POWER OF STORY: ECONOMICS VS POLITICS

by Dr. James W. Jackson

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist

We are a people who love to extol the truth. The problem is we deal mostly in half-truths, and the problem with that is that we almost always get hold of the wrong half. Maybe it’s a habit . . . maybe it’s strategy . . . maybe our strategy has become a habit. But we usually choose the part of truth that allows us to successfully defend what we really wanted to do in the first place.

The problem seems to be particularly rife within the disciplines of statistics and economics: “What would you like this to say?” A great example can be found in the discussion we have been having regarding Bathtub Economics. A gaggle of economists can be gathered around concentrating on trying to smooth out the gaps in production and employment. Why are there gaps and why do the short business cycles seem to go in a boom and then bust fashion? Simply because the owner invests his money in facilities, then invests in materials to make his product, and goes out and hires enough employees to produce the goods. That’s what he is supposed to do.

He is such a good manager and efficient businessman that his production runs smoothly, and soon he has made enough pieces of his product to fill his warehouses. He has also saturated the market, having sold his product to all who needed to buy it at that time. He now has to stop and let his sales catch up with what he has produced and put in his warehouses. So he stops buying material and sends his workers home until he needs them to crank the machinery back up and start producing his product for the market again.

So the gaggle of economists put together a matrix to help the owner manage his production better. “Pace yourself,” they tell the owner. “Don’t stock up on so much material all at once and don’t hire all the laborers to get the job done so fast that you have to keep sending them home and make them unemployed. Stretch out the gaps and the economy will run more smoothly.”

The economists, however, would have said it in jargon like, “workers and machinery will be idled when there are no markets for their goods and services. When aggregate expenditures fall, then total output and employment decreases. When aggregate expenditures rise, then total output and employment increases.” Don’t hold it against them because they talk funny. That’s what economists are supposed to do.

Well, economist Keynes from Cambridge, England, was in another gaggle of economists. They did not believe that the simple ups and downs and gaps of the business cycle could be worked out by themselves. He argued that the decline in the investment in materials and workers would result in insufficient total spending, and would result in serious reduction in output and massive unemployment. Keynes said that recessions and depressions would not likely correct themselves and argued that it was imperative that government must be in charge of stabilizing an economy.

The fact that the Great Depression did not cure itself made Keynes appear very brilliant and opened the door wide for the acceptance of outlandish government intervention. The depression was held up as evidence certain to prove that capitalism and the free market system were inherently defective and needed to be replaced by an efficient centralized economic system.

Up to this point in our story there have been a couple of opinions, and simple economic models have been presented to explain them. One model encourages the smoothing out of the boom and bust cycles in a slow, moderate, disciplined way. The other insists on immediate and radical intervention through the means of government involvement. That’s pretty straight- forward economic theory being presented. That’s what everybody is supposed to do. But now enter the game changers.

Why is it so difficult to choose and administer economic policy? Why do such straightforward economic concepts and models wreak such havoc on individual citizens, policies, governments, and cultures? Because, it has everything to do with the phenomenon of politics!

We are a people who love to extol the idea of truth. The problem is we deal mostly in half-truths, and the problem with that is that we almost always get hold of the wrong half. Maybe it’s a habit . . . maybe it’s strategy . . . maybe our strategy has become a habit. But we usually choose the part of truth that allows us to successfully defend what we really wanted to do in the first place. I refer to it as the political perversion of the practical principle of the apparent problem. I talk funny, too. But I am loveable.

As the little host mouse was narrating the imaginary story taking place in the Governor’s Mansion in Albany , New York, the future president wasn’t really concerned about how the boom and bust cycles of business could be worked out. He saw the magic of taking deficit spending of the government that could be transposed into real money and exchanging that for dependency and votes to secure the positions of control of both the political machinery of the nation and the vulnerable economy. As soon as he could manage to get fifty percent of the voters dependant on his subsidies, in exchange for their vote, there would be no need to negotiate with such concepts as capitalism, free market, or democracy as it had been known. All he had to do was keep the bathtub full.

