Why is the response to economic crisis not more serious?

July 12, 2012

The state of the world economy these days reminds me of the famous telegram from an Austrian general, responding to his German counterpart toward the end of World War One. The German described the situation in his sector of the Eastern front as “serious but not catastrophic”.  In the Austrian sector, the reply came, “the situation is catastrophic but not serious”. In much of the world today the economic situation is verging on catastrophic, but “not serious” seems a perfect description of the political response.

Four years after the Lehman crisis, economic activity and employment in the OECD has not yet returned to its pre-crisis level. Unemployment is at postwar highs in every major European country apart from Germany and, while the U.S. jobless rate is now a little below its postwar record, it has been stuck above 8 percent for longer than at any time since the Great Depression. And in Britain, the long-term loss of output assumed by the government’s latest budget forecasts implies, according to Goldman Sachs calculations, that the six months of the post-Lehman crisis did greater permanent damage to the country’s productive capacity than the Great Depression or World War Two.

Now consider the response. In the U.S., the four years since Lehman have been dominated by economic debates among politicians, media commentators and business leaders on issues that are almost totally irrelevant to unemployment and the pace of economic recovery: how to reduce long-term budget deficits and whether to tweak the top rate of income tax from 36 percent to 39.6 percent. In Britain, the biggest economic controversy this year has been the extension of value added tax to hot pies. Europe’s response to the deepest economic depression in living memory – and an even more alarming xenophobic nationalism that threatens the literal disintegration of the euro and the European Union – has been to debate the bureaucratic “modalities” of bank regulations, fiscal treaties and pension reforms in the next decade.

How to explain this insouciance in the face of the gravest threat to the Western world since the height of the Cold War? In the U.S. and Britain the answer is straightforward, if unappealing: party politics. In Britain, the Conservative-Liberal coalition has managed to lay all the blame for the country’s economic troubles on Labour’s Gordon Brown, so far at least. Thus there has been very little public pressure on the Cameron government to change its economic policies, and no political advantage in doing so.

In the U.S., the Obama administration’s efforts to revive the economy with public spending have been stifled by congressional Republicans, while Democrats have thwarted conservative ideas about using tax cuts to stimulate enterprise, investment and consumption. Business leaders and media opinion-formers have aggravated this political impasse by whipping up fears about budget deficits, despite the record-low yields set by the markets on U.S. Treasury bonds.

The good news is that U.S. politics created a self-stabilizing feedback of sorts. If the U.S. economy continues to deteriorate, the Republicans will probably win both the presidential and congressional elections and would then be free to pursue an aggressive tax-cutting policy modeled on Reaganomics. Big tax cuts would doubtless increase budget deficits, but they might well pull the U.S. out of recession as they did in 1983. If, on the other hand, the U.S. resumes tolerable levels of economic growth and employment creation, then a re-elected Obama administration would have a strong mandate to overcome or co-opt what would then be a chastened Republican opposition.

Now for the bad news, which comes, of course, from Europe. The euro zone, in contrast to the U.S. and Britain, is paralyzed not by cynical political calculations but by profound misunderstandings of economics and finance. European leaders do not seem to understand that the fiscal and banking unions they are relying on to save the euro can only work under a very specific political condition: Restrictions on national sovereignty over budgets and bank regulation (as demanded by Germany and resisted by France, Italy and Spain) have to be agreed on at the same time as mutual support for debts (as demanded by France, Italy and Spain, and resisted by Germany). Moreover, the banking and fiscal unions can only work if they are backed by a central bank commitment to buy government bonds and thereby maintain near-zero interest rates for a long period, as in the U.S. and Britain.

German politicians and voters believe, however, that centralized control over national budgets and banks is sufficient to resolve the euro crisis – and until this control is fully established, Germany refuses even to discuss mutualizing or monetizing national debts. On the other hand, Mediterranean politicians – and certainly their voters – refuse to cede national sovereignty unless Germany offers them the quid pro quo of support for their national debt burdens explicitly and in advance.

This stubborn opposition of national interests and philosophies in Europe, unlike the political gridlock in Washington, will not be overcome just by elections. It seems to take more than a mere economic catastrophe for politicians to get serious in Europe.

PHOTO: A structure showing the euro currency sign is seen in front of European Central Bank (ECB) headquarters in Frankfurt July 11, 2012. REUTERS/Alex Domanski


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

Mr. Kaletsky, the problem is NOT simply “politics” as you claim.

Instead, the problem is the wealthy class has once again gained control of the global economy and has caused it to crash solely by unrestrained speculation — just as they caused the stock market crash of 1929.

In the ensuing years of the Great Depression, due mainly to sensible banking and trade restrictions placed on the wealthy class, the damage to the US economy was contained — but not mitigated, which would have required significant changes in wealth distribution. This was never done, or the country would never have had to face the Great Depression.

In reality, it took the beginnings of WWII to provide the “natural bailout” which Bernanke, for example, has tried to do artificially since 2008.

It isn’t working, nor will it ever work.


Because the wealthy still retain ALL their ill-gotten gains, just as they did during the Great Depression, which is the real main reason the global economy languished for 10 years and did not recover until the “events” leading up to WWII forced a recovery.

The ugly truth is that until REAL DEMAND returns, by whatever means, there will NEVER be a recovery.

The eurozone bailouts will NEVER work because they are simply a continuation of the process of draining of the working class in each country to the wealthy class — this time, instead of “investment”, by increasing the debtload beyond the ability of any country to survive.

The problem is the wealthy class are doing just fine — just as they did during the Great Depression — the real truth about unemployment is that it is NEVER in their best economic interests to stimulate job growth among the working class.

Increasing real growth, which means decreasing unemployment, simply means more concessions that the wealthy class must make to the working class (e.g. the period of growth shortly after WWII saw an immense erosion of the wealth they had stored up from the excessive profits they had accumulated as a result of the artificial demand of WWII).

The object lessons of history are clear, if you care to read the lessons contained there. Increasing the power of the working class is NEVER good for the wealthy class, since it erodes their profits, mainly due to the demands of the working class for higher wages and benefits that are the basis of better living conditions for the working and poor classes.

