How reckless and unchecked Monetarism is destroying Capitalism

Equitable access to capital and a strong middleclass that will create the consumer to buy the products the capitalists make are imperative to a system of capitalism. With that in mind, all those who love the USA and Capitalism should question as to what had been going on in the USA in the last few decades without disregarding the lessons from history, and its dreadful habit to repeat.

History has clearly shown us that a Welfare State not only could create idle poor at the bottom but also could create aimless and comatose wealthy at the top (i.e. Pre revolutionary France and Russia). Then to understand how the USA, the forefront of Capitalism, has turned itself into creating a welfare state for a handful of wealthy in the history of mankind, we have to contrast some unfolding events in the last two decades keeping the tenets of capitalism in mind.

Almost every guest, who shows up on CNBC, the premier business news channel speaks up against any sort of welfare program by the government. Conservatives agree wholeheartedly that welfare is demeaning to all people. But nobody adds to that by pointing out that regardless of your economic status, working for a living is the proudest thing to do, to make people feel accomplished, and that welfare is bad both for the poor or the rich. Incidentally, this is one reason why Warren Buffett does not want to leave all his wealth to his children: He fears of creating a generation with his last name living on welfare. Logically, either provided by the government or by a private trust the consequences of living on cash flow without having to work is the same: People who have nothing to do in life lose the potential for innovation and persistence that are the pillars of capitalism.

Let’s turn back to our guests at CNBC: Even before the argument of welfare being demeaning, could take hold almost all these guests turn around and ask for money from the Federal Reserve Board. As amazing as it sounds this is what’s going on this country, and for that matter, this is what has been going on since the mid-1980s in this country. Powerful people are screaming against any welfare but openly ask for easy money. And surprisingly they are given all the money that they ask for both by borrowing and creating.

A consequence, many do not seem to realize is that the way the money is being distributed, inadvertently assures that the trillions of money, stay within the hands of a very few wealthy in the country. That explains why there is no inflation in consumer goods, except in Food, Energy and Shelter, even after such a huge amount of new creation of money. When money does not trickle down to the consumer who account for close to two third of the buying power in our GDP then there won’t be consumer inflation.

The Federal Reserve Board has the power to create money in the USA. The top percentile in the country own stocks and bonds and hence these people measure the economy mostly by how well the stock market is doing, because that is what affects their pocketbook. So since the 1980s they have been running the stock market to stratospheric levels. To give you facts, the 1980s began with Dow Jones Index at 836 (it took close to 200 years for it to get to 836) and now it stands over 13,000. This was possible only because so much money was put into the system both through unimaginable amount of borrowing (turning the USA, the greatest creditor, to be the biggest debtor in the world) and through unfathomable creation of trillions of dollars by the Federal Reserve Board added to this borrowing.

With this giant leap up in the stock market, that made billions of easy money to a handful of people, one would think that this powerful group would be happy. But they are not. Still each and every day they parade on television and ask for more money (the term—or the doublespeak—they use is liquidity) each time the market has a correction. Then during their spare time they come on television to denounce the politicians who propose any welfare (such as healthcare for kids). That is, they fearlessly and almost with no opposition on the air, attack any welfare to anyone else but them. One question comes to my mind is why do American people put up with this sort of media monopoly where the opposition point of view is not equally heard.

It’s like the spoiled and selfish older kid in the family asking toys from parents but throwing a temper tantrum when he sees the parents also giving some toys to the little brothers and sisters. The older kid would point out how parents are not only making the little kids depend on welfare, but also turning them to idleness (rather than making them innovative and work hard to find money to get their own toys) but also destroying the family budget because of this extravagance. They want to make it simple for the parents: Borrow and create money, but give only to me! Taken this logic in macro sense, they are saying, give the handful of us, the elite, more liquidity and that’s all we need to make this country great!

As amazing as it sounds the elite have been getting their wish and welfare since the 1980s with only a few objections from the society. Just don’t take my word for it. Turn on to CNBC and listen. Each and every day the spokesmen for the powerful parade on and ask for more and more liquidity, without any shame in spite of the amazing amount of liquidity that has been created since 1987. The Federal Reserve Board gladly oblige and provide them all what they need.

Let’s look at fiscal policy and monetary policy, the two major economic policies, to put in perspective as to what’s going on and who is benefiting by giving priority to one policy over the other.

In the recent years, most western nations adopted Keynesian theory in practicing fiscal policy. According to Keynesian theory, when there is a recession, the government goes on deficit spending, building infrastructure of the country and giving opportunity for the small businessman to create business and then create jobs. Also the government takes care of some basic but essential needs for survival of the population during those hard years. Then when the economy turns around, the government covers the deficit by increased taxes to create a surplus and brings the country’s budget in balance. This is no different than the rich well established parents helping out their children at the early stage of their life till they get a foothold and then asking them to pay back debts when they start making some money. Capitalism cannot function without capital; fair access to capital for all people are needed as much as all cogs have to be oiled for the machine to work efficiently.

