In the week that started with the landing on Planet Mars of
the American probe Curiosity, and ended with Mitt Romney -- the Republican
candidate running for President of the United States -- announcing that Paul
Ryan was his choice for running mate, questions abound as to whether America
will continue to lead the world the way that it did during much of the
Twentieth Century or will cede the number one spot to someone else in this
Twenty First Century and beyond. And so, the people are asking if Paul Ryan who
is reputed to have a good head for economics, as well as being a fiscal hawk
will do what is necessary to help save America and score a success that
will be as brilliant as the landing on Mars.
Given the history of failures that have marred the many
previous attempts to land a probe on Mars by America and by a number of other
nations, it can be said with confidence that America's triumph this time
figures as a technological achievement that will represent a high point in what
has been called the American Experiment in nationhood. But this is only a small
part in the legacy of a nation that was formed on the North American Continent
in the wake of much anguish and human suffering; the vestiges of which are
slowly and painfully being erased only now. And let it be said that as marvelous
as that triumph was, it alone will not save America because much needs to be
repaired before the nation can stand tall on its feet again. And it has a
sorrowful history that will bear witness to this truism.
It all began when people from the many races and ethnic
backgrounds that make up this planet came to a new continent and found
themselves together on the same boat -- so to speak. These people brought with
them different cultures, different norms and habits they fused into one melting
pot partly because they wanted to and partly because they had to given that
they lived more or less in proximity to each other. The fusion of the cultures
started to happen during the transformation of society from an agrarian sort of
living to an industrial one. It then accelerated towards the end of the
Nineteenth Century at a time when America was beginning to overtake
the rest of the world in industrial output.
The nature of industrial society that forced these people to
live and work close to each other also forced them to devise codes of conduct
that were acceptable to everyone. This was achieved with the help of the
natural process of osmosis as the norms and the rituals of one group were
absorbed by the other groups, and were adopted as one's own; a necessity that
was called for to make it easier to live in harmony with the neighbors. The
general effect of this phenomenon was that a new way of life was created
containing a number of the common denominators that made up each of the
original cultures. But it also created the promise of a brand new trend that
was both revolutionary and evolutionary with no limit to its range but the sky
itself and a vision beyond it that stretched to the stars and the planets – one
of these being the Planet Mars.
The probe Curiosity is the fruit of American science and
technology coming together in the best possible of ways. But this is not all
because these two fields of knowledge make up only half the legs of a four
legged stool. The other two legs are industry and the economy which team up
with the first two and spawn the kind of industrial maze that allows for the
incubation, growth and maturity of new science and new technologies, thus
create such marvels as the probe Curiosity.
It was at the start of the Twentieth Century that the
history of the American nation started to evolve into a distinct American
flavor no longer a copy of one European culture or another, but a mix of all
the cultures that had come from Europe to which
were added the cultures that came from the other continents. This assortment of
people traveled to America, each armed with one of the many existing
occupations, among these being the trained scientist and the self taught
experimenter, the inventor of new products and the creator of new processes;
and there were those who never stopped tinkering or dabbling in technology till
they came up with something useful, something they could market that would take
them from rags to riches. All these people had one thing in common: they looked
forward for the opportunity to realize the dream they came with.
The pursuit of that dream was made possible because the land
was vast, the natural bounty enormous and the number of people making demands
on it small. This happy combination formed the perfect condition for the
creation of a surplus that was used to free the dreamers from the drudgery of
having to scrape for a living. This allowed the individuals to pursue their
respective dreams without carrying much of a burden on their shoulder. However,
concurrent with this condition came another change that had a big impact on the
development of the nation. It was the rapid industrialization of America .
This change made it necessary to shift from the reliance on
barter and the use of precious metals in the conduct of commercial
transactions, to the use of paper money. When the production of goods began to
multiply so did the services that were necessitated – all of which increased
the wealth of the nation by several folds. However, these developments also
necessitated the printing of more and more money -- made inevitable by the fact
that the stock of money had to match the ever higher levels of economic
activity. And this is where the troubles began to brew past the view of the
people who let nothing stand in the way of the roaring and jolly good time they
were having.
The printing of money was not seen by these people as being
a consequence of the increase in economic activity. Instead, they saw it as the
cause that brought an increase in activity. Of course, there is some truth in
this view because the concept stands as the expression of the paradox: What
came first, the chicken or the egg? But where the analogy breaks down is when
excess is injected into the implementation of the policies which are based on
that view. Yes, a little more money will stimulate the economy and increase
activity especially if the economy had slumped as a result of the tightness of
money, but the printing of too much money can also inflate prices to the size
of a bubble that will then burst and cause severe damage to the economy and to
society.
What all this means is that when the stock of money outpaces
the production of goods and services, trouble begins. Money will tend to go
toward the purchase of objects that range in importance from such frivolous
items as tulips and pet rocks, to such enduring items as rare artifacts and
real estate. The price of these items start to inflate, and the more this
happens, the greater the demand to print more money. Thus begins the vicious
cycle that keeps getting larger and larger.
