** Richard Cook: Economic Democracy and a Guide to the 2008 Elections


Richard Moore

This article on the 2008 elections is the culmination of my efforts in 
presenting my economic ideas that has been going on over the last year. I know 
that everything in it will not be acceptable to purists of various persuasions. 
But I have gradually become convinced that the best solution to our problems is 
one that draws from the best thinking of different schools of thought. I believe
that much in our economic system is good and worth preserving. I believe that we
must get to where we are going by departing from where we are, not trying to 
build a new mental Utopia then quibbling over the details. So this is my best 
effort for now. All the best, and thanks to all the friends I have made around 
the world in the past year who have helped me get to where I am today.
 ­ Richard Cook

Original source URL:

Economic Democracy and a Guide to the 2008 Presidential Election

By Richard C. Cook

Global Research, January 10, 2008

The United States is at a crossroads. In the midst of a stalling economy, a 
decline in the standard of living for a majority of the nation¹s population, 
out-of-control societal debt, growing concentration of wealth among the upper 
income brackets, and a stampede toward totalitarian governance derived from the 
disastrous Mideast war policy of the Bush/Cheney administration, an 
unprecedented number of people are saying the nation is headed in the wrong 
direction. Poll numbers on the performance of both President George W. Bush and 
the Democratic-controlled Congress are at historic lows.

2008 clearly represents an opportunity for the nation¹s voters to seek a new 
direction. With a presidential election now less than a year away and the 
primaries having begun, an abundance of new ideas might be expected.

First, Iowa.

The winners in the Iowa caucuses were those candidates who have been arguing 
most forcefully for change. The Democratic winner was Barack Obama, for whom the
word ³change² is a mantra. John Edwards, who has made himself the voice of 
working class populism, was second. Hillary Clinton, the candidate of 
³experience,² finished third, though she is clearly the ³safe² choice of the 
U.S. mainstream media and political establishment. Also sounding populist themes
was Republican Mike Huckaby in an unexpected victory achieved perhaps in part by
having at his side for photo ops the comforting presence of TV 
strongman/good-guy Chuck Norris.

Moving on to New Hampshire. There Obama was enjoying a double-digit lead over 
Clinton in the polls the night before the primary. Somehow, Hillary not only 
erased that lead during the silence of night but forged ahead to win decisively 
the next day. Were the pollsters dead wrong or was the voting system rigged for 
the establishment favorite? The controversy has begun to rage, though we will 
likely never know. In any case, the Obama momentum has hit a wall.

Meanwhile, on the Republican side, ³Lazarus² John McCain saw his moribund 
candidacy revived in a victory over big-spending Mitt Romney. McCain pulled it 
out on the basis of no evident rhyme, reason, or principles. He just seemed to 
be the familiar Republican voice the voters felt most comfortable with. Huckaby 
was in the shadows, there being few fundamentalist Christian voters in the 
comfortable middle-class towns and shires of the Granite State.

But amidst the hysteria, none of the leading candidates has put forward a 
program that will solve the huge problems the country now faces.

In order to see where we are today, we must examine where we have come from. The
reader is forewarned. This is a long article, with some diversions into the 
murky history of U.S. finance. So please be patient.

What follows first is an overview and analysis of the economics of the modern 
industrial age. Such an overview is essential in understanding that economic 
issues do not occur in a vacuum, not do they come into being overnight. Rather 
what the U.S. faces today is a crisis rooted in history.

But first, as to sources. With good reason economics is called the ³dismal 
science.² Never has it been more dismal than today, with most economists bogged 
down in meaningless mathematical modeling of the free-market economy or in 
ideological justifications of the status quo.

One of the exceptions was John Kenneth Galbraith (1908-2006), New Dealer, 
Harvard professor, and prolific historian. The following account draws in part 
on Galbraith¹s A Journey Through Economic Time: A Firsthand View, published 
early during the first Clinton administration in 1994.

Modern Economics and the Tragedy of Capitalism

Modern economics deals with the industrial age, which began to emerge in Western
nations by the late eighteenth century. The industrial age is that period of 
recent history defined by the application of mechanical energy‹starting with 
steam power‹to the processes of production, transportation, and communications.

Politically, the century-and-a-half between the American Revolution (1775-1783) 
and World War I (1914-1918) saw a historic struggle between the new world of 
emerging capitalism as a method of organizing the application of industrial 
power, and the old one of entrenched feudalism, defined as the control of land 
by a hereditary aristocracy. As Galbraith made clear, the power of feudal 
society had been broken for good by the time World War I came to an end.

By then, capitalism, defined as private ownership of the means of production, 
had advanced furthest in Great Britain, the U.S., Germany, and Japan. Close 
behind were France, Russia, and Italy. Ownership under this system was secured 
entirely by the possession of money. Living side-by-side with a relatively small
number of industrial entrepreneurs and finance capitalists were the growing 
masses of landless workers who had relocated from farms to the cities. 
Agriculture was also becoming mechanized, but in this case capital gravitated 
toward the marketing and distribution of farm products and to financing of the 
planting-to-harvest cycle. But even in the production of food, money, as opposed
to human and animal labor, came to dominate.

But as Galbraith explained, ³the tendency of capitalism [was] to grave 
instability,² with workers often losing their jobs during business ³panics² or 
due to automation. In Great Britain and the U.S., this instability tended to be 
viewed as natural, the idea being that any attempt by the state to interfere in 
market dynamics would only make matters worse. As a corollary, the understanding
of economics by the political world, which remained mired in medieval concepts 
natural to a landed aristocracy, remained shockingly primitive.

The belief in the essential ³rightness² of the free market was promoted most 
strongly by the town merchants and money-lenders who wanted to free themselves 
from the restrictions on commerce and capital by the policies of mercantilism. 
This was the system by which the kings and princes of Europe attempted to 
control commercial activity for the benefit of their hereditary regimes and the 
fixed class structure which they saw as fostering national wealth and social 

The new capitalist economics, by contrast, was transnational in scope, since 
money as an abstract concept knew no boundaries. This epochal change was 
reflected in what came to be called ³classical,² ³liberal,² or ³laissez-faire² 
economics. This set of ideas originated with the British writers Adam Smith 
(1723-1790) and David Ricardo (1772-1823), who saw the private sector and 
government as mutually antagonistic. Their theories became the umbrella under 
which capitalism began to flourish. In the U.S., this attitude was also in part 
a legacy of the American Revolution, whose leaders had deeply resented 
interference by the British government with colonial economic activity.

