For the last several months we have heard on the news that the financial picture is grim. The world’s largest banks, particularly some huge banks in the U. S. are in desperate trouble. Hundreds of billions of dollars have been provided to some of these U. S. banks by the Federal government in an effort to prevent a disastrous “meltdown” of our financial structure.
As if that weren’t bad enough, the U. S. auto industry, once the largest in the world, has come to Congress, “hat in hand,” to beg for money to prevent their “going under.” Once again, Congress and the Administration have come to the rescue, sort of, with billions of dollars.
These firms are being rescued from the consequences of their rather serious errors. They have messed up big time. The government is going to borrow stupendous sums of money in order to prevent their going bankrupt.
But what about the thousands of small businesses that fail every month. (Been there, done that.) Those businesses are not generating action by Congress to be sure they are still in operation next month. Those businesses are allowed to go bankrupt, fire their employees, and cease to exist. What is the difference? Well you should ask.
The difference is in size… and in this case, size matters. The major difference is that those huge companies, those huge financial institutions, have effects far beyond their own shareholders and employees. If a small business fails there will be some employees out of a job and some other businesses that can no longer sell to them. But in the main, the economy continues on: almost without noticing. If one of these large financial institutions fails however, it takes so much money out of the country’s economy that the effects are felt, not only by everyone within our own economy but by those who are part of most of the (interconnected) economies around the world.
Thus, they are so big a part of our economy that if they fail our economy in general fails. Our government will take any action necessary (rational or not) to see to it that they don’t fail. They hold us hostage. The auto industry is a prime example. Not only do they employ hundreds of thousands of people directly, they buy enough things from other small businesses that those businesses would also fail and thus still more thousands of people would be out of work. Such a large decrease in employment would decrease spending (and tax revenues) and thus plunge our economy into one of those downward spirals which create almost an economic standstill.
Therefore, no matter how stupidly their management acts, no matter what risks they run, no matter how venal and greedy and underhanded they may be: we cannot allow that to result in a business failure. We must bail them out.
But wait a moment. Haven’t we done similar things before? Wasn’t there a savings and loan scandal a decade or two ago in which the government had to step in and save businesses from the consequences of their folly at the cost to the people of the nation of over $500 billion? Aren’t there a lot of these huge businesses which are absolutely necessary to the functioning of our economy? Does this mean that we will always be bailing out one or the other of these irresponsible corporate giants?
Yes it does. We always have. Back in the 19th century didn’t we impose tariffs and customs duties in order to protect our local businesses from failure, even though that meant that the average citizen had to pay more for imported goods? Wasn’t that a way of sacrificing the public so that a few rich and powerful businesses could make even more money for their owners? Didn’t the South fight a Civil War in order to protect the large slave-owning agribusinesses? Didn’t the government give huge land grants to railroads in the 19th century to encourage that vital source of transportation to spread its wealth-generating reach far across the nation? And didn’t most of that profit go to just a few people?
So you see, the government, as all governments must, will take care of and protect those who are rich and powerful in one way or another. It is always necessary for the public good to give lots of money to the wealthy. It isn’t quite clear to me why that is always necessary, however, since the rich already have lots of money. But it always is that way… and it likely always will be.
These institutions are too big to fail no matter how they fail us.
So the solution (whatever it may turn out to be) for our government will always be to reward the rich at the expense of everyone else and the problem(s) will forever return in one form or another because the solution doesn’t address the underlying problem whose symptoms they attempt to assuage with ever-higher sums of money.
Aha! I hear you cry. (I have very sensitive ears.) What do you suppose is the underlying problem? (I’m glad you asked that question.) The underlying problem is that the money we use is a physical object (cash) or represents physical objects (bank accounts). Since it is a physical object it must share the properties of all physical objects. For example, it can be taken away from you against your will. You must pay taxes or go to jail. You can be robbed, cheated, and swindled. You can lose that cash or even have it destroyed. So those rich, powerful, special interests can take your money even though you don’t want to give it to them and they have the motivation (everyone wants money) and the means
(that money they have buys a lot of influence) to get your money.
As if that weren’t bad enough, physical objects have no ethics. Money is amoral. It can be used for any purpose whether good or bad. Those powerful people can do evil things with their money such as take your money.
Then, too, the supply of one physical object, like money, is independent of the supply of other physical objects and services, so the amount of money can increase or decrease with no corresponding increase or decrease in the supply of things to buy. Thus we will probably get inflation from those huge handouts and all that borrowing of money.
Couldn’t we impose controls on how those banks and businesses use the money the government gives them? Actually, no, we can’t. Once again: because our money is a physical object. Physical objects small enough to be money cannot be controlled. If they could be controlled there would be no organized crime. There is an old saying when it comes to protecting money: “Who will guard the guardians?” That much money is such a powerful temptation that you can’t trust anyone to guard it. It is so much money that it takes lots of people just to keep track of it and you have to watch all of them. When you consider that such an amount of money attracts the most powerful people – people willing to do anything, no matter how bad or whom it hurts – in order to obtain that money.
So you see, the sort of money we have, by its very nature, not only allows – but even encourages people to cheat – and provides them with the means through which cheating can easily be accomplished. As long as our money is or represents a physical object, that will be the case. That is why for thousands of years money has presented humanity with the same kinds of problems over and over again and we have never been able to eliminate those problems no matter what we did. We will continue to have these problems no matter what our institutions or our law or our morality says should be done. There is simply no solution unless we change the nature of our money away from being a physical object.