As many of you know, my international travels of the past took me many times to the country of North Korea, where I had meetings with the top leaders. They don’t like to be referred to as North Korea. “We are DPRK. That stands for Democratic People’s Republic of Korea.” I would always thank them for the correction. They would continue, “We are more of a democracy than you are. We have more elections in our Republic in any given year than you do.” I would smile graciously and pat them on the arm and tell them that our words were descriptors of two different birds. At some time I would enjoy discussing the two different birds.” That would usually elicit a bit of a frown.

If democracy is viewed as a simple function to measure a one-vote-over-50% of those voting, then we are dealing with another half truth, and we will more than likely get hold of the wrong half.

There never was a mystery as to why it was important to lift the well-known English economist Keynes to a near position of divinity. An outside, once-removed authority had to be established and elevated to a position of the high moral and intellectual authority, who would add the sanctity to the action that the politicians wanted to pursue in the first place. Roosevelt needed Keynes and Keynes needed Roosevelt. Keynes’ reputation remained intact throughout the Roosevelt, Kennedy, Johnson, and part of the Nixon administrations, and is now back again. The economic and political agendas of the gaggles were so closely tied together that even sunlight could not reveal a crack.

Naturally, it would be enjoyable for a politician to be able to hand out benefits and subsidies to the citizens in exchange for their votes and support. That is especially true when included in the package would be the lessening of personal responsibility and industriousness of the citizens. One huge problem for the politician is if he should in the future ever try to take back or withhold anything that is promised, or perceived to be promised, in exchange for the constituent’s vote.

Another disadvantage to the politician is the pressure that comes along with needing to come up with massive projects worthy of justifying the massive amounts of deficit spending necessary to keep the bathtub full. 

John F. Kennedy was the son of Joseph P. Kennedy, a wealthy businessman and importer of liquor. Roosevelt appointed Joseph P. Kennedy to head the newly organized Securities and Exchange Commission. Kennedy had been very effective in raising campaign funds for the Roosevelt elections. When John F. Kennedy was eventually elected to the presidency of the U.S., he was faced with an even larger burden: to keep the bathtub full with deficit spending. What was the mind-and-heart-challenging project presented to the citizens that would gain approval to allow the bathtub to be filled with deficit spending money? It was NASA, of course. Why was it so necessary to beat the “Ruskies” to the moon? Ooops . . . here comes another half-truth.

During the Johnson administration it was the emotional and powerful War on Poverty, along with Lady Bird’s bottomless expense account to Beautify America. Carter and the Clintons, as well as the Bushes, almost lost the bathtub with healthcare, the Arabs, and in the final hours of George W. Bush’s presidency, the mailing out of checks to everyone to spend and stimulate the economy.

Have you recognized the fact that the simple economic model in the beginning was to smooth out the gaps in the sometimes bumpy business cycle? But politicizing, and the involving and promoting the government in the model, transferred the ballgame into a whole different stadium. Each occasion of filling the bathtub with deficit government spending required a larger and more complicated program, where the swing of the cycle got bigger, deeper, and more explosive. Also, have you noticed that at the completion of the particular cycle it has nearly always taken an international crisis or war to catch up on the deficit extravaganza?

The grand expenditures of the New Deal’s Federal Relief Administration, the CCC, the FTC, the RFC, the AAA, the NIRA, the SEC, the WPA, the TVA, the NRA, or the thousands of Presidential Executive Orders did not lift the nation out of the Great Depression. It took the massive ramping up for the winning of World War II, the equities of the lives of millions of young men, the spending of unmeasured natural resources, and the alteration of the nation’s culture and employment methods to break the back of the Great Depression.

In order for a society to enjoy a successful economy, it has to produce something. Conflict and wars have a way of focusing attention on nationalism and self-preservation of a culture. That emotional thinking has a way of justifying wars. Such concentration allows for massive war-time production and employment that eventually stabilizes the economy because the economy is forced to produce something. What a sad economic model.