Their attitude mirrored the fact that the prosperity of the American colonies 
depended in large part on the availability of paper money, or scrip, that was 
issued independently of the Crown or Parliament by the colonial legislatures. 
This currency fueled commerce even after new issues were outlawed by the 
Currency Acts enacted by Parliament in 1764. While existing scrip continued to 
circulate, the shortage of fresh paper money brought on a depression that led 
directly to action by the Continental Congress to break with Great Britain. Once
this step was taken, issuance of continental currency followed as a matter of 

The Constitution of 1787 gave the new U.S. government substantial economic power
by granting Congress the right to regulate interstate commerce, issue money, 
levy taxes, and borrow on credit. Still, more than any other nation, the U.S. 
became the stronghold of free-market ideology and remains so today. Government 
was viewed as the protector of capitalistic enterprise, which accounts for the 
radically anti-aristocratic tenor of the American system. But as with many other
forces of history, while it may have started as a fresh new idea conceived in 
opposition to the highly regulated economies of the late medieval period, 
capitalism as described by classical theory eventually became the encrusted 
dogma we live under today.

Classical theory was as much an ideology as a product of scientific analysis. It
reflected the way things were supposed to work when the power of money was 
unleashed, rather than what actually took place day-in-and-day-out. For 
instance, a key argument made by its proponents as industry developed during the
nineteenth century was that an economy has a natural tendency toward a 
full-employment equilibrium. Thus, it was claimed, because labor is a commodity 
and workers are natural competitors with each other in vying for jobs, they 
would accept wages low enough to ensure a living for all.

Though workers during the nineteenth century often earned barely enough to avoid
starvation, the system at least was viewed as tending toward stability. Social 
Darwinism‹survival of the fittest‹was a major factor in justifying miserable 
social conditions, even though this new theology replaced ideals of Christian 
charity with the harshness of supposed economic necessity. The beneficiaries, of
course, were the rich financiers and industrialists, the Robber Barons of the 

Digging deeper, we find a central dogma in classical economics which persists 
today, even though British economist John Maynard Keynes, writing in the 1930s, 
effectively demolished it as a concept informed people believe in. This was that
all business earnings deriving from the sale of goods or services can be defined
as income, and so become available to the economy as purchasing power when 
products are brought to market. This mechanism, in classical theory, is the 
driving force which supposedly results in jobs for everyone.

The concept is know as Say¹s Law and is the bedrock belief of all classical 
economists who not only control orthodox economic education but who have carried
their beliefs to the point of fanaticism in such extreme laissez-faire 
philosophies as Libertarianism, the Austrian School of Economics, and the 
supply-side theories that have driven the Republican Party ideologues of the 
Reagan and Bush I and II administrations who have tried to spur economic growth 
by cutting taxes on the upper income brackets.

Jean-Baptiste Say (1767-1832) was a French businessman and economist who edited 
and promoted the ideas of Adam Smith. What became known as Say¹s Law stated that
the production of goods by an economy automatically produces the ability of 
society to purchase those goods, because earnings from their sale is immediately
recycled as purchasing power. Thus prosperity should always result from any 
stimulation of production.

In advancing his claims Say wrote: ³It is worthwhile to remark that a product is
no sooner created than it, from that instant, affords a market for other 
products to the full extent of its own value. When the producer has put the 
finishing hand to his product, he is most anxious to sell it immediately, lest 
its value should diminish in his hands. Nor is he less anxious to dispose of the
money he may get for it; for the value of money is also perishable. But the only
way of getting rid of money is in the purchase of some product or other. Thus 
the mere circumstance of creation of one product immediately opens a vent for 
other products. It is not the abundance of money but the abundance of other 
products in general that facilitates sales... Money performs no more than the 
role of a conduit in this double exchange. When the exchanges have been 
completed, it will be found that one has paid for products with products.² (A 
Treatise on Political Economy, 1803, p. 138-9)

By assuming that producers immediately spend the money they receive as the price
for goods and services, Say overlooked the key fact of capitalist microeconomics
which was that of retained earnings. For an industrial firm in an age where 
continued technological innovation is a fact of life, a considerable amount of 
earnings must be retained in order to invest in future improvements. Even if the
retained earnings are deposited in a bank they will not necessarily result in 
new spending. This is because, as modern economist Michael Hudson has 
demonstrated, bank deposits normally result in lending for asset purchase rather
than capital investment. The latter, by contrast, is accomplished through 
capital markets which are a completely different source of funding than bank 

Say¹s law was actually more descriptive of the medieval village economy which 
still existed in much of Europe rather than modern heavy industry. But it took 
hold and persisted because it achieved a goal the apologists for capitalism 
strove mightily to accomplish: to keep government out of the capitalist 
marketplace except to provide police protection for the emerging monetary power.

Although some astute observers began to suspect that Say¹s Law was wrong and 
that an endemic ³gap² between prices and purchasing power existed in the 
capitalist system, the causes of this gap at the microeconomic level did not 
appear until the 1918 publication of a book called Economic Democracy by British
engineer Major C.H. Douglas. Douglas characterized the gap as being reflective 
of positive forces by stating that it really represented the appreciation of the
nation¹s productive capacity both through the accretion of human knowledge and 
the harnessing through mechanization of the bounteous energy of nature.

In order to fill the gap between prices and purchasing power, Douglas proposed 
that a regular stipend be paid by the government to all citizens, without 
recourse to taxation or public borrowing, which he called a National Dividend. 
Douglas¹s ideas became a political force in Great Britain and the Commonwealth 
nations of Canada, Australia, and New Zealand. It was called the Social Credit 
movement and continues today in those countries. But Douglas¹s ideas were 
opposed by the financiers and their economic apologists because the shortage of 
purchasing power he identified by now was being filled after a fashion by huge 
amounts of money lent at interest. This economic fact is what accounts for the 
enormous economic and political power of the bankers who rule the world today.

John Maynard Keynes, writing during the Great Depression of the 1930s, was the 
first major economist to reflect what Douglas had been saying for over a decade 
by pointing out that all earnings from the sale of goods and services did not 
find their way back into the economy. Keynes said this was because some of the 
earnings were saved‹i.e., were withheld from immediate spending by producers and
consumers alike. Thus there occurred a chronic shortage of income that Keynes 
said would lead to periodic depressions. As Galbraith‹an early American 
Keynesian‹pointed out, during a depression, a new‹and this time 
deficient‹equilibrium would settle out at a chronic level of under- or 
unemployment. It was to break this underperforming state of an economy that 
Keynes recommended the use of government deficit spending as an alternative to 
private sector bank lending.

This solution‹though imperfect‹came into being during the Great Depression of 
the 1930s and has persisted. Until then, the notion prevailed that government 
would do best to stay out of economic matters altogether, even if the system 
produced a permanent division of society between the haves and have-nots, with 
the presence of permanent poverty and a permanent underclass prone to crime and 
dissolution. At that point, the discussion turned on whether the poor were 
naturally vicious or whether they were victims of their condition and therefore 
to be pitied, reformed, or ³saved² by some social or religious do-gooder. 
Meanwhile, Douglas¹s National Dividend solution was ignored, and Keynes¹s ideas,
which led inevitably to the modern Welfare State, were grudgingly implemented as
at least allowing capitalism to continue to exist by forestalling a socialist 
revolution in the Western nations.

But the fact remained that capitalism produced a deeply conflicted society. As 
U.S. scholar Page Smith outlined in ³The Rise of the Industrial America: A 
People¹s History of the Post-Reconstruction Era,² the central problem of the 
industrial age was ³the war between capital and labor.² This war in the U.S. and
Britain was largely won by capital, though labor eventually got better 
conditions through trade unionism and government regulation of industry, as well
as a greater share in the prosperity that science and technology wrought.