The wealthy resent having to share their wealth with anyone, particularly the poor, since they don’t really deserve it — after all, if God had wanted you to live like a real human being (i.e. the wealthy lifestyle), He would have made you rich, either through birth or by rewarding your hard work (i.e. “entrepreneurship”).

The problem is that the wealthy don’t like to share their wealth, so this “up by your bootstraps” is mainly bullshit to keep the masses under control by giving them something to hope for, when in reality there is absolutely nothing to hope for for the vast majority of working class or poor behind the facade they project (e.g. the American Dream). Its ALL “smoke and mirrors” totally designed to keep you in your place and them in theirs, as God intended things to be.

In truth, the US middle class is an anomaly never seen before in US history, and the wealthy are very jealous of “their wealth” being squandered on the middle class. As a result, they are busily destroying the anomalous US middle class and converting them into the ever-growing US poor class, which obviously is where they rightly belong.

Many of the US tax proposals are aimed directly at destroying the middle class, just so the wealthy do not have to share their wealth with them any longer.

While it is true that the US middle class once served a “purpose” during the phenomenal growth years after WWII — the “purpose” being mainly to enrich the wealthy class by deliberately creating a consumer society like the world has never seen before — hence, the beginnings of the growth in “easy credit” to the great unwashed, which the wealthy are now deriding as a fundamentally bad idea since these people cannot be trusted with debt.

This, of course, ignores the many decades of responsible handing of debt by the US middle class, until, that is, the US banking regulations grew lax (by the deliberate undermining of the banking laws by the wealthy) and the Great Housing Bubble that ate the world began. In truth, it is the wealthy class that cannot be trusted with debt, since every time they obtain easy credit, they cause a bubble through reckless speculation and the inevitable crash, which the poor end up paying for one way or another. Does this sound familiar? It should, since it describes quite accurately the US and eurozone “financial crisis” as it exists today.

Historically, the “Great Enabler” for the resurgence of the wealthy class was the reemergence of a global economy that is reasonably safe for investment — due mainly to the collapse of the “Evil Empire” and the global communist movement, which was their main threat for much of the 20th century — there appeared far more profitable areas of the world to invest in (i.e. the Holy Grail of China and the 3rd world Asian countries).

THIS is why they no longer want to invest in the US economy, and US corporations would rather sit on their cash than invest it in the US economy. They KNOW the US economy is a zombie economy — one which they created due to their greed — and they are biding their time until conditions for them improve.

What is truly ironic is that it was the US middle class that gave them the phenomenal growth in profits after WWII, but then it became more profitable to invest elsewhere in the world — this coincided with the rise of “free trade is good for” you that the wealthy continued to chant ad nauseam, while as a direct result of free trade the US economy continued to lose irreplaceable manufacturing jobs that were the real support of US consumer spending — thus the wealthy class began the process of draining the US middle class of what they increasingly saw as lazy and indolent, and certainly not worthy of the benefits they were demanding in terms of (especially) health care and retirement. For example, the wealthy began to worry about what would happen to all their investment capital pool from the huge buildup of IRA accounts the baby boomers were amassing to help them survive in their later years (since, unlike European nations, the US has NO socialized system to take care of anyone who falls through the cracks). In fact, this became such an obsession, the wealthy began openly “worry” that the US economy could not survive this massive drain of capital (by its rightful owners, who more likely than not would be in desperate need of that money), so it must be stopped somehow.

(This is NOT the same issue as Social Security, but they are related concepts in terms of how the wealthy view all that money just sitting there doing nothing, especially since they could make better use of it for themselves.)

So the wealthy began to hate the middle class for taking away their profits and giving nothing in return.

Most importantly to the wealthy class, the rise of the middle class is a “zero sum game” that erodes their power — ultimately, power is really the “name of the game” — so with the rise of the middle class they become hampered in their pursuit of free trade with no rules (i.e. they believe in the survival of the fittest, and that doesn’t mean the working class).


Basically, what is good for the working class is bad for the wealthy class, and vice versa. That is the REAL “inconvenient truth” they don’t want you to understand.

All I ask (if you bothered to read this at all) is to think for yourself for a change. The evidence is all there — even in the wealthy-slanted history given to school children so they can be ready to accept their place in society as good little “worker bees”, and cause the wealthy no problems. Its the wealthy interpretation drummed into you since you were a small child that is the lie that must be overcome to understand what is wrong. But you are not children anymore, or are you?

Why has the world fallen apart so dramatically from the promised new start after the disaster of WWII? (this is very complicated, but I have given you some clues above, which is all I can do given this venue.)

Why are the “solutions” proposed by the wealthy class not working, but in fact only making things much worse for everyone else. (This is relatively simple. The wealthy class were caught off guard by the collapse of the global economy — mainly because their greed blinds them to reality — and now they are desperately trying to make sure their ill-advised investments are safe. At your expense, of course.)

Why are the wealthy prospering when everyone else is dying — the irrefutable proof is the stock markets which have made a truly miraculous recover — yet NO single economy (except China, where most of the wealth has gone) is showing ANY signs of recovery. (Because the wealthy totally control the global banking system, which by definition is beyond any control by any one country, thus it has become the complete unfettered free trade of the 1920s all over again. The solutions then, as now, are to regulate banking and trade so that it reverts to what it should be — a factor in growth for the economy — and not what it is now.)

The short answer to these questions, and a whole lot more of the world’s economic problems, if you stop to think about it, is simply: “IT’S THE WEALTHY, STUPID!”.

Mr. Kaletsky’s answer that this is politics is only rational if you view the wealthy class as vultures picking apart what remains of the global carcass they managed to kill through their unremitting greed.

Posted by Gordon2352 | Report as abusive

To @Gordon2352: You say “Mr. Kaletsky, the problem is NOT simply “politics” as you claim.
Instead, the problem is the wealthy class has once again gained control of the global economy and has caused it to crash solely by unrestrained speculation”

@Gordon, did you ever consider the ideas that, A) without the “wealthy class” to create an economy, what jobs would there be?, and B) In the majority of Western Europe and the US, there is mobility between the “wealthy class” and “workers”; i.e. today’s worker can be tomorrow’s wealthy…especially in the US. Poor people are equally greedy as rich people…an axiom of the human condition. If you punish this faceless/fluid category of people for being “greedy”, you are really just punishing anyone who succeeds, thereby reducing the incentive to succeed, thereby throwing a wrench into the wheels of human progress and achievement.