With Monetary Policy, such deficit spending or taxation is disregarded. Instead, the Monetarists seem to believe in creating enough money and pumping it to the economy to absorb shocks of any recession while letting the free market take its own course in solving all ills. In spite of the fact that historical consequences of excess money creation have been dismal, it is not entirely bad if the government sticks to some established rules in practicing Monitory Policy. Such rules should be to creating new money based on the increase in population and in increase in growth of the economy. But that is not what happened since the 1980s. First they began by borrowing trillions of dollars and then through the Fed they went on to create trillions in money without any regard to the level of growth in the economy or the population.

History has shown us that reckless increase in money supply to be extremely dangerous. There is evidence to suggest that such increase in money supply in Germany to be one major reason for the World War II. It’s the horrendous effect of runaway inflation and consequential instability that brought in a monster like Hitler to power. People do not elect such demagogues spewing hatred in ordinary times.

There is enough evidence to prove that 1929 crash in the USA was a consequence of excess money creation in the decades leading to that crash. The memory of that crash kept the US government economist in check so that they have managed to build an amazing economy in the USA till the late 1960s. The same way Germans still have not forgotten what inflation did to their country leading it to war. Thus they have taken sternest measures each time the ravages of inflation started to raise its head.

But human memory is short-lived and definitely does not seem to last more than a few decades. So starting in the 1970 s the USA went back to reckless money creation once again. They began the assault by revising the reason for the 1929 crash to be lack of money creation as opposed to the earlier conviction of the crash to being a result of too much of money creation in the hey-days of recklessness. If the Fed kept on creating more money leading to the 1929 crash, they claimed (using much more complicated terms), then the stock market wouldn’t have crashed and all the major problems would have gone away. Assured by such confidence, they went back to where they stopped in 1929, and began money creation all over again in the 1970s. This new zeal for money creation is what ran the Dow Jones up over 1500 percent and still inflating it 300 points a day frequently even now.

This increase in money supply now has brought the country to the same place it was just before the crash of 1929. To give one example, the total debt in the nation is over 300 percent of the GDP. It has caused inflation in commodities (both in oil and gas and agricultural commodities such as wheat) again to unacceptable levels. This process is also being reflected in the price of Gold. Free Market advocates often say such imbalances in a society will be corrected through innovative human intervention creating alternative products. The question is at what cost?
Today inflation is decapitating the economies in the Third World: The people who can least afford, live a hand-to-mouth existence, not being able to keep up with inflation. In the USA this inflation shows up in certain goods. But it does not show up in consumer goods (such as computers to autos to clothes) because globalization has shifted production, along with inflation, to cheap labor countries. So now we have bifurcated price increases in the USA: no consumer inflation but there is asset inflation.

Capitalism practiced under rule of equitable law, is an innovative economic system that can wipe out poverty in the world. Those who criticize capitalism do not really understand the energy, spirit and practicality of Capitalism. This is mainly because many people wrongly associate the current economic system in the USA with capitalism. This is the biggest myth: the USA is not a capitalist country anymore but as explained above, it has become the biggest Welfare Society in the history of mankind. Unopposed, unchecked and uncontrolled Monetarism has played the key role in creating this strange welfare state. However, not too many people point this out since monetarism provide welfare only to a handful of people and they control the media as it always has been in the history of mankind. Money being created stays in the hands of the ownership society and it would trickledown only if there is bargaining power by the labor. There is no such bargaining power anymore and that explains why the working class wages in the USA have been stagnating since the 1980s.

There was a time Capitalism thrived well in the USA to make America great. The current assault to the USA through this stealth welfare system began only a few decades ago. The USA being such a huge economy could absorb such abuses to its dynamic financial infrastructure for a few decades. And that’s how it absorbed this reckless money creation shock in the decades leading to 1929. This time also, the dynamic US economy has managed to absorb such shocks. But sooner or later it will catch up. Fortunately for the USA we had one of the most dynamic leaders, Presidents Roosevelt coming to power in 1929, and with the help of Keynesian theory created massive job creating projects along with building infrastructure.

Nothing less than that massive movement and government intervention could have saved the USA after decades of onslaught by money creation that kept the money in the hands of a very few people. Capitalism to properly work there has to be class of consumer who could buy what capitalist make. If the economic calamity we are facing now due to the last few decades of reckless monetarists’ welfare state is not handled properly this time, the same way it was handled by President Roosevelt, the USA will decline, fall and collapse like the rest of the welfare states before it.