Matters were different elsewhere in the world, particularly in Germany and 
Japan. Both of these countries tended to see government and business as 
essentially united in the interest of economic development. On continental 
Europe, ideas of socialism also had a greater impact than in the 
English-speaking world, as did the notion that the state had a basic 
responsibility for worker well-being.

The economies of Germany and Japan were also unique in their toleration of 
industrial cartels which operated under state protection. In the U.S. and 
Britain, on the other hand, while there were tendencies toward cartelization 
through the toleration of business and financial trusts, the economic ideology 
was essentially anti-monopolistic in its view of perfectly functioning free 

But there remained a major anomaly in the position of the U.S., in that it never
gave up its adherence to a protectionist tariff policy in contrast to the free 
trade practiced of Britain. Historically, the purpose of tariffs in the U.S. was
to protect the growing capitalist enterprises against goods produced in Europe 
by cheap labor. But even with this major early example of government-sponsored 
corporate welfare, laissez-faire remained the predominant dogma of U.S. business

Going back to World War I, it was a catastrophe for Europe, where neither the 
British nor the German models could protect those nations from bankruptcy. In 
Russia the result of the war was revolution leading to communism. But the United
States, which bankrolled the war through lending, became the world¹s financial 
center. The prosperity that resulted led to the relative bounty of the 1920s, 
once the country shook off the post-World War I inflation and depression. But 
this prosperity ended in the collapse of a vast bank-generated speculative 
bubble when the stock market crashed in 1929.

The U.S. government was completely unprepared for the Great Depression. Upon 
election in 1932, President Franklin D. Roosevelt was as committed to 
laissez-faire economics as his Republican predecessors. But he and his aides 
could see that elsewhere in the world, particularly Italy, Germany, and the 
Soviet Union, governments were taking control and rebuilding their national 
economies, if necessary, by force.

So the U.S., also of necessity, began to implement measures that could be and 
were criticized as socialistic but which were still an absolute requirement for 
the survival of a functioning nation. Both the United States and the other 
Western democracies, along with the emerging totalitarian states, finally 
acknowledged that, as a minimum, vulnerable segments of their populations, such 
as the unemployed and the elderly, had a right to at least a small degree of 
income security whether or not they had jobs.

One method employed by the Roosevelt administration to pull the U.S. out of the 
Depression was a limited program of wage and price controls under the National 
Recovery Act. Job-creation programs were also used, such as the Public Works 
Administration, the Works Progress Administration, and the Civilian Conservation
Corps. Social Security and unemployment compensation came into being, and 
infrastructure projects such as the Tennessee Valley Authority and the Boulder 
and Grand Coulee Dams provided both jobs and electrical power. The 
Reconstruction Finance Corporation provided low-interest loans to both the 
public and private sectors, and the Rural Electrification Administration brought
electricity to the countryside.

The face of modern America was molded by these and other New Deal 
government-sponsored programs. Classical economics, it seemed, had been thrown 
on the refuse pile of history. At last a full-employment economy was on its way 
to being achieved, erected on the ruins of the free-market economic system that 
had failed. The main sources of financing the new system were government 
borrowing and a stiff income tax, especially affecting the upper income 

By now the problem had been recognized among mainstream economists and 
politicians‹the modern industrial state did not in fact generate enough 
purchasing power to support full employment. Keynes and his followers referred 
to purchasing power by the term ³aggregate demand.² The creation of sufficient 
aggregate demand now became the central objective of governmental economic 
policy in the U.S. and other Western industrial nations.

It was World War II that completed the task in the U.S. of creating a 
full-employment industrial economy. The war, with its rationing and shortage of 
consumer goods, resulted in so much unspent income for working people that 
savings rates soared. This savings provided the impetus for post-war prosperity 
all the way through the 1950s and into the 1960s. The prosperity was buttressed 
by a favorable trade balance with respect to the rest of the world which had not
yet recovered from the war. Sale of U.S. goods abroad also benefited from 
purchases of American products, including foodstuffs, by other nations which 
borrowed from U.S. banks through the International Monetary Fund.

But by the 1960s, profound changes were stirring. As the U.S. economy slowed, 
President John F. Kennedy responded, not by fiscal pump-priming, but by cuts in 
income tax rates. The idea was that money could be more effectively spent by 
individuals than by the government. While this may have been true, it was a fact
that aggregate social demand had begun to decline, especially with the diversion
of economic resources into expenditures for the Vietnam War.

Still, by the end of the 1960s, the U.S. was prosperous enough for President 
Lyndon B. Johnson and, to some extent, President Richard M. Nixon, to 
contemplate the elimination of poverty once and for all. The War on Poverty came
into being, but at a critical moment around 1970 the movement to utilize 
macroeconomics to solve the endemic problem within a capitalistic system of a 
permanent division between the haves and the have-nots ran out of steam. This 
came with the failure of the U.S. government to enact a basic income guarantee, 
also known at the time as the reverse income tax. The symbolic moment was the 
defeat, led by Southern conservatives in the Senate, of Nixon¹s Family 
Assistance Act in 1970.

Galbraith, virtually alone among economists, saw the failure to provide a real 
solution to poverty as a watershed event. He connected this failure to military 
spending by writing, ³A highly effective design for avoiding succor to the poor 
is to put forward the higher claims of war, defense, the military.² He noted 
that in 1972, Senator George McGovern proposed a negative income tax ³that would
have provided a basic underpinning of income for all Americans.² McGovern was 
opposed within his own party, most notably by former Vice President Hubert 
Humphrey, and the idea never made it to the 1972 election campaign, where 
McGovern was soundly defeated by Nixon anyway.

The idea of unconditional income security, says Galbraith, ³was permanently 
buried.² It was perhaps the last, best chance for American capitalism to solve 
the basic problem of inequality and unfairness which had caused the ideologies 
of socialism and communism to appear so appealing to people around the world for
so many decades. It was a broad-spectrum failure of the capitalistic ruling 
class to realize that the bounty of science and technology created the 
opportunity for an entire society to rise to a new level of security and 
culture, not just those with good jobs or plenty of assets.

Above all, this can be seen as a spiritual failure, a failure ³to love thy 
neighbor as thyself.² Instead, the rulers of society chose to embrace a 
consumer-based economy, where those with the best employment and who owned the 
businesses would luxuriate in ³the good life,² while the rest of the people got 
along as best they could with limited opportunity and access to resources.