Free food stamps, market baskets of subsidized everything, and a culture of unrealistic expectations in exchange for political votes will not produce the successful sustainability of a national economy. At some point someone has to pay the price. Voting for a living instead of working for a living won’t work forever. At some place someone has to be allowed to produce something that is real and of value to others. It seems that a better economic model would encourage the expression, investment, and management of the necessary production in a more sustainable way over a measured period of time.

In the over one hundred-fifty countries I have worked in the past thirty years, I have carefully observed examples of the short-lived dictators, the charlatans, and the unashamed and selfish politicos who have stripped nations of their rightful equities and dignities in order to personally enjoy the glitter and bright lights of privilege and control. It’s no wonder that so many people down through the dark ages of history fanned the flame of hope within their own minds and hearts that one day there could be an experiment played out in real life where personal initiative, personal integrity, personal responsibility, personal risk, personal reward, personal management, and personal peace, quiet, and fulfillment could be initiated and encouraged so that everyone in the system could be better off.

Closer to home, the present privileged zip codes in Washington, New York, Boston, and San Francisco of the established administration represent projects and spending behaviors that move way past even political comprehension and way past the truth, half-truth paradigm. How much is a trillion dollars? How much is seventeen trillion dollars? What is the meaning of phrases like “Just too big to fail?” How can you monetize that much debt into the system? How can you even think about applying justice to the government- privileged stalwarts of Fannie Mae and Freddie Mac, whose untoward actions harmed untold millions of the citizens?

The whole sub-prime rate debacle was designed to redistribute advantage in exchange for votes and support. Then, however, it was taken one ratchet notch higher in form of a counter redistribution of wealth by depositing the ill-gotten proceeds into the accounts of the inhabitants of those privileged zip code areas.

It appears that we have gotten hold of the wrong half of the half-truth paradigm. The Bathtub that once fit nicely in the little adjacent room has expanded until now the whole house, garage, and barn are expected to comfortably nestle into the Bathtub.

 

Next week: Some slippery flaws of the Bathtub.

       (Research ideas from Dr. Jackson’s new writing project on Cultural Economics) 

  

© Dr. James W. Jackson  

Permission granted by Winston-Crown Publishing House

POWER OF STORY: IS JOHN MAYNARD KEYNES REALLY A GOD?

by Dr. James W. Jackson

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist

From the ivy-covered cloisters of Harvard, Yale, and Princeton to the T-shirt- clad students of your local junior college, wherever the subject of economics is studied and discussed, one name is preeminent: John Maynard Keynes. A sacred hush falls over the classroom when his name is spoken. All jokes must cease about economists with wire-rimmed glasses holing up in their cubicles trying to see if what they just observed in real life can be massaged around to fit their pet economic theory. It is expected that if a professor or student utters his name they must do so in soft, reverent tones, and then place their fingers to their pursed lips and gently touch the printed name on the page of their classical textbook. Just who is this John Maynard Keynes?

The sacred legend holds that in the hours of deepest distress, when the United States was not just reeling from the bludgeoning blows of the Great Depression, but was down and out for the final count, never to arise again from the smoldering ashes of dissipated wealth and shattered culture, John Maynard Keynes came riding to the rescue. It was Keynesian economic philosophy, emanating like a bright beacon light from the halls of King’s College in Cambridge, England, that saved the culture and probably the universe.

As the legend goes, John Maynard Keynes assembled his exclusive teachings into a printed book, The General Theory of Employment, Interest, and Money, that was printed in 1936. Miraculously, the newly elected president of the United States, Franklin D. Roosevelt, stumbled across the book just in time, read the magic words, arduously and meticulously implemented the teachings, and the floundering nation was transformed into the economic super-power that held sway over the entire world like no other nation in history. How could anyone with half a brain and one eye ever dispute or even question those sacred writings that were passed down to this favored nation so many years ago? Blessed is the name of John Maynard Keynes.