Posted by sarkozyrocks | Report as abusive

Well, the first comment is possibly longer than the article! It is nonsense of course. Corporations are sitting on cash because of economic uncertainty caused by what are perceived as socialist policies of the current President. He is anti-business and anti-American, which makes it difficult for him to lead an American economy. The corporations are afraid to spend because they think there is a lot more regulation and government-caused expenses coming. If the Republicans take control, I expect the economy to improve forthwith (assuming the overturn socialist legislation and return to creating an American capitalist society).

The only other thing I’d like to point out is that the Depression was most likely prolonged by the Roosevelt administration through their well-meant social programs that didn’t fix anything. WWI pulled Mr Roosevelt and his policies out of the hot water they built. Even the administration representatives admitted (around 1937) that none of the social programs had worked to end the Depression.

Posted by stevedebi | Report as abusive

@ sarkozyrocks and
@ stevedebi

I stand by what I said.

Both of you are simply repeating the same claptrap that the wealthy class uses to mask what they are doing.

It is a proven fact that, given more revenue, the wealthy do NOT create jobs. And if you are not wealthy there is no upward mobility. I don’t object to greed as a driver, but unless it is harnessed by proper regulation and taxes, it will destroy society. That is exactly what it is doing right now.

Also, “If the Republicans take control, I expect the economy to improve forthwith (assuming the overturn socialist legislation and return to creating an American capitalist society”. Although you didn’t specify what you meant by that, I assume you mean a return to the good old days of workers living in substandard conditions without any health care or retirement.

If that is your idea of an “American capitalist society”, we are better off without it and you.

Come on people, isn’t there someone out there with some intelligence who can give me a real alternative argument to what I have said?

Posted by Gordon2352 | Report as abusive

What I said may sound radical, but I am not.

What we are doing to the US economy is NOT sustainable and NONE of the proposed “solutions” will produce anything except more pain for everyone — the middle class and poor in the short term and the wealthy in the longer term.

We CANNOT continue to allow the massive spread in wealth go unchecked, or we will not survive as a nation.

Free trade and capitalism, as it is being practiced in the US today, is EXACTLY what Adam Smith warned us against in his “Wealth of Nations”.

Why can’t you people understand that?

Posted by Gordon2352 | Report as abusive

“In the U.S., the Obama administration’s efforts to revive the economy with public spending have been stifled by congressional Republicans….”

Anatole, snap out of it.


FYI all the “stimulus” went to pork as directed by Nancy Pelosi, Obama and the Dems’ FACT

FYI The restructuring of GM and Chrysler was done by stealing the bonds and pensions of mostly union retirees and workers in subsidiaries. FACT

The Republicans were guilty bystanders, so you may be right for the wrong reasons Anatole

Posted by JP007 | Report as abusive

Kaletsky is an old school capitalist putting forth the idea that capitalism is reinventing itself into a new improved version. Read his book. Like nearly all mainstream economics “experts”, he is still living back in the gold standard days and doesn’t understand that there was a paradigm shift when Nixon closed the gold window. The wealthy are right there with him, believing that America can actually go bankrupt! That the day will come when American banks won’t cash federal government checks! How crazy is that! By the way, if they really want to pay down the deficit they should just demonstrate to financier Warren Mosler how America can unwillingly go bankrupt. He has a standing offer to donate 100 million dollars to reduce the deficit if anyone can prove that the USA has the potential to someday go bankrupt. Check it out.

Posted by Beshiva | Report as abusive

Gordon2352 speaks the truth!

Posted by noonies | Report as abusive

The mistakes made by Japan (the best model to use as reference) was to continuously under ball the stimulus because the BoJ was and still is fighting the prospect of inflation (which it should have been doing in the boom not now).
The global economy in this situation requires co-ordinated inflationary policies (QE) until we have real growth running then and only then do we worry about rowing back.
This gives the indebted a chance to get to grips with their fiscal deficits and stay solvent and the necessary transfers, from the surplus countries to them takes place, with less pain than the alternatives.
The problem is that the Eurozone only acts nationally, neuters the ECB, but shares a currency.
Obama needs to bang foreign heads and central banks have to be given new criteria.

Posted by Northwesterner | Report as abusive

Having one world bank that could synchronise all the banks to devalue all money at the same rate is stupid too.

Can’t the people who know this explain it to the other people, please.

This iteration of capitalism is based on growth, it has to grow. Where are we expecting the next doubling of world GDP to come from? The one after that? The one after that?

USA GDP doubles every 12 years and has done since 1913. If there is no growth then the value of the dollar must half in each 12 year period.

Blah blah blah, I am wasting my time.

Posted by DR9WX | Report as abusive

My apologies to Gordon2352. (He is not stupid.)

Please read his post.

Then think about it.

Posted by DR9WX | Report as abusive

sarkozyrocks, I humbly disagree.

Posted by DR9WX | Report as abusive

The ultra wealthy are lazy. They expect their capital to grow and grow whilst they do no real work.

How can a pile of dollar bills earn more money then me, an actual person?

Or what about a bank that will lend you 200,000 for a house. But then expect everyone else to do the work. The banks fee for this valuable community service? About 340,000.

Why would you pay 540,000 for a 200,000 home?

Mind you without the wealthy we would all be sat in caves. I think not.

Posted by DR9WX | Report as abusive

To prove my points above, here is an excerpt from today’s UK Guardian.

The DOW is up over 175 points, mainly on the increase in bank profits (e. g. Well Fargo is up 17%), so the bank profits are surging.

The question is WHY are the bank profits, and international companies profits soaring, when the US economy is struggling to survive?

Let me give you a hint. This is an excerpt from the UK Guardian about the Chinese economy.


Retail sales growth in June fell to 12.1% from 13.8% the previous month, while growth in factory output ebbed slightly from 9.6% to 9.5%.

