Fwd: Why we don't have the money to fix the gulf coast

----- Forwarded message from

The Heartbeat of America
By Stirling Newberry
t r u t h o u t | Perspective

Monday 26 September 2005

One topic I often find myself returning to is what liberalism actually was
in the 20th century, and how it worked. This is particularly pressing because
in the public mind liberalism meant being liberal with public spending. In
fact, many fiscal conservatives now are decrying George W. Bush and his fiscal
priorities as "liberal." George Bush isn't a fiscal liberal, he's a fiscal
libertine, and there is a wide difference.

There were a few essential insights that created the New Deal. One of them
was brought to the table by FDR himself, and that was that the villages and
farms were starved for buying power while money pooled up in the hands of the
few. At the time, Will Rodgers quipped that gold sinks in water and floats on
an economy. The insight goes back to David Hume and Adam Smith: where there is
activity, people want to be close to it. Others will charge them money to be
close to the action, without actually contributing anything to the party. Too
much money brings not more activity but simply higher prices.

The solution was to use progressive taxation to collect money from where it
was pooling up - which did not do anything to help the economy, merely bid up
the price of assets - and to redistribute it out to the whole country. The
people in the countryside would then have the buying power to acquire material
goods, radios, cars, farm equipment, the conveniences of modern life. This
would reduce costs by creating "economies of scale." As Churchill put it in
Great Britain, the free market is neither a tiger to be shot, nor a cow to be
milked, but a horse to be yoked to pull the cart.

Congress fit in to this picture because each Representative and Senator
could be counted on to make sure that there was bacon to bring home. As long as
the executive branch could keep a vision and make sure that most of the money
went to advancing that vision, the system could work. It was, and is, the
economic heartbeat of America.

This idea is the solution to a very old problem, "the city problem." Money
pools up in cities because the concentration of activity allows it to be so.
Gradually the money is leeched out of the farming areas of a nation and into
the cities. Farmers then leave the farms searching for work, swelling the
cities. Those who cannot find work stay in the cities because they cannot go
back out to the countryside, they have nothing to return to. This leads to the
need for "the dole," expenses to keep the city poor from revolting. This
destroys both the source of food and the source of military men - in a
pre-industrial economy, people in the countryside are healthier, longer lived,
and stronger than their less well-fed counterparts in the city. The higher
population also strained the infrastructure of the city - sewers, roads, as
well as police and fire protection. Liberalism, by establishing a means to
prevent money from pooling in the cities, solved this problem. While the
largest cities exploded in size in the 19th century and early 20th century,
America, instead, saw growth of more and more cities across the land.

There were two parts to this: one was to spread money out, the other was to
strengthen the vertical distribution of money inside a city itself. Aid the
urban poor, and it is less expensive to run a city; provide a larger work force
for industry, and less money is needed to run the large factories. This led to a
natural coalition between representatives from farm country that was within
reach of the cities and the urban working class and middle class.

This coalition broke down over two key issues: the role of the military in
American life and the social boundary between cosmopolitan and rural America.
The Republican Party exploited these divides by convincing rural and exurban
America to vote against the entire money pump on the grounds that the vertical
pump was going to undeserving poor people and that the cities were receiving
money from the countryside. The reverse was the case; money flowed out of the
cities and into the countryside, and still does today. The anti-tax mania that
was used became a self-sustaining cultural imperative. Whatever the problem
was, "cut taxes!" became the battle cry of the Republican Party because,
somehow, taxes were anti-freedom.

Thus a governing coalition was formed of those people who no longer wanted
to pay for the economy and those people who hoped that by hobbling their
economic rivals in the cities they would get ahead. The whole thing coasted for
a generation on the massive amount of money the old system had piled up. America
burned through its savings and is now burning through its credit. As anyone who
has presided over a business will tell you, everything looks normal until the
day your checks bounce, your line of credit won't be extended, and the bond
holders won't roll the money over. The next day, the office is closed and
everyone wonders why.

America voted for this, because ordinary Americans became asset inflation
junkies and their 401k plans and houses became the paper wealth that allowed
them to dream of a life of ease. That is the Bush political coalition:
exurbanites getting Republican Pork, while suburbanites saw Will Rodgers'
floating gold. Or to put it less poetically, they saw stock portfolios fatten
and home prices spiral upward as the money that could have been spent improving
the economy was squandered on asset inflation. Asset inflation is the modern-day
equivalent of Adam Smith's "ground rents," money that does nothing but chase
other money.

But without vision, and without cities to be the engines of export and
creativity, the whole system was living on borrowed time. The reason we are in
Iraq is because imperialization and militarization of America was the only way
to make the countryside's supply of military men into a source of foreign cash.
The first Iraq war turned a profit. The cost was that the US did not get to
dictate the terms of the peace, but instead accepted arrangements that kept
Iraq's oil off the market, but Saddam in power.

Many people are trying to draw lessons from the Katrina disaster. There are
many, but one of them is that the reactionary economy is yesterday's economy.
Liberalism was not spending run riot, because other than World War II and
Johnson's attempt at "Guns and Butter," the liberal government largely did not
"spend" money, it circulated it, looking for a more optimal balance of the
economy. Bush spends money, or more accurately, he squanders it, because it
does not produce the ends he wants. Despite having nearly total control of the
government and having controlled Congress for over a decade, the reactionary
vision of the economy and the society have largely not come to pass. While the
religious right has been visible and active, the fact remains that they are
losing. Equal marriage is now legal in more states under George Walker Bush
than it was under William Jefferson Clinton ...

One of the important steps that needs to be taken in the next administration
is to restore the circulation system, so that the projects that we fund across
the country are coming out of what otherwise would be asset inflation. It means
weaning Americans off the vision that someone is going to be foolish enough to
buy their overpriced houses and overpriced stock. Generally a good roiling
crash is enough to do this. It happened with stocks, and it is likely to happen
with houses fairly soon. At this point, people will be more than willing to tax
inflation that someone else is benefiting from.

To summarize: the liberal system taxed asset inflation, while the
reactionary system has allowed asset inflation to explode and encouraged people
to borrow against it. Our grandparents' liberal system was in rough balance
because the money that was paying for additional activity was coming out of
unproductive rent, out of the mad scramble at the top of the economy, just as
Adam Smith predicted in 1776, rather than out of productive activity.
Yesterday's reactionary system borrowed from the future; it did not seem to be
reducing activity, because what it was doing was reducing activity in the
future. Yesterday's economy borrowed and sent the bill to tomorrow. We don't
have the money to fix New Orleans after Katrina and strengthen the brittle
energy system, because the Forbes 400 has already spent it.

We are the tomorrow that yesterday sent the bill to. To get out of this
trap, we are going to have to tax inflation, and that won't happen until the
giant floating crap game is finally raided. Katrina and Rita have raided it in
one corner of the world, and everyone else in the country, other than people
like Rush Limbaugh who want Gulf Coasters to drown in the cold, realizes that
something has to be done about it. The question is where to get the money. The
creeping realization is that the next bill we send to tomorrow is going to come
back marked "return to sender."

----- End forwarded message -----