So, just what were those original teachings? My major professor in economics, Dr. Paul Ballantyne of the University of Colorado, one day told me, “Jim, if you want to easily remember the economic philosophy of Professor Keynes, just visualize in your mind a bathtub. It is about one-third full of water. Above the bath tub is a spigot with a handle to regulate the inflow of water. Above the spigot are the letters “G” and “I.” Those letters stand for Government and Investment.

As with all bathtubs, there is a drain at the bottom of the tub. Over the drain are the letters “T” and “S.” They stand for Taxes and Savings.

If you want to fill up and regulate the economy you turn on the “G” and “I” spigot and plug the “T” and “S” drain pipe. By increasing the Government Spending and Investment faster than the leakage of Taxes and Savings out of the economy, you can increase the level of income and reduce unemployment.

“But,” I protested to Dr. Ballantyne, “what’s so brilliant and new about that? Explicit provisions were made for that clear back in 1913 when the U.S. passed the Federal Reserve Act. The Federal Reserve was given certain rights:

• The Feds were given the right to raise or lower the percentage of reserves that the banks must keep on hand. If they lowered the amount of required reserves, then the banks would have more money to lend out to customers to invest in their projects. The higher the reserves imposed on the banks, the less money could go into the system.
• The Feds have the right to raise or lower the Discount Rate of the money they can lend to the banks to lend to their customers. The higher the discount interest rate, the less the banks will borrow from the Feds, and the less will be available to the customers, and the less money will be introduced into the system. The lower the discount rate, the more likely the banks will borrow from them and lend the money out to their customers, and more money will find its way into the system, and there will be an increase in employment.
• The Feds have the right to sell and buy back notes and securities to citizens and foreigners to cover the debts the government creates because of their desire to spend more than they have in their account.

How much more could they want? What’s new about Keynes?”

John Maynard Keynes had the advantage of watching Great Britain go through an earlier depression of its own. He was in England and only twenty-nine years old when the U.S. passed the Federal Reserve Act. He was also able to watch what had happened during the recessions of the U.S. and the early years (1929 – 1935) of the Great Depression before he wrote his book. He was convinced that the severe bumps of the boom and bust economic cycles could be flattened out with his aggregate expenditures model. He declared that Say’s Law was not dependable, and if the economy were left to correct itself it would not happen. He pointed to the Great Depression as his needed proof.

But why the God-like treatment for Keynesian economics? All of the tinkering with aggregate expenditures did not lift the U.S. out of the Great Depression. Successful economies are built on production. They have to produce something, and it was not until the U.S. began production for the buildup for World War II that employment and incomes began to rise. Indeed, World War II was a horrible price to pay to end the Great Depression.

John Maynard Keynes did not leave any question as to government’s economic involvement. He felt it was the government’s responsibility to be in control of the stability of the national economy and play an active role in the policies and procedures. He also was a strong advocate of the government’s control of housing and ownership of utilities and transportation. Recent polls indicate that 70% to 80% of today’s economists subscribe to the ideas associated with the Keynesian approach that business cycles should be managed by the Fed. That comes close to divinity. 

Next week we will look at Franklin D. Roosevelt.

      (Research ideas from Dr. Jackson's new writing project on Cultural Economics)

© Dr. James W. Jackson  

Permission granted by Winston-Crown Publishing House

 

Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com

POWER OF STORY: DEPRESSIONS AND PANIC

by Dr. James W. Jackson

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist

Once upon a time to a fabled piece of real estate came individuals and small clusters of sincere, hard working people. Their intentions were to carve out a place of peaceful and prosperous existence on the prized piece of land that miraculously stretched all the way from the Atlantic Ocean to the Pacific Ocean. They dreamed of their desires and opportunities one day materializing into feelings of security, satisfaction, and happiness. Their economic endeavors eventually found them building thousands of individual businesses and employing tens of thousands of their neighbors as laborers.