Fixed asset investment growth – the key driver of economic expansion over the last decade – was 20.4% in the year to June, slightly above expectations, with a sharp acceleration in the last month.


IF the US economy had retail sales and capital investment at even a fraction of those rates, we wouldn’t be having a single economic problem (except what to do with all the money pouring in).

It is “real time” proof of what is wrong with the US economy and its “free trade” obsession with the Chinese for the past 30+ years. THIS is NOT free trade — it is MERCANTILISM! The wealthy-owned government is lying to you. THIS is NOT globalization — it is stealing the American people blind, and destroying their future, all for the sake of profits for the wealthy.

The Chinese figured out in the late 1970s how to beat us at our own game by liberalizing trade with the US, but by using Mercantilism instead of Capitalism. THIS is what is going on — a MASSIVE wealth transfer from the US to China.

World English Dictionary
— n
1. economics Also called: mercantile system a theory prevalent in Europe during the 17th and 18th centuries asserting that the wealth of a nation depends on its possession of precious metals and therefore that the government of a nation must maximize the foreign trade surplus, and foster national commercial interests, a merchant marine, the establishment of colonies, etc.

An economic doctrine that flourished in Europe from the sixteenth to the eighteenth centuries. Mercantilists held that a nation’s wealth consisted primarily in the amount of gold and silver in its treasury. Accordingly, mercantilist governments imposed extensive restrictions on their economies to ensure a surplus of exports over imports. In the eighteenth century, mercantilism was challenged by the doctrine of laissez-faire. ( See also Adam Smith.)

It is “real time” proof of where our manufacturing jobs have gone, and why the wealthy refuse to invest in the US economy when they can earn massive profits overseas (much of it parked in tax free accounts that is not taxed until they “repatriate” it (i.e. bring home and declare the profits as income, which they will NEVER do).

It is “real time” proof that we need to curb the banks with proper regulation, AND stop this insanity of “free trade” that is destroying this country.


How stupid can the American people be not to see what is going on?

You are the victims of a massive scam perpetrated by your own government that has gradually loosened banking regulations and tax laws to promote trade overseas that benefits ONLY the wealthy class.

Don’t take my word for it. Read the article!

http://www.guardian.co.uk/business/2012/ jul/13/china-economic-growth-slows-gdp

Posted by Gordon2352 | Report as abusive

Banks, crumbling ethics and a shrinking middle class

A liberal, capitalist democracy – and a middle class – can only thrive in a culture where the rule of law is respected, information is reliable and the playing field is as level as possible. If we abandon that, we lose much more than self-respect. We squander a way of life.

http://blogs.reuters.com/david-rohde/201 2/07/13/banks-crumbling-ethics-and-a-shr inking-middle-class/

Posted by Gordon2352 | Report as abusive

The 1 percent vs. President Obama

This is more than a fight about taxes. It is a fight about whether 21st-century capitalism is working for the American middle class and who should pay to fix it. The Republicans are telling Ronald Reagan’s story of trickle-down economics – the winners in the capitalist contest are “job-creators” whose prosperity helps everyone else. The wealthier they are, the wealthier all Americans will be.

The Democrats are challenging that win-win story of American capitalism. Their contention is that the U.S. economy is failing the middle class. They argue that those at the top need to contribute “a little more” to help rebuild the American middle. Even more threateningly, they point out, as in their critique of Bain Capital, that some of the business strategies that have enriched the elite have actually hollowed out the middle.

It is this last argument that most enrages the 1 percent – and it should. Obama’s most extreme critics delight in accusing him of being socialist and sometimes communist. That charge is not just overheated, it is plain wrong. But American capitalists are right to sense a challenge from the White House, which is about more than tax rates or bruised pride. The president is arguing that what works for the top of the United States isn’t working for the middle, and that is a criticism the country’s lionized elite hasn’t heard from its leader in a very long time.

http://blogs.reuters.com/chrystia-freela nd/2012/07/12/the-1-percent-vs-president -obama/

Posted by Gordon2352 | Report as abusive

This insightful and balanced article by Anatole Kaletsky has been ruined by the political jibes of the commenters, which is a problem with Reuters free forum, that ironically I am participating in.

That said, while @Gordon2352 has many valid points, it is clear that his conclusions are as overly simple as his free market counterparts.

The contrast between the financial and political problems has been keenly pointed out by Anatole Kaletsky. However there is one additional point he alludes to that warrants further discussion and that is the failure of representative democracies to find a way out of our economic woes. Idealist rhetoric has superseded the effort to create more jobs by making this a battle over taxes and debt instead of what kind of jobs we want to create and championing policies to make that happen.

In the US, the Republican platform is simply to reduce the size of the government to get the free market moving. The debt issue is nothing compared to Europe but it has a certain populist appeal especially in connection with “no new taxes”. But these ideas are empty of any significant job generating value and are best suited to keeping the recovery from gaining steam in order to defeat Obama. However, after the election, no matter who wins, the American economy should limp along with the structural problems identified by @Gordon2352 among others.

Europe, however, is a looming catastrophe that can only be resolved by a strong central banking system and debt forgiveness that is unpalatable to the bankers and Germany. In this way @Gordon2352 is right, those that have benefited the most from the system are the only ones who can afford to fix it. Unfortunately everyone else is divided.

Is this a conspiracy or simply greedy people finding ways to maximize returns. I know Milton Friedman would say maximizing profits is what the free market does best and it’s what will create the most jobs. But the oligarchs have not created jobs with their vast wealth even with low taxes and insufficient regulation.

What needs to be done is for our leaders to identify what kind of jobs we want– like engineers or doctors or teachers or construction workers or child care providers– and then implement policies to manifest them. One idea that seems obvious is to stimulate growth of elder care providers. As baby boomers age, the need will grow. The demand will be there. But the supply really isn’t. How come the free market is only going after the expensive care? Maybe we need Government to help stimulate supply. That kind of supply side thinking might actually work.

Posted by LEEDAP | Report as abusive

Thanks Gordon2352 for your excellent comments – I agree with pretty much everything you said. And shame on the deluded chumps who keep saying we have to bend over for the “job creators”. Let me tell ya’ll a little secret – the job creators aren’t creating any jobs, and they don’t want to. Their stocks have recovered, and they’re getting paid massive bonuses again. The threat of rising unemployment and poverty is their tool to increase worker productivity while reducing wage expenditures.

