A TALE OF TWO IDEAS

by Richard C. Cook

April 2007

Taken from : The Basic Income Guarantee (BIG) and Monetary Reform
A paper presented to USBIG Network Annual Conference, Crowne Plaza, New York, N.Y. 23rd February 2007.

While the following article is not a discussion on Social Credit as such, it is of importance because it shows people are at last recognising the need for an injection of purchasing power into communities by 'other means'. Mr. Cook is the author of "Challenger Revealed: How the Reagan Administration Caused the Greatest Tragedy of the Space Age". During the Challenger disaster investigations in 1986, he disclosed the history of the flaws in the solid rocket booster joint that were the technical cause of the disaster.

"Today I am here to talk about another of my interests - the link between proposals for a basic income guarantee (BIG) and monetary reform. Before NASA, I worked as a policy analyst at the U.S. Civil Service Commission, the Food and Drug Administration, and the Jimmy Carter White House under his special assistant for consumer affairs, Esther Peterson. After NASA, which I left soon after the Challenger tragedy. I spent twenty years with the U.S. Treasury Department. I retired in January 2007 after thirty-two years of federal experience.

"While I am new to the USBIG Network, my interest goes back a long time. When I worked at the Carter White House, I was organizing a study group on monetary reform, which was to include income policy, when Carter was voted out of office in favour of Ronald Reagan in 1980. The election of 1980 was a watershed in U.S. history. It was a takeover of the policy apparatus of government by the political right-wing, and it affected every aspect of American politics and culture.
Democrats tend to romanticize the Clinton years, forgetting that the economic recovery of the 90s was fuelled by foreign capital and ended with the bursting of the dot.com bubble and a stock market crash. From the standpoint of overall government policies, we have now lived in an atmosphere dominated by the conservative ideology for a full generation.
This period has been difficult for me personally because I would call myself a Jeffersonian-FDR democrat. But I believe we are beginning to see the pendulum swinging back in the direction of more progressive policies as the conservative ideology runs out of steam. What it has left us with are economic, ethical, and fiscal disasters, along with a state of perpetual warfare in the Middle East.

Income security the most important economic issue:
My experience long ago led me to the conclusion that the most important economic issue facing our nation and the world today is income security and that it is the job of the federal government, acting as the custodian of the commonwealth of Americans as defined in the preamble of our Constitution, to do something about it.
I said income security, not job security. People in this room know the world of difference between the two, as few others do. As many have come to realize, real job security is extremely difficult to achieve in an era where technology has made so many jobs obsolete and where the rapid pace of change has destroyed the typical career patterns of a generation ago. Lately I have been reading articles by a man named Marshall Brain who says that by 2030 robots will take over fifty percent of the jobs in the U.S. economy, and I agree that the potential is certainly there.
So a basic human right to income security cannot and should not be linked with an imperative that everyone be engaged in earning a living all the time. While more can always be done to foster job creation, it will never entirely solve the income security problem. Welfare-to-work is not the answer.

Policy ultimately based on a spiritual value:
I believe that the right to income security must be viewed as an absolute. This right, I believe without apology, is ultimately based on a spiritual value, that every human being who comes to life on the planet has a right to a minimally secure existence, which governments exist to ensure. I believe that income security is what people must first have to express their rights to "life, liberty, and the pursuit of happiness."
These values are being threatened in today's political, economic, and social environment as never before in U.S. history. Since the negative income tax was proposed in 1969, our nation has marched resolutely backward in maintaining a commitment to income security due to the conservative ideology. Conservatives wanted us to believe that eliminating much of the social safety net in favour of unbridled economic license would "lift all boats" and allow individuals to prosper in ways not possible under the shelter of the welfare state. This has obviously not happened.

Instead, "trickle-down" economics has totally failed. We have more than forty-five million people without health insurance, thirty-five million without enough to eat, increasing poverty, and a declining standard of living for all but the most wealthy. After a period of decline, violent crime, especially robbery but also murder, is increasing. The housing bubble has burst, leaving millions of people facing possible loss of their homes. The federal government, with a current debt approaching $9 trillion and $44 trillion in unfunded liabilities, has been declared bankrupt by economists close to the Federal Reserve. Their solution? Sell more U.S. assets to China. In the last several years the dollar has lost a third of its value to the dismay of foreign investors like China who have funded the Treasury deficit. Meanwhile, our public infrastructure is crumbling, with a maintenance deficit approaching $2 trillion according to the American Society of Civil Engineers.
After a generation of conservative rule, and in spite of three years of a balanced budget at the end of the Clinton presidency, public finance in the United States today is in crisis, if not total collapse. A quarter century of politics devoted to the dismantling of social welfare programs, privatization of public assets, huge tax cuts for the wealthy, continuing export of manufacturing jobs, deregulation of the financial industry, and huge expenditures on the war machine have eroded the ability of the federal government to do anything meaningful about income security.

