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Excerpt: "Markets have clearly not been working in the way that their boosters claim. Markets are supposed to be stable, but the global financial crisis showed that they could be very unstable, with devastating consequences."

Joseph E. Stiglitz speaks at the World Economic Forum annual meeting, 01/26/11. (photo: Getty Images)
Joseph E. Stiglitz speaks at the World Economic Forum annual meeting, 01/26/11. (photo: Getty Images)



The System Is Failing Most of Us

By Joseph Stiglitz, W. W. Norton & Company

12 June 12

 

Noble Prize winning, and highly influential, economist Joseph Stiglitz explains why our economic system is failing most Americans.

What happened to America, land of opportunity? In his new book, which hit the shelves yesterday, Nobel Prize-winning economist Joseph Stiglitz takes up that burning question. Taking a long, hard look at the global specter of inequality, Stiglitz describes what causes it, why the trend endangers our future and what to do about it. Stiglitz begins by describing the broader failures of our economic system and how these failures have led to a widespread sense of unfairness and reduced opportunity for most of us. [Reprinted from The Price of Inequality by Joseph Stiglitz. Copyright © 2012 by Joseph Stiglitz. With the permission of the publisher, W.W. Norton & Company, Inc.]

The Failure of Markets

arkets have clearly not been working in the way that their boosters claim. Markets are supposed to be stable, but the global financial crisis showed that they could be very unstable, with devastating consequences. The bankers had taken bets that, without government assistance, would have brought them and the entire economy down. But a closer look at the system showed that this was not an accident; the bankers had incentives to behave this way.

The virtue of the market is supposed to be its efficiency. But the market obviously is not efficient. The most basic law of economics - necessary if the economy is to be efficient - is that demand equals supply. But we have a world in which there are huge unmet needs - investments to bring the poor out of poverty, to promote development in less developed countries in Africa and other continents around the world, to retrofit the global economy to face the challenges of global warming. At the same time, we have vast underutilized resources - workers and machines that are idle or are not producing up to their potential. Unemployment - the inability of the market to generate jobs for so many citizens - is the worst failure of the market, the greatest source of inefficiency, and a major cause of inequality.

As of March 2012, some 24 million Americans who would have liked a full-time job couldn't get one.

In the United States, we are throwing millions out of their homes. We have empty homes and homeless people.

But even before the crisis, the American economy had not been delivering what had been promised: although there was growth in GDP, most citizens were seeing their standards of living erode. For most American families, even before the onset of recession, incomes adjusted for inflation were lower than they had been a decade earlier. America had created a marvelous economic machine, but evidently one that worked only for those at the top.

So Much At Stake

This book is about why our economic system is failing for most Americans, why inequality is growing to the extent it is, and what the consequences are. The underlying thesis is that we are paying a high price for our inequality - an economic system that is less stable and less efficient, with less growth, and a democracy that has been put into peril. But even more is at stake: as our economic system is seen to fail for most citizens, and as our political system seems to be captured by moneyed interests, confidence in our democracy and in our market economy will erode along with our global influence. As the reality sinks in that we are no longer a country of opportunity and that even our long-vaunted rule of law and system of justice have been compromised, even our sense of national identity may be put into jeopardy.

In some countries the Occupy Wall Street movement has become closely allied with the antiglobalization movement. They do have some things in common: a belief not only that something is wrong but also that change is possible. The problem, however, is not that globalization is bad or wrong but that governments are managing it so poorly - largely for the benefit of special interests. The interconnectedness of peoples, countries, and economies around the globe is a development that can be used as effectively to promote prosperity as to spread greed and misery. The same is true for the market economy: the power of markets is enormous, but they have no inherent moral character. We have to decide how to manage them. At their best, markets have played a central role in the stunning increases in productivity and standards of living in the past two hundred years - increases that far exceeded those of the previous two millennia.

But government has also played a major role in these advances, a fact that free-market advocates typically fail to acknowledge. On the other hand, markets can also concentrate wealth, pass environmental costs on to society, and abuse workers and consumers. For all these reasons, it is plain that markets must be tamed and tempered to make sure they work to the benefit of most citizens. And that has to be done repeatedly, to ensure that they continue to do so. That happened in the United States in the Progressive Era, when competition laws were passed for the first time. It happened in the New Deal, when Social Security, employment, and minimum-wage laws were passed.

The message of Occupy Wall Street - and of so many other protesters around the world - is that markets once again must be tamed and tempered. The consequences of not doing so are serious: within a meaningful democracy, where the voices of ordinary citizens are heard, we cannot maintain an open and globalized market system, at least not in the form that we know it, if that system year after year makes those citizens worse-off. One or the other will have to give - either our politics or our economics.

Inequality and Unfairness

Markets, by themselves, even when they are stable, often lead to high levels of inequality, outcomes that are widely viewed as unfair. Recent research in economics and psychology has shown the importance that individuals attach to fairness. More than anything else, a sense that the economic and political systems were unfair is what motivates the protests around the world. In Tunisia and Egypt and other parts of the Middle East, it wasn't merely that jobs were hard to come by but that those jobs that were available went to those with connections.

In the United States and Europe, things seemed more fair, but only superficially so. Those who graduated from the best schools with the best grades had a better chance at the good jobs. But the system was stacked because wealthy parents sent their children to the best kindergartens, grade schools, and high schools, and those students had a far better chance of getting into the elite universities.