The point to be made is that the basic income guarantee‹negative income tax‹was 
not just an ³antipoverty² measure. It was a guarantee of income security to the 
entire nation. No person would ever have to fear permanent loss of income and 
the degeneration of status, humiliation, and ill health that go with it. No one 
would have to fear these things befalling relatives, parents, or children. 
Without income security, an entire nation‹or world‹becomes subject to an 
ever-present emotion of fear. Lack of income security in a capitalistic economy 
makes fear and other negative emotions the predominant coloring of individual 
and social life. Many people then pray to God for deliverance when the cause is 
economic and social institutions engendered by the wealthy controllers of 

The 1970s was a decade of economic disasters. As this author wrote in his recent
article, ³Crisis in the U.S.: Plan B?²: ³The 1970s had seen catastrophic 
economic developments. It started with the removal of the gold-peg to the dollar
in 1971 and continued with the explosion of U.S. currency on the international 
scene due to the petrodollar, soaring trade and fiscal deficits, action to 
permanently mortgage us to military-backed dependence on imported Middle Eastern
oil, a permanent tilt in favor of Israel vs. the Islamic world, and, finally, 
the galloping 1970s inflation. These events led to the Fed-induced crash of 
1979-1983 which left us with today¹s travesty of a Œservice¹ economy.²

The 1970s were followed by the ³Reagan Revolution² of 1980-1988, which continued
through the Bush I administration until the election of Bill Clinton in 1992. In
the words of Galbraith: ³Tax reduction oriented to the affluent, unduly enhanced
defense expenditure, and a large deficit in the federal budget were the prime 
manifestations of error. Related was a large and persistent deficit in the 
American balance-of-payments account, causing the United States to shift from 
being the world¹s largest creditor to being, by a wide margin, its largest 
debtor. There was erosion of the nation¹s competitive economic position, social 
tension in the big cities, financial speculation and manipulation extending on 
to widespread and unsubtle larceny and, in the end, the painful recession cum 
depression of the early 1990s.² (A Journey Through Economic Time: A Firsthand 
View, p. 210.)

Galbraith acknowledged Reagan¹s remarkable success in one particular area: ³The 
striking achievement of the Reagan policiesŠwas the improvement he made in the 
fortunes of the affluent and the rich while visiting neglect upon the poor. Here
the results are beyond question. No one will ever have any reasonable doubt that
Mr. Reagan did keep faith with his constituency.²

What was called ³Reaganomics² was a unique hybrid in combining the worst 
features of laissez-faire capitalism in turning the economy over to deregulated 
business interests‹particularly financial institutions‹with Keynesian-style 
deficit spending consisting largely of a massive windfall for the 
military-industrial complex. Note too that most of the profits from military 
spending‹deriving in particular from development of the technology-rich military
infrastructure characteristic of the U.S. with its emphasis on air and sea 
power‹went to the affluent who provided the backbone of political support to the
Republican Party. The military-industrial complex ever since has flourished due 
to corporate welfare at its very worst.

Naturally a military establishment so endowed with borrowed dollars for which 
they are essentially never accountable would exercise itself on behalf of 
whatever the controlling parties sought to accomplish by way of foreign wars. 
First we had the ³Reagan Doctrine² of proxy wars in El Salvador, Nicaragua, 
Angola, and Afghanistan, leading to the Bush I wars in Panama and Iraq, 
transitioning into Bill Clinton¹s military excursions into the Balkans, then 
culminating in the explosion of military conflict in Afghanistan, Iraq, and 
perhaps now Iran under President George W. Bush.

Again, it has all been paid for with borrowed money, even as the Reagan tax cuts
for the rich were, under Bush II, renewed and extended. And, in the ultimate 
Keynesian insult to any lingering notion of fiscal prudence, the wars of George 
W. Bush haven¹t even appeared in the federal budget. They have been paid for by 
³supplemental² appropriations enacted by a compliant Congress coerced into 
showing that they, like the president, ³support the troops.²

From Reagan¹s first administration until today, the income and wealth gaps 
between rich and poor have deepened. Public and private industrial and service 
infrastructures, including public school systems, have crumbled, even as private
consumer expenditure, led by the comfortable and well-off, has soared. Economic 
growth during the Reagan years was driven by luxury products for the rich and 
credit-card spending by the middle class.

From all this, a personality type has emerged which defines those at the top of 
our culture. Immaculately-dressed, including the finest designer clothes; 
well-manicured and enjoying the best of health care‹including plastic surgery 
and beautification spruce-ups; a sex-life buoyed by Viagra and Cialis; 
well-invested and occupying or retired from the best jobs in business, the 
professions, and the military; with personalities that are demanding, petulant, 
conceited, haughty, refined, sophisticated and knowledgeable in regard to 
utilizing the finest consumer products available; with their looming hysteria 
kept at bay by prescription anti-depressants; and mostly solidly Republican, 
though sometimes molded in pro-business Clintonesque tradition of the Democratic
Leadership Council: these are the people in charge of the U.S. today.

This class of privileged Americans embodies the abject failure of capitalism 
since it firmly and finally turned its back on any real intent of fairness, 
equality, or sharing of the bounty deriving from the industrial age. Again, the 
denial of responsibility began in earnest with the rejection of proposals for a 
basic income guarantee in the late 1960s and early 1970s. It continued with the 
Reagan Revolution and the Reagan tax cuts. It marched on through the Clinton 
years and has now achieved full flower in the proto-fascism of the Bush-Cheney 
administration. Each of these political phases has been floated by a financial 
bubble‹the merger/acquisition buyout bubble during the Reagan/Bush I years, the 
dot.com bubble of the Clinton presidency; and the housing/equity/hedge fund 
bubble of the Bush II economy.

The values of the privileged world which have subsisted inside these bubbles are
based upon ³ownership.² People define themselves not by what they are, but by 
what they possess. This extends into their social activities and affiliations, 
which are a type of possession.

What house, what car, what clothes, what furnishings; where they vacation and 
how they travel; the gifts they give and the ones they get; the schools they 
went to and the ones their children attend; their music, their tastes, their 
celebrations: all are manufactured to suit the upscale image.

This world is defined by a word: ³consumerism.² It¹s what keeps the wheels of 
the economy turning, because a constant ³cash flow² must be generated to keep 
trade, jobs, and taxes in motion. There is never any rest, except with 
medication, never any introspection, unless in ³yoga classes.² Individuals 
themselves are in a perpetual state of fantasy, frustration, and anger, as any 
service industry worker knows who has been on the receiving end of an angry 
consumer complaint.

The nature of the consumer society was aptly defined by Mike O¹Flaherty in a 
1999 article in Baffler 12 entitled, ³Rockerdämmerung.² Speaking of the music 
industry in terms that apply to all lines of consumerism he wrote: ³Planned 
obsolescence, the promise of the new and improved, the sneer of willful cultural
amnesia‹these are the values of the marketplace, radical only in their 
destructivenessŠAll around the world, people are losing their ability to imagine
anything outside the eternal present of a transnational corporate capitalism, 
the depth and breadth of which now seems virtually limitless. And they are 
beginning to forget that anyone ever imagined something beyond it.²

With Reaganomics and what has followed, the takeover of the world by 
consumerist/capitalism has almost been completed. Within their world the 
affluent who oversee this culture reside in a bubble of vanity and denial. Above
all, this class of Americans is convinced, from the bottom of their hearts, that
war is a good thing if: a) if it can be rationalized as being caused by the 
alleged actions of foreign evildoers; and b) if the Americans who die in the war
are the sons and daughters of poor people.