To blame capitalism because of the system that is being practiced in America is like blaming some great religions for being held hostage by a handful of fanatics who preach hatred, murder and social strife in the name of religion. It’s not the religion that is at fault but that handful of fanatics who are holding the religion as a base to brainwash people for their selfish needs.
The media, especially the lack of free and objective media, throughout history has played a major role in contributing to every major disaster since the process of brainwashing people has been behind every such disaster and destruction that has taken place in the world. Do you think the Germans, such great people, would have just sat idle while their government committed unimaginable crime except for the fact that they were brainwashed by their media so diligently? The same way the media in the USA has played and still plays a major role in turning the greatest capitalist system to become the biggest welfare society in the history of mankind.
Capitalism is about giving freedom, opportunity and access to capital to every person who would like to work to make his or her life better. What system could be better than this? Wouldn’t any of you be a part of such a great system? Contrast this with a system of welfare where the government gives handouts to people so they don’t have to do any work or be innovative to live a comfortable life. Such a system will make people lazy, useless and dangerous. Anyone who gives welfare to people to make them so useless has to hate humanity as to see people turning into lazy slobs, wasting most of their time in leisure, crime or both and also engaged in empty talk than being industrious and innovative individuals.

In the early 1900s the Great American economist Thorstein Veblen gave an account of a leisure class in having nothing to do with their time creating misdeeds in the society to get attention. For that matter over 2000 years ago, the Greek philosopher Aristotle, who many people still consider to be the wisest man lived on earth, said the same thing in a different way. In Politics Aristotle said that most of the evil in the society is committed by the poorest percentage and the richest percentage: the poorest since they are hopeless and the richest since they can get away with it.

A society that creates a class of poor so hopeless of any progress and a leisure class who become rascals, leads the society to self-destruction creating a major conflict between these two polar opposite but equally evil groups. Such societies are reflected in the working of the most of the Third World and unfortunately the USA is fast joining that rank. As mentioned, this is only possible when there is no freedom of press and lack of objective journalism in a society. It’s the middleclass that keeps the society and order.

The USA carried that mantle as the greatest capitalist nation in the world since its inception for over 200 years with some threats to its existence within the system brought on by powerful people who wanted to abuse the system for their selfish gains. Those attempts did its share of damage to the society. But powerful, patriotic and unselfish leaders, who couldn’t be bought out for any amount of money the lobbyist could put together, managed to rise above, at the worst hour and resolve those invidiousness, often fighting powerful and hostile forces and always bringing the society back on the right path.

Then as explained above, with the 1980s the most destructive attack on capitalism began and it continues unabated till today. The consequences of those attacks have shattered the fabric of the society. One of the major victories of the self-destructive attackers of capitalism of this era was the taking over of the free media. Thus they have found the way to brainwash the population and further their selfish cause of providing welfare to a handful of powerful people who use the USA as their private property while ignoring the masses.

To repeat, capitalism cannot survive without the consumer. There has to be a large consumer group to buy all the products the capitalists make. The consumer in the USA is the solid middleclass but if the middleclass is killed then there won’t be that consumer class. The middleclass had been vanishing slowly for the last few decades. At the early stage of this absence of the middleclass the government could step in and buy what the handful of capitalists (this is the sign of decay in capitalism: only a handful end up producing with oligopolies taking over and destroying small business) are producing with taxpayer money.

So that is what has been happening. In the last few years, the biggest job creator in the country has been the government in addition to it being the biggest buyer of corporate products. Also the number of government contracts to the corporations using taxpayer money have multiplied in the last two decades. But this sort of substitution of the middleclass by the government could go on only for so long.

In a way we should be able to understand the absence of media criticizing this reckless behavior of the system in the USA. One cannot blame the individual journalist. They are just trying to make a living like the rest of the people, except for a few angry, impatient journalists who seem to be in a real hurry to make a large amount of easy money by pandering to corrupt in the society. Such exceptional journalists seem to take sadistic pleasure in beating on the head of any journalist that advocates reason and fairness. But in fairness to most of them, the journalists have to play along with the wishes of the owners of the major media that is more and more becoming a few public corporate interests who are under huge pressure to show increasing revenue. A huge percentage of such revenue comes from advertising by large organizations that immensely benefit by a corrupt and a non-transparent system. So these journalists have to accommodate the wishes of this powerful minority.

A democracy cannot survive under this sort of onslaught. A society of lies, speculation and injustice will sooner or later destroy itself. That has been shown throughout history. As mentioned, excess money creation was responsible for creating the Second World War. The bottom line here is sooner or later this reckless money creation may also lead to World War III unless people realize what’s going on and elect responsible leaders. If not do not be surprised if the excess money creation this time bring this world to the brink of a major catastrophe.
Right now, than ever before, the USA needs the right leadership and let’s hope people will make the right judgment and bring back another leader such as President Roosevelt to clean up the damage that had been done by the monetarists.