Americans grasped that the Occupy Wall Street protesters were speaking to their values, which was why, while the numbers protesting may have been relatively small, two-thirds of Americans said that they supported the protesters. If there was any doubt of this support, the ability of the protesters to gather 300,000 signatures to keep their protests alive, almost overnight, when Mayor Michael Bloomberg of New York first suggested that he would shut down the camp at Zuccotti Park, near Wall Street, showed otherwise. And support came not just among the poor and the disaffected. While the police may have been excessively rough with protesters in Oakland - and the 30,000 who joined the protests the day after the downtown encampment was violently disbanded seemed to think so - it was noteworthy that some of the police themselves expressed support for the protesters.

The financial crisis unleashed a new realization that our economic system was not only inefficient and unstable but also fundamentally unfair. Indeed, in the aftermath of the crisis (and the response of the Bush and the Obama administrations), almost half thought so, according to a recent poll. It was rightly perceived to be grossly unfair that many in the financial sector (which, for shorthand, I will often refer to as "the bankers") walked off with outsize bonuses, while those who suffered from the crisis brought on by these bankers went without a job; or that government bailed out the banks, but was reluctant to even extend unemployment insurance for those who, through no fault of their own, could not get employment after searching for months and months; or that government failed to provide anything except token help to the millions who were losing their homes.

What happened in the midst of the crisis made clear that it was not contribution to society that determined relative pay, but something else: bankers received large rewards, though their contribution to society - and even to their firms - had been negative. The wealth given to the elites and to the bankers seemed to arise out of their ability and willingness to take advantage of others.

One aspect of fairness that is deeply ingrained in American values is opportunity. America has always thought of itself as a land of equal opportunity. Horatio Alger stories, of individuals who made it from the bottom to the top, are part of American folklore. But, increasingly, the American dream that saw the country as a land of opportunity began to seem just that: a dream, a myth reinforced by anecdotes and stories, but not supported by the data. The chances of an American citizen making his way from the bottom to the top are less than those of citizens in other advanced industrial countries.

There is a corresponding myth - rags to riches in three generations - suggesting that those at the top have to work hard to stay there; if they don't, they (or their descendants) quickly move down. But this too is largely a myth, for the children of those at the top will, more likely than not, remain there.

In a way, in America and throughout the world, the youthful protesters took what they heard from their parents and politicians at face value - just as America's youth did fifty years ago during the civil rights movement. Back then they scrutinized the values equality, fairness, and justice in the context of the nation's treatment of African Americans, and they found the nation's policies wanting. Now they scrutinize the same values in terms of how our economic and judicial system works, and they have found the system wanting for poor and middle-class Americans - not just for minorities but for most Americans of all backgrounds.

If President Obama and our court system had found those who brought the economy to the brink of ruin "guilty" of some malfeasance, then perhaps it would have been possible to say that the system was functioning. There was at least some sense of accountability. In fact, however, those who should have been so convicted were often not charged, and when they were charged, they were typically found innocent or at least not convicted. A few in the hedge fund industry have been convicted subsequently of insider trading, but this is a sideshow, almost a distraction. The hedge fund industry did not cause the crisis. It was the banks. And it is the bankers who have gone, almost to a person, free.

If no one is accountable, if no individual can be blamed for what has happened, it means that the problem lies in the economic and political system.

From Social Cohesion to Class Warfare

The slogan "we are the 99 percent" may have marked an important turning point in the debate about inequality in the United States. Americans have always shied away from class analysis; America, we liked to believe, is a middle-class country, and that belief helps bind us together. There should be no divisions between the upper and the lower classes, between the bourgeoisie and the workers. But if by a class-based society we mean one in which the prospects of those at the bottom to move up are low, America may have become even more class-based than old Europe, and our divisions have now become even greater than those there. Those in the 99 percent are continuing with the "we're all middle class" tradition, with one slight modification: they recognize that we're actually not all moving up together. The vast majority is suffering together, and the very top - the 1 percent - is living a different life. The "99 percent" marks an attempt to forge a new coalition - a new sense of national identity, based not on the fiction of a universal middle-class but on the reality of the economic divides within our economy and our society.

For years there was a deal between the top and the rest of our society that went something like this: we will provide you jobs and prosperity, and you will let us walk away with the bonuses. You all get a share, even if we get a bigger share. But now that tacit agreement between the rich and the rest, which was always fragile, has come apart. Those in the 1 percent are walking off with the riches, but in doing so they have provided nothing but anxiety and insecurity to the 99 percent. The majority of Americans have simply not been benefiting from the country's growth.

Is our market system eroding fundamental values?

While this book focuses on equality and fairness, there is another fundamental value that our system seems to be undermining - a sense of fair play. A basic sense of values should, for instance, have led to guilt feelings on the part of those who were engaged in predatory lending, who provided mortgages to poor people that were ticking time bombs, or who were designing the "programs" that led to excessive charges for overdrafts in the billions of dollars. What is remarkable is how few seemed - and still seem - to feel guilty, and how few were the whistleblowers. Something has happened to our sense of values, when the end of making more money justifies the means, which in the U.S. subprime crisis meant exploiting the poorest and least-educated among us.

Much of what has gone on can only be described by the words "moral deprivation." Something wrong happened to the moral compass of so many of the people working in the financial sector and elsewhere. When the norms of a society change in a way that so many have lost their moral compass, it says something significant about the society.

