial concerns receive similar help from the Government, these companies may be aiming only to continue their operations--to employ large numbers, whilst still remaining inefficient and ineffective in their production. This is unacceptable and before this bale-out is executed the industry must show that it is not taking the credit merely to postpone its financial failure. Also it must present realistic plans about how it aims to become a stable and viable concern. This loan delays the alternate beneficial effects that would occur elsewhere in the system, although the situation may not be so critical there as within the specific industry that is being helped. Consequently this action and its overall result is worthwhile to a limited degree.

These solutions ease the effects of the slump only amongst certain industrialist’s, worker’s, and banker’s critical states. The Government should balance the distribution of these relieving effects throughout all of the system, other parts of which also badly need its support.

3.2.2 To Change the Amount of Taxation
Often it is thought that a reduction in the amount of taxation on earnings and purchases can stimulate the demand for produce and its consumption, thereby encouraging more employment. However this view is only part of the whole picture, because it simultaneously reduces the Government income and decreases the public expenditure elsewhere. In a reciprocal manner, the effect of greater taxation on personal income and consumption is that the demand for these goods is reduced. But instead of the sales income mostly going to the production sector, more of it would pass through the Government to its various ministries and newly installed employment sources. Thus for either kind of change, the distribution of the work output is modified but the total sum used for payment of its wages has not. Comparing both of these opposing policies, the altered demand for goods must be balanced against the modified supply of social services and public utilities. Hence, neither policy can stimulate (nor retard) the current overall rate of macro-economic activity; all that it achieves is a re-distribution of what each participant does.


3.2.3 To Reduce the Governmental Expenditure
The outlay of public money to the Government ministries is not a waste. Apart from tax-collection, these departments and offices provide a variety of necessary services, such as those for education, public health and various emergencies, without which the average citizen would not manage properly. He/she would need to pay more for the service than what the national (social) insurance covers. As implied by the above description, a new frugal approach on the part of Government does not change the total amount of money flowing around the system. It has about the same overall effect as that obtained when reducing the taxes and the progress of the national economy as a whole is no different. It is only the distribution of activity within certain of its sectors, which is affected.

3.2.4 To Deliberately Inflate the Currency
The national economy may be regulated in more than one way by this action. During normal times when only small changes to the rate of progress of the system are required, they are obtained by adjusting the National Deficit. Then some money either is withdrawn or is made available, the choice normally following the degree to which the national budget has been met. In years of prosperity, larger amounts of taxes are collected and there is a budget-surplus. Then this extra money can be withdrawn from circulation, with the cooperation of the National Bank who store (or destroy) the bank-notes, having reduced the National Deficit by selling back to the Government some bonds or Treasury Bills. However when there is reduced economic activity and the lower amount of tax collected results in a failure to meet the budget, the deficit is made up by the issue of new bonds or Treasury Bills in exchange for the stored money (or by printing new bank-notes). Here its influence enables the banks to increase their amount of credit for investment, thereby encouraging industry to be more productive. Normally these budget surpluses and deficits are a relatively small proportion of the gross domestic product (under 5% of the total) and when taken over many years, the average of the various resulting inflating and deflating effects is small.

However, when a slump prevails, the printing and distribution of larger amounts of new money also can be used for the courser regulation of the macro-economy. Then the Government directly spends this money to stimulate the level of macro-economic activity, without intending to introduce any later deflation to counter the effects. (Even after conditions improve, this opposing action would be likely to cause another slump.) There is reluctance to use this kind of monetary instrument, due to the scale of the correction being much greater than when adjustments to the budget are being made, as described above. The effect of the inflation on the system no longer remains small and it is a dishonest way for the Government to temporally obtain greater spending-power and lower debt.

Inflation effectively taxes savers by reducing their long-term purchasing-power and spoils the amount of real interest that fixed-rate savings yield. It also cheapens money that is already owed, so the Government, mortgagees and other creditors benefit after the inflation has caused the prices and wages to rise. (This applies to most forms of credit, unless the loan was linked to the cost of living or to a more stable currency.) The inflated prices also reduce trade with foreign countries making it harder to sell goods abroad, whilst the cheaper local money makes it easier to import them. This effect on international trade worsens the production situation at home, until the exchange rate of the local currency is eventually devalued and the amount of trading returns to its previous level.