Posted by JohnnyRascal | Report as abusive

Repaying debt infringes prosperity as noted by Hayek. Paying debt is not a crisis.

Posted by mulholland | Report as abusive


Well, finally someone with a “modicum” of intelligence to challenge my assertions.

You are right, of course, that arguing in this venue is pointless, and hence my frustration. But there is realistically no other way to reach the vast majority of people with what I believe are points that should be made by US news media, but will never be due to wealthy bias or censorship.

Nevertheless, I am right and you are wrong.

In order to prove that point, I am including an excerpt from Wikipedia about Adam Smith and what he said in the Wealth of Nations — not the best source, I admit, but it will have to do.


“Smith’s statement about the benefits of “an invisible hand” is certainly meant to … show Smith’s belief that when an individual pursues his self-interest, he indirectly promotes the good of society.

Self-interested competition in the free market, he argued, would tend to benefit society as a whole by keeping prices low, while still building in an incentive for a wide variety of goods and services.

Nevertheless, he was wary of businessmen and warned of their “conspiracy against the public or in some other contrivance to raise prices.”[80]

Again and again, Smith warned of the collusive nature of business interests, which may form cabals or monopolies, fixing the highest price “which can be squeezed out of the buyers”.[81]

Smith also warned that a true laissez-faire economy would quickly become a conspiracy of businesses and industry against consumers, with the former scheming to influence politics and legislation.

Smith states that the interest of manufacturers and merchants “…in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public…The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.”[82]


As you can see, what we have today is EXACTLY the same “conspiracy of businesses and industry against consumers, with the former scheming to influence politics and legislation” that Smith said would result from an attempt to implement a full laissez-faire economy.

THAT is our problem, pure and simple.

Yet none of our leaders or academics can seem to understand the fundamentals of free trade, nor the result of what unregulated free trade has done to our economy thus far. And, as you say, the “Republican platform is simply to reduce the size of the government to get the free market moving”. Moving where, exactly? Towards Social Darwinism that will destroy this nation?

I am an ardent advocate of free trade, but not of the neocon version of free trade that is ruining this nation. In fact, as I pointed out, since the early 1980s, the Chinese have been practicing Mercantilism, not Capitalism — with, of course, the appropriate substitution of fiat money instead of the accumulation of gold and silver, and the proof of that is in our massive negative balance of payments.

This is critically important: the Chinese astutely realized that the “fatal flaw” in Capitalism is exactly that which Adam Smith identified — it is highly susceptible to greed and manipulation.

In truth, we are at war with China, an economic “existential” war that we will not survive unless we understand what trade with China means to our economy. The fact is that the Chinese have managed to systematically strip the US of virtually all its labor and resources.

Due to the greed of the wealthy class, we have effectively sold this country into economic slavery for the benefit of the 1%. THAT is what is wrong with this country, and no amount of planning for the right kind of jobs will make any difference.

The wealthy-dominated government IS the problem. NOTHING constructive can be done towards our future until we rid ourselves of the wealthy control over the government.

There are preventative steps that we could take, such as severe restrictions on lobbying — as in NO lobbying at all — since it is nothing more than legalized bribery of government officials.

Term limits of ONE SINGLE TERM for ALL government positions are an absolute MUST, since familiarity with the process and personal access to government officials leads to bribery.

To prevent the loss of continuity the US should stagger elections of key government officials, and implement a ruling council of at least three members, instead of a single president. Right now, there is no way to recall any government official who is “behaving badly” and the country suffers for it for four years. We are buying a “pig in a poke” so to speak (since professional politicians will tell the American people anything to get elected) and that MUST stop. Franky, we need a huge dose of honesty injected into our elected officials.

Prevention of entrenched government power would certainly go a long way towards solving our present problems.

An absolute MUST, as I said, is strong banking, trade and tax regulations that promote the US economy and provide penalties for those companies that choose to locate elsewhere to access cheaper labor and looser environmental regulations, simply to increase their profits at the expense of the American people.

(1) For banking, we should implement an updated version of the Glass-Steagall Act of 1933 to curb the excesses in our banking system. Only a complete fool believes that commercial and investment banking can coexist without serious conflicts of interest arising in speculation, which is the cause of our present crisis.

(2) For trade, we need an updated, selective version of the Smoot-Hawley Tariff Act of 1930, in order to properly control our trade balances. Simply put, if the trade with a particular nation is not free trade, with both nations profiting from it, then the trade is discontinued.

(3) For taxes, we need to throw out the present tax codes, which are filled with loopholes designed to aid the wealthy earn more profits — and most egregious of all, promotes the loss of US manufacturing jobs which are the key to our survival — and replace it with a simpler PROGRESSIVE tax code that includes NO exceptions for anyone, meaning ALL income FROM WHATEVER SOURCE is taxed equally.

Most importantly, we MUST return to the idea that the US is a sovereign nation, whose FIRST priority is to survive — ALL laws and regulations MUST take that into account — or they are simply, by definition, unconstitutional. This idea should be intuitively obvious, that if the US economy does not prosper, we will not survive. But apparently our own government does not understand the law of self-preservation MUST come first before anything else.

The liberal movement sweeping the globe — the idea of globalization — is a false god, and exists only in the minds of those in power. However, many other leaders know that globalization is a scam and to stay in power they must retain control of their own country. China is the classic example of how we should conduct our business. The Chinese do not get involved in foreign affairs, nor take economic steps that would endanger their economy. The rule of reason and practicality should guide our nation.

The “Great Game” is NOT dead as liberals would have us believe. Human nature has NOT changed, and never will. We have deluded ourselves into thinking this Pied Piper is real, and that we can peacefully coexist with other nations without treating them as potential enemies.

Environmentalists are much to blame for this incredibly ignorant idea that we are all just one big family, and if we could just get along, everything will be all right. Thus, because we are gullible, other nations are demanding we shoulder the debts of the world for our profligate lifestyle. In truth, China, who is one of our biggest detractors is desperately trying to bring the US lifestyle to its own people. We are the victims of a massive scam, driven by nations who have a strong desire to see this country humbled or wiped out. They have done a good job of it thus far.