Capitalism seems to have changed the people who were ensnared by it. The brightest of the bright who went to work on Wall Street were like most other Americans except that they did better in their schools. They put on hold their dreams of making a lifesaving discovery, of building a new industry, of helping the poorest out of poverty, as they reached out for salaries that seemed beyond belief, often in return for work that (in its number of hours) seemed beyond belief. But then, too often, something happened: it wasn't that the dreams were put on hold; they were forgotten.

It is thus not surprising that the list of grievances against corporations (and not just financial institutions) is long and of long standing. For instance, cigarette companies stealthily made their dangerous products more addictive, and as they tried to persuade Americans that there was no "scientific evidence" of their products' dangers, their files were filled with evidence to the contrary. Exxon similarly used its money to try to persuade Americans that the evidence on global warming was weak, though the National Academy of Sciences had joined every other national scientific body in saying that the evidence was strong. And while the economy was still reeling from the misdeeds of the financial sector, the BP oil spill showed another aspect of corporate recklessness: lack of care in drilling had endangered the environment and threatened jobs of thousands of those depending on fishing and tourism in the Gulf of Mexico.

If markets had actually delivered on the promises of improving the standards of living of most citizens, then all of the sins of corporations, all the seeming social injustices, the insults to our environment, the exploitation of the poor, might have been forgiven. But to the young indignados and protestors elsewhere in the world, capitalism is failing to produce what was promised, but is delivering on what was not promised - inequality, pollution, unemployment, and, most important of all, the degradation of values to the point where everything is acceptable and no one is accountable.

Failure of Political System

The political system seems to be failing as much as the economic system. Given the high level of youth unemployment around the world - near 50 percent in Spain and 18 percent in the United States - it was perhaps more surprising that it took so long for the protest movements to begin than that protests eventually broke out. The unemployed, including young people who had studied hard and done everything that they were supposed to do ("played by the rules," as some politicians are wont to say), faced a stark choice: remaining unemployed or accepting a job far below that for which they were qualified. In many cases there was not even a choice: there simply were no jobs, and hadn't been for years.

One interpretation of the long delay in the arrival of mass protests was that, in the aftermath of the crisis, there was hope in democracy, faith that the political system would work, that it would hold accountable those who had brought on the crisis and quickly repair the economic system. But years after the breaking of the bubble, it became clear that our political system had failed, just as it had failed to prevent the crisis, to check the growing inequality, to protect those at the bottom, to prevent the corporate abuses. It was only then that protesters turned to the streets.

Americans, Europeans and people in other democracies around the world take great pride in their democratic institutions. But the protesters have called into question whether there is a real democracy. Real democracy is more than the right to vote once every two or four years. The choices have to be meaningful. The politicians have to listen to the voices of the citizens. But increasingly, and especially in the United States, it seems that the political system is more akin to "one dollar one vote" than to "one person one vote." Rather than correcting the market's failures, the political system was reinforcing them.

Politicians give speeches about what is happening to our values and our society, but then they appoint to high office the CEOs and other corporate officials who were at the helm in the financial sector as the system was failing so badly. We shouldn't have expected the architects of the system that has not been working to rebuild the system to make it work, and especially work for most citizens - and they didn't.

The failures in politics and economics are related, and they reinforce each other. A political system that amplifies the voice of the wealthy provides ample opportunity for laws and regulations - and the administration of them - to be designed in ways that not only fail to protect the ordinary citizens against the wealthy but also further enrich the wealthy at the expense of the rest of society.

This brings me to one of the central theses of this book: while there may be underlying economic forces at play, politics have shaped it in ways that advantage the top at the expense of the rest. Any economic system has to have rules and regulations; it has to operate within a legal framework. There are many different such frameworks, and each has consequences for distribution as well as growth, efficiency, and stability. The economic elite have pushed for a framework that benefits them at the expense of the rest, but it is an economic system that is neither efficient nor fair. I explain how our inequality gets reflected in every important decision that we make as a nation - from our budget to our monetary policy, even to our system of justice - and show how these decisions themselves help perpetuate and exacerbate this inequality.

Given a political system that is so sensitive to moneyed interests, growing economic inequality leads to a growing imbalance of political power, a vicious nexus between politics and economics. And the two together shape, and are shaped by, societal forces - social mores and institutions - that help reinforce this growing inequality.

What the protesters are asking for, and what they are accomplishing

The protesters, perhaps more than most politicians, grasped what was going on. At one level, they are asking for so little: for a chance to use their skills, for the right to decent work at decent pay, for a fairer economy and society, one that treats them with dignity. In Europe and the United States, their requests are not revolutionary, but evolutionary. At another level, though, they are asking for a great deal: for a democracy where people, not dollars, matter; and for a market economy that delivers on what it is supposed to do. The two demands are related: unfettered markets do not work well, as we have seen. For markets to work the way markets are supposed to, there has to be appropriate government regulation. But for that to occur, we have to have a democracy that reflects the general interests - not the special interests or just those at the top.

The protesters have been criticized for not having an agenda, but such criticism misses the point of protest movements. They are an expression of frustration with the political system and even, in those countries where there are elections, with the electoral process. They sound an alarm.

In some ways the protesters have already accomplished a great deal: think tanks, government agencies, and the media have confirmed their allegations, the failures not just of the market system but of the high and unjustifiable level of inequality. The expression "we are the 99 percent" has entered into popular consciousness. No one can be sure where the movements will lead. But of this we can be sure: these young protesters have already altered public discourse and the consciousness of ordinary citizens and politicians alike.

