Return to the Overcoming Consumerism Index
Public "ownership"of energy--just as with water or schools
Access to loans for photovotaics, solar water heating, wind and
micro-hydro generators, and other forms of energy-generating and
energy-saving technologies--just as those purchasing automobiles have
access to loans
Reinstitution of tax credits and rebates for renewable-energy
investments, with conscientius licensing and quality-control
procedures to guarantee customer satisfaction
Net metering and rate-based incentives, so that independent,
home-and business-based electricity producers are paid the same price
that they would be required to pay for th egrid power they are not
using
Massive public- and private sector investment in renewable-energy
technologies and building techniques, to reestablish the U.S. as the
preeminent leader in this economic domain
Partnerships between industry, government, and local communities
to oversee the new "green" industries, in order to make sure that the
public knows what is being produced in a factory, by what means, and
how the wastes and by products will be managed
Scholarships and retrainig for displace fossil fuel and nuclear
workers, and small-business loans to support the new solar
trades-people
Congressional hearings to examine why none of the above is federal
or state policy Return to
the Overcoming Consumerism
Index
...The program of the devotees of fossil fuel is a formula for
further concentrations of wealth and power: keep society hooked
on petroleum and uranium: delay the solar transition until the oil
and gas are too costly to recover: then burn up the coal and slap a
meter on the sun. The antidotes to perpetual fossil-fuel dependencey
are democracy and community self reliance, along with respect for
good design and skilled work. if citizens are to transcend their
dependency on fossil fuels, they must learn to use their intelligence
and live within their means. We have the techical means now to
provide all of the power we need for a sustainable world.
AN UNHOLY ALLIANCE: Most of the money for [The] National
Resource Defense Council's work with Electric utilities comes
from the Energy Foundation, which has made NRDC its largest
grant recipient. Tracing back the money trail raises the next
quesiton: Who are the benefactors of the Energy Foundation? The
answer is, Three giant foundations: the John D. and Catherine T.
MacArthur Foundation, the Rockefeller Foundation,and the Pew Family
Trusts, which together fund the Energy Foundation to the tune of $10
million per year.
The endowment of the Pew Charitable trusts is now worth about $34
Billion, reported journalists Alexander Cockburn and Ken Silverstein
in their book Washington Babylon, and together the 7 Pew
Trusts invest about $20 million per year in the environmental
movement. Even more important, Joshua Reichert, the chief of the Pew
Trusts' environmental sector, helps coordinate the Environmental
Grantmakers Association, which together donates about $350 million
per year. "Pew never goes it alone" write Cockburn and Silverstien,
"which means no radical opposition to its environmental policies
can get any money."
Just one of the 7 Pew trust funds, the Pew Memorial Trust, earned
$205 million in "investment income" in 1993 from holdings in
Weyerhauser,forest products and paper ($16 million); Phelps Dodge,
mining ($3.7 million);International Paper($4.6 Million); and Atlantic
Richfield, which is eager to open the Alaskan Artic to oil drillling.
($6.1 million).
Evidently, the working assumption of NRDC has been that private
utilities and the investment banks behind them are powerful, immortal
institutions that must be placated rather than confronted. The
strategic alliance between the utilities, NRDC, and the Energy
Foundation was supposed to make the utilities as bankable in the new
sphere of conservation and efficiency as they had been in the palmy,
pre-oil shock years of 7 percent annual increase in electricity
consumption. The alliance presumed that private utilities would
remain in control of the production of electricity, and that the
relationships between investment banks and utilities-dating back a
century to the days of J.P.Morgan and Samuel Insull--would remain
intact.
Today the environmental movement receives about $40 million a year
from three oil companies which operate through front groups politely
described as private foundations. The top two are the sun Oil Company
and Oryx Energy. (The latter has vast holdings of natural gas in
Arkansas, and thoroughout the oil patch.) The Pew family once
entirely controlled the two companies and still has large holdings in
both of them; Oryx shareholders recently sued the Pew operation for
insider trading. Alexander Cockburn and Ken Silverstein.