The Government can use this income in the four direct ways for relieving the effects of the slump. These are for subsidizing pensions and/or production and keeping low the price of certain basic goods, for national projects by hiring building-constructional and other unemployed workers (their incomes minus taxes to exceed their previous doles), for keeping its ministries at full strength or for lending to the banks. The new money is injected at a steady rate and on a scale where it regularly covers the losses from some or all of the hardships listed above. Unless the effects of all four of the problems are restored in a uniform manner to their former conditions, the slump will not be fully relieved. Even so, the adverse and unstable effects of the inflation itself remain to be tackled. After the inflation has ceased, the additional money in circulation eventually causes the prices and wages to catch up. Consequently, this form of slump relief will not endure without it creating further distress.



3.2.5 Comments and Summary of the Direct Methods
By using of any of these four straight-forward techniques, the Keynesian School of economics claims that the resulting initial increase in demand causes more macro-economic activity to follow. There is supposed to be a multiplier-effect on growth, so that in the case of reduced taxation and greater personal income, it is thought that the consumers have more money to spend or invest and that consequently the total demand grows. These claims do not consider the need to take money from one part of the system in order to supply it to another. The newly increased demand and its opportunities are balanced by the smaller number of jobs that the Government now continues to maintain. Reduced taxation of the productive process cannot affect the total numbers employed.

The producer/worker/consumer/saver model on which Keynesian Theory is based is over-simplified and limited in its scope. It fails to properly represent the whole social system and also (incidentally) the implied time interval of this model is uncertain. With the inclusion of the negative multiplier-effect of the lost Government jobs, the overall benefit is zero. The writer (and others) has built a more comprehensive simulation-model of the system, where the overall multiplier is a few percent per annum and not the few hundred that was originally reckoned. Thus the Keynesian Theory does not work in practice.

The same situation arises when the Government borrows money from the public. Some of the money that the investors lend would otherwise be available for use in industry. With the new bonds issue, the industrialists do not obtain the same encouragement for their activity as when the investor’s choice was limited to the stock-market. The Government investment results in more employment there, but this advantage is in one place only and there is an equivalent reduction of investment and employment in the rest of industry.

Credit having been obtained by a bonds issue, the Government necessarily returns the interest to the investors on an annual basis, until the bonds are redeemed. Although the prime-rate of this interest is now reduced (see below), the coverage of this deficit raises the tax burden unless the money is loaned to the banks with the return of interest. The national budget must be balanced and the Treasury should explain where and how its new income is being spent. Money that is used for providing the new jobs cannot also be taken for servicing the loan.

Governmental short-sighted policies of creating new jobs do not consider the corresponding loss of work places elsewhere. Once Governments cease taking this myopic attitude, they will find that the overall effect is no different than without this policy being applied. The only way that jobs can really be created is by making available greater opportunities to produce and to earn (see below).

Even with the deliberate introduction of inflation and Governmental spending, the overall result is similar. In a remedial manner inflation weakens the monetary strength of certain parts of the system in order to strengthen others. After summing the total influence on both credits and savings, the true effect can be seen, although it now includes some time-dependency. The early effective gains by the creditors equal the later losses by the savers. Thus inflation does not help the whole system to regain strength over the long-term, although it defers some of the adverse effects of the slump to a time when recovery has hopefully begun. And it achieves this by a socially unjust redistribution of the purchasing-power.

A more-remote observer of the macro-economy at large would find that it has a natural means of autonomous control, where the real factor of influence in its operation is the value of goods being produced and traded and not the face-value of the money itself. Money is a medium of exchange that represents value, whilst intrinsically having none. After credit is given, it must subsequently be returned. With deliberate inflation, the purchasing-power of the cheapening money being circulated first rises and then falls back, whilst the overall rate of progress of the whole macro-economy is better maintained with a smaller short-term fluctuation resulting from the first shock of the collapse.

Consequently, after giving due consideration to a comprehensive model of the whole system, the direct methods are found to be incapable of overcoming the problems caused by the slump. This is with the exception of inflation, which is temporally effective, but it results in an unethical means of delaying some of the adverse consequences.

3.4 Indirect Ways of Helping the Macro-Economy
To have some lasting effect here a more profound Governmental policy is needed, of which the following are possible methods (with the comments being included here):

#1 to control the reserve-ratio of cash deposits held in banks,
#2 to reduce the prime rate of interest and
#3 to stimulate production by the proper use of the land.