Concluding Comments

In the weeks following the protest movements in Tunisia and Egypt, I wrote (in an early draft of my Vanity Fair article),

As we gaze out at the popular fervor in the streets, one question to ask ourselves is this: when will it come to America? In important ways, our own country has become like one of these distant, troubled places. In particular, there is the stranglehold exercised on almost everything by that tiny sliver of people at the top - the wealthiest 1 percent of the population.

It was to be but a few months before those protests reached the shores of this country.

This book attempts to fathom the depths of one aspect of what has happened in the United States - how we became a society that was so unequal, with opportunity so diminished, and what those consequences are likely to be.

The picture I paint today is bleak: we are only just beginning to grasp how far our country has deviated from our aspirations. But there is also a message of hope. There are alternative frameworks that will work better for the economy as a whole and, most importantly, for the vast majority of citizens. Part of this alternative framework entails a better balance between markets and the state - a perspective that is supported, as I shall explain, both by modern economic theory and by historical evidence. In these alternative frameworks, one of the roles that the government undertakes is to redistribute income, especially if the outcomes of market processes are too disparate.

Critics of redistribution sometimes suggest that the cost of redistribution is too high. The disincentives, they claim, are too great, and the gains to the poor and those in the middle are more than offset by the losses to the top. It is often argued on the right that we could have more equality, but only at the steep price of slower growth and lower GDP. The reality (as I will show) is just the opposite: we have a system that has been working overtime to move money from the bottom and middle to the top, but the system is so inefficient that the gains to the top are far less than the losses to the middle and bottom. We are, in fact, paying a high price for our growing and outsize inequality: not only slower growth and lower GDP but even more instability. And this is not to say anything about the other prices we are paying: a weakened democracy, a diminished sense of fairness and justice, and even, as I have suggested, a questioning of our sense of identity.

 

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+71 # fredboy 2012-06-12 13:23
Of course it is failing most of us--that is by design.
 
 
+8 # Feral Dogz 2012-06-13 08:18
Quoting fredboy:
Of course it is failing most of us--that is by design.


Come on America, wake up! Do you think corporations got where they are without your cooperation? We have turned nearly every aspect of our lives over to them so that we don't have to do the dirty work.

How many in the middle class actually produce even a small fraction of the basics of survival; food, clothing, and shelter? In our current system, we rely on the world's most exploited laborers to keep us fed and comfortable.

Everything we consume delivers a measure of profit to the 1%. We have given them all the power in exchange for the sanitized illusion of prosperity and security.

We have become dependent on an unsustainable system that irrationally demands ever increasing profits from ever diminishing resources.

We don't even know how to entertain ourselves anymore. How much wealth is pissed away on professional sports, TV and movie stars, computer games, casinos and the biggest show on earth, war.

I'm not defending the bad behavior of wealthy, conservative miscreants, but we should not use all successful people (many of whom are compassionate philanthropists ) as scapegoats for our own shortcomings. Hitler did that. We seem to be repeating all the mistakes of the past.
 
 
+29 # AMLLLLL 2012-06-12 14:13
I can't believe the top 2% (really, it's the Legislators and SC they bought) are whining about less than 5% raise in taxes. As Jim Hightower's dad used to say, "When everybody DOES better, EVERYBODY does better."
It's been documented: The top 2% pay a little more, but overall income goes UP commensurate with the 2%.
 
 
-120 # phantomww 2012-06-12 14:19
blah, blah, bad America, bad capitalism. Same old stuff from the left.
 
 
+38 # Glen 2012-06-12 15:09
Come to the meetings, phantomww.
 
 
+55 # carpepax 2012-06-12 15:25
Can you offer something useful, or just the same old stuff from the right? Turn off the FAUX NEWS or pull your fingers out of your ears and you might learn that the solutions are found in the middle where we don't automatically discount what anybody says for any reason. There's a place called "America at its best" where we actually talk to each other, work around and through our disagreements and come up with solutions that help everybody. The right in this country have Ayn Rand jammed so far up their butts that selfish, hypocritical hate is all they can muster and, just like my 12-year-old, they seem to think denial, denial, denial is as good as being innocent of driving our economy off a cliff...because they're going to say Obama was driving.
 
 
+32 # reiverpacific 2012-06-12 16:15
Quoting phantomww:
blah, blah, bad America, bad capitalism. Same old stuff from the left.

I'd hardly all Stiglitz a "lefty"!
So I have to reply "Blah, blah, blah; same old stuff from a willing fink, apologist and shill for the power-brokers", as in "Give us s kick if you would, your Majesty, give us a kick if you PLEASE, your Majesty!"
Eh, what!?
 
 
+17 # BeaDeeBunker 2012-06-12 20:31
Quoting phantomww:
blah, blah, bad America, bad capitalism. Same old stuff from the left.

Hey Gary,
How's capitalism doing in Spring Valley? If nature decides it's had enough, and sends a bolt of lightening to burn down your forests, and unfortunately your home, or cracks open the earth and swallows your town, will you accept a helping hand even though it is a hand from the left?
 
 
+6 # Stephanie Remington 2012-06-13 01:15
Quoting phantomww:
blah, blah, bad America, bad capitalism. Same old stuff from the left.


Whether or not you agree with Stiglitz in how government money should be spent, the system he's criticizing has very little to do with capitalism.

Massive government bailouts are merely socialized losses for a very narrow segment of society. The mega-banks couldn’t have survived without a colossal amount of government intervention, which includes virtually interest-free money from the Fed, government re-written rules in their favor, and – even when they break the few rules left – blocked or impeded lawsuits against them (also courtesy of the US government). There are no consequences to them for cheating, no matter how badly they screw up the economy or how many Americans’ lives they destroy.