1996
...A public truce seems to have been struck: the major environmental
groups now encuorage "energy efficiency" programs under the control
of utilities, who will pocket the generous investment "incentives"
(extra profits) in the bargain. Apparently by consensus, solar energy
has become unmentionable until the utilities choose to contemplate
solar technologies in their own good time, most likely as a result of
generous public subsidies. Meanwhile, the utilities continue to
promote the perception among benighted millions of electricity
consumers that solar power is "not yet cost-effective."
back to HOW CORPORATIONS
CONTROL THE ENVIRONMENTAL MOVEMENT
***********************************************************
Quotes from
The End of the Road, the world car crisis and how we can solve it.
Wolfgang Zuckerman, Chelsea Green Publishing Company. Dewey Decimal #
303.483
"When you stood on main street (in small town U.S.A.) you could tell
yourself "this is the center, the point on which all things converge"
and feel the inexplicable but nonetheless vital comfort that results
from knowing where you stand in the world and what the score is. On
the shopping mall, people know they're standing not at the center but
somewhere on the edge where the center has failed to hold." Russell
Baker.
"The shoppers in this segregated imitation city lack a central focus
toward which they will be drawn. They drift from shop to shop like
ghostly images in an oppressive dream, without energy or central
purpose. Just beyond their imitation city lies another one with
exactly the same shops, the same names, the items for sale, and the
same prices. According to social scientist E.V. Walter, people are
for the first time in human history systematically building
meaningless places..."
"Enormous profits are made by industrial organizations and retailing
businesses if production strategies concentrate on a small number of
dispersed sites to reduce expensive inventory. Trucks then become the
new warehouses, and the entire burden formerly carried by inventory
is thrown onto the roads."
(See the Planning Commisioner's
Journal on our resources page for more information on town
planning and resurrecting the American Main Street.)
The following is fair use as a review:
Secrets of The Temple:How the Federal
Reserve Runs the Country. William Greider, 1988. DDN#
332.11
[p307]
The fundamental weakness of the 1920s prosperity, was not that
Americans were profligate, spending too much and savings too little,
but the opposite. "We did not as a nation consume more than we
produced--far from it [David] Eccles declared.'We were
excessively thrifty.' The maldistribution of incomes guaranteed that
millions of potential consumers--workers, farmers, everyone who did
not earn enough to join the ranks of accumulating wealth--would
eventually exhaust their purchasing power. 'While the national income
rose to high levels,' Eccles explained, 'it was so distributed that
the income of the majority were entirely inadequate and business
activity was sustained only by the rapid and unsound increase in the
private debt structure, including ever-increasing installment buying
of consumption goods.' When the consumer's chips were gone, when they
could no longer borrow to buy things, the producers would naturally
curtail their production of goods too. More factories were closed;
more people lost their incomes. The game was over. "
[pp137]
"The Fed's Disciplinary system, in practice, punished the weakest,
smallest players first and most severely, while the largest and more
powerful enterprises could evade the ill consequences. Many families,
businesses and financial institutions were compelled to alter their
behavior swiftly---but others were privileged to continue business as
usual."
"The real cost of higher interest rates fell unevenly on citizens,
banks and businesses, depending inversely on their level of incomes
and profits. The wealthiest and most successful suffered
least;struggling businesses and families of limited income paid the
highest price. That was the most elementary point of political
inequality, and it stemmed not simplyfrom Federal Reserve policy but
from how high interest rates interacted with the U.S. tax code. Every
taxpayer, large and small, was entitled to deduct interest payments
from his taxable income, but these deductions naturally became more
valuable if one was in a higher income-tax bracket and was taxed at a
higher rate.
A Corporation saved, for instance, 46 percent of its interest costs
on its tax bill. A wealthy individual, paying the maximum tax rate,
would recover 50 percent of his interest payments in tax savings or
as much as 70 percent if all of his income was from stocks and bonds
an other investments. This effectively cut the higher cost of real
interest rates in half for them--while others paid the full freight.
This difference was always present, but it became magnified as
interest rates rose."