But the poor people are the flies in the ointment. One of the biggest economic 
problems in the U.S. today is the shortage of minimum wage workers for the 
necessary service jobs. It¹s why the rich welcome ³undocumented workers.² 
Unfortunately, there is nowhere left in America where service industry workers 
can even afford to live. The ever-growing underclass upon which the affluent 
depend is increasingly in danger of poverty, incarceration, or even 
extermination due to the collapse of health and social services. And 
increasingly the underclass consists of former members of the middle class who 
can¹t get decent jobs or jobs with benefits. This has engendered a level of fear
and frustration which is doubtless a driving force in the populist politics of 
the 2008 presidential campaign.

Much of the underclass is hidden from view. Many live with their parents or in 
group houses that used to be the homes of middle class families. Taking a 
broader view, the underclass now can be said to include literally hundreds of 
millions of people or more, because many are living in foreign nations which, on
our shrinking globe, are actually the slums of the global system.

The underclass includes the more than two million U.S. citizens in prison, 
almost a million homeless, millions more of illegal immigrants working at jobs 
below the minimum wage, plus millions abroad who work in sweatshops or 
slavery-like conditions assembling consumer products for American markets. Then 
there are the millions in nations whose labor services the debts their countries
owe to the International Monetary Fund or foreign banks and investors.

Again back at home there are millions more Americans in debt to financial 
institutions, including those who must work for years to pay off student loans, 
probably a million women who work in the sex industry just to survive, and 
millions of college graduates who can¹t get decent jobs, so are employed in 
³food service² and the like.

Finally, we should mention the million or more in the Middle East who have been 
killed or displaced by Bush/Cheney-initiated wars, plus the millions in 
underdeveloped nations who languish outside or on the fringes of the global 

Many of these human beings may be regarded as the throwaway refuse of 
capitalism. But worldwide a revolt is growing. The chief alternative to 
American-style capitalism can be found in Russia, which today is seeing a 
resurgence which the U.S. establishment loathes and fears. Russia¹s success lies
in its increasingly potent and effective combination of market economics 
combined with the socialist institutions left over from Soviet days.

After all, communism had succeeded in mastering the intricacies of heavy 
industry. It was in the areas of consumer production and political freedom that 
brought communism to a halt. The new Russia has addressed those problems to a 
considerable degree. Contrary to the fulminations of the Washington Post, Russia
is today a democracy with vastly improving living conditions. Similar conditions
are being established in Venezuela by the government of Hugo Chavez and are 
starting to appear in other Latin American nations, such as Argentina, which 
have broken away from the ³Washington consensus.²

These reflections leave us with the inescapable conclusion that overall, the 
most salient fact of modern economics is that of the tragedy of capitalism. The 
system is tragic because it diverted the productivity of science and technology,
which is neutral with respect to political ideology and which is capable of 
producing its material bounty under a diversity of systems of ownership, to a 
condition of terrible abuse by the property-owning class.

It might have been a relatively simple matter for the capitalist class to share 
the good things of life which are so capable of easing the burden of human life.
Instead, they have monopolized this bounty for themselves and their families and
associates to the detriment of the majority of the people of the world. They 
have created for themselves a legal, ideological, and physical fortress and 
ringed it with police forces and armies. Rather than allowing the modern age to 
become increasingly democratic and altruistic, they have created a dictatorship 
of the financial elite. It is now a dictatorship that is hardening to protect 

With the 2008 U.S. presidential election, it should be the task of the 
candidates to challenge this dictatorship and find a way for a peaceful 
transition to a new economic paradigm. But while they call for change, there is 
no indication the candidates know what to change.

The U.S. Banking System

A special word is in order for the U.S. banking system which has played such a 
dominant role in the economic events of recent decades. It is this system which 
forms the power base of the dictatorship of the financial elite.

Of course banks have existed for millennia. Because the history of banking and 
finance have been treated in several other articles by this author that have 
appeared during the last several months on Global Research and other websites, 
that information will not be repeated here.

It is important to note, however, that throughout history, banks have always 
operated under some kind of charter or license from the prevailing political 
authority‹or have been owned by that authority‹and that they have served a 
variety of purposes. Thus banking and politics have always gone hand-in-hand.

Overall, banks have served four main purposes‹one legitimate, one dubious, one 
puzzling, and one deeply flawed.

The first purpose‹a legitimate one‹is to facilitate commerce. It is often 
cheaper for a business to borrow capital from a bank than to stockpile cash 
itself. This was the purpose of the state banking system in the U.S. prior to 
the Civil War. The state-chartered banks existed to provide working capital for 
commercial transactions, such as stocking inventory, or for business expansion. 
Use of banking for these purposes was tied to specific commercial activities‹the
³real bills² doctrine. Of course credit used for this purpose has a cost which 
is factored into prices. When these loans are repaid, they are canceled at the 
bank which thus removes purchasing power from the economy. This is another area,
besides retained corporate earnings, that contributes to the gap between prices 
and purchasing power identified by C.H. Douglas. But lending for commerce itself
remains a legitimate activity.

The second use of banking‹the dubious one‹is for capital formation in the 
creation of new businesses, a function which overlaps with capital markets such 
as the stock exchanges. But this use very easily turns into lending for 
speculation by permitting investors to borrow money in order to buy stock on 
margin or to ³leverage² investing by borrowing money in order to purchase whole 
companies. The costs of this borrowing also show up in consumer prices without 
introducing any new purchasing power into the system.

This practice has mushroomed in recent decades starting with the 
buyout/merger/acquisition mania of the 1980s and has reached disastrous 
proportions through the creation and growth of equity and hedge funds. The use 
of bank borrowing for such speculative purposes is an obvious abuse that should 
not even be legal. It is actually a form of theft from the nation¹s natural and 
normal store of credit that should be carefully administered by competent public
authorities as a utility as critical to social health as the water supply.

The third use of banking‹the puzzling one‹is for consumer credit. This includes 
borrowing for big purchases such as buying houses and automobiles, or small ones
such as items bought with credit cards. Increasingly it includes purchasing even
the necessities of life such groceries.

Buying an object with a credit card often means that a person cannot afford to 
buy it at the present moment. So the person is gambling that he or she will be 
able to pay off this loan‹including interest‹at some point in the future. What 
is puzzling is that in the midst of what is claimed to be the most productive 
economy in the history of the world, why are most people so poor that they 
cannot buy what they need to live with the proceeds of their present earnings? 
This is the ultimate repudiation of Say¹s Law and its 
derivatives‹Libertarianism, supply-side economics, and the like.

The fourth use of banking‹the one that is deeply flawed‹is the financing of 
government inflation through purchase of public debt instruments which allow 
deficit financing of public activities, most particularly the waging of war. 
Banking for the purpose of financing war has a long pedigree, going back to the 
medieval times where kings were perpetually in hock to the money-lenders. Today 
we have the national debt, which has been used primarily for war, as well as for
the Keynesian pump-priming described previously. A classic case of the use of 
banking for deficit financing of war is the borrowing by the federal government 
under the Bush/Cheney administration to raise the trillion dollars already spent
on the Iraq and Afghanistan wars.