Goldman Sacks CEO's 2006 $53.4 million bonus:
If you set this crippling of government against such facts as the $53.4 million 2006 bonus given to the CEO of Goldman Sachs last December and the ongoing attempt by the Bush administration to conquer the Middle East by military force, you get a vivid impression of a society racing over a cliff.
The article by Paul Krugman, the New York Times' economics columnist, in Rolling Stone magazine last December entitled "The Great Wealth Transfer," portrays a society that has fallen from its status as the world's greatest industrial democracy to one that is beginning to resemble a banana republic oligarchy, with a ruling class that is unbelievably rich and a population that is sinking toward a state of debt slavery and economic peonage. The facts are undeniable and well-documented.
So where does the basic income guarantee fit into this gloomy picture? In the near-term, Congress, having returned to Democratic control, may raise the minimum wage a dollar or two an hour. The ongoing fall of the dollar will promote exports and so be a factor in job creation, though those jobs will be low-paying and have few benefits. If a Democrat is elected president in 2008, we may see some new federal job creation programs or tax incentives. But BIG is not on the horizon.

Yet I don't believe the situation is hopeless in the long run. We have some examples to point to that over time could get people's attention. One is the Brazilian experiment.
The other ray of hope is that the dire economic situation can act as a stimulus for progressives to begin challenging economic fundamentals. Here is where I think the BIG movement could benefit by looking at what is going on in monetary reform, because any push to enact BIG through income redistribution is likely to face insurmountable difficulties. We are simply not going to get middle-class citizens to give up their mortgage deduction, for example, so the poor can get a break when they know that what Lou Dobbs called "the war on the middle class" is real and that it threatens their own financial existence.
Also, most Democrats are looking to the Clinton years of relative fiscal austerity as a model. The federal budget is likely to be slashed, some of the taxes on the upper brackets may be restored, and tax breaks for higher education may increase. But even if the Earned Income Tax Credit is enhanced or other types of tax credit enacted for the lower brackets, that is obviously not BIG in its full potential.

Where can monetary reform enter the picture?
So where can the monetary reform movement enter into the picture?
First, it challenges the assumption that the only ways government can get money to disburse are through taxes and borrowing.
Second, it challenges the assumption that the wealth of a nation is a relatively fixed quantity-the GDP plus whatever growth rate is measured or assumed-and that the political process must decide how wealth is to be divided, with certain groups getting more and others getting less.

But is has long been recognized that fiscal and tax policies can have a profound effect on levels of investment and economic activity. It has also been understood that GDP growth can be influenced by monetary policy, interest rates, and the availability of money. What has changed since the 1980s has been that the conservative revolution has greatly limited the ability of government to apply these tools while shifting more economic power to the private financial markets…
In my opinion, it would be much more effective for the Federal Reserve simply to give away money, as it went a long way toward doing with the slashing of long-term interest rates leading to the recent housing bubble. Hundreds of billions of dollars were pumped into the economy, but now the bill is coming due because of the enormous inflation of housing prices that has left society as a whole much worse off than when the bubble began. But the bubble can be viewed as an income program for homeowners and speculators with a substantial multiplier effect for the entire economy. According to investment analysts, fifty percent of U.S. economic growth in 2005 was due to the stimulation of the housing market.
As I indicated, it would have been simpler if the Federal Reserve, or the U.S. Treasury, simply gave away money, and what I would like to suggest is that we begin to think about issuing a BIG without charging any cost at all to the federal budget through what has been called a National Dividend.

