Buy it Up--Break it Up--Fund it Right!

The new president has hit the ground running and I wish him well. But I have my doubts. He is not at all like the stumble-bum he replaces, of course. Rather, he is a thoughtful and intelligent man. And on economic matters, “The audacity of hope” is backed up by an economic team of truly impressive credentials. Indeed, this may be the most highly qualified group of people ever to serve in government.

And that's the problem. All of them are super-competent to be sure, but they are competent in the very techniques that caused the problem in the first place. They will attempt to solve the problem at the level of thinking that created it. Their plan is for a massive stimulus, and it is easy to see why. They believe it will work for the simple reason that it has worked. Indeed, since at least the 30's, and certainly since the 40's, the economy has been dependent on massive government expenditures—a permanent stimulus economy. And in general, this approach worked for a long time; the economy was more or less stable and prosperous, and the periodic shocks were mild and short-lived by pre-war standards. Given that record, they may well be excused for believing that the Keynesian magic will work yet again.

But in truth, it will not work because, for some time now, it has not worked. No one since World War II has practiced fiscal stimulus as much as did George Bush. Think on this: In only eight years, Bush took all that debt accumulated from Andrew Jackson (the last time our debts were paid) through Bill Clinton, and doubled it. He added more than $5 trillion to the debt. Under such a tremendous stimulus package the economy should be booming; there should be labor shortages and resource scarcity and real—rather then merely monetary—inflation. But the economy is not booming, but bombing, and instead of inflation we have deflation, which is far more damaging. Instead of a real expansion, we got a mere credit bubble in housing. People thought they were richer because their homes cost them more, a strange kind of wealth.

In opposition to Obama's plan, the Republicans want more of the same. But the Republican stimulus plan differs only in the details. Stimulus by “tax cut” is still stimulus. And it really isn't cutting taxes because it doesn't really cut spending. It is not tax-cutting, but tax-shifting, from the current generation to the next; it is charging our children for benefits we receive. This is not only uneconomic, it is immoral at the deepest level.

The bubble did not make people richer (save for a few insiders), it just meant they were maxed out. Maxed on their mortgage payments, their credit cards, their car loans, their student loans. Their wages did not keep pace; in fact, the median wage declined and the economy was sustained by oceans of debt. The stimulus plans have introduced structural abnormalities into the economy such that it will no longer respond to stimulus. Reliance on the government as consumer of last resort has resulted in a structure that favored global production over national income, the FIRE economy (“finance, insurance, and real estate”) over the real economy (real production of goods), low wages over fair ones, and gargantuan size over human scale. It is this last point that is particularly troubling, since this gargantuan institutions have proclaimed themselves to be “too big to fail,” and exercise economic blackmail over the whole republic.

The problem with this claim is that it is correct. But the proper response is not to give into the blackmail, not to negotiate with crooks, but to make sure that the blackmailers are never in a position to control the whole economy, to demand trillions in ransom whenever they get themselves (and us) into trouble. Now, it would be mere carping by distributists to point out the problems if we could not offer solutions. But we do have solutions, and it is time to offer them, time to end the era of big business that depends on big government, on subsidies from the general public to private profits. I have nothing against profits—when they are earned; I have everything against profits that are the result of subsidies and privileges. The distributist solution to all of these problems can be summed-up in a few words: Buy it up! Break it up! Fund it right!

Too Big to Succeed

Citibank, the nation's largest bank, has received a $20 billion bailout, along with government guarantees for $300 billion of shaky assets; in addition to giving the bank an enormous amount of money, the public assumes all of the risks of being a banker, while Citibank gets to keep all the profits. That is to say, the profits are privatized but the risks are socialized, combining the worst features of capitalism and socialism in a toxic combination. Citibank is no ordinary bank. Together with JP Morgan/Chase, it owns the controlling interest in the New York Federal Reserve Bank, which in turn owns 53% of the Federal Reserve System. This makes the entire banking system sensitive to the needs of two New York banks. The President of the New York Fed has a permanent position on the board of the Federal Reserve. And who is that outgoing New York Fed President? It is none other than the new Secretary of the Treasury, Timothy Geithner.

But the banking system is more than New York and more than the Fed. Most of the regional banks did not engage in the risky behaviors of the New York banks. They made sensible loans. But Citi had no reason to be sensible; with their size and influence, they knew that they could not be allowed to fail. No matter what happens, they must be protected from the consequences of their own actions. Yet, their actions weakened the whole economy, which is weakening the books of even the most cautious banks; with the economy failing, even formerly reliable borrowers cannot repay their loans. The solution is not to bail out failure. Rather it is to ensure that no entity every again can be large enough to hold hostage the public purse. Don't bail it; that just reinforces a power structure that can no longer succeed. Rather buy it up and sell it piecemeal to the regional banks. The market capitalization of Citi was only $19B as of yesterday, or less than they received in the bailout. The toxic loans can be sold for whatever the market will bear; the healthy parts will make the remaining banks stronger, but none of them will be strong enough to dominate the banking business. Buy it up and break it up.

