A DIFFERENT POINT OF VIEW: Contemporary American Economics 101… Part One

Economy , n. – Purchasing a barrel of whiskey you don’t need, for the price of a cow you can’t afford.

— Ambrose Bierce, The Devil’s Dictionary

As with most people who are busy earning a living — whether employed at a job, or running a business — during my working years my time and energy were focused on supporting my family. Add to that spending family time, and attention to routine household maintenance, left limited time to learn new things. What new things I did learn were often work related.

So retirement has afforded me the luxury of time. Time to pursue my intellectual curiosity about subjects I know little about. One of those subjects is how our economy works, or – as I’ve learned – doesn’t work for a growing portion of the American people.

I’ve also learned the reason most people don’t understand why our economy is actually working against us is because “economics” is made intentionally unintelligible by those exploiting us.

We “commoners” — by which I mean those of us referred to as “ the middle class”, that includes ‘blue collar workers” (who used to be called the ‘working class’); those who own or work for small businesses; the rank and file of large corporation employees; and the great mass of government employees — are becoming ever more economically separated from (and subject to control by) the ‘elites’ through their ownership of the largest financial institutions, collectively referred to as the ‘finance industry’.

We’re getting the ‘mushroom treatment’ from the elites about how the economy is supposedly working. Like mushrooms, we’re kept in the dark and fed a regular diet of manure through the media — which is primarily owned by the elites .

My only “formal” education in the subject came from a basic level ‘Introduction to Economics’ class I took as an undergrad. Other than the rudimentary workings of ‘the law of supply and demand’, if I learned anything else in that class I’ve retained little of it — none of which is useful to understanding the workings of our current economy.

In law school I took an elective ‘Accounting for Lawyers’ class on the premise that I may some day need to know how to keep the books in my own law firm — which never came about, since I worked my entire legal career as a prosecutor. At least I was exposed to basic “accounting principles”.

But what that class really exposed me to was how clever lawyers, acting in concert with cleaver accountants (some being both), can manipulate ‘accounting principles’ to frustrate the IRS — or bamboozle potential investors. It gave me an inkling why, for some businesses, ‘looking good on paper’ can often be more important than actually turning a profit — particularly in the financial industry (the recent FTX bitcoin scam being a prime example).

So, following the principle I’ve expounded before that (to quote Winston Churchill), “I began my education at a very early age. In fact, right after I left college…” I decided to educate myself on the subject of economics. Over the past few months I’ve endeavored to understand the subject in general, and our own nation’s economy in particular.

In the course of my current studies, I’ve learned that ‘the law of supply and demand’ has been undermined by government over-regulation that not only fails in it’s supposed objective of protecting consumers – but actually works to the great advantage of the finance industry, at the expense of the rest of us.

That failure results from two inter-related facts:

1) The primary regulatory structures — the United States Treasury Department, and the Federal Reserve System (‘the Fed’) — were created by the elites for their benefit; and

2) The elites have achieved ‘regulatory capture’ of both by an incestuous revolving door of people going back and forth between working as regulators and as those being regulated.

Many folks may be at least peripherally interested in why our economy doesn’t seem to be working for them, if for no other reason that it is adversely effecting them through higher prices at the grocery store. But being busy earning a living, and raising families, they don’t have the time to study the subject.

The media, of course, doesn’t help – because few of them understand it themselves. Instead they just spout nonsense — usually put out by the government and the finance industry — such as meaningless unemployment figures that sound more significant than they actually are.  (More about that later).

So I’ll try to help y’all understand what I’ve learned about how the economic elites are screwing us over.

In the interest of full disclosure, I’ll reveal my own bias up front. It’s quite simple: I don’t trust government — particularly the current administration — or the financial industry to look out for my best economic interest. In fact, I think they are colluding against us commoners.

So with that revelation about my bias in mind, let me begin by reciting the sources for what I’ve concluded.

First, I re-read the one useful resource I took away from that long-ago ‘Intro to Economics’ class — Adam Smith’s The Wealth of Nations, first published in 1776. Smith is considered the ‘father’ of economics.  One of his central themes is that the more government tries to manage a nation’s economy, the worse it works for the majority of the people. Exactly as is now happening in the United States.

To get a counterpoint to Adam Smith’s laissez faire capitalist ideas, I also reread a couple of other books from my undergrad political science studies: English translations of Karl Marx’s Das Kapital, and The Communist Manifesto .  In light of the real-world application of Marx’s principles over the past hundred years, those were like reading scary fairy tales. It’s also clear that socialism is distinguishable from Marxism only as a matter of degree — and that “progressive” ideology is merely a step in that direction.  If you doubt that, then do some research about American soldiers who were POW’s of the communists Chinese during the Korean War. The POW’s who succumbed to Marxist propaganda were referred to by their captors as ‘progressives’ — which derives from the Marxist theory of the ‘progress’ toward a socialist utopia.