Their simple economy included the practice of barter and a currency of metal coins and commodities such as tobacco. By the late 1700s, their economy had begun to mature and even show signs of sophistication. A business observer by the name of J. B. Say wrote that it appeared the very act of producing goods seemed to generate income equal to the value of the goods produced. That idea became known as Say’s Law, where supply creates its own demand. In other words, there will be sufficient spending to purchase all that is produced.

When times were good the business owners would invest in purchasing goods and materials to build their enterprises. They would also buy raw materials in order to produce the items they were going to sell. If they did not have enough money of their own, they would invite investors to share in their business venture. Their hard work and diligence ended up with successful production of goods. Many times their successful endeavors resulted in producing more of the items than the present market could purchase.

Once a businessman’s warehouses were full and he had saturated the marketplace with his goods, he would have to put a bookmark in his production until the customers’ purchases would catch up to his production. He would have to lay off his workers until the demand for his products emptied out his warehouse. That allowed him to start up his business again. The lack of continued investment in production resulted in a temporary recession of business and the occurrence of unemployment. The reoccurring cycle gave the appearance of a boom and bust economic pattern.

Observers, also in the late 1700s, like David Ricardo and John Stuart Mill recognized these bumps in the business experience, along with other interruptions like wars, gold rushes, and droughts, and concluded that over the long haul of time all the bumps would tend to even out, and full employment and production would work out just fine, and that eventually demand must equal supply. There would eventually be sufficient spending to purchase all the supply.

But some of the recessions were worse than others. During the seventy-five years in the U.S. prior to 1929, there had been nineteen business recessions with some gaps that even lasted as long as two years. Then came the Great Depression! The Roaring 1920s had produced a period of easy money, abuse of credit, speculation in risky ventures, and high expectations driven by greed and lack of discipline.

The 1929 crash of the stock market opened the door to panic, and the people waited in lines at their banks to withdraw their money. But, as we learned earlier, when people deposit their funds in a bank it is unjustifiable to think that everyone can demand their money back all at once. Their money that was deposited was not in the banks at all, but had been loaned out to someone else. The new borrowers were not expected to repay those loans for another ten, perhaps twenty years.

All economic systems depend upon the factors of confidence and convenience. When depositors cannot withdraw the money at will that was deposited, they get quite nervous. When, after standing in lines for a long time, they still cannot withdraw their money, they panic. That panic spreads like a wildfire to all other depositors.

It takes such a tiny pin to prick the balloon of confidence. Early in the Great Depression over one third of all the banks in the U.S. failed and closed their doors. The depositors’ funds evaporated into thin air. The confidence in the system was likewise gone.

More than twelve million people lost their jobs. Production dropped 30% and per capita income shrank 40%. Unemployment jumped to 25%, 85,000 businesses failed, hundreds of thousands of families lost their homes, and over half of home mortgages were in default. The financial constriction did not just solve itself. The Great Depression lasted over ten miserable years with no apparent hope in sight.

The local, county, state, and federal governments likewise panicked. They embarked on harsh plans to quickly increase taxes to cover their losses. But there was no money to pay the taxes. The Federal Reserve Bank failed miserably. It had been empowered to move cash early on to the first banks experiencing runs on their accounts in order to stave off such panics. That probably would have stopped the panic, as the people realized that others were getting their money back. Instead, however, the Fed officials applauded in some cases, saying it was all working to weed out the weak banks and those with bad management practices.

What had gone wrong? Was it possible that Say’s Law was wrong? Why were the safeguards of the Federal Reserve System never implemented? What would pull the economy and the people up and out of the Great Depression?

Next week we will look at Franklin D. Roosevelt and John Maynard Keynes.

 (Research ideas from Dr. Jackson's new writing project on Cultural Economics)

© Dr. James W. Jackson  

Permission granted by Winston-Crown Publishing House

Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com