[pp163]
"In addition, many members of congress were themselves involved in
finance. More than one fourth of the congress owned a direct stake in
financial enterprises. In 1980, 129 House members and 38 senators
reported that they earned part of their income from stock shares in
commercial banks, S & L's and other financial institutions. As a
private interest of congressmen and senators, ownership of financial
institutions far exceeded their holdings in manufacturing, law firms,
or oil and gas. Even some elected representatives were engaged in
finance beyond the passive ownership of bank stocks. Forty House
members and four senators were active as directors, officers or
partners of commercial banks, S & L's and investment
companies."(our emphasis)
[pp245]
"Inflation damaged well-fixed families by eroding the value of their
accumulated financial assets, but inflation also spread wealth
widely--enabling the broad middle class to enjoy a higher standard of
living and to acquire greater net worth, largely through borrowing
and repaying their debts in depreciated dollars. Deflation reversed
the process: anyone who owned financial assets automatically enjoyed
greater wealth as prices fell. Their dollar assets could purchase
more in real goods: the value of their accumulated capital was
steadily increased. Citizens with little or no savings, debtors who
depended solely on their own productive labor for their livelihoods,
saw their incomes shrink--and the real burden of their debts grow
larger....In every era of history, regardless of the changing
political language, the money question was, inescapably, the bedrock
of political choice. The debate over 'hard money' and ' easy money,'
falling prices or rising prices, inflation versus deflation, was
really an argument about which economic class must suffer, creditors
or debtors, and which one would benefit, those who derived their
income primarily from their accumulated financial wealth or those who
earned their livings by 'the sweat of their brow'....."
[pp206]
"Louis O. Kelso, a San Francisco banker with libertarian values,
tirelessly promoted a modern equivalent of the subtreasury plan that
he had devised--a money-and-credit system that would use the central
bank to distribute the ownership of new capital democratically and
thus restore the economic autonomy that so many had lost. If everyone
owned capital, each would be more free--less dependent on both
concentrated wealth and the liberal welfare state."
"Kelso's invention--employee owned stock trusts that held stock in
corporations (better known as ESOPs)--was gradually spreading in use,
especially among thousands of smaller or embattled companies. But few
politicians or policy analysts would listen to Kelso's more radical
proposition: the Federal Reserve's money-creation powers could be
harnessed directly to the need for new capital, channeling
low-interest credit to new enterprises, provided that the stock
ownership of these companies was distributed broadly among workers
and communities, indeed to all citizens. Instead of only buying
government securities when it created money, the Fed would also buy
the debt paper of employee-owned or community-owned trusts, which
financed new capital formation. When the new ventures paid off the
debts on their new machines and factories, the loan paper would be
retired and ordinary citizens would hold title to the new capital
stock. Over a generation or longer, without confiscating or
nationalizing anyone's property, the ownership of wealth would become
more broadly distributed."
"As [Thorsten] Veblen explained, the corporate managers were
not entirely free to choose. A sensitive CEO, mindful of the human
damage caused by unemployment, might postpone a plant closing for a
time, but eventually his softheartedness would be punished. Sooner or
later, the stockholders--'the absentee owners', as Veblen called
them--would see that he was sacrificing the company's net gain (and
their dividends) in order to keep his employees at work and they
would simply withdraw their capital--by dumping their stocks. As the
stock price declined, shareholders would begin clamoring for new
management."
"The corporate decisions were also intimately supervised and
disciplined by the managers of credit, the banks and brokerages that
provided capital and operating loans. In many cases, important
bankers sat on the boards of directors of major corporations so they
could watch their money more closely. If the banks withdrew their
approval and would lend no more, the corporation was doomed to
fail."
"The principles of "sound business" were thus maintained by a
hierarchy of disciplinarians, from the humblest stockholder to the
ultimate governor on the credit system, the Federal Reserve. The
banks were the overseers of business prospects and, at the same time,
they were guided in their propensity to lend and in the terms they
set in the overall expansion of credit, the monetary policy set by
the Fed...."
The net gain in money values [Veblen
wrote] is a more convincing reality than productive work or human
livelihood. Neither the tenuous things of the human spirit nor the
gross material needs of human life can come in contact with this
business enterprise in such a way as to deflect its course from the
line of least resistance, which is the line of greatest present gain
within the law
[p578]
In the era of Volker and Reagan, the wage share shrank much
further-to its lowest level in fifty years--as a larger and larger
portion of total U.S. income was claimed by the incomes produced by
money, dividends and interest payments. By 1983, wages and salaries
accounted for only 60.7 percent of total personal income. The
following year, the wage share would shrink further--to 59.5 percent
--the lowest level since 1929....
