Friday, October 12, 2012

Letter to the readers of Forbes

Comment to Op/Ed in Forbes, 10/11/12, by Peter Ferrara:

Obama's Real Unemployment Rate Is 14.7%, And A Recession's On The Way

Ferrara’s analysis of the unemployment situation is spot-on, and matches what we at a local unemployment group in Central Massachusetts have been seeing on the ground.

Working people here almost without exception dismiss the official statistics with contempt, and the general consensus is that the real local unemployment rate including involuntary part timers is somewhere around 20%. And yes, we have seen an uptick in people getting part time work. The mood among those over 40 is deep sullen anger and cynicism masked by fear and a sense of hopelessness. Among younger working-folk there is widespread passivity and disconnection, and a loss of belief in the value of hard work to achieve long-term goals. Truly a social disaster in the making.

Mr. Ferrara’s policy analysis however is wide of the mark. The economy cannot restart if the working people have no spending power, and our spending power is continuing to tank. The amount of money accumulated by the well to do and the corporations is in the trillions, but it won’t get invested in job-creating projects in the real economy unless there is a prospect for making a profit off those investments – which requires an expanding market. So we’re at an impasse, a classic “accumulation trap”.

I am well aware that most readers of Forbes won’t want to hear this – perhaps many of you simply can’t hear it – but the only way out of the trap we’re in is through a massive wealth transfer or liquidation of claims on wealth, far exceeding anything Obama has proposed. This can happen through a deflationary depression and mass scale corporate bankruptcies; through an inflationary depression that wipes out the value of all fixed-principal investments; through a world war that liquidates a large part of the world’s physical capital; or through confiscatory taxes, with the proceeds going to job-creating projects, wealth redistribution or both.

One way or another, one or more of these will happen. Attempting to control every degree of freedom to contain this systemic crisis as the pressure continues to build can only guarantee an uncontrolled and chaotic outcome.

I would suggest to you that the best, least dangerous option for preserving our system and your place in it is the confiscatory tax route – a new New Deal. I don’t blame you a bit for finding that highly objectionable and distasteful, but don’t let that blind you to the virtues of that path. From our point of view also it is vastly preferable to a depression or war, so you could easily make common cause with us.

Many of you still have not forgiven Franklin Roosevelt for what you saw as a betrayal by one of your own, but the truth is that at a moment much like the present one he saved the system and preserved your place in it by finding ways to release the building pressure and effect a peaceful and orderly wealth transfer sufficient to restart the economy. And through a World War - something that won't work out so well in a nuclear-armed world.

We've all shared the experience of playing Monopoly. At first everyone’s having fun.  A point comes where someone is winning - exciting for them, an engaging struggle to stop them for the rest. Then a point comes where someone has won and all that’s left is the inevitable taking of everything the other players have. At that point the winner may be having a grand old time but everyone else has had it. The saving grace in a Monopoly game is that you can always turn in all your cards and properties, reshuffle the deck and start over - or at least walk away and play another day.

Now imagine a Monopoly game where the stakes for the losers are life and death, but the winners won’t restart the game because winning feels so good. That’s kind of like where we are today. You need to ask yourselves, are you committed to saving the game itself so you can play again? Or are you more committed to holding on to being the winners of the current cycle at all costs?
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