Of course, they may not want to be bought, and if they can find private investors to draw them out of this hole, that's fine too. But I doubt if they can find buyers without the government providing guarantees. In other words, everybody has found out what the distributists always knew: they are too big to succeed without the help of big government. They believe they can blackmail the public, but the truth is just the opposite: they are dependent on us and we may do as we wish.

The same plan holds true for other enterprises that need bailouts, such as the Big Three automakers. The obvious problem with these companies is that they are too big and there are only three of them. Japan, a much smaller nation, supports nine auto companies. The market price of GM was only $2.1B yesterday. If the public is taking their debts, then let us take possession as well. Buy them up, and then re-sell them to the workers in exchange for some of the long-term commitments. Break them up into the various sectors: engine companies, transmission companies, body works, etc. They could be converted over time into worker-owned companies.

Then, anybody who wanted to enter the automobile business could do so with a comparatively small investment; instead of manufacturing the whole car, they could purchase all the parts and assemble them according to their own designs and perceived market needs. Indeed, the auto companies have already laid the ground work for this by outsourcing so many of their parts and selling off so many of their plants. At some point, the central office losses any real power and its remaining functions can be duplicated by any number of start-ups for a relatively modest investment. At that point there is no reason we couldn't have nine automakers, or 19. Choices would go up, prices would go down, and local manufacturing would increase.

Fund it Right

In our industrial system, government is the consumer/employer of last resort. Government spending is $5 trillion of a $14 trillion economy, or more than one-third. Much of this spending constitutes a huge system of subsidies to large businesses, subsidies that are so in-grained that we no longer see them as such. For example, The “freeway” system is a huge subsidy to shippers and privileges global and national production over local and regional manufacturing. Indeed, without these subsidies, it would be difficult for global producers to compete with locally-made products, even with absurdly low-wages. But the transportation systems are the least in need of subsidies. It is easy to allocate these costs to the users through weight-based tolls. The “weight-based” portion is important because the greatest damage to the roadbeds comes from heavy trucks. With costs allocated to the cost-causers, subsidies disappear, and the dynamics of production change.

The most immediate result of tolls would not be a success, but a failure, namely the failure of the “big-box” retailers such as Wal-Mart. The distribution model of these companies depends on the current system of subsides and would not survive without them (see

This huge system of subsidies also imposes high transaction costs on the economy. Even hiring a nanny requires a vast amount of paperwork and the payment of employment taxes. These transaction costs work against small businesses and in favor of giant ones. The transaction costs make it more difficult for start-ups to get started, but they are a mere nuisance to big corporations. The form an entry barrier which protect big businesses from competition. The greater part of the burden of taxation falls on labor and capital, when it should fall on the rentier (see

But Will it Happen​?

Clearly the Obama administration is not thinking along these lines, and are unlikely to adopt any of the solutions of distributism. Does this mean that the discussion is merely theoretical with no chance of implementation? Not at all. The current system has reached its limits, and the attempts to save it will only make it worse. Distributism, in one form or another, is the wave of the future. The only question is how long and by what means will we get there. Distributists need to organize now, and to join whenever possible with similar and allied movements like Mutualism, Georgism, coop movements, and the like.

The current system has no future, and attempts to “stimulate” it will only result in an economic monster even more unstable than what we have. The “bail-outs” will only subsidize failure, and cannot long endure. There will undoubtedly be a time of great turmoil, with all sorts of solutions proposed. In such times, nearly anything can happen, including many unpleasant things. But we need to be in a position to show the nation the way forward, the only way that will work.


sarsfield Saturday, January 24, 2009 at 10:28:00 AM CST  

"This makes the entire banking system sensitive to the needs of two New York banks."
Precisely what the creators of the system had in mind back in 1913, isn't it? Or better,this makes the entire economic life of every household and individual in the country (the world?) sensitive to the needs of two New York banks. For all our incessant blathering about "democracy," I wonder if there has ever been,in all of human history, a plutocracy as powerful and suffocating as that centered in Wall Street.
Cobbett called London "The Great Wen" -- the focal point of the financial and war making oligarchy of his day. Our founding oligarchs were clever enough to divide the geographical locus of those two powers between Philadelphia (Biddle, et al.)and the District of Columbia, the financial side eventually heading north to Manhattan. Makes it harder to aim at the target that way. With today's rapidly accelerating consolidation of both powers along the Potomac, things should be easier for us.