The well to do, one could even say, led the nation to recovery. They
bought expensive cars and luxury vacations, jewelry and watches and
artwork, boats and bikes and pleasure aircraft, second homes at the
beach or in the mountains. Home builders who had nearly gone broke a
few years before building moderately priced subdivisions discovered a
rich new market in resort condominiums. This upward tilt in the
composition of consumer spending was fostering what some business
economists called a "two-tier-economy," a subtle breakup in the mass
consumption patterns that had driven the American economy since World
War II. Fortune magazine [(Nov 28, 1983)]summarized
the implications for its business readers:
"The mass market is splitting apart. Most businessmen don't
realize it yet, but the middle class--the principle market for much
of what they make--is gradually being pulled apart. Economic forces
are propelling one family after another toward the high or low end of
the income spectrum. For many marketers, particularly those
positioned to sell to the well-to-do, this presages good times. For
others used to selling millions of units of their products to
middle-income folks, the prospects are altogether darker."
[p423] "The economic victims were chosen at random, but
mostly from among the weaker groups in society. The methodology
employed by the Federal Reserve to induce contraction--rationing
credit by raising its price--insured that the strongest individuals
and enterprises would be able to evade selection. There was this
hierarchy within democracy--a hierarchy of vulnerability.
Many victims ignorant of society's larger purpose, innocently
protested. Such was the power of economic faith that some victims
accepted their fate and even endorsed it as necessary. The moral
justification was expressed in Schumpeter's ringing phrase, 'creative
destruction,' which suggested that , from time to time, capitalism
must burn off its dead and obsolete parts in order to grow freely
again. The implication was that only deserving victims would be
destroyed, punished for their inefficiency. But this article of faith
did not corresponded to reality. It would be more precise to say that
the victims were punished for not being stronger or larger. For the
most part, their inefficiency consisted of not having the accumulated
financial resources to protect themselves."
[p653] "For most American families, there were two major
purchases in life--the car and the house--and no other transaction
was as important to their sense of well being. Yet something strange
was happening in the Reagan recovery: Americans were not buying as
many houses and cars as they used to buy. Amid the general euphoria
over the revived prosperity, this was like a well kept secret. The
newsmagazines and other media focused, instead, on chronicling the
emergence of the Yuppies, a new class of young urban professionals
with high incomes and luxurious tastes. As a representative group,
the Yuppies could not have been more distant from what was really
happening to the patterns of American consumption.
The mass market was shrinking. Automobile sales were booming, of
course, in 1984--up 50 percent from Detroit's low point in the
recession. Yet the auto industry, including the rising sales volume
captured by foreign imports, never recovered the same market that it
had enjoyed in the 1970s. As a percentage of the driving-age
population, the sale of autos and trucks was actually 16 percent
below1978 and 22 percent below 1973, Morgan Guaranty reported.
Compared to the historic consumption patterns, Detroit and Japan and
Europe were competing for shares of a smaller market.
The 1980s should have meant, if anything, record car sales. For one
thing, the working-age population now included that swollen
generation from the 'baby boom', new consumers with their own
incomes, forming their own households. Furthermore, gasoline prices
were declining steadily in the eighties,instead of the steep price
increases of the seventies that had raised the cost of owning a car
and discouraged buyers. The potential was there, but unfulfilled.
The retreat from home buying was more striking and more fundamental
to the American standard of living. The housing industry surged and
ebbed month to month during the recovery, usually following changes
in interest rates, but home builders never came close to reaching the
potential of new home buyers in the 1980s. The lost customers in
housing naturally extended to durable goods like refrigerators and
washing machines that new homeowners would purchase.
Housing starts reached a robust total of 1.7 million units in 1984,
nearly double the lowest point of the recession. Yet, during the
1970s, when the pool of potential buyers was much smaller, the
housing industry had surpassed 2 million starts a year four times and
set a record of 2.4 million new homes in 1972. The decade of the
eighties should have broken that record, since the 'baby boom' was
adding an extra 12 million young families to the pool of potential
first-time home buyers. Where did all these buyers go?"