3.4.1 The Control of the Reserve-Ratio of Cash Deposits Held in Banks
It is easy to blame the banks for allowing their reserves to become so low and (as collaborators with the land-owning investors and speculators) for being unable to determine when the land-value bubble is about to burst. Had the analysis been done properly and the degree of lending curtailed in enough time, the damage due to bank insolvency would not have occurred and the recession not progressed far beyond the real-estate business. But banks are too close to the action to be able to see the full picture. Their chief business-aim is to provide the investors with as much credit as possible without raising their reserves very far above the minimum, so it is difficult for them to decide how much money to store at any particular time. Some banks even find ways to disregard the minimum sum that they should be storing in their vaults and they are in big trouble at slump time. But even when the banks conform to this proportion, a "run on the bank" can still cause them financial embarrassment.

The National Bank has the power to supply credit to the banks at the “window of last resort”, when their individual reserves are running low. This facility is provided because the banks are obliged to return money to the savers at the end of its duration, without it necessarily being re-invested. But, there is a limit to how much of this kind of credit can be provided. The effect of the slump can easily cause this greater degree of reserve to be exceeded and the window closes.

The reserve-ratio on deposit accounts is normally set by the Finance Ministry (Treasury), who should be able to anticipate when the stock-market is close to a sudden large drop in value. Unfortunately, the simulation methods for macro-economic forecasting have not achieved much success in showing when the land-market price-failure is about to occur (and as described above, its cause being due to a small random shock after a steady rise). The only method of slump anticipation which seems to work is to base them on an 18 year cycle, as claimed by the Georgist organizations, who understand better about how land-values vary [3]. However, neither the banks nor the Government are convinced of this and in common with other forecasters they cannot yet determine how big the effect of a particular slump will be.

The Treasury could instruct the banks on the necessary adjustments to be made to the reserve-ratio, but this is difficult to administer due to the technical problem of not knowing exactly the amount being held in the money reserves and the various sums and durations of the very short-term credits that the bank often use. Also, due to other smaller macro-economic regressions, it is hard to anticipate and identify which one is likely to be significant and how to frame the necessary legalisation.

3.4.2 The Reduction of the Prime-Rate of Interest
The theory behind this applies to the current group of national bond-holders (and indirectly to other savers too). After their effective interest rates have been cut, it becomes less worth-while for this group to invest in the Government bonds and they will be more inclined either to put the money into durable capital goods through the stock-market or to spend more on consumption, which are helpful in strengthening the demand and raising the amount of economic activity. Since the bonds for the National Debt are continuously being returned and re-issued, the effect of making a reduction in the rate of interest is likely to felt quite fast. The other group of investors, previously described as nervous, is encouraged to withdraw their liquid assets (see above) due to the greater security offered by the low-interest bonds. However, three aspects in adopting this policy are of significance.

Firstly, it relieves some of the Government’s (and tax-payer’s) burden in servicing the national debt, thereby helping to balance the loss of national income due to the lower production activity. The Treasury wants to have as low a prime-rate of interest as possible, in order to reduce the interest leaking from its income. It can exploit the advantage of the greater security that the bonds offer compared to the average rate of yield obtainable by alternative investment. In times of slump the level of confidence of the investor in the stock-market is low, as well as the average obtainable yield. Consequently, even without the above considerations the prime-rate can be cut back. With investor nervousness being felt, this rate can be reduced to even smaller levels.

(In times of prosperity the opposite applies and the prime-rate is raised to be as high as the stock-market average yield or even better, in order to successfully compete with it. Due to the need to maintain the National Debt, most governments favour a slow rate of inflation, to reduce its effective magnitude whilst avoiding the alternative of regular deficit budgeting.)

Secondly, it indirectly influences and reduces the amount of interest being paid on new mortgages and on other loans, thereby easing the borrower’s difficulties, helping to avoid the risk of defaulting and encouraging the entrepreneur’s efforts. It reduces the degree of his/her competition with the banks for savings and investment money. The low interest may cause the banks to reduce the rate they take on steady mortgages and what they offer on new ones too, after they realise what the greater interest rates do to the general investment situation and to their own struggling mortgagees.

However and thirdly, there are limits between which this policy may be applied. For very small reductions in the prime-rate the effect on the tax-payer is of little significance, but if the reduction is too great or if it is introduced in large announced steps, it will drive the investors into taking their money aboard, where the interest rates may not (yet) have diminished to such a large extent.