And where there are exchange markets that list commodities
or the stock of enterprises producing goods or services, money will go there
too and inflate the price of their shares. Eventually a bubble will form, and
someone will panic causing everyone else to do the same. All these people will
try to sell at the same time, a decision that will cause the bubble to burst,
will cause the simultaneous crash of all the markets and will bring about the
known nefarious consequences to the economy. This is where America stands
today, and what Paul Ryan will have to try and fix.
There is one point in the above presentation that needs
further elaboration to allow us to form a broader view of what is happening
when a scenario of that sort unfolds. Here is that point: “When the stock of
money outpaces the production of goods and services.” You see, when money is
borrowed by entrepreneurs to produce goods or services, the sums they inject
into the economy do not outpace the goods or services because these people add
a value to the economy that is equal or greater than the increase they bring to
the stock of money. For example, when someone borrows a million dollars and
creates two million dollars worth of extra GDP, he does not cause an
inflationary pressure. Thus, a bubble can never be formed by this kind of
borrowing.
By contrast, when speculators borrow money to buy, hold and
then sell at a higher price, they open the door for someone else to buy from
them so as to hold the thing for a while then sell it at an even higher price.
This is done without adding value to the items which are bought and sold while
money is being injected into the economy. If the game is played with borrowed
money, which is the case most of the time, it starts the formation of a bubble.
When the cycle is repeated several times, the bubble grows large enough to
burst. When this happens, it hurts the inexperienced among the players. Done on
a larger scale, the game puts the financial institution that is involved in
danger. If the game goes on for too long without someone checking it, the
entire financial system is put in danger.
Yes, not every venture is successful either, and the
entrepreneurs who borrow and fail, also add to the stock of money, and thus
contribute to the rise of inflation. But this would be a minimal addition to
the money supply, and must therefore be regarded as the small cost which
society has to pay to have an economy of entrepreneurship and innovation. Also,
as suggested by Milton Friedman -- so long as the stock of money does not
increase by more than three percent a year, there will be very little to worry
about.
But who are the speculators, anyway? Well, there are two
kinds of them. There are direct speculators who buy a product when there is
little demand for it, hold it for a while then sell it at a higher price when
the demand returns. These people do what they do, and make a profit without
adding value to the products they buy and sell. It is bad but there is worse.
There are the indirect speculators who buy mostly distressed properties using a
little of their own money and a lot of other people's money. Called corporate
raiders, these people modify the properties they buy or break them into smaller
parts by doing what they call reorganization. This done, they sell the modified
properties or the broken parts at a higher price, and make a handsome profit.
No matter which way these people treat the properties they
buy and sell, they too will have added no value to them at all. In fact, they
may even have subtracted from their value because they would have discarded
some of the parts. And when all is said and done, the corporate raiders
attribute the profits they make to the services they render when, in reality,
the only service they render is to themselves and to the people who lent them
money at the start. This is a self-serving scheme and nothing more. To present
it as a legitimate capitalist pursuit is to commit an intellectual dishonesty
which Paul Ryan is said to dislike.
It was these corporate raiders who caused the most damage to
America
as they were instrumental more than anyone in dismantling American industries
over the last three decades. They broke up the enterprises and sold their parts
to foreign countries who happened to be fierce competitors of America . These
people made money for themselves and for the people who lent them money to play
the game. They all got fabulously wealthy at the expense of the American
workers who lost their jobs, and the expense of the treasury that was deprived
of its regular sources of revenue. In short, the corporate raiders got rich by
making America
and its people poorer.
This is the set of problems that Paul Ryan will have to
solve at a time when his running mate is known to have been one such corporate
raider. Worse, he is stuck with a plan he formulated long ago that would raise
taxes on the middle and lower classes while giving a break to the upper classes
that already have more money than they know what to do with. These people sent
a lot of their money outside the country already, and have another three
trillion in America
parked in government securities and bank vaults. What will they do with more
money coming to them courtesy of Paul Ryan?
The immediate problem of America is that it lacks a middle
class and a poorer one with a purchasing power that is strong enough to buy
what the upper class wants to produce but cannot find a market for. This would
suggest that the solution is to reduce the taxes on the classes that have the
propensity to spend the money. And so, to devise a plan that will be revenue
neutral, taxes will have to be raised on the people who have it locked in
government securities and bank vaults. But dogma and the politics that is played
in America
these days make such a deal impossible to negotiate between the parties. What
is Ryan to do?
I have a suggestion for him to do what must be done to save America and
score a success that will be as brilliant as the landing on Mars. Declare war on
the upper classes, Paul, and give them hell in public. This will give you an
enormous amount of credibility. When you have this much under your belt, tone
down your rhetoric and negotiate a compromise with all the parties.