'During the 1980s, we have the largest number of new people added to
the age group that typically buys homes." said Michael Sumichrast,
chief economist for the home builder's association. "The problem is a
lot of these young people cannot afford to buy houses. They have no
choice buy to rent or double up."
These were the people priced out of the housing market by the high
mortgage interest rates or by personal incomes that were too
depressed to support a mortgage or by both. Millions of younger
families found they could not afford what their parents or even their
older bothers and sisters had been able to enjoy prior to the 1980s.
If home ownership was the essential element of the "American Dream",
the dream was becoming more selective.
For the first time in forty years, the percentage of American
families that owned their own homes actually decreased during the
Reagan presidency. Though no one talked about it much in the
political campaigns, this was a most significant turning point for
the pattern of American life. Rising levels of home ownership had
been a given since 1940. Stimulated by federal subsidies of various
sorts, including the govenment-imposed ceilings on interest rates,
the rate of home ownership among Americans had increased steadily
from 44 percent in 1940 to 66 percent by 1980. Starting in 1981, home
ownership began to decline for the first time since World War II. By
1984, it was down to 64.5 percent. By 1986, it would fall to 63.9
percent."
"Although the annual declines have been small, they cumulatively
offset all of the gains in homeownership achieved during the boom
years of the mid to late 1970s," the
MIT-Harvard Joint Center for Housing Studies
reported. In other words, if homeownership was a shared measure of
national progress, then the nation had regressed to the pre-1973
level during the era of Reagan and Volker. [our note: Home
ownership is back to 66 percent as of 1995, but much of this is
fueled by the government's direct taxpayer subsidized promotion of
home ownership preceding welfare termination, among minorities in
center city areas:~still no relief for the middle class.]
Virtually all the lost ground was suffered by young people, families
under thirty-five years old. except perhaps for the Yuppies, the
young families that could buy got smaller homes for their money and
were compelled to pay a much larger share of their incomes to keep
them. At age thirty, the average household must now devote 44 percent
of its monthly earnings to owning a new home--double
what young homeowners had to pay a decade before.
Given this elemental setback in their living standards, it was
particularly ironic that younger people voted so enthusiastically for
the President, but then the Democratic Party was also largely silent
on the subject. As a practical matter, both political parties had
retreated from the goal of universal homeownership, first the
Democrats, when they abolished interest rate controls in 1980, then
the Republicans, by adopting an economic strategy that assigned a
lower priority to providing homes for people. The decline of
homeownership, if the government did nothing to reverse it,
represented a major re definition of the American idea of
prosperity.
Throughout the recovery, however, the trend of lost potential was
masked by the general abundance of consumption. After all, consumer
demand, as defined by economists, was quite strong. Personal income
rose vigorously on average. The Reagan recovery was driven largely by
personal spending (though, to be sure, a larger share of what
Americans bought was imported from abroad). How could both be true-a
pro consumption recovery that was simultaneously losing millions of
the potential customers for cars, houses, and other goods?
Higher interest rates were part of the answer. The other explanation
was the maldistribution of incomes. In the aggregate, and on
average,the money income available to consumers for buying things
looked more than ample. When one looked closer, it was clear that a
huge share of the increased money income was going to upper-income
families (including the celebrated Yuppies). A decreasing share of
national income was going to all the families on the bottom half of
the economic ladder, people who would also buy cars and houses and
other nice things, if they could afford them.
According to the Bureau of the Census, the median real income of the
bottom 40 percent had fallen from 1980 to 1984, about $477 per
family, a loss of more than 3 percent. The top 10 percent, meanwhile,
enjoyed an increase of $5,085 in their median income, an increase of
more than 7 percent. The pivotal political decisions of the 1980s,
from the Reagan economic program to Volcker's monetary policy, all
contributed to the regressive shift in incomes. What was lost by
those who depended on wage incomes was gained by those with interest
incomes.