The use and misuse of private sector banking within the U.S. for these purposes 
has never been greater. By the late 19th century, banks had begun to own 
significant amounts of the stock in other industries, so were becoming key 
players in economic growth and development. But much more money became available
for bank lending once the Federal Reserve System came into existence in 1913 and
the Sixteenth Amendment to the Constitution was enacted which allowed the 
government to raise huge amounts of money through the income tax. It was these 
tax proceeds which enabled the government to borrow. The government debt in turn
collateralized the massive bank lending which became characteristic of much of 
twentieth century economic growth. What really drove this growth has been 
technological innovation. The wealth from this growth has been skimmed by the 
financial elite.

The system allowed the U.S. to float the loans to the World War I combatants 
which effectively shifted world financial power to this country over the next 
decade. It allowed the explosion of speculative lending through the 1920s which 
led to the 1929 crash. At that point, banking took a back seat with respect to 
government policy, even though interest rates for bank borrowing were lowered. 
The trouble was that no one could afford to borrow any longer, so the cheap 
credit went unused. During the New Deal and continuing through World War II and 
beyond, the banks mainly played their traditional role as commercial lenders, 
because the government had taken over much of the issuance of credit for 
economic growth and investment.

Then starting in the 1950s and the 1960s, the banks gradually expanded their 
speculative lending activities until the inflation of the 1970s made lending 
unprofitable. At this time, the Federal Reserve took it upon itself to put on 
the brakes by plunging the nation into the worst economic decline since the 
Great Depression.

The recession of 1979-1983 was a totally lawless action by the banking industry.
When Paul Volcker made his decision to act, he took President Jimmy Carter by 
surprise. As described in William Greider¹s history of this era, Secrets of the 
Temple, even the conservative Reagan administration was nonplussed.

But the banks by now had seized the upper hand, a milestone that was built into 
the structure of the economic system and made permanent by the banking 
deregulation of the 1980s. The banks now were free to inflate and deflate 
economic bubbles as much as they liked. As stated earlier, we had the 
buyout/merger/acquisition bubble of the 1980s, ending in the Bush I recession, 
the dot.com bubble of the Clinton years, ending in the stock market collapse of 
2000, and the housing, equity, hedge fund, derivative, and stock market bubbles 
of the 2000s engineered by Alan Greenspan in order to support the wars of the 
Bush/Cheney administration.

Thus a semblance of prosperity has been created by the banking 
system‹accompanied by inflation, growing wealth disparities, consumerism, and 
the ultimate loss of assets by the middle class.

Finally, these bubbles would have been impossible without modern methods of 
electronic processing and cash management, whereby nightly deposits by 
businesses through use of ³repos²‹repossession agreements‹created a huge boost 
in banking reserves that allowed them to turn on the lending like tap water. It 
was the data processing revolution which facilitated the current catastrophe.

The net results of the banking-based economy have been profits to the financial 
industry exceeding $500 billion a year, combined with total societal 
indebtedness‹including personal, consumer, business, and government 
debt‹approaching $50 trillion. No one in public or private life has any idea 
what to do about this debt except to keep borrowing to roll over the increasing 
payments until the dollar is blown away by inflation. Meanwhile, the amounts of 
money have been so great and the knowledge of how to manage it so small, the 
U.S. political system, traditionally ignorant of financial matters, has given up
trying to cope.

Instead, all eyes are constantly riveted on the Federal Reserve and its 
chairman, currently Ben Bernanke. The idea that the central bank should be the 
controlling factor in economic decision-making and for these policies to be 
carried out through manipulation of interest rates is what is called 

Thus the Fed‹an institution that calls itself ³independent within the 
government² but whose branches are owned by the banks‹has control over the 
entire economy. This control is, and should be, the most important function of 
national life. But the U.S. at its core can be called neither a democracy nor a 
republic, given any reasonable definition of those terms. The crash of 1979, for
instance, was the most important economic event since World War II. But it was 
an extra-legal action by a revolutionary power. This revolutionary power was and
is synonymous with the U.S. financial elite.

A Deeper Look at Credit

Where do the banks get the money‹i.e., the credit‹they lend? They do not get it 
from their depositors. Money held on deposit is part of a bank¹s reserves, as is
the federal debt instruments they hold in providing credit to the government. 
The money they lend is created, as John Maynard Keynes wrote, ³out of thin air,²
through the banks¹ fractional reserve privileges.

But as this author has made clear in previous articles, it is really the 
nation¹s natural store of credit which the banks are using. Credit is actually 
the ability of the nation to engage in productive economic activity aided by the
powers of nature‹sunshine, rain, the fecundity of the earth. The banks are 
allowed to monopolize this natural store of credit by the laws of the land. It¹s
a form of privatization which is much worse, much more egregious and 
destructive, than any other form of corporate welfare in existence.

The banks are granted by Congress and the state legislatures a monopoly on 
credit creation by which they control all of economic life. It¹s a travesty 
which negates democracy at every step. In reality, this natural store of credit 
should belong to the public and be administered by the government in some 
equitable way. But the banks have stolen the privilege, and the politicians 
allow it to go on in the most negligent fashion.

Not only do the banks use this store of credit to lend as they please, they 
charge interest for its use. Again as noted in other articles, what we have in 
fact is a system of institutionalized usury, bringing up the age-old question of
the morality of interest rates.

It has long been accepted by reasonable people that any charging of interest 
should reflect a normal level of profit plus risk in order for the practice to 
be ethically acceptable. The idea that interest is an end in and of itself to be
used for financial policy, as is done by the Federal Reserve, is a deeply flawed
result of monetarism and has no basis in legitimate economic theory.

What the Federal Reserve did in 1979 and continues to do today is simply to 
facilitate a system of loan-sharking‹a form of racketeering. Particularly 
notable examples today are the high rates of interest charged for credit card 
use and exploitation of college students by lending money to them for higher 
education. Thus students are in thrall to the banks for much of their future 
with loans that may not even be liquidated through bankruptcy.

Now, today, the banking system has become so overextended by its illegitimate 
activities that it is crashing. This is naturally to be expected. No one should 
be surprised, and no one should expect a different outcome. Rotten fruit stinks 
and is harmful for us to eat. Even mainstream writers such as Martin Wolf of the
Financial Times recognize that the financial industry is totally out of control.
In a November 27, 2007, article entitled, ³Why Banking is an Accident Waiting to
Happen,² Wolf wrote, ³What seems increasingly clear is that the combination of 
generous government guarantees with rampant profit-making in inadequately 
capitalized institutions is an accident waiting to happen ­ again and again and 
again. Either the banking industry should be treated as a utility, with 
regulated returns, or it should be viewed as a profit-seeking industry that 
operates in accordance with the laws of the market, including, if necessary, 
mass bankruptcies. Since we cannot accept the latter, I suspect we will be 
forced to move towards the former.²

But there is another reason the banks have become so powerful, one that few have
recognized. There are underlying reasons for the present financial crisis that 
go well beyond a simplistic explanation based on the psychology of human greed 
or arguments pertaining to ³the war between capital and labor.² The whole war 
may be unnecessary, just a red herring. Because in a system that creates 
abundance, why should people be fighting as though we are facing scarcity? There
is something here that just doesn¹t make sense. Modern industry produces 
abundance, not scarcity. Why then are so many people in the world poor and 
becoming poorer?

