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Thursday, May 1, 2008

Another Letter to Congressman Pete Stark

Dear Congressman Stark, May 1, 2008

I am sending you a short essay (above) titled What Government Can Do. In a small space it marshals a complete plan for economic rejuvenation.

First, parenthetically, thank you for two things: voting against the military budget bill, and endorsing Impeachment. Both were courageous and appropriate. How many citizens can say what I’ve just said? Not many. See Chalmers Johnson’s essay Going Bankrupt at that asserts the military budget is $1.1 trillion, not $481 billion.

I differ from other economists in that I believe the dollar decline is a tremendous, underrated drag or sink on the world and U.S. economy. If you read John Mauldin’s popular weekly analysis “Outside the Box” you believe it is a drag. If you have read Richard Duncan’s Dollar Crisis you have learned how the dollar decline is a lead weight.
The Brookings Institute and other scholars disagree, but who knows? It is an assessment of global purchasing power, or aggregate demand. If there is enough global purchasing power foreign customers will buy our exports, if not, the global economy will flounder, and the U.S. economy will likely sink. An economist with Schwab and Co. says that 53% of the Chinese economy is directed at exports. American consumers cannot afford imports as the dollar falls and inflationary prices rise, therefore profits all over the world are threatened. The purchaser of last resort, the American consumer, is tapped out, and the Asian one is not decoupled from our purchasing power. In past recessions, this has been the case. How strong their purchasing power is ultimately depends on their consumers, their wages, their distribution of income. China's labor rate is 50 cents an hour, or 3% the U.S. rate. I don't like the promise of depending on the Chinese worker to save my economy.

The essence of the problem is weak aggregate demand. Jeff Madrick, editor of Challenge Magazine, author of Why Economies Grow, editor of Challenge Magazine, argues convincingly that aggregate demand is the primary influence, and historically since the Renaissance has always been the primary influence, in growing robust economies. Other factors such as invention and innovation, supply side investment, and infrastructure improvements weigh in below the greatest market improver that is gradually expanding, broadly based aggregate demand. The Swedish economy has been predicated on this thinking.

But the key to today's global expansion, its growth hormone, is cheap labor costs. But low wages suppress purchasing power or demand.
Richard Duncan, author of The Dollar Crisis, was employed with the World Bank when the economies of Thailand, South Korea, Singapore, Malaysia, and others, blew up in 1997. Duncan argues that successful export trading to the U.S.A led to impetuous expansion in the Asian countries during the 1990s, the expansion exceeded local demand, and banks consequently went into bankruptcy, entire economies collapsed. His solution, in part, is to institute in trade treaties a universal minimum wage in exporting industries. He retired and wrote a book about the reasons for this event, and predicted that the structural imbalance of world trade will cause the greatest economic event of the 21st Century -- a big collapse.

Duncan's 2002 introduction states, "In recent years, severe boom-and-bust cycles have wrecked the financial systems and government finances of countries with large balance of payments surpluses; excessive credit creation has fueled over-investment and culminated in strong deflationary pressures around the world; and the debt expansion in the United States that has impaired the creditworthiness of its corporate and consumer sectors to such an extent as to preclude that country from continuing to serve as the world's engine of growth.
In short, the world economy is in a state of extreme disequilibrium and is at risk of plunging into the most severe downturn since the Great Depression."
And his 2005 edition introduction concludes, "The dollar standard is inherently flawed and increasingly unstable. Its collapse will be the most important economic event of the 21st century."

The wage race to the bottom is what propels global expansion. Socialist thinkers insist that capitalism cannot exist without exploitation of labor. Eventually, as former Federal Reserve member Marriner Eccles pointed out in his memoir, it resembles a poker game where the winners can only keep the game going by loaning money to the losers. Recently Congresswoman Nancy Pelosi said that the recent Congressional “stimulus” of $160 billion was aimed at increasing “demand.” “Go buy something made in the U.S.A.” is the key idea. Instead of increasing wages and income, the poker winners are just tossing a few chips to the losers. It's a pretty lame plan, in my evaluation. And when you look at where the stimulus money actually goes, it is even lamer.

My little ten point essay "What Government Can Do" contributes another and better plan.

Mr. Stark, you should --- SHOULD --- not my favorite word --- contact Jeff Madrick. Ask him for a full-sized plan. He is not a wild wobbly radical.

My last suggestion, before you turn to the essay --- try to form something like what the Sierra Club has, an institution that rates legislation. Voters need to consult an authoritative source to vote in a concerted way to promote plans and policies similar to what I have laid out. If the Sierra Club did not tell me how to vote --- on state propositions to city council seats --- how would I know?

I give the Alameda County Green Party money for their voter’s guide every election. Their analysis is better than anything else. They even published an essay I wrote about Robin Hahnel’s book Economic Justice and Democracy. He teaches in Washington D.C. at American University. He is a libertarian socialist; he advocates a socialist economy of consumer councils and producer councils, and he argues to replace capitalist economies lock-stock-and-barrel. Invite him to dinner, he’d probably enjoy talking with you. Say hello from me, even though we’re strangers.

Thank you Mr. Stark,

Ben Leet

see my blog:
where I have posted this essay and seven others.

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