To get a fundamental understanding of modern economics, I next read Basic Economics by Thomas Sowell. His “up-from-impoverished childhood to acquiring a PhD in economics”, and his conversion from youthful Marxist to avowed advocate for small-government and capitalism, is an embodiment of the ‘American Dream’.

Like Adam Smith, Sowell explains how history has proven that government efforts to manage a nation’s economy are doomed to failure.

To get further historical context of the U.S. economic system I read biographies of Alexander Hamilton, and Andrew Jackson — whose very different ideas of the role of a ‘central bank’ still resonate today.

Hamilton, as the first Secretary of the Treasury, to a great degree created the system of credit and debt we have today. He also was instrumental in creation of the first ‘central’ bank which concentrated financial power in an elite wealthy few in New York City.

Jackson was elected President in1828 on a platform of abolishing the central bank. Jackson, a populist, was the 1820’s version of Donald Trump — and the focus of Jackson’s candidacy was the commoners’ reaction against an economic system that was enriching a few at the expense of the majority.

To better understand the present U.S. economic situation and how it effects the retirement plan I invested in throughout my career (on which I now rely to put food on the table) I’ve been listening to financial shows, and watching YouTube videos by various ‘financial advisors’.

The underlying theme, especially during the past week, is speculation about “what the Federal Reserve (the Fed) will do with interest rates”. Apparently the stock market (including my retirement portfolio) lives and breathes on that speculation -—specifically whether interest rates will be lowered.

So to learn what ‘the Fed’s’ interest rates mean to me, I read The Lords of Easy Money: How the Federal Reserve Broke the American Economy (2022), written by New York Times and Wall Street Journal business reporter Christopher Leonard.  Leonard thoroughly documents how the Fed setting historically low interest rates, and working in conjunction with the U.S. Treasury under both Democratic and Republican administrations, has undermined our economy.

I’m not going to try to explain what the Fed’s interest rate means beyond that it’s what banks pay to borrow money from the Fed. The banks borrow at a low ‘Fed rate’, then lend it at a higher rate to the rest of us — and profit from the difference.

So for banks, the rate is all about how much they can profit. If it costs them more to borrow from the Fed, they just charge more to loan the money to consumers and businesses. What groceries cost us doesn’t matter to them.

Since it appears the Fed is at the heart of control (manipulation?) of the U.S. economy, I felt I needed to learn about it too. It was the brain-child of a group of men who between them represented one quarter of the world’s wealth. They formulated the idea while they met for a week at an exclusive private resort on Jekyl Island off the Atlantic coast of Georgia. The Fed was created by Congress in 1913 (the same year the federal income tax came into existence, BTW).

The Creature from Jekyl Island is a thoroughly researched history of the creation of the Fed — which is a system of government-created (but privately owned) central banks that concentrate control of the economy (and your economic well-being) in the hands of a few powerful bankers, primarily located in New York City. (Andrew Jackson no doubt rolled over in his grave.)

Although the author of The Creature, Edward Griffin, sounds at times like a conspiracy theorist concerning the origins of the Fed, he makes a convincing case. The book is very well written, excellently sourced — and the undisputed historical facts speak for themselves.

Griffin explains:

The purpose of [‘the Fed’] was [to create] the structure and operation of a banking cartel. The goal, as is true with all cartels, was to maximize profits by minimizing competition between members, to make it difficult for new competitors to enter the field, and to use the police power of government to enforce the cartel agreement.

To understanding how the Fed does what it does, I researched other sources. The most relevant relates to what fuels our current financial system. It’s called “fractional reserve banking” – explained here https://www.investopedia.com/terms/f/fractionalreservebanking.asp

Christopher Leonard reveals in great detail why fractional reserve banking is at the heart of our broken economy. Both he and Edward Griffin explain that fractional banking can not exist without the Fed. In order to loan out many more times the money that a bank receives in deposits, they borrow from the Fed.

Griffin goes further by theorizing that breaking the economy was the intended purpose of the cabal who created the Fed — in order to bring about a two-tiered feudal society comprised of a small elite financial aristocracy, and the rest of us as economic ‘serfs’ perpetually in debt to the elites.

The difference between Leonard’s view of the Fed actions in recent years, and Griffin’s, is that, although they both acknowledge manipulation of our financial system by the elites through the Fed, Leonard sees the broken economy as a result of gross incompetence, while Griffin sees a cabal. I think it’s a combination of both — based on greed.

Read Part Two…