We return to the issue of prices being liquidated by purchasing power, the 
central dogma of classical economics, the critique of that dogma by Keynes and 
his supposed solution, which has proved not to be a solution at all, just a 
postponement of the inevitable collapse.

The issue pertains to facts referred to previously that were discovered by C.H. 
Douglas almost a century ago. As stated previously, Douglas was the founder of 
the British Social Credit movement. Returning to the error in classical 
economics and Say¹s Law that prices charged for goods and services are 
completely self-liquidating by the generation of income, Douglas showed that for
a variety of reasons, most notably the necessity of retained earnings and the 
inclusion in prices of the costs of borrowing, sufficient income is never 
returned to the producing economy in order for people to purchase what can be 

But again, Douglas did not say, as did Keynes, that the ³gap² should be filled 
by government borrowing to increase aggregate demand. Instead, Douglas said that
the gap should be viewed as a benefit accruing to all of society from having a 
highly-productive economy where everyone does not have to work all the time in 
order to prosper.

Today, the ³gap² is imperfectly filled by government borrowing and by consumer 
and business borrowing as well. In fact, the power and influence of the banking 
industry over society occurs because it is the banks, utilizing society¹s store 
of credit, which fill the ³gap² through lending, to their own profit.

In other words, Douglas showed how the industrial economy can be made to work 
for the benefit of all. The ³gap,² which all post-Keynesian economists know‹or 
should know‹exists, should be filled by direct payments to individuals by the 
government, either in the form of a National Dividend or price subsidies. This 
is the real solution to the central problem of modern economics. A form of this 
dividend already exists in the U.S. through the Alaska Permanent Fund.

As stated earlier, the National Dividend solution has been known in the 
English-speaking world since Douglas published his epic work Economic Democracy 
in 1918. The Social Credit movement which eventually formed became a political 
force in Britain, Canada, Australia, and New Zealand and still exists.

But Douglas¹s ideas were largely suppressed in the mainstream media and by 
orthodox economic teaching. The Times of London made a decision in the 1920s, 
for instance, that Douglas would never be mentioned in its pages. Douglas 
visited the U.S. in the 1930s and was told to his face by representatives of the
financial elite that he would not be allowed to present his ideas in this 
country. Today, at long last, Douglas and Social Credit are finally beginning to
be known. See, for instance, the new article on ³Economic Democracy² in 

Following is an explanation of Social Credit by Wallace Klinck of Alberta, 
Canada, one of the world¹s leading proponents of Douglas¹s ideas. In his 
comments, Klinck explains the price-income mechanism that defines the National 
Dividend paradigm:

³Consumer prices include all allocated capital charges as additions to price 
which are necessary from an accountancy standpoint but which do not distribute 
equivalent incomes within the same cycle of production.

³Thus consumer prices include allocated charges which do not distribute incomes 
in respect of capital. That is, money is collected from consumers prematurely, 
and cancelled in repayment of bank debt incurred previously by loans issued to 
producers, as if to represent that our real capital is being consumed currently,
whereas it is actually consumed or depreciated over a considerable period of 

³The resultant disparity (i.e., the ³gap²), growing increasingly as capital 
replaces labor as a factor of production, between final consumer prices and 
distributed effective consumer income, is currently Œbridged¹ by ever expanding 
issues of credit issued, or created, via repayable bank loans. Of course, this 
means that charges for financial costs in respect of one cycle of production are
not fully liquidated within that cycle but merely passed on, or Œcarried over,¹ 
as an inflationary charge to be recovered from future cycles of production. That
is, one cannot liquidate, formally and finally, financial charges of today by 
issues of bank credit (i.e. debt) which become a further charge carried forward 
against future cycles of production. Such issues of credit may allow a large 
measure of consumer access to final consumer goods, at the expense of 
exponentially burgeoning debt and decreasing financial liquidity and progressive
price inflation, but they do not cancel the financial costs of production as 
currently accounted‹even though the real, i.e., physical, costs of production 
have been fully met when consumer goods take their finalized form and are ready 
for purchase.

³The essential problem is that the consumer is charged in prices, quite 
properly, with capital depreciation, but, quite wrongly, not credited with 
capital appreciation, which latter historically greatly exceeds the former. That
is, realistically, we should have with passage of time a falling price-level 
with a growing source of income received independently of any incomes earned 
through paid work by participation in commerce or industry. The core mechanisms 
proposed by Douglas to rectify this revealed progressive error in national 
accountancy were the National Dividend and the Compensated Price (compensation 
of consumer prices at point of retail sale) financed by an issue of non- 
cost-creating consumer Œcredits¹ issued, without being recorded as repayable 
debt, from outside the price-system to increase financial independence for the 
individual citizen and to effect a continuously falling price-level as the true 
physical cost of production falls over time.

³The true cost of production is the mean ratio, as measured in monetary units, 
of national consumption divided by that of production--always becoming 
increasingly less than a numerical value of one, as real efficiency increases 
with the use of new technology. Inflation of prices thus will be seen to be a 
fundamental violation of natural law. Money is essentially an information 
system. Inflation of prices is an indication of inefficiency or economic failure
and is an abstract financial denial of the magnificent real advances which 
modern civilization has made in the realm of actual physical production 

³These new Social Credit consumption credits advocated by C.H. Douglas would as 
always already have previous debt claims against them in retail prices and will 
be cancelled, just as is money issued via consumer bank loans at present is 
cancelled, when businesses receive them via retail sales and use them to repay 
their issuing banks in settlement of their earlier commercial loans contracted 
in the usual manner for the facilitation of business operations. Money recovered
by industry via price and replaced to capital reserve has a similar effect to 
its use for repayment of existing bank loans inasmuch as it is no longer 
available as consumer income and can only become so by reissue for a whole new 
cycle of production which creates a complete new and additional set of financial

³Social Credit challenges the historic orthodox acceptance of Say¹s Law which 
states axiomatically that for every financial cost of production incurred an 
equivalent amount of financial purchasing power is issued and no overall 
deficiency of income can exist. While it may be true that Œat one time or 
another¹ in the past an equivalent amount of financial payments may have been 
issued, this is of little help or consolation to consumers if an increasing 
proportion of such income has been permanently canceled as effective income and 
is no longer available for purchase of goods which are currently emanating from 
the production system.²

To conclude this section, we return to the late 1960s and the failure by the 
U.S. government to enact a basic income guarantee or a negative income tax.

