Sunday, September 28, 2008

IT'S THE ECONOMY, STUPID

In 1992 Bill Clinton was elected President of the United States. His campaign coined the slogan, "It's The Economy, Stupid," as a way of expressing the basic notion in politics, as in every other facet of life, that people generally make choices and cast votes that they perceive to be in their own economic interest.

That concept is echoed today, as Barack Obama points to the Wall Street meltdown, blaming it on "the failed economic policies" of the Bush administration.

Both Senator Obama and Senator John McCain have talked about what they think needs to be done to shore up the American economy. Both favor the 700 plus billion dollar bailout, designed to bolster and stabilize the stock market and save financial institutions from failure and bankruptcy. Both speak of including regulatory provisions which are designed to protect taxpayers, and assure success of the legislation.

I am not an economist, but I have difficulty reconciling the notion that the federal government has either the power or the mandate to legislate prosperity with what I know of the Constitution of the United States.

Section I, Article 8 of the Constitution provides:

The Congress shall have the power...

To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.

I take those words to mean that the role of the federal government in the nation's economy is essentially to be the referee; to keep a level playing field, to create and sustain a monetary system which is a stable, reliable, and useful medium of exchange.

Enlightened self interest dictates that our nation's purpose should be to serve the common good, and to serve it over the long haul. If the dollar has no fixed value, or relationship with some objective reality, then its usefulness as a medium of exchange is ephemeral and its value a purely subjective matter. Neither inflation nor depression are conditions conducive to prosperity. True prosperity can only be measured in things of real value, and a monetary system which does not provide a means of objective comparison is useless in determining real value.

So, we see economists using "adjusted for inflation" values in order to make comparisons. That's a calculation average people can't do in their heads at the check out counter.

How do you achieve a stable currency? Ron Paul argued for the return of the gold standard. That's a good catalyst for discussion. It took me back to re-reading William Jennings Bryan's famous speech to the Democratic convention, in which he railed against crucifying the American people upon a cross of gold.

Bryan was the hero of the working class in his day. The laborers, the farmers, the tradesmen, small businessmen; these were his constituency. They were not the bankers. They were the people who borrowed from the bankers. They saw free silver as benefiting them.

Debtors will always opt for inflation. Pay back your debts in cheaper dollars than you borrowed. That looks like personal self interest. But is it enlightened self interest? Does it promote the common good?

Today, Americans owe enormous amounts of money. Credit card debt has skyrocketed. Mortgage debt exceeds our ability to repay. There will be great pressure on the next administration in Washington to print money in order to make repayment easier.

As government bails out banks, automobile companies, and insurance companies, the pressure will mount to bail out Joe Mainstreet. More and more money will have to be printed. A trillion dollars was an amount no one ever heard of when I was a boy. Today, there is talk of tens and even hundreds of trillions.

Just because we have computers that can count that high is no reason to think that trillions or quadrilions or cinqillions are real or valuable units of measurement. The same clause in the Constitution which empowers the Congress to coin money empowers it to establish standards of weights and measures. It was no accident that the framers opted for that juxtaposition. Coining money is a matter of setting financial standards.

The Bush administration fell into the trap of trying to jump start the economy by issuing a tax credit. Government hand outs don't work. Certainly that one didn't. If the Congress were to give every man, woman and child in the United States a million dollars, the economy would skid to a screeching halt. Millionaires don't wash dishes or grease cars.

A vibrant economy is only achieved by an industrious, frugal, educated, innovative, motivated population. It cannot be artificially constructed by Wall Street, the Federal Reserve, Congress or the President, whoever he or she may be.

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