Our arrogance and failure to treat our nation with respect, as the only home we have, since WWII has led us to this point. Our politicians MUST be held accountable for the survival of THIS nation, and NO other, or be faced with the charge of treason, which is what they are committing by violating their oaths of office.

Enough of this tirade. Hopefully, you understand why you are so terribly wrong in your comments.

By the way, Milton Friedman was in idiot. Too bad so many of our leaders think he was some sort of god.

Posted by Gordon2352 | Report as abusive


By the way, your underserved, overly-enamored praise about “This insightful and balanced article by Anatole Kaletsky” still misses the point that he is dramatically wrong about “Why is the response to economic crisis not more serious?”.

First of all, lumping the US, the UK and the eurozone into a “one size fits all” is beyond comprehension. Each of these has separate issues that only superficially reflect those of the other two, mainly the result of an out-of-control global banking system, which he does not address at all. In fact, his total lack of understanding of economics is truly astounding.

He is no better than those he criticizes by stating the response to the crisis has resulted in “economic debates among politicians, media commentators and business leaders on issues that are almost totally irrelevant to unemployment and the pace of economic recovery”, since he offers no solution either, simply a rehash of the same problems. How, exactly, does this article contribute to a better understanding of the global financial problems?

Clearly, he does not understand the issues any better than those he castigates.

This article, as with so many others like it, applies the old maxim “if you can’t dazzle ’em with brilliance, baffle ’em with bullshit”.

Frankly, I am sorry that I ever read the article, mainly because it made me so angry that I chose to respond, which as you point out is pointless in this news source, since it caters to the masses and not the truth.

@ mullholland —

Hayek and Friedman are simply two sides of the same coin, except Hayek doesn’t have the requisite education to understand what he is talking about at all, whereas Friedman at least has the credentials, except he is totally wrong.

I have little patience with willful ignorance.

I’ve already wasted far too much of my time on this Quixotic quest, and will not respond to any more who simply refuse to understand the truth.

Posted by Gordon2352 | Report as abusive

Simple recipe:

– tax offshore outsourcing
– put up some import tariffs
– cut some corporate loopholes
– lower corporate tax for small business

You will see some good results in 2 years.

Posted by robb1 | Report as abusive


Posted by ReutersTruth | Report as abusive

Add this to recipe above………

Bring about an Ill gotten gains panel, like their ‘end of life planning death panels’…..find the cheats!

Bring on 10% flat tax, across the board, income, inheritance, capital gains, interest.

No pay for elected politicians while the deficit grows.

Break up Big Banks, Big Box Retailers, Big Insurance, Big Pharma,Big Oil,- hit the reset button…………make things small again.

Reinstate Glass-Steagal act.1933

Start reducing ‘entitlement’ programs 10% a year.
Start reducing government 10% a year.

Restart Domestic oil drilling.

Start inserting real gold into the dollar.

English only in government, business and reinstate the draft for disciplining yutes, for public service, and legalise the old fashioned corporal punishment- this alone would INSTANTLY curtail criminal careers down the road.

Convert prisons to self sufficient kibbutz style co-ops.

Reinstate censorship in entertainment and media….
If the entertainment is violent, destructive and negative- it has no redeeming value for sale in a healthy, positive growing society.

Tax imports to parity U.S. valued made goods, why should imports be allowed to harm American Taxpayers who manufacture the same as the imported goods?

Expire paper currency every 12 months.

Make the DEA self financing.
Legalise marijuana.

Allow states control over their own borders.

Criminalise false & deceptive media advertising.

Withdraw military from foreign conflicts-
reserve military only for defense…..
Open bid ‘subcontractors’ for resolving offshore disputes.

Close TSA & homeland security and allow people to carry their own guns in the open. (unloaded).

Give airlines discretions to choose their passengers & manage their own security.

Reduce 50% taxes on all fuels.
Eliminate taxes on home made fuels.

Cut foreign aid to countries 50%

Posted by ReutersTruth | Report as abusive

I am a designer and have not learnt economics seriously. I think the root of the problem is corruption and cold war mentality occured in the very top level at Washington DC.

I said not just once in the media. It is inconceivable for me as a foreigner that US presidents, state governors and senators etc can openly accept money from rich people for their election campaigns prior to their incumbencies. This should constitute bribery and corruption no matter you call these monies donations or whatever. It is very natural for any normal men to work for or to try to benefit those helping these people to secure a job with financial support. They are just human beings, not saints.

I still believe free trade and globalization can definitely benefit each other. The production advantages in America are long established high tech products and services which are so complete there from ideas and conceptual inception, preliminary design, product design, engineering development until manufacturing. While China has the advantages of providing cheap land and labor costs, relatively stable business environment and a relatively stable government and thus society compare with other developing nations. Therefore the two nations are bound to be good complements to each other. A Chinese minister once said a Boeing aircraft bought by China worths a billion pairs of shoes exported to America.

The chronic trade deficits occured in America is caused by arms embargo or sanctions imposed to China since 1989. Strictly speaking virtually all high tech products are militarily related, from computers, engines to aircrafts etc. The PLA has openly used civilian airliners for airlifting troops recently. Then Americans would have nothing, which they are good at, left for selling to China if they really mind.

China has been forced by this cold war thinking to invest abnormally heavy on speeding up her own development of high tech industries. I figure it will take at least a decade or two for us to catch up. That means Americans still have ample chances in the coming 10 to 20 years. Please take this chance to make some money for easing your trade defitcits, jobs and federal debts. You cannot let the businesses sitting there for 2 decades and keep on waiting until we can make our own.
I was told here in China that she was forced to turn to Europe for high tech products and services due to hardline policy at early stage of Bill Clinton’s term, and consequently China becomes quicker than expected substantial customers of Airbus, Ericson etc.

By the way I am a common Chinese who do not like and care much about communism and any other political doctrines. I am free and enjoy my own living here, and do have some American friends. I hope my opinion may be helpful to you guys.

Posted by Kailim | Report as abusive

@ Kailim —

Thank you for your response. It is a pleasure to hear from someone outside the “system”.