If you consider this capitalism, you need to better educate yourself.
 
 
+1 # jimyoung 2012-06-14 16:20
I couldn't agree more. I don't even like calling it "Crony" Capitalism since it seems much more like "Phoney" Capitalism.

Perhaps I'll get a cheap hardback copy of the Earl Stanley Gardner (written as A.A. Fair) "Shills Can't Cash Chips," to see if there isn't a more humorous (or biting) way to describe who keeps giving these jokers more chips.
 
 
+1 # Granny Weatherwax 2012-06-15 16:19
Very astute reframing. Thank you.
Granny_
 
 
-18 # John Locke 2012-06-12 15:27
The first mistake was when the Supreme Court was taken over by Grant to reverse the correct ruling in the 1870 case of Hepburn v. Griswold, the Court had held that paper money violated the United States Constitution. The Legal Tender Cases reversed Hepburn, beginning with Knox v. Lee and Parker v. Davis in 1871, and then Juilliard v. Greenman in 1884.
 
 
0 # reiverpacific 2012-06-13 07:14
Quoting John Locke:
The first mistake was when the Supreme Court was taken over by Grant to reverse the correct ruling in the 1870 case of Hepburn v. Griswold, the Court had held that paper money violated the United States Constitution. The Legal Tender Cases reversed Hepburn, beginning with Knox v. Lee and Parker v. Davis in 1871, and then Juilliard v. Greenman in 1884.

What in the Hell ARE you dreamin' and writin' about? Plain English please and current context would be kinda nice too. I'm just a simple cove.
 
 
+2 # Granny Weatherwax 2012-06-15 16:23
I'm right there with you, John, although there are other precedents, such as the National Banking Act of 1963.

“My agency promoting the passage of the National Banking Act was the greatest financial mistake of my life. It has built up a monopoly which affects every interest in the country.
It should be repealed, but before that can be accomplished the people will be arrayed on one side and the banks on the other in a contest such as we have never seen before in this country.”
– Salmon P. Chase,
Lincoln's Secretary of Treasury,
after the passage of the 1863 National Banking Act.
 
 
+5 # John Locke 2012-06-12 15:27
Then Rosevelt took us off the Gold Standard, and Nixon finished it, The Federal Reserve note which was originally redeemable in lawful dollars

The authority of the Federal Reserve Banks to issue notes comes from the Federal Reserve Act of 1913. Legally, they are liabilities of the Federal Reserve Banks and obligations of the United States government. Although not issued by the Treasury Department, Federal Reserve Notes carry the (engraved) signature of the Treasurer of the United States and the United States Secretary of the Treasury.

At the time of the Federal Reserve's creation, the law provided for notes to be redeemed to the Treasury in gold or "lawful money." The latter category was not explicitly defined, but included United States Notes, National Bank Notes, and certain other notes held by banks to meet reserve requirements, such as clearing certificates. The Emergency Banking Act of 1933 removed the gold obligation and authorized the Treasury to satisfy these redemption demands with current notes of "equal face value" in short "faith"... Under the Bretton Woods system, although citizens could not possess gold, the federal government continued to maintain a stable international gold price. This system ended with the Nixon Shock of 1971. Present-day Federal Reserve Notes are not backed by convertibility to any specific commodity, but only by the legal requirement that they are issued against collateral. "us"
 
 
+1 # jimyoung 2012-06-14 16:44
I disagree. See http://kcpt.org/localproductions/10-j/ and http://www.kansascityfed.org/ past presidents. Jo Zach Miller Jr. and the Kansas City Fed (10J), set the standard for how honest agents create currency equivalent to the real value of useful products and services (freeing us from the periodic abuses of the gold hoarders like the British bankers before our American Revolutionary War. The shift to a more powerful New York Fed, seemingly rife with members with rather severe conflicts of interest, and too much attention to supposed financial product innovation/debt instruments of now dubious looking real value, has led us down a path far from better (and more comprehensive) evaluation of the backing behind the notes.

After our Revolutionary War, we had Shay's Rebellion, when our own financial/busin ess sector tried to demand hard currency from a basically barter society, away from the cities. To me they put far less honest valuations on what most Americans could trade in, to a very unfair advantage to the bankers, and detriment of overall productivity that kept the whole nation worse off. I believe our Bill of Rights would not have been firmly supported without the then current thoughts about how bankers/busines smen (British or American) treated the average citizens.
 
 
+3 # Granny Weatherwax 2012-06-15 16:32
“That is simple. In the Colonies we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to make the products pass easily from the producers to the consumers. In this manner, creating ourselves our own paper money, we control its purchasing power, and we have no interest to pay to no one.”
– Benjamin Franklin mesmerized by the poverty in Liverpool and explaining how money was managed in the Colonies (circa 1753)

“Impossible to find a happier and more prosperous population on all the surface of the globe.”
– Benjamin Franklin

“The Colonies would gladly have borne the little tax on tea and other matters had it not been the poverty caused by the bad influence of the English bankers on the Parliament, which has caused in the Colonies hatred of England and the Revolutionary War.”
– Benjamin Franklin referring to the prohibition of paper money enforced just prior the war of Independence.