We now see that what should have been proposed instead, and what would have 
introduced real economic democracy and given the capitalist system real human 
value was the National Dividend.

But it was never embraced, because the banks were making so much money off the 
system¹s failures and social conservatives were unwilling to ³pay people for 
doing nothing.² The banks were the ones financing the gap between prices and 
income, and they wanted things to stay that way. The social conservatives, led 
by Southern conservatives, were motivated in part by racism. But they were also 
content to perpetuate a system where only the rich who live off their 
investments can be idle. Everyone else is condemned by Adam¹s curse to labor 
from cradle to grave.

And that leaves us where we are right now. We have a monetary system that is 
entirely debt-based. Money is lent at interest then must be repaid, with the 
issuance of credit being canceled and the banks skimming the cream through 
interest. This is why our economic system is such a rat-race and why economic 
³growth² is so imperative. People must constantly produce and sell more in order
to pay off the debt and the interest on the debt. Corners are cut, corporations 
veer out of control, pollution is ignored, taxes are evaded, and the quality of 
life for most of society erodes.

The situation is much worse with a mature, slow-growth economy like the U.S. 
than with developing economies such as those of China and India. The ill effects
are multiplied whenever interest rates rise against real income. But even when 
rates are cut to a de facto level of zero, as Japan has done, the economy has 
become so saturated with debt that no more can be sustained. In the U.S. today, 
the economic ship is sinking, and the banks are running around on the deck 
offering to loan people a very limited number of life preservers, of course at 
considerable profit to themselves.

Again, the root cause of the modern economic crisis is the debt-based monetary 
system which benefits the financial elite above all and which is founded in 
greed and fear. The crisis is ultimately spiritual, where those who covet the 
earth¹s resources steadfastly refuse to observe the injunction of Jesus to ³love
their neighbors as themselves.² Some people wish to live by enslaving others. 
The slaves fight over the leftovers. That¹s really all there is to it. But God 
is just, and such a system must sooner or later collapse into dust. It¹s the law
of cause-and-effect. Karma, some call it.

So are any of the presidential candidates truly trying to prevent the ship from 
sinking or are they just making rhetorical noise?

The Presidential Candidates

In order even to begin to redress the major problems caused by the Bush II 
presidency, the immediate requirement which rushes to the fore is that of 
reducing the disastrous federal deficit. At a minimum, any serious candidate who
is elected president will have to enact a major increase in federal income tax 
rates, especially for the higher income brackets. The Bush II tax giveaways 
which turned the $300 billion Bill Clinton surplus into a $500 billion deficit 
must be reversed.

Secondly, it will be impossible to continue the massive amount of borrowing 
which has financed the U.S. war machine in its military adventures in the Middle
East and have a functioning economy at the same time. This borrowing, along with
the supply-side tax cuts, has wrecked the federal budget and must be eliminated

No matter what any of the candidates say, these are the only two financial 
measures within the framework of the existing system that can have any immediate

Next, a lot of money will be needed to finance the legitimate functions of 
government which the Bush/Cheney regime has neglected. More funding will be 
needed for Social Security and Medicare, though both programs could easily be 
replaced with real income security under a Social Credit/National Dividend 
system. How these entitlements will be funded through the existing system in the
face of the sharp decline in the standard of living for the middle class is 
impossible to fathom. Additional tax revenues are simply not available from an 
electorate for whom an estimated forty percent of income currently is paid in 
taxes at the federal, state, and local levels. And with the weakening of the 
U.S. dollar, endless infusions of funds from foreign investors to float the U.S.
trade and fiscal deficits are not likely to be available without a fire sale on 
U.S. real estate and other assets.

Nevertheless, the 2008 election is one about ³change.² In the polls, over 70 
percent of Americans say the country needs to find a new direction. This is a 
staggering number. Of course it leaves 30 percent who think things are just 
fine. This 30 percent provides the core support for those Republican candidates 
who want to ³stay the course² with the war and the economy, which they are 
characterizing as fundamentally strong. The status quo candidates include John 
McCain, Mitt Romney, and Rudy Giuliani. The differences among these three in 
substance are minuscule. All effectively are successors to Bush/Cheney in 
claiming to be strong in the War on Terror and satisfied that the economy has an
acceptable future. None are worried about any of the inequities and concerns 
that are so obvious to a majority of Americans.

The Republicans

The Republican Party, from its foundation, was the political expression of 
American capitalism, laissez-faire economics, and private sector control of the 
economy. This does not mean that the entire U.S. financial elite is Republican. 
The elite uses both political parties in different ways. But the Republicans 
certainly provide the most convenient cover for keeping populist government at 
bay. One way it does this is to use the media to distract voters with debates 
over ³social issues,² such as abortion or gay marriage, so they will ignore the 
real economic problems of income equity and wealth distribution.

It was the Republican Party that was in power during the Roaring 20s which led 
up to the Great Depression. It was the Republican Party, under Nixon, that was 
in charge during the disasters of the early 1970s. It was the Republican Party 
that controlled the White House during the Reagan Revolution. Even during the 
Clinton years from 1992 to 2000, the federal government, with cutbacks in 
federal employment and expenditures, was largely out of the picture except for 
the strong dollar policies which brought in the foreign investment that financed
the dot.com boom. Then from 2000 until today, the Republican Party has been the 
chief enabler of the Bush/Cheney catastrophe.

All of the Republican candidates except Mike Huckabee and Ron Paul are 
essentially asserting that economic fundamentals are sound, that everything is 
going to be okay, and that they will resist any attempt by the Democrats to 
raise taxes. They are all attempting to tar the Democrats with the age-old brush
of being tax-and-spend liberals. The big lie, of course, is the fact that Reagan
and Bush II were the biggest deficit spenders in history.

Of the Republican candidates, Mike Huckabee has won support by sounding themes 
that are vaguely populist. He has criticized the outrageously high levels of CEO
compensation. He has endorsed the ³Fair Tax²‹a 30 percent sales tax to replace 
most other taxes. Of course sales taxes are regressive and take a larger 
proportion of income of the poor and middle class than of the wealthy. This 
essentially lets rich people who save or invest off scot-free from contributing 
to common social expenses.

No doubt the Republican candidates find some comfort in the realization that it 
is extremely unlikely that any of them will actually be elected president so 
will ever have to deal with the economic problems their ideological purity 
allows them to deny. If they do have moments where they believe they may 
sometimes reside in the White House, they no doubt realize that as with Bush II,
the Middle East wars give them plenty of excuses for fiscal profligacy and 
continued neglect of domestic issues.

Ron Paul

Ron Paul represents an interesting political phenomenon. Identified with the 
Libertarian movement, Ron Paul is certainly to be commended for his steadfast 
opposition to the Iraq war and for calling for the abolishment of the Federal 
Reserve as an inflation-causing mechanism of the financial elite.

But while Ron Paul favors limited government and the elimination of the federal 
income tax‹both worthy objectives‹he does not explain how the federal 
expenditures which form a majority of the budget‹Social Security, Medicare, 
Medicaid‹can be paid for.

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