For the last several months we have
heard on the news that the financial
picture is grim. The world's largest
banks, particularly some huge banks
in the U. S. are in desperate trouble.
Hundreds of billions of dollars have
been provided to some of these U. S.
banks by the Federal government in
an effort to prevent a disastrous "meltdown" of
our financial structure.
As if that weren't bad enough, the
U. S. auto industry, once the largest
in the world, has come to Congress, "hat
in hand," to beg for money to
prevent their "going under." Once
again, Congress and the Administration
have come to the rescue, sort of,
with billions of dollars.
These firms are being rescued from
the consequences of their rather
serious errors. They have messed
up big time. The government is going
to borrow stupendous sums of money
in order to prevent their going bankrupt.
But what about the thousands of
small businesses that fail every
month.
(Been there, done that.) Those businesses
are not generating action by Congress
to be sure they are still in operation
next month. Those businesses are
allowed to go bankrupt, fire their
employees, and cease to exist. What
is the difference? Well you should
ask.
The difference is in size... and
in this case, size matters. The major
difference is that those huge companies,
those huge financial institutions,
have effects far beyond their own
shareholders and employees. If a
small business fails there will be
some employees out of a job and some
other businesses that can no longer
sell to them. But in the main, the
economy continues on: almost without
noticing. If one of these large financial
institutions fails however, it takes
so much money out of the country's
economy that the effects are felt,
not only by everyone within our own
economy but by those who are part
of most of the (interconnected) economies
around the world.
Thus, they are so big a part of
our economy that if they fail our
economy in general fails. Our government
will take any action necessary (rational
or not) to see to it that they don't
fail. They hold us hostage. The auto
industry is a prime example. Not
only do they employ hundreds of thousands
of people directly, they buy enough
things from other small businesses
that those businesses would also
fail and thus still more thousands
of people would be out of work. Such
a large decrease in employment would
decrease spending (and tax revenues)
and thus plunge our economy into
one of those downward spirals which
create almost an economic standstill.
Therefore, no matter how stupidly
their management acts, no matter
what risks they run, no matter how
venal and greedy and underhanded
they may be: we cannot allow that
to result in a business failure.
We must bail them out.
But wait a moment. Haven't we done
similar things before? Wasn't there
a savings and loan scandal a decade
or two ago in which the government
had to step in and save businesses
from the consequences of their folly
at the cost to the people of the
nation of over $500 billion? Aren't
there a lot of these huge businesses
which are absolutely necessary to
the functioning of our economy? Does
this mean that we will always be
bailing out one or the other of these
irresponsible corporate giants?
Yes it does. We always have. Back
in the 19th century didn't we impose
tariffs and customs duties in order
to protect our local businesses from
failure, even though that meant that
the average citizen had to pay more
for imported goods? Wasn't that a
way of sacrificing the public so
that a few rich and powerful businesses
could make even more money for their
owners? Didn't the South fight a
Civil War in order to protect the
large slave-owning agribusinesses?
Didn't the government give huge land
grants to railroads in the 19th century
to encourage that vital source of
transportation to spread its wealth-generating
reach far across the nation? And
didn't most of that profit go to
just a few people?
So you see, the government, as all
governments must, will take care
of and protect those who are rich
and powerful in one way or another.
It is always necessary for the public
good to give lots of money to the
wealthy. It isn't quite clear to
me why that is always necessary,
however, since the rich already have
lots of money. But it always is that
way… and it likely always will
be.
These institutions are too big to
fail no matter how they fail us.
So the solution (whatever it may
turn out to be) for our government
will always be to reward the rich
at the expense of everyone else and
the problem(s) will forever return
in one form or another because the
solution doesn't address the underlying
problem whose symptoms they attempt
to assuage with ever-higher sums
of money.
Aha! I hear you cry. (I have very
sensitive ears.) What do you suppose
is the underlying problem? (I'm glad
you asked that question.) The underlying
problem is that the money we use
is a physical object (cash) or represents
physical objects (bank accounts).
Since it is a physical object it
must share the properties of all
physical objects. For example, it
can be taken away from you against
your will. You must pay taxes or
go to jail. You can be robbed, cheated,
and swindled. You can lose that cash
or even have it destroyed. So those
rich, powerful, special interests
can take your money even though you
don't want to give it to them and
they have the motivation (everyone
wants money) and the means
(that money they have buys a lot
of influence) to get your money.
As if that weren't bad enough, physical
objects have no ethics. Money is
amoral. It can be used for any purpose
whether good or bad. Those powerful
people can do evil things with their
money such as take your money.
Then, too, the supply of one physical
object, like money, is independent
of the supply of other physical objects
and services, so the amount of money
can increase or decrease with no
corresponding increase or decrease
in the supply of things to buy. Thus
we will probably get inflation from
those huge handouts and all that
borrowing of money.
Couldn't we impose controls on how
those banks and businesses use the
money the government gives them?
Actually, no, we can't. Once again:
because our money is a physical object.
Physical objects small enough to
be money cannot be controlled. If
they could be controlled there would
be no organized crime. There is an
old saying when it comes to protecting
money: "Who will guard the guardians?" That
much money is such a powerful temptation
that you can't trust anyone to guard
it. It is so much money that it takes
lots of people just to keep track
of it and you have to watch all of
them. When you consider that such
an amount of money attracts the most
powerful people - people willing
to do anything, no matter how bad
or whom it hurts - in order to obtain
that money.
So you see, the sort of money we
have, by its very nature, not only
allows - but even encourages people
to cheat - and provides them with
the means through which cheating
can easily be accomplished. As long
as our money is or represents a physical
object, that will be the case. That
is why for thousands of years money
has presented humanity with the same
kinds of problems over and over again
and we have never been able to eliminate
those problems no matter what we
did. We will continue to have these
problems no matter what our institutions
or our law or our morality says should
be done. There is simply no solution
unless we change the nature of our
money away from being a physical
object.
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THIS, Wise Guy!
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