3.4.3 To Stimulate Production by the Proper Use of the Land
Since the macro-economy eventually will recover from the effects of the slump, it is instructive to ask how this comes about and to take steps to speed up the process. This enquiry also brings us back to questioning the initial cause of the slump. As described above, the slump originates from speculation in land-values, where the inflated prices inhibit its sale and proper use. After the slump develops, the smaller sums of money still available for investment are attracted by the reduced land prices, which are all that the landlords (and banks) can now obtain. The indirect effect of the Keynesian initiative for new public-works is to make the land more productive and valuable, thereby encouraging land-speculation once again. As the prospects slowly improve, these two effects enable the building trade to gradually recover. The depleted prices of the land begin to grow during the new business-cycle, although in practice this process is protracted.

To better stimulate the recovery, the Government should progressively introduce a tax based on the value of the land. This tax drives out any speculation in the land and steadily lowers its price. The taxed sum grows more slowly as this value falls. No longer does it become worthwhile for a land-owner to continue to hold onto unused land for speculation in its value. Either he/she brings it into proper use or rents or sells it to somebody else who can. This easily defined tax disregards whether the land is built-on or undeveloped, nor does it depend on the use that the site in question is currently providing. Then the land-value ceases to be speculative and it self-adjusts downwards until the competitive costs for its ownership and use are stable. Thus land-value tax is an incentive which gives the entrepreneurs opportunities for producing goods at reduced costs. The numbers of unemployed workers reduces as the land monopolies are steadily eliminated.

Simultaneously, the national income rises due to this tax. After the financial conditions improve sufficiently and the Government income is partly restored, it is possible for it to reduce all the other kinds of production-based taxes on earnings, consumption and capital gains. These beneficial changes greatly stimulate the demand for goods and investment within the macro-economy, enabling it to overcome the adverse effects of the slump far more quickly than if it was left to recover by itself.
Whilst some of the other proposals to overcome the slump will have beneficial effects, they are of a secondary magnitude compared to this proposal, which is unique because it rapidly removes the effect of the slump and also attacks the cause of it, inhibiting the possibility of its recurrence.


[1] “General Theory of Employment, Interest and Money” by John Maynard Keynes,
Palgrave Macmillan, 1936.

[2] “Economics in One Lesson” by Henry Hazlitt, Harper and Brothers,1946.

[3] "The Power in the Land" by Fred Harrison, Shepheard Walwyn (Publishers) Ltd., 1983.

What do you do with a horse with a broken leg?

Wow. Its finally happened, the world economy is collapsing all because of peoples over consumtion of sh*t they don't need. In matters of man and his money NEVER 'Trust in GOD' and hope that people finally realise that all this consumerism only leads to broken countries. And, NEVER doubt the power of Socialism because a country where the government fights for the rights of its people, rather than the pay packages of its CEOs, is a far more economically safe and ultimatley a more sound place to live.

Cheers.

I agree that unions, like all large organizations, have their problems and are long overdue for a thorough overhaul, but overall do more good than harm. At the very least they provide the worker with a measure of balance and recourse against abusive and greedy employers.

Break up the D.C. party. Set up secure internet connections and have all senate and congress operate out of thier home district/states. This would help us keep better track of our representatives, while making it more difficult for special interests to wine and dine them in mass, away from our watchful eye. Also makes it less likely to loose most of them to a terrorist attack on D.C..

Until we take control of our government away from the corporations we will continue sinking.....

live within your means
I still will go with "real estate" of course for a great investment always, provided you do the research.
People need to educate themselves...that is how you get a better job. I do not feel it is the goverments job to provide all these services I want less!!! and less taxes!!! cut the fat and the spending.
As a business owner I have to manage my companies money as well as my own...start learning about money... everyone.
There is a million books out there to teach you what you never paid attention to in school or college.
get involved in voting and politics-local and beyond....It really works when you go to township meetings etc....if you don't like what is going on organize some people and get going!
And my final comment......we should own all the offshore drilling that will be done...we the american people should be owners in our own energy!!!! why not we invest in stupid wall street companies that obviously are tanking....get it tanking

[quote]Liberals have caused incredible damage to the country by not supporting American automakers. That was a bastion of the middle class. Milliions of our best jobs have been lost, with nothing comparable to replace them. They thought that the Japanese were more environmentally friendly, but most manufacturing is shifting to China, where there is NO ENVIRONMENTAL REGULATION.