(Continued)
 
 
+3 # Granny Weatherwax 2012-06-15 16:33
“We say in our platform that we believe that the right to coin and issue money is a function of Government. We believe it. Those who are opposed to it tell us that the issue of paper money is a function of the bank, and that the Government ought to get out of the banking business. I tell them that the issue of money is a function of Government, and that the banks ought to get out of the Government business... When we have restored the money of the Constitution, all other necessary reforms will be possible, but until this is done, there is no other reform that can be accomplished.”
– William Jennings Bryan

“If the American people ever allow the banks to control the issuance of their currency, first by inflation and then by deflation, the banks and the corporations that grow around them will deprive the people of all property, until their children will wake up homeless on the continent their fathers occupied.”
– Thomas Jefferson

A long habit of not thinking a thing wrong, gives it a superficial appearance of being right, and raises at first a formidable outcry in defense of custom.
- Thomas Paine – Common Sense

“If the people of the nation understood our banking and monetary system, I believe there would be a revolution before tomorrow morning.”
– Henry Ford
 
 
0 # John Locke 2012-06-16 15:15
Granny Weatherwax: Thank you for your comments, I hope the readers understand your point.
 
 
+2 # John Locke 2012-06-15 14:24
Why not continue the thumbs down? Since part one was over your head, I would have suspected this part would be as well!
 
 
0 # Jim Young 2012-06-16 15:21
Not sure who the reply was intended for, it's under your previous post and I haven't ever given your comments an intentional thumbs down (far and away many more thumbs up, if rated). I have many friends who thoughtfully make the same arguments. I'm willing to try to make my points without offending or confusing anyone. I am not offended by your arguments (though I might be confused at times).

It just happens that I respectfully think I disagree. My, perhaps less educated views come from Lincoln's earlier passion in the Bank Wars, my "understanding" of what the Washburn relatives (three brothers in congress at the same time, assisting Pinkerton in evading an assassination attempt before his inauguration, and pall bearers at his funeral) felt about banks and greenbacks. In my simple mind, Lincoln sums up most of what I need to know in the following:

"Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration. Capital has its rights, which are as worthy of protection as any other rights."

All other theory I am willing to accept must fit within Lincoln's simplification.
 
 
+1 # John Locke 2012-06-17 06:45
Jim Young: Thank you for your honest comment....Read the court decisions I have quoted and the Life of Salmon Portland Chase the Secretary of the Treasury under Lincoln who drafted the Legal Tender Statutes. He did so With Lincoln's mandate to find a way to fund the Civil war...During the civil war America was dominated by european banking interests... (Primarily J Cooke and Associates) The Rothschilds financed the North through emissaries August Belmont, and Jay Cooke(who was commissioned to sell bond issues, arranging with Belmont to sell Union bonds in Europe), J. and W. Seligman and Company, and Speyer & Co.

Judah P. Benjamin (l811-84) of the law firm of Slidell, Benjamin and Conrad, in Louisiana, was a Rothschild agent, who became Secretary of State for the Confederacy in 1862. His law partner, John Slidell (the uncle of August Belmont's wife) was the Confederate envoy to France. Slidell's daughter was married to Baron Frederick D'Erlanger, in Frankfurt, who were related to the Rothschilds, and acted on their behalf. Slidell was the representative of the South who borrowed money from the D'Erlangers to finance the Confederacy.

http://www.silverbearcafe.com/private/NWO/nwo2.html

I hope this helps you understand!

Also When I posted the comment you refer to there were a number of thumbs down since then apparently a more intelligent reader began giving me thumbs up...
 
 
0 # jimyoung 2012-06-17 16:25
I will try to follow all of it.

I must admit to starting with a preference for Lincoln (knowledge, ethics, and a good balance of pragmatism for the times, to get more done than anyone else I can imagine in that era). How they worked together (Lincoln, Salmon P Chase, Fessenden, and later, McCulloch), with some pretty substantial tensions between them and differences in beliefs, still leaves me confused.

I also like Grant for his simpler ethics, he always seemed to try to do the right things but was hampered somewhat by some friends and his slave owning wife's family. He was a great horseman, and very down to earth with the enlisted troops (wearing a private's coat at Appomattox). I'm betting his saddle was also the more practical McClellan Enlisted Saddle, from one he gave to Elihu Washburn.

He may have been even less politically astute than me, though, not even voting in Presidential elections until 1856, when he voted for Democrat, James Buchanan, "because I didn't know him," and against Republican Fremont, "because I did know him."
 
 
0 # jimyoung 2012-06-18 07:43
I should add that I'm a bit like Warren Buffett, If I can't understand it, I won't buy it.

The more complex it is, or able to be obscured by unfathomable jargon, the more I suspect it can be corrupted behind the curtain. They really are smarter than most of us, but they can't hide the outcomes, only make excuses, unbelievably arguing that they need less monitoring or regulation.

I like Don Knuth's, "In Theory everything is possible; however, I live in Practice and the road to Theory has been washed out.

I believe Stiglitz modified his faith in theory when he saw how it could become inappropriately used, as if dishonest or inept agents were misusing it.
 
 
+51 # Vardoz 2012-06-12 16:06
Capitalism only works within a balance and a context. Societies are made up of people. If profits are valued over people then the whole system doesn't work because there is no interest in prosperity, opportunity and the building of the nation as a whole. There is only interest in profits above all else and that is suicide. There is no consideration for the health, safety and welfare of the people without humanitarian components. Unfettered Capitalism is a myopic approach to mankind and our planet and now we are faced with all sorts of catastrophies that we cannot address and that are threatending our existence as a species because we do not have governments that care about anything beyonf their own noses.
 
 
+13 # Activista 2012-06-12 16:37
This is reality - and it points to the way Soviet Empire collapsed due to militarism ..
The US system is kaput - we need the regime change - FAST.
 