Money creation at its simplest and most direct:
This is not a frivolous suggestion. It was proposed by Major C.H. Douglas and the Social Credit theorists of the 1920s and started a political movement which has continued through today in Great Britain, Canada, and New Zealand. This would be money creation at its simplest and most direct, similar to the Greenbacks legislated by Congress during the Civil War. Then, Congress authorized expenditures in the amount of $450 million, and the government simply spent the money into existence.
It was a system that worked remarkably well, one which the bankers have propagandized against ever since. Greenbacks still made up a third of the U.S. currency into the early years of the 20th century. Few people know that FDR also had Greenback authority though he never used it. It was money supposedly created out of thin air, a true fiat currency, and if people tell you that the Greenbacks caused inflation, they are wrong. What is truly inflationary is debt-based money created by the Federal Reserve. In fact, since the Federal Reserve came into existence in 1913, the dollar has lost over ninety-five percent of its value.
I would strongly recommend that BIG proponents study the Social Credit ideas carefully. This is what first got me interested in monetary reform back in the late 1970s. What C.H. Douglas was saying was that in a technologically advanced economy, production is always ahead of the income available for consumption. He said that there is no way that the population of a nation can ever earn enough money to purchase what industry can produce. There is lag time and many inefficiencies in the distribution system. Also, there must be provision for household and business savings.

Douglas reconciled capitalist system to economic democracy:
So in order to consume the production base and keep the nation's workforce employed, the government must introduce purchasing power. The simplest way to do it is to issue what Douglas called a National Dividend at the start of each year to everyone, without means tests, without distinction as to whether you work or not. It is a Basic Income Guarantee. Remember, this was suggested in the 1920s.
In fact, Douglas had succeeded in reconciling the capitalist system to principles of economic democracy in a way that all previous European thinkers had failed to do, including Marx.
Douglas's ideas also had a strong ethical underpinning in that they postulated that the production of wealth was not just a result of the utilization of private resources or capital but of the brainpower and labour of the entire nation. People make things in a social context.

A NATIONAL DIVIDEND TO ALL:
All members of society contribute in some small way to the cultural fabric within which wealth is generated. So all should share in the benefits of a National Dividend. This went well beyond Marx's labour theory of value, where it was the worker who ultimately created wealth, to encompass every single person of past, present, and future generations."

CHURCH LEADERS

OFFER NO PRACTICAL ADVICE

by
Bill Daly,
New Zealand

François de Siebenthal is known to our readers as one of the advisers to folk in Third World countries, helping them set up their own financial accounting systems thus enabling these destitute people to draw some sustenance from their own social credit. An appeal was made by François to leaders within his Church for direction in the matter. Their response was to send him a copy of the Encyclical of Pope Benedict XIV "On Usury and Other Dishonest Profit".

Social crediter Bill Daly of New Zealand wrote the following appraisal to François:

"Thank you for forwarding this. While I admire the Church leaders offering this advice it actually has no practical value in so far as offering a solution to the world-wide problem of "who owns bank issued credit". Private loans make up only a tiny amount of total money lending. The rest is bank credit, new money.

The Church, to be effective in dealing with the problems of poverty and financial injustice, MUST address the question of private versus public ownership of new financial credits. Simply asking people to be more holy in their private lives, while wholesome in itself, does not face the various technical problems which must be addressed. With respect to the Churchmen offering this advice, they are viewing the situation only from a classical and personal morals view point. They show no appreciation of the functioning of the financial and banking system.

If a man's car has broken down mechanically and that this may be because he has driven it harshly, it may be useful to suggest he drives more cautiously in future and to show greater consideration towards his car and to other road users. This may increase his amount of holiness if he acts on the advice, but it will do nothing to fix his car. But this is only how far these Churchmen are prepared to go at present in dealing with the money problem. To be fair they are only displaying the same ignorance of financial mechanics that is common throughout the world. But, the Church has the possibility and duty to offer much more to a world that is, in large part because of the debt money system, collapsing into a mix of chaotic poverty, material insecurity and materialistic escapism.

They need to get some education about the nature of money. In my view they should get no praise for stopping so far short of the mark, but instead they need to be urged to use their positions and influence to urge governments and other institutions to enact monetary policies that enable people everywhere to have secure access to the God-given bounties of this earth. I'm sure that in each of their hearts they desire this but they need to offer more than simplistic platitudes. I do though congratulate and thank them for the concern they've shown and I would urge them to consider offering a Christian perspective for the reform of the present unnatural debt money system.

Bill Daly writes: A good start for such a move would be a read of the little Canadian booklet "Social Credit and Catholicism" and the recent article from Mr Richard Cook of America titled The Basic Income Guarantee and Monetary Reform: A Tale of Two Ideas.

Further books for study:
"The Money Trick," AUS $13.00 posted.
"Tragedy and Hope" by Prof. Carroll Quigley $85.00 posted from all Heritage Book Services.

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