Liberals are in favor of opening the country's borders to the billions of poor from the whole world. Yet the manufacturing jobs were a good source of upward mobility for the working class. Mexican peasants may be willing to work for nothing, but their kids are not. They join gangs because there are no decent jobs.

It is a subtle class prejudice. People assumed that unions were obsolete. WRONG. We only got the legal right to organize in the '30s. Now we have in practice, lost it. We are all losing our health care, retirement everything. Thank you liberals. All these things were won by the blood and sweat of unions.[/quote]

Republicans and Democrats are BOTH to blame for "free trade" they should have been working on Fair Trade! McCain is NOT a Liberal, and he wants to force other countries to come in and take over our country for the benefit of big business, not the common worker. Why do Liberals make tax cuts for the middle class while conservatives only protect the rich if Liberals are to blame?

Unions are a joke. You are forced to pay money to people who do nothing then they make you miss work for something you may not care about. If the people running the companies were REAL Americans, unions would not be needed. For now we need them because the conservatives have given big business and foreign power too much of our rights and our money. Do not blame the Liberals, blame yourself for voting inside the box. we need REAL change, that means looking outside the Rep/Dem party. Together they are destroying America.

The current political system in the United States is broken. The thing that your website perhaps fails to contemplate is that the economic failures now clearly manifest in the United States are the result of political failures that have built up over many decades. Fiat money, ceaseless wars, aggressive interest group politics, rapacious exploitation of American workers by foreigners and their elite American enablers, and most important, the rise of deceit and hypocrisy in national political life and dialogue have led to this sorry state of affairs.

Perhaps what we really need is replacement or massive renovation of the current institutions of our federal government, with an eye towards a smaller, more compact federal government, with less power in many spheres of life, but with greater and more concentrated powers in other areas. Only a revolution in thought and deed can help mitigate the severe consequences of an inevitable collapse from mutating into outright anarchy and chaos.

The crisis we face today is not the responsibility of one particular political party, ideology, philosophy, or political leader. Rather, it is the consequence of short term thinking and decision making made for temporary expediency by all classes and segments of our society at the expense of our mutual future.

We are only reaping what we have sowed over the past half-century or so. No nation, however great, is exempt from the laws of economics or reality. We collectively have ignored reality for so long, with so much collective deceit and hypocrisy, we no longer know where we have put the truth. We no longer know how to run our society (or for that matter our lives) with honesty and pragmatism. Until we are honest about where we are and where we need to go, no solution, especially not an inane laundry list of mundane actions suggested by the author of this article, is going to work.

Many thanks for the opportunity to comment.

Im from Australia and am married to an American and have a child and look to become a citizen by years end.
From an outsider point of view I can see a number of ways to fix America
1. Ban all forms of lobby groups, make senators and assemblymen etc do their job for their electorates and country verses how much money they can make for themselves and a well funded few.
2. Bring all military home, defend your country from home, the money wasted there will make the alternate fuel search far quicker if it is a NATIONAL priority, the reason Bin Ladin supposedly initiated the 9/11 attacks was because the US govt is propping up the Said royal family, so if you stop interfering in the world these people will not have a reason to want to spread terror. Send the UN to Paris, they think they can do a better job, ok you can be the peace keeper of the world (can bet within a week they will be on the phone to the president to ask for help)
3. Dissolve trade agreements that dont work for America, the cheap stuff you import (Walmart) means money still goes overseas.
4. Spend more money on schooling, make it for the best and brightest and forget crap like liberal arts, you want engineers (India has the highest number of engineers per head of population and they have the 2nd largest population in the world) and also scientists. America is a service economy, the change has been gradual, but thats the reality of America today
5. Realise you arent number 1 in the world any more, dont sulk, you had your turn as has France, Britian, Spain. You must be realistic that if I run a company I want to make a good as cheap as I can and sell it for as much as I can (what Multinationals pray before they go to sleep at night) so they dont care its make in America they look at it costs me $75 an hour to make it in the US (Labor plus health care, social security etc) verses the same thing made in Eastern Europe for $25 (labor, forget the rest).
This is what the big 3 car companies have been going 9 rounds with the Auto workers Union, we cant compete at the prices, the Asian did that to the Australian manufacturing industry in the 80's but once you get realistic on how much you are worth (yes you are worth more than a Bulgarian) competition returns, hey its cheaper for me to make it in America when I take the cost of shipping, people who speak and understand english instruction on how to build something correctly the first time and its a primary market of mine thats when you will see manufacturing jobs return.
6. Why make crap you cant compete worldwide on? Why is Flint MI disappearing? I make high cost American trucks, vehicles people dont want, ok novel idea here, why not make something else and use the infrastructure and skilled workforce that is in place to do it!