 
+12 # MindDoc 2012-06-12 16:46
3 Reactons/take-away:

1. Wow. Parsimony in motion! (Precise, to the point, no waste.)

2. Very even-handed (as one might hope for in a book about fairness!), with good points made both on the vacuuming up of wealth as of late, and the missed opportunities to hold criminals accountable, all the while continuing to appoint the old to somehow bring about the new. We'll see who/how/if some become defensive, but this is not meant as grist for partisan finger pointing.

3. A lovely, grounded, perspective on what's evolved (or devolved) over time across our (still relatively brief) American history, the rise & fall of 'the middle class', and the process of stifling versus trumpeting the change of expectations in our once-shared American Dream of "opportunity" - for vast numbers of citizenry.

Thanks RSN/Norton for the excerpt!
3.
 
 
+14 # cordleycoit 2012-06-12 17:11
The cause is simple rigged markets cannot work. Mercantile capitalism has failed because there are mad criminals incharge of the market. Look at the testosterone sperm blinded marketeers running the major banks and their hedge jackals following while the vulture capitalists circle over head. Sorry Joseph there is something really amiss here.
 
 
+19 # Mrcead 2012-06-12 17:14
I suppose issuing credit cards en masse in the 1990's was just phase 1 to soften us up and see how we'd respond. The housing debacle was phase 2 since banks routinely buy houses and not people so nothing really changed as far as bankers were concerned, they merely found a way to cushion against the increased risks and spread it amongst unsuspecting securities buyers. And phase 3 will be the massive push to privatise social services to dismantle them entirely and siphon their equity. I wonder..... Who is running for president who has experience doing that very same thing?

These predator types must lose countless nights of sleep just thinking about the massive amounts of government money just sitting there "doing nothing." They so desperately want to take over and manage these institutions and their funds as they see fit. The sad part is that the conservative base is poised to just let them do so despite no expressed guarantee above what they receive now. It's disgusting.
 
 
+3 # Granny Weatherwax 2012-06-15 16:37
Issuance en masse of credit card was simply because when they issue credit, banks create money out of thin air.
They don't lend some money from their vault, they say to the people you buy from "it's all right, we know the guy, we'll pay for him".
Why?
Because they lend the principal but not the interests and you have to work to pay the interests - it might make sense for you to do so, I'm not saying, but it is one of the best ways for the banks to generate revenue from nothingness, especially when they can then resell delinquant credit card accounts after slicing / dicing them into derivatives.
 
 
+9 # Bodiotoo 2012-06-12 17:15
We need a new theory to be put in place.
It is a MODERN WORLD.
 
 
0 # John Locke 2012-06-16 15:17
Bodiotoo: We don't need a new theory, we have to go back to Ben Franklin's old theory...it worked
 
 
+22 # Mrcead 2012-06-12 17:15
Healthcare - 37th best despite spending so much money per patient. Whose fault is that?

Insurance - legalised private Ponzi scheme where claims cannot exceed the amount of participants' contributions above a specified profit margin in a specific time period. A disaster typically brings this industry to it's knees so private companies are ill equipped to support the masses in a dire emergency.

Education - the cost of education has risen disproportionat ely with the ability of the average American to afford it. State officials also have decided to not put funds towards education thus increasing their overall costs. Don't forget the sham institutions that bloat their course loads to qualify for title IV loans. No bankruptcy for student loans either.

Social Security Insurance - does it really need saying? I believe you can buy targets at shooting ranges with "SSI" in the center of a bulls-eye.

{continued}
 
 
+4 # Activista 2012-06-12 23:24
"Healthcare - 37th best despite spending so much money per patient."
The World Health Organization (WHO), in 2000, ranked the U.S. health care system as the highest in cost, first in responsiveness, 37th in overall performance, and 72nd by overall level of health (among 191 member nations included in the study).[10][11] The Commonwealth Fund ranked the United States last in the quality of health care among similar countries,[12] and notes U.S. care costs the most.[13]
 
 
+24 # Mrcead 2012-06-12 17:18
The postal service, pays for itself and can thrive on 3 days of delivery per week and a surcharge for junk mail to reduce the burden further - conservatives want this service obliterated yesterday because it is a shining beacon of how wrong they are in regards to efficient public service. It is slow, yes but en masse, it is unrivaled.

The prison system. We are the #1 jailer in the world in both per capita and sentence length. We make Russia and China look like Club Med. We pay to house inmates and as we have seen, governors are not above using prison labour to bust up union strikes and put taxpayers out of work for exercising their right to collective barganing demonstrations. It "works so well" Georgia has decided to use prison labour to curb it's illegal problem by having labourers do the jobs illegals would do. 2 issues. 1. We pay either way so there's nothing in it for us taxpayers. 2. What exactly constitutes a lengthy prison sentence nowadays? There are more people in prison for marijuana possession than for violent crime. I dare not think what would happen should more "workers" be needed. A private prison system would only seek to fill it's capacity and expand much like any modern business.

I believe I've made my point. Keep big business out of the people caring business.
 
 
+1 # Granny Weatherwax 2012-06-15 16:41
Yep: Land of the free = 5% world population and 25% world prison population.
Why?
Could it be because of lobbyists who want to max hard time for non violent drug offenders to fill in the low comfort private hotels that now pass for prisons in the US?
Add to that the nearly free prisoners' labor and we are back pre Civil War.


I really like your "Keep big business out of the people caring business."
 