I would like to clarify that I mean no disrespect to China, nor the Chinese people, for whom I have great admiration. China is doing no more or less than we should be doing, but aren’t. China is protecting their national sovereignty.

It is TOTALLY the fault of the US government for the dismal economic circumstances related to trade with China.

Posted by Gordon2352 | Report as abusive

One final comment on Mr. Kaletsky’s question as to “Why is the response to economic crisis not more serious?”

I posit that the response is not more serious (strictly, in the US) because there is NO crisis.

I posit that the wealthy class do not see this as a crisis, but simply the US economy functioning as it should — except for the faux pas of the shift in government policy, while they were at their weakest during the Great Depression, to include social programs for the American people that NEVER existed before, and they CERTAINLY see no need for now.

THIS is really the crux of the matter that no one speaks about, or probably even recognizes.

And that is the underlying Protestant Work Ethic that the wealthy firmly believe in, which is why they are fundamentally unable to understand the need for social programs such as the European nations adopted decades ago as a matter of human justice and an integral part of society.

The Protestant Work Ethic (per Wikipedia) “is based upon the notion that the Calvinist emphasis on the necessity for hard work as a component of a person’s calling and worldly success is a visible sign or result (not a cause) of personal salvation.”

Notice especially the idea of “worldly success being a visible sign” of God’s approval and their salvation. Thus, those who do NOT prosper — regardless of their personal circumstances of, say, birth, gender or race — are not deemed worthy, because they are obviously damned by God. It is as though God, Himself, was telling them they are acting within the moral good, and to do otherwise is to go against God’s wishes.

Therefore, as I said above, the idea of the moral right of the wealthy class to be above the other classes is God-ordained, and cannot be challenged.

The wealthier they become, the more they begin to believe this, until it is ingrained into their class, and for the most part are not even aware of it, since it is their natural right.

The fact that they are NOT actually God’s ordained people is never questioned, nor the fact that others in society have an equal right to the fruits of their labors, as well.

How does this relate to the issue of this not being a crisis for the wealthy?

First and foremost, the unequal distribution of wealthy of the 1% from the masses is proof of their underlying beliefs.

But underneath that belief, there is the issue of how the US government is supposed to be run, versus how it is really run today.

If you notice, many are calling for a return to the original US Constitution, which was a good deal less liberal than the legal structure we presently live under today.

In truth, except for the relatively recent growth in liberalism, this country is really living according to the precepts of the US Constitution, and thus functioning EXACTLY as our Forefathers envisioned in 1776.

How is that, you ask?

Well, the US Constitution was basically set up to run as a two party system with the wealthy class firmly in control of the country.

And THAT is really what we have today.

This is NOT a Democracy, nor was it EVER intended to be one, and the “rights” laid out in the US Constitution were never intended to be applied to anyone who was not wealthy.

So, the wealthy say, what is your problem?

Everything is working just fine, except we need to get rid of ALL this social legislation that is fouling up what could be a great place to live, with increased personal freedom and less taxes.

THAT, Mr. Kaletsky, is really why the US response to the economic crisis has not been more serious.

I wouldn’t feel bad for not understanding that if I were you, since NONE of the American people really understand it either.

The wealthy class really doesn’t see anything wrong, and the middle class — about to become poor, as God intended — understands vaguely that something isn’t quite right because the rhetoric from the wealthy class doesn’t match what is happening on Main Street, but they haven’t a clue either. The poor already know the system is stacked against them, but I am not sure they understand why either.

Thus, because we do not understand who and what we are today, this nation is about to go over a financial cliff, which is guaranteed to destroy this country and everyone in it.

The irony of it is that we can’t seem to see the “forest for the trees”, so no one understands why it is happening, or what can, or even should be done about it.

Posted by Gordon2352 | Report as abusive

The proof for what I have said above is in how we conduct our personal and public lives.

No other country on earth is as obsessed with sex (as in puritanical beliefs that don’t match reality, such as birth control and abortion), religious freedom, and racial equality as the US, yet this country has less freedom than most of them, especially the OECD countries.

On the other hand, we see nothing wrong with blithely cheating our elderly citizens out of Social Security (that they paid into themselves as a payroll tax), and wiping out IRAs for the baby boomers to prevent them from accessing their own funds.

There is NO social network at all in this country, unlike ANY of the other OECD countries.

And if a person “falls through the cracks” for ANY reason whatsoever, they would lose literally everything they have and be forced to live on the streets.

Is THAT really what God intends?

We are living EXACTLY the same principles as our Founding Fathers in 1776 — laws protecting race, sex and religion not withstanding — and have not progressed one single bit since then in terms of moral behavior and human rights.

What we fail to understand is who and what we really are — perhaps because the truth in this case is pretty damned ugly — thus the US is perhaps one of the greatest hypocrites on earth, continually preaching morality to other nations, when in fact we have little enough ourselves.

WHY would ANY other country want to model itself as an American “Democracy”?

What we NEED is a good dose of reality, and I think it is coming quite soon.

Posted by Gordon2352 | Report as abusive

@Gordon2352 (July 13th)6.38

You have absolutely hit the right spot..that is the reasion why 1500 billion dollars of QE have not worked

For those who read German (2006)

German magazin, September 2006:

“Westdeutschland holte eine Zeit lang zwar tuerkische Gastarbeiter ins Land, aber fur sie galten schon nach kurzer Zeit dieselben Regeln wie fuer die Einheimnischen.

Auch zwischen Europa und Amerika wiesen die Arbeitsmarkte keine allzu grossen Unterschiede auf. Die Unternehmer diesseits und jenseits des Atlantiks waren Konkurrenten, nicht Rivalen.

Sie zahlten Loehne und keine Almosen. Kinder waren Kinder und keine Knechte. Die buergerliche Gesellschaft sorgte fuer einen zivilisierten Umgang zwischen Arbeitnehmer und Fabrikant, so dass beide nach all den wusten Jahrzehnten von Ausbeutung und Klassenkampf deutlich naher zueinander rueckten.