Anyway thats enough from me, I like Bill Oreilly but he is a realist, he knows that unless you fundementally overhaul the system it wont change.
The best thing you can do is outlaw all lobbiests, and jail any member of government that takes money or "gifts", it sets a precident to make them realise they are there for the people and not just for themselves

The article is very informative but does not attack the main cause of the stagflation problem our economy is facing. Please consider these facts which are reported by many media outlets and government agencies. Unemployment is increasing due to outsourcing and stagnating innovations. The inflation rate has been increasing due to the budget deficit. The Fed has been cutting the federal funds rate, which is the wrong course of action at this time. This easy monetary policy has reduced the exchange rate of the dollar; hence, imports have become very expensive, contributing significantly for the increase in the inflation rate. Oil prices are increasing due to the war in Iraq which has been cutting the Iraqi oil production by about three millions barrel of oil a day. This reduction, along with the declining value of the dollar, has resulted in the high price of oil, which has been affecting domestic prices positively and fueling the inflation rate. High inflation means a decline in the purchasing power of people’s income; unemployment means the loss of people’s income. Both effects have generated pessimistic expectations about the future of the economy. Our capitalist have lost confidence in the economy, which will reduce domestic investments further. On the top of this mess we have the sub-prime problem which represents an excellent case of financial manipulation and dishonesty. Financiers cannot cut interest rate on loans during inflationary condition, because this will reduce the purchasing power of their loans. My logical conclusion is to search for a different and less expensive alternative to fight terrorism, and this suggestion includes ending the war in Iraq, because our economic problems are grounded in this war, problems that are impossible to solve without ending this war. If the war is over, the budget deficit will be eliminated, and the dollar becomes strong. Oil prices will go to about 30 dollars per barrel. Inflation rate will decline to less than 2 percent. People will have more income to spend on non-oil commodities and services. This solution will reduce military spending which will hurt the profitability of the military complex and oil corporations. History will show whether my analysis is accurate or not.

Globalization is the real culprit as through its various trade agreements i.e. NAFTA, CAFTA, and the WTO, it exists to replace and ultimately destroy the sovereign nation/state, such as the United States. Globalization is an invention of the British imperial economic system. Just reforming the WTO and the trade agreements won't be enough; they must be abolished.

Wrong try again....China has one of the most heavily subsidized economies in the world. By the way who said with Capitalism doesn't come responsibility and accountability. Capitalism is like a loaded gun......in the wrong hands it can do a lot of damage. But you don't bring a knife to a gun fight!

To the screamer who loves free-market Capitalism.

You should move to China. China actually has a much freer form of capitalism than the USA. Yes. "Communist" China is really Capitalist China now. You should move there so you can drink polluted unregulated water. Choke on fully fouled air from dirty unregulated coal power plants. Work in a factory 7 days a week 12 hours a day 13 cents an hour, with no benefits. Lose an arm in a machine and be fired from your job.And then smile, thank your employer for the privelege of being a slave worker, and thrust your fist to the air to praise the God of Money Capitalism.
--------------------------------------------
Capitalism is the most deadly environmental force man has ever unleased against our planet.Never before has organized man and machine combined forces more successfully to strip the earth barren of her oil and gold and coal, capture her seas of life for a quick meal, invent every possible poison to cover the earth with pesticides and herbicides, and befoul the air with a noxious spew of chemicals and toxins from lead, mercury, to dioxin and chlorine and dump tons of trash in her oceans and make a grave of the earth through landfills. Capitalism is the mean spirited economic
poicy that teaches:he who is greediest and most clever and least bothered by ethical considerations-this man is the biggest winner in Capitalism. The great man is the one with the most wealth. He who owns the wealth, can freely corrupt and manipulate the political system of democracy to benefit himself at the expense of everything and everyone else.
Capitalism is not only the great killer of the earth, it is death and poison to a man's soul to exalt greed and selfishness as great virtues of man.