Not surprisingly, people whose real incomes were shrinking did not
make very good consumers. The economy was carried forward by those
who had plenty of money to spend, the upper half. The others,
especially young people, simply had to settle for a scaled-down
version of the old dream. In general, they were the Americans who
were buying fewer cars and houses than they used to buy.
People with inadequate real incomes had one other option--they could
borrow the money. By going deeper into debt, they could keep spending
and hope that their prospects improved. Millions of families chose
that option. Personal debt accumulated rapidly. The increased savings
that supply-side economics was supposed to deliver not only did not
occur but the savings rate fell to new lows. Families were inclined
to borrow rather than forgo purchases, because it was difficult to
accept the new reality of their reduced status--especially difficult
when the clamor from politics and the news media insisted that
Americans were embarked on a new era of prosperity.
The mass market was splitting apart as
Fortune magazine had said, but it was also getting
smaller. The emerging pattern had profound implications for the
future performance of the American economy, not to mention family
living standards, yet it did not become an absorbing question for
economists. When economists calculated "consumer demand," it was not
the sum of what people needed in their lives, the standard that
Thorsten Veblen had proposed for an efficient economy. Consumer
demand simply consisted of the total money available to the people
who could afford to buy things.
For modern economists, the question of which people had the money or
what they would spend it on seemed irrelevant. The fact that some
families were buing second homes for vacations or third cars while
others could not afford their first home or car was considered a
social question, not a problem for the economy. Since most modern
politicians relied on the economists' definitions, they perhaps did
not perceive what had changed.
In the long term, however, if the trends were not reversed, the
shrinking mass market would become a political question. Was this
what average Americans expected from their economy? Or what political
leaders had promised them? To use [Federal Reserve Board
Governor] Lyle Gramley's word, the ' political implications were
dynamite, waiting to explode.'"
[p670]
"Given the choices made in Washington, deflationary destruction was
virtually inevitable. The Federal Reserve was determined to drive the
rate of inflation lower and lower, regardless of other consequences,
and no one of any influence challenge the Fed's objective. Indeed, it
was fully endorsed by both political parties. As a practical matter,
in order to stabilize money' s value at zero inflation or as close as
possible, some elements in the economy must be forced into negative
levels--held in a state of perpetual losses--in order to offset the
rising prices that other economic sections continued to enjoy.
Maintaining the fight against inflation required continuing the
liquidation.
The government, especially the Federal Reserve, could not very well
acknowledge this unpleasant trade-off, but it was Frankly understood
in the financial markets. With matter-of-fact directness, E.F.Hutton
explained the logic to its investment customers.
'To our mind, pockets of deflation and
an ad-hoc program of bankruptcy containment are as much a part of
secular disinflation as are low inflation and declining interest
rates. If disinflation in this cycle is to work, there must be
losers--those who made or financed wrong bets. These negatives,
however, are secondary.'
"There must be losers." The losers, as the Hutton newsletter noted,
extended far beyond agriculture. They included the workers, managers
and owners in many other sectors--real estate, basic commodities,
energy. Labor and basic manufacturing could also be regarded as
having made "wrong bets" The negative effects of the deflation
however, were not "secondary" pockets, as the brokerage claimed.
Taken together, the deflationary losses cut a wide and depressing
swath across the American economy, from timber in the northwest to
the oil patch of Texas, Oklahoma and Louisiana, on copper mines and
cotton farms in the Southwest to grain states on the northern prairie
and famous old industrial cities in the Middle West.
Georgia Pacific closed nine lumber mills, nearly a quarter of its
production. Employment in the copper industry had declined by 63
percent since 1980. Firestone Tire & Ribber, in he same period,
shrank from 107,000 to 55,000 employees as it closed plants and
reduced management. Tire-industry prices had fallen 7 percent while
costs rose by 4 percent. Lead, zinc, silver, orange juice and a long
list of other products suffered the same fate as oil, wheat, corn and
soy-beans.
Deflation, once started, fed on itself and would likely persist as
long as the authorities did not alter the terms of money and prices.
While the commodity prices were always subject to wide swings up and
down, reacting to the seasonal shifts in supply and demand, the
persistence of depressed prices exacerbated the condition. The
decreased earnings led producers of all typed, from copper miners in
Chile to grain farmers in the Middle West, to increase their
production, and this response merely exaggerated the market
surpluses, driving prices even lower.