Anonymous,  Saturday, January 24, 2009 at 2:43:00 PM CST  

Obama issued a presidential memorandum rescinding the "Mexico City policy" on Friday. At least the uh "stumble-bum" uh was um a little um more thoughtful about um life.

This economic team, like the Obama cabinet is filled with many former Clinton appointees. They are mostly interested in securing more political power. Dick Morris has an interesing column at

I think we are dreaming if we think Obama or any other leader in Washington is really interested in any real change that increase freedom for the average citizen. The only real change we shall see shall come from us and how we live our lives.

Other than that like always, a very educational piece, full of great ideas. Very thought provoking.


Thomas Anderson,  Saturday, January 24, 2009 at 2:58:00 PM CST  

I work for JPM and before that Bear Stearns. I agree with your basic points. No risk, nor reward

don pedro Saturday, January 24, 2009 at 3:42:00 PM CST  

In my *expert* opinion, both Obama and Bush are almost identically incompetent with regards to the economy. His staff is no better than Bush's and is dedicated to antidistributistic practices such as trade deficits, budget deficits, and Keynesians policies, just like Bush's. Distributists should band together with balanced trade-ists (not protectionists) and monetarists since the theories are complementary, even though most people do not see the connection. Anyone else here agree?

Viking Saturday, January 24, 2009 at 8:43:00 PM CST  

A couple of queriess here. Don Pedro, I must confess I'm one who can't see any great amount in common among distributism, monetarism, and balanced tradism. Care to elaborate on the connection?

The other question is for you, John. You, like Kevin Carson, assume that Wal-Mart and other big box stores couldn't make it without gov't subsidized highways. Assuming this is true (and I'm not fully convinced), mightn't this simply mean a change, in time, from overland, as now, to coastal and inland water transport? The water, after all, doesn't need to be maintained governmentally or otherwise. There's also the possibility that strong enough truck tires can be devised that they needn't stay on pavement. Finally on this, IF it did work as you believe - doesn't this imply a rather stunted existence compared with our current one, with no one, for instance, in a temperate zone locale able to buy tropical fruits? The lack of a highway system works more than one way, and we may not like some aspects of it. Or at least, I'm pretty sure I wouldn't.


John Médaille Saturday, January 24, 2009 at 9:26:00 PM CST  

@ Sarsfield: Amen, The Fed is not compatible with democracy. Fiscal policy is in the hands of elected officials, but the more important monetary policy is in the hands of a cabal.

@Anon: I am willing to believe in Obama's good intentions, which is not the same as believing that he has the tools or the personal to fulfill those intentions.

@Don Pedro: I don't offhand see the connection with monetarism.

@Viking: I don't think that making bananas pay the full cost of transport will make bananas disappear; the price may go up or the margins go down, depending on the competitive environment, but I don't think they would disappear. But I suspect your deeper question is about diversity in general. In truth, the global system works against diversity and in favor of homogeneity. Diversity comes from locality, from a variety of localities supplying a variety of goods.

And there would not be a lack of a highway system; there would merely be a highway system that paid its own way.

Tom Laney Sunday, January 25, 2009 at 9:33:00 AM CST  

This needs to be a pamphlet for distribution wherever we work.

Some one please deliver it to Baracka and UAW President of Nonsense Ron Gettelfinger. (You may have to read it to Gettelfinger, draw some pictures and slap him upside the gourd a couple of times.)

Kevin Tuesday, January 27, 2009 at 10:24:00 AM CST  

I'm not an economist, but your article makes a great deal of sense to me (maybe you have to be an economist NOT to see it). I wonder how economists like those on Obama's team respond to arguments such as the one you make here? Do they argue that distributism can't work, or that it's not the style of economy that they want?

Or do they simply not address the question at all -- like the situation of "climate change", where those who want to question the reigning assumptions are merely shut out of the conversation?

JimB Wednesday, February 11, 2009 at 12:14:00 PM CST  

"Thoughtfulness" and "Intelligence" from Harvard Yard unfortunately lacks wisdom. Ken Lay was a PhD. Jeff Skilling was a Harvard grad and both were considered the "smartest guys in the room". These "brainiacs" live inside their heads and slightly to one side.

A "thoughtful and intelligent man" doesn't;

1. Think AIDS is spread by a lack of funding
2. See a baby as a "punishment"
3. Promise to undo every pro-life measure gained in the last 30 years in the name of "freedom" or "choice"

He's a megalomaniacal empty suit with absolutely no moral compass and completely owned by the international banking cartel. He is Trilateral Commission co-founder Zbigniew Brzezinski’s sock puppet. If you thought Bush was a disaster - you aint seen nothing yet.

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