There is no god. "Religion is the opiate of the masses." ---Karl Marx. Communism--not Stalinism or Maoism--is the only way we can have a government of the peeople, by the people, and for the people. Capitalism cares only about profits, not workers or consumers. We need a labor party; the Republicans and Democrats are two branches of the same capitalist party. Anyone who doesn't believe this has been brainwashed by generations of brainwashed parents, teachers, and religious leaders.

YOUR PRESIDENT SOLD YOU OUT,THE CONGRESS SOLD YOU OUT,CEOS SOLD YOU OUT,DO YOU THINK THEY GIVE A DAMN ABOUTH THE AMERICAN POPULACE,NO SOCIAL SECURITY,NO HEALTH CARE,LOUSY LOW PAYING JOBS,ILLEGAL IMMIGRANTS,FIGURE IT OUT YOU AMERICAN MORONS,THEY SOLD YOU OUT TO FOREIGN COUNTRIES,WELCOME TO THE NEW THIRD WORLD,COURTESY OF YOUR UNITED STATES GOVERNMENT,GOOD BYE AMERICA

Force back to America all US companies overseas..PERIOD...NOW

The editor mentions a couple good points: especially balancing the trade deficit and ending free trade which has been an unprcedented disaster for the USA.

But....he does not go nearly far enough. To restore America to economic health and prosperity, huge changes are needed in the very economic system that has created the problems in the first place.

90% of the American population are caught in the jaws of Predatory Capitalism which operates continuously to lower wages, reduce benefits, weaken job security and increase duties and responsibilities upon the worker.This is aggravated by the rising costs of healthcare, fuel, food, education and a falling dollar which harms the poor and middle classes most of all. When Predatory Capitalism cannot turn Americans into slaves it either deports the job to a poorer country, finds an illegal alien to undercut the American or brings in a legal immigrant who was trained for far less than the American and can be paid far less as a result.
Worst of all this is not an accident of Darwinian markets, but a deliberate plan by the wealthy and their lobbyists to topple American Democracy and replace it with an economic system of two classes: The billionaire elites, and those millions of indebted serfs who toil for the wealthy even as their lives and living standards decline and become hopeless.
What is needed to help correct this problem:
*Deportation of all illegal aliens
*Salary caps of $1 million on CEOs.
*A mandatory living wage ($25 per hour) for American workers
*Universally government funded medicine
*Universally government funded education
*Immediate end to all discretionary foreign wars such as Iraq, Afghanistan, and Iran.
*National Independence Project (A government program) to develop natural sustainable energy production through wind, water, solar and geothermal sources.

This is one of the most hilarious sites on the whole internet! I really hope no-one believes this crap?

An economic czar (AKA dictator) sounds like a GREAT idea, i think they tried that in the USSR and it worked so well. We need LESS government not more.

When the government reports employment figures, corporations are now allowed to count overeas employees in the tally.

This helps reduce unemployment (numbers) in the USA and allows the government to claim rising employment even when falling national employment is the reality.
Also the figures do not reflect quality of work. Recently the government trumpeted the creation of 166,000 new jobs. Buried in the figures was the loss of 21,000 quality manufacturing jobs.
What we should ask of our government is: "Are you producing shit jobs to marginalize our country or are you producing quality jobs to build our future?"

Shit jobs=Shit Nation
Quality jobs=Quality Nation

Folks this is basic.

What are some of the hallmarks of a Quality job?

*Employer offers full time employment with a living wage or better w/full benefits, perks and a pension or (at least a 401 K). The work environment is safe and discrimination fre and has opportunities for future advancement.

What are some of the hallmarks of a shit job?
Low pay (less than $25 per hour), full time unavailable, no benefits or limited benefits, no pension or 401 K plan, a hazardous work environment, marginal advancement opportunities, workplace discrimination.

Examples of shit jobs, Store 24, McDonalds, walmart, and many retail stores.

We can do better in our nation, but the government must actively create quality jobs for each and every worker or mandate and regulate private employers to do the same.

If such an economic czar were appointed with the power to pick winners and losers by the measures mentioned, he would be under extreme pressure from the losers and winners for favorable legislation. The losers would support the winners in the quest for winner subsidies while the winners would support the losers in their quest for higher tariffs. The real loser would be the American consumer. The idea reminds me of the formerly vaunted Japanese Ministry of International Trade and Industry. While that route was cheered by the democrat party and Walter Mondale in l984 and such economists as Robert Reich and Lester Thurow the election result made the idea fade away and none too soon.

If we don't take immediate action we're doomed to fail