Deflation gathered momentum gradually through 1984, and by 1985, it
had become a fundamental disorder in the economy. food commodity
prices peaked in the first quarter of 1984 and fell by nearly 12
percent over the next year and a half. The income losses for farmers
(but not their shrinking collateral) were offset partially by the
government price support payments (and the cost of federal subsidies
for agriculture soared to more than $30 billion). Industrial raw
material, unprotected by government programs, suffered a price
decline of 16 percent over the same months. Overall, raw-material
prices fell by 40 percent from their peak in 1980. With so many
accumulated losers, the American economy could not be healthy.
The price deflation that unfolded in the 1980s closely resembled the
deflation of the 1920s in its selective damage. The same victims were
entrapped by surplus and falling prices in both decades, and their
economic predicament was largely ignored--occasionally even
applauded--by the rest of the nation. Older Americans remembered the
Depression and the general price collapse that followed 1929, when
virtually everyone's prices and wages fell dramatically, but this
episode was not like that. Instead, the overall price level,
reflected in the Consumer Price Index, remained remarkably stable,
rising at about 3 percent or less a year, and the economy in general
continued to expand modestly, concealing the simultaneous depression
under way in its structure."
[p681]
"The market and its investors enjoyed an enviable position of
influence: they profited directly from their own supposed anxieties
about the future. In the mythology of economics, markets were treated
as disinterested arbiters of reality, individual buyers and sellers
who collectively made rational judgements based on the best available
information. That is how the Federal Reserve looked upon the bond
market. yet, in the actual scheme of things, the bondholders were not
disinterested. They were profit-seeking individuals and institutions
that were rewarded handsomely for imposing their priorities on
others. Indeed, they had little incentive to relent.
Easier money and a free-running economy threatened the wealth of the
bondholders and the Fed's tight money enhanced it. In the present
time, the investors enjoyed the higher earnings provided by the high
interest rates. For the future, the high interest rates effectively
blocked the economy from regaining the vigorous growth that might
eventually lead to a new condition of rising prices. In short, the
bondholders and other financial investors won both ways. They
collected the bonus income of high real rates. Meanwhile, the value
of their money was not only protected from the dilution of inflation,
but their financial wealth was actually magnified in value as
monetary policy drove the prices of real assets lower.
Given the exceptional rewards, it was perfectly natural that the
bondholders were reluctant to give them up. Endorsing a more moderate
monetary policy would have put their own profits at risk. In their
own defense, long term investors would argue that they must defend
themselves against potential inflation somewhere off in the future,
even if prices were falling at present. No one could say, of course,
what might happen to money's value 10 or 20 years hence, but this
amounted to protection against a distant tomorrow that was provided
no one else in the economy. Short term investors could not even make
that argument. Their extraordinary returns on six-month or one year
notes were collected right now-paid in "hard dollars" that were
utterly unthreatened by price inflation.
Even for the long-term investors, the question was how much insurance
they required. By 1985, bond investors had accumulated a huge store
of profit against the possibility that inflation might someday
return. According the the Shearson Lehman Government/Corporate Bond
Index, which added interest income and price appreciation, bond
returns had averaged 18.5 percent in the four years since 1981--the
most profitable era for bondholders in the twentieth century.
Naturally they did not want to see the good times end.
The preferred status to the bondholders and their influence over the
Fed's monetary policy were another way of describing the political
triumph of money. The bondholders were preoccupied with one
thing--preserving the value of wealth accumulated in the past. That
was more important to them than fostering the economic possibilities
of the future. The Political system, by embracing stable money as its
preeminent goal, by allowing the Federal Reserve to set the
government's economic policy on its own, was unwittingly deferring to
the bond market too--and acquiescing to the same reactionary values.
In the name of stability, the past was defended, the future was
denied."
end quotes
We hope that you have enjoyed, and learned, from these quotes from
Secrets of the Temple; How the Federal Reserve Runs
the Country, by William Greider.
Dewey Decimal #332.11. Get it from, or for,
your public library.