 
+13 # fredboy 2012-06-12 17:26
Master AMLLLL: I am not from the left. I am from the center. And it's the right, aka reich, that worries me. It seems absolutely anti-America.
 
 
+11 # JSRaleigh 2012-06-12 19:45
"Critics of redistribution sometimes suggest that the cost of redistribution is too high."

Is the cost of redistribution higher than the cost of civil war and revolution? Because, that's where this country is headed.

It's a fact of nature that when a host is infected by a parasite, either the parasite eventually kills the host, or the host mobilizes its antibodies and kills the parasite.

The 1% become more parasitical every day.
 
 
+1 # DPM 2012-06-12 20:43
Republican Party + Democratic Party = Same Old Crap!
 
 
+4 # giraffee2012 2012-06-12 21:05
And then the off-shore taxes for the top 2% --

http://www.ft.com/cms/s/0/73964142-33cb-11e0-b1ed-00144feabdc0.html#ixzz1xcjAzUwK
 
 
+1 # RMDC 2012-06-13 02:43
See Charles Pierce on "Gambling Nations." He explains why the US is this way.

http://readersupportednews.org/opinion2/279-82/11887-gambling-nation
 
 
0 # fcvnyc 2012-06-13 03:48
It is not only the economy in the US and globally that we are to be concerned about we are to pursue an integrated approach to solve social, economic and environmental problems, particularly the environmental problem of climate change. One way of solving the latter problem which overshadows the other problems is basing the international monetary system on a carbon standard, so that we have a win-win situation. Details in the recently published book entitled The Tierra Solution: Resolving the Climate Crisis through Monetary Transformation. I have been advocating that the Rio Earth Summiteers decide to have a integrated global governance conference in 2013 which also looks at proposals such The Tierra Solution in its pursuit to integrate the three pillars of sustainable development.
 
 
+2 # CoyoteMan50 2012-06-13 09:09
Excellent analysis
If the current trends and solutions continue the whole world will drop into a depression that wil make the Great Depression look like a picnic!
 
 
+5 # Innocent Victim 2012-06-13 09:21
The integrity of economists, including Mssrs Stiglizt, Krugman, Reich, et al., who avoid giving primary attention to the profound waste of economic resources (as well as life) by our government's militarism, is highly questionable. . How resources are spent is as much an economic concern as how they are generated.
 
 
+1 # Activista 2012-06-13 18:26
Agree - World spends (wastes) $1.3 trillion per year on militarism (wars) - from this waste US is responsible for 80% - around $1 trillion per year.
What is interesting is that since Reagan the government deficit is about what we waste on militarism. What happens when China stops to buy US bonds (i.e. finance our military sickness?)
 
 
0 # Granny Weatherwax 2012-06-15 16:45
I would like to see how you get to your figures.
When you consider pure military budget (including nuclear weapons on DoE and cost of external wars but not VA or debt incurred by previous military adventurism) the US represent about 50% of the world budget, not 80%.

However I agree with your general concern, especially when the next eight biggest spenders are all allied with the US.
 
 
+2 # Activista 2012-06-14 09:45
Joseph Stiglitz And Linda Bilmes: The True Cost Of The Iraq War
www.huffingtonpost.com/.../iraq-war-cost-joseph-stiglitz_n_706075....
Sep 5, 2010 – Writing in these pages in early 2008, we put the total cost to the United States of the Iraq war at $3 trillion. This price tag dwarfed previous ...
Stiglitz does not avoid issues of militarism ..
 
 
0 # Noni77 2012-06-14 07:08
All systems become corrupt. It is said that Democracies survive until the people cease using the collected taxes for common good (defense from foreign invasion, creation and enforcement of law, etc.) and start voting themselves and their special interests money from the common coffer... and bankrupt the nation. This is what we are seeing. A corrupt people produces a corrupt government by electing corrupt representatives . It is not "Democracy" per se, it is our modern corruption of the system in a post-Christian era when morality is in flux so standards are as well. Put in a new system with the same corrupt politicians and constituents - no difference, and probably worse. Note the shift from Democracy to Socialism is seriously eroding our Freedoms already. You are trying to fix the symptoms and ignoring the cause. Essentially putting the same putrid diaper on a new baby and wondering why it still stinks.
 
 
0 # jimyoung 2012-06-18 12:48
Since when are we even a fraction socialist compared to the rest of the economically developed world (except in bailing out a certain percentage of advantaged that don't believe in capitalism when it comes to their failures)? I wish we had a touch of socialism when it comes to education, universal healthcare (like Bismark's Germany), and infrastructure maintenance. We could still be the most Free Market Capitalists in the world, even without granting absurd "temporary" investment tax breaks that have the wealthiest paying less than half the rates earners would pay in the same brackets. This type stuff didn't work when Hoover tried trickle down, and we have again seen that it still doesn't work. It is insanity to keep trying.
 
 
+4 # Bill Clements 2012-06-14 08:32
I think Stiglitz has a pretty clear picture of things as they stand at the moment. I wish there were more voices like his giving us the truth: the system is failing us because the system is broken.

And for another absolutely spot on bit of truth, listen to Chris Williams' (author of Ecology and Socialism) brilliant talk via Alternative Radio:

http://www.alternativeradio.org/products/wilc002
 
 
0 # Arte Possible 2012-06-19 21:38
AS one piece of the corruption of our system,the money needed to fund political campaigns has made our elected officials basically in the business of selling favors in exchange for dollars. I cannot see an end to the domination of our system by the elite until we reform our election system.
 

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