U.S. Economic Road Back To Stability Not Easy, But Possible
by Charles Walters
Editor Emeritus, AcresUSA, Executive Board Member & Former President, National Organization for Raw Materials
There are patterns that govern the affairs of men, but they do so in a slow and plodding way. For instance, how public policy governs its political charges always impacts on people downline. How and when is a matter for "comprehension" of factors too numerous for a short essay.
Suffice it to say that we sail in uncharted policy and economic waters -- rather, we sail in waters well charted, but rarely understood by the makers of public policy. Near complete ignorance of the laws of energy, thermodynamics, and physics has delivered public policy into the hands of charlatans. Nevertheless, there is a natural law of economics, and a natural rhythm that delivers stability, full employment, a maximum degree of well-being, and a high standard of living to the many. This essay will explore a few of our overview observations, and allow readers to draw the appropriate conclusions.
THE BOTTOM LINE
The bottom line for all the income earned in the United States is called national income. Great bureaus and thousands of people work diligently at assembling these data, and we have to accept the fact that this work is both professional and as exact as possible. When the Founding Fathers set up the United States government, data were scarce and cumulative figures all but nonexistent. But formal logic came to the rescue, especially when Thomas Jefferson outlined the goals of the Republic. Most people were still raw materials producers at that time, and this caused Jefferson to identify the sources of kinetic and metabolic energy. Manufacturing and business enterprise, he reasoned, had to grow as people were released from farm pursuits, but a working relationship had to be maintained so that production -- whatever the source -- generated the wherewithal earned income for the full consumption of that production without the buildup of debt. Foreign trade was of insignificant economic importance, and reserved for the few things the states could not produce for themselves. It is remarkable how close Jefferson's logic brought him to the natural order in economics.
During the depression of the 1930s, President Roosevelt commissioned Simon Kuznets to form up an equation that explained exchange economics. Kuznets and his associates relied on logic first, then on statistical support. The result became The Economic Indicators, a publication still issued each month by the government. Kuznets reasoned that national income fell under six basic headings: corporations, unincorporated enterprise, rental income to persons, agriculture, wages/benefits/supplements, and capital costs (interest earnings).
These are exhibited below as a “T-account,” with earnings and profits of private enterprise on the left hand side, and costs for the system on the right hand side. Everything that happens in the entire economy ultimately falls under one of these common denominator headings in one way or another.
In order for national income to provide full employment, price stability, minimize import invasion (which ruptures the value of domestic raw materials production), and minimize public and private debt construction, one-third of the national income has to be accounted for in the earnings section of the T, and two-thirds has to go to wages and capital costs.
We in the National Organization for Raw Materials (NORM) and our predecessors have established these relationships by examining base periods when the sought-after norms were achieved. The golden age of agriculture -- 1910-14 -- was such a period with little or no unemployment and certainly no institutionalized poverty from government welfare programs. In short, the stability norm prevailed. Much the same was true during the 1926-29 period, and again during 1947-49. Any of these baselines can be considered index base period 100 for economic statistical purposes.
This information is not recited here to be esoteric, or even to dumb-down what academia considers to be its private property as professors hide behind the complexity of their craft. It is simply a fact that there can be no balanced budgets without the 1/3-2/3 split of national income discussed above. That is why Truman’s administration emerges as the star among administrations. He was the only president to balance a budget between Roosevelt and the present (except for one other budget balanced by statistical manipulations). It can be seen that when cost factors go up in relation to profits, then national income is short and politically debilitating unemployment can be avoided only by expanding public and private debt.
The difference between parity national income -- which occurs when raw materials of all sorts enter trade channels at values in balance with the value of wages and capital -- and actual national income is expanded debt. It is always that way, and it will never be any other way.
You can put this on your bathroom mirror, memorize it, mail it to President Clinton and Newt Gingrich, and bank on it: The accumulated loss to profits below that 1-to-2 ratio as part of national income always accumulates as public and private debt. It is a mathematical certainty that debt is a consequence of deviation from the norm ratio 1 to 2. The chief cause of national income sliding away from that full-employment/stability norm is a shortfall in raw materials prices. It took NORM researchers Fred Lundgren and Jerome Friemel eight months to assemble the raw materials figures because of the complexity of the sources.
The data they recovered and analyzed from the several statistical agencies of government reveal that the shortage of raw materials income at the point of first sale (in terms of a projection forward from any balanced base period), plus interest on borrowed money used to compensate for the shortfall, ends up being the public and private debt.
Raw materials, as providers of kinetic and metabolic energy, are the physical foundation for economic stability. That is why elimination of 5.5 million family farms, which represented broad-spectrum distribution of land and money, since World War II has been so tragic. The public policy that accomplished this devastation not only eliminated the most successful institutions for learning the nation has ever had, it also guaranteed economic instability via debt, institutionalized poverty via a welfare state, and expanding government as a make- work project.
To confess the transgression is to accept salvation. Now that we know the equation, it would seem incumbent on the makers of public policy to face the facts. It is not the function of Congress to "yes, yes" the Supreme Court, to run the nation's education, or otherwise tamper with the lives of free people. It is its function to so administer the public policy as to "promote the general welfare and to secure the blessings of liberty . . ." These objectives cannot be attained without structural balance of the internal economy Kuznets style.
The road back cannot be an easy one, but it is possible. If it is not taken, private enterprise could cease to exist by the year 2020. By then debt will have delivered most of the wealth of the nation into fewer and fewer hands. A few families -- much as in Central and South America -- will own it all, Banana Republic style.
This means a worsening standard of living for most Americans, a loss of freedom, and expansion of the prison culture so favored by exponents of frustration economics. Any pattern of reversal would have to see to it that farm income would move up from its present .9% of national income to 2.9%. Corporation profits, and the other income segments, would have to adjust upward, and capital costs would have to go down from the present 9% of national income to 1.4% of national income.
I and my associates at NORM do
not expect reason to prevail. Any strictly personal view has to be colored
by that reality.