Das westliche Kapital hielt sich in grosser Entfernung Zu den Armuts-Galaxien auf. Man kaufte dort ein, aber man liess sich dort nicht nieder, weshalb auch die Arbeitsplaetze nur eme geringe Neigung verspuerten, den Westen zu verlassen.

Dieser Graben zwischen dem Westen und dem Rest der Welt ist mittlerweile zugeschuttet. Die Kapitalisten sturmen abenteuerlustig hinueber, sie machen von der neugewon¬nenen Reisefreiheit reichlich Gebrauch. Breitbeinig stehen sie da, die aufgeschlagene Weltkarte in der Hand.

Sie besichtigen die entlegensten Orte der Erde in der erklaerten Absicht, sich dort niederzulassen. Die Summe aller Direkt-investitionen, also jener Gelder, die von einer Nation ausserhalb der eigenen Landes¬grenze investiert werden, betrug 1980 nur 500 Milliarden Dollar.

Der Kapitalist alter Schule war ein eher haeuslicher Typ. Mittlerweile sind die jahrlichen Direktinvestinonen auf zehn Billionen (- trillion in English) Dollar gestiegen, ein Plus von fast 2000 Prozent in nur 25 Jahren.”

That is what it’s all about, we (the people)are propping up the trade balances of state capitalist countries, because of our merchants making good money in the process of killing our jobs that way.

Posted by Checksbalances2 | Report as abusive

This August will mark forty-one years Since Richard Nixon took us off the gold standard. And it’s been quite a party – ask any Boomer.

When we became free of the shackles of a gold standard, which required that the Fed cannot print money unless it has an equal amount of gold in its vaults, we got drunk on credit. There were no longer any restraints on credit. If we couldn’t make the payments, we would just borrow more . . . and more . . . and more.

Credit increased from $1 trillion in 1971 to $50 trillion today. That meant that we increased our standard of living accordingly and America became the poster child of affluence.

Although this was all on paper and no more than a huge Ponzi scheme, who cared? The day of reckoning was so far in the future that nobody paid attention.

There were some recessions when we overtightened credit a bit, but we always got out of them by more borrowing and more feeding of our credit monster (and ya’ll know what happens when you create a monster and don’t feed it – it eats you up)!

This easy credit worked pretty well until 2007 when credit went so far over the top that it all hit the fan. It collapsed because we were at the limit of how far we could extend our credit. In 1952 our private (you and me) debt to income ratio was 40%. In 2006 – 126%.

After thirty-six years; our credit card was maxed out. We could not make the payments. Investors threatened to call in their tickets as well, and the financiers didn’t have the hard money.

But we squeaked through again with massive amounts of newly printed money thrown into the system of banking, backed up by nothing more than our promise to pay it back. And the banks recovered – kind of. New limits were put on the banks and they had to rein in their easy money policies, and this added to the great recession.

Thomas Jefferson once said,

‘If the American people ever allow the banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless. I sincerely believe the banking institutions (having the issuing power of money) are more dangerous to liberty than standing armies. My zeal against these institutions was so warm and open at the establishment of the Bank of the United States (Hamilton’s foreign system), that I was derided as a maniac by the tribe of bank mongers who were seeking to filch from the public.’

But, ignoring Jefferson’s warning, we now had a big headache. Our load of debt, both private and public, had become unsustainable. We could not make our payments. The government needed infusion of capital to keep all its promises, and corporations needed to cut expenses to keep profits agreeable for stockholders. So, we printed more money and gave it to our government, the bankers and Wall Street. Stocks soared and the wealthy were in fat city again.

But just for awhile.

Unlike other recessions, the infusion of money into banks this time did not kick-start the economy. Why? Because we had reached the saturation point of credit and more credit would not help. Nobody could make the payments any longer on the current debt, let alone any future debt. The gold standard’s curse was upon us – we thought we could bypass reality, but in the end, reality bit us in the behind.

So, we carried on printing money and handed it out to the banks as corporations cut expenses, government cut expenses, and workers, the easiest target, got laid off. A downward spiral began as consumers cut back and corporations lost markets.

Then we cranked up the printing presses and infused more QE 1 and QE 2 money into the system and stocks rose, but demand of consumer goods did not. So corporations cut more to satisfy their stockholders.

Since interest rates were now down to literally zero, there were no places to make money except the stock market, so stocks again went up, but Main Street America continued to spiral downward. Nobody was interested in taking on anymore debt with scarce job opportunities.

Now; the way it works is that if credit cannot or will not expand, we have a depression. And that is where we are now; where a lot of the world is now. So we have no choice but to continue to expand our credit forever by printing money.

But the money doesn’t help any more – unless it is given away free. Nobody is interested in taking on anymore debt – it is too costly and stressful to pay back with falling wages. If the government does give printed money away for free, then the money eventually becomes worthless because fake money is chasing real goods. One dollar will quickly become one cent.

So, we are now at a point of no return. Printing money will not help. It can delay the depression for a number of years perhaps, but sooner or later the downward spiral will accelerate, and very likely accellerate suddenly, ushering in a devastating depression that will more than likely destroy our culture. This will make the depression of the ’30s look like a Sunday picnic.

Imagine your workplace closing down, your bank closing its doors and your credit cards cancelled – all within days. No food deliveries to the local supermarket and martial law in effect. That would be the positive spin. The negative spin would involve unprecedented violence, especially in America where everyone has guns.

This is not too farfetched. Keep an eye out for economists who will likely expand on this scenario. The only hope might be a massive spending program (yes, more spending) on either a world war or new technologies to change our world. Why these two? Because they put working men and women to work at good wages. Exactly what forced us out of a depression during WW II.

But since conservatives will effectively stop the new technologies and protect the old established guard, and since the threat of worldwide nuclear war will hopefully thwart militarism, we have no alternatives.

If we try to constrict spending now, the depression will occur immediately. If we kick the can down the road, we can hold it off for a few years, but it will be worse because of the delay. In the end, we will be in for a fifty year depression.

If we’re not lucky, a war will ensue and we’ll all be toast.

If we’re lucky, civilization will change radically for the better. People will become truly spiritual living together happily in small groups.

Oh, and my mode of transportation in 2022? . . . a donkeycart.

Posted by urownexperience | Report as abusive