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From:
Subject: Richard C. Cook response to Joseph Stiglitz's weak critique of
Obamanomics
Richard C. Cook is a former U.S. federal government analyst. His book on
monetary reform, "We Hold These Truths: The Hope of Monetary Reform," is now
available. He was an advisor to Congressman Dennis Kucinich in his 2004 and
2008 presidential runs. He is also the author of "Challenger Revealed: An
Insider's Account of How the Reagan Administration Caused the Greatest
Tragedy of the Space Age." He can be contacted through his new website
"Resuscitating the flow of lending" will do no good, because the collapse of
consumer purchasing power due to job outsourcing and income stagnation has
made it impossible for people to pay their debts. Most of this debt now
needs to be written off and our producing economy restored as our chief
source of wealth. -- Richard C. Cook
http://www.rense.com/general85/chall.htm
Richard C. Cook
Open Letter To Dr. Joseph
Stiglitz & Challenge To Debate
By Richard C. Cook
2-5-9
Note: Dr. Joseph Stiglitz is a professor at Columbia University, former
chairman of President Clinton's Council of Economic Advisors, former chief
economist for the World Bank, and a recipient of the Nobel Memorial Prize in
Economic Sciences.
Dear Dr. Stiglitz:
I have just finished reading your article published on Alternet.org
entitled, "Is the Entire Bailout Strategy Flawed? Let's Rethink This Before
It's Too Late." http://www.alternet.org/story/124166/
With all due respect, I believe you have missed the point of what is going
on within the U.S. economy, which causes your proposed solutions to be
similarly flawed.
The purposes of this letter are to delineate my objections to what you have
written, to bring our differences before the public, and to challenge you to
a debate when I visit New York City on February 27-March 1, 2009.
You state that, "America's recession is moving into its second year, with
the situation only worsening." But you then say, "The hope that President
Obama will be able to get us out of the mess is tempered by the reality that
throwing hundreds of billions of dollars at the banks has failed to restore
them to health, or even to resuscitate the flow of lending."
You thereby imply that the economic crisis is due to problems within the
financial sector and that it would be a good thing to "resuscitate the flow
of lending" without challenging why that lending became such a huge factor
in our economy.
I say: The problem does not lie with the financial sector except that the
debt-based monetary system acts as a parasite on the producing economy,
resulting in the vast overhang of debt that can never be repaid.
"Resuscitating the flow of lending" will do no good, because the collapse of
consumer purchasing power due to job outsourcing and income stagnation has
made it impossible for people to pay their debts. Most of this debt now
needs to be written off and our producing economy restored as our chief
source of wealth.
Dr. Joseph Stiglitz
You say of the government's bailout actions late last year: "Then there was
the hope that if the government stood ready to help the banks with enough
money -- and enough was a lot -- confidence would be restored, and with the
restoration of confidence, asset prices would increase and lending would be
restored."
I say: In making this observation you may be correct, but you fail to
challenge the policy whereby asset price inflation, in the absence of real
economic growth, has become an ersatz economic driver. Throughout your
writings you have ignored the fact that the government and the banking
system have deliberately created financial bubbles to shore up the economy,
engender profits, and maintain tax revenues. This is what the Federal
Reserve under Alan Greenspan did in collusion with the Bush administration
to create a recovery when the Dot.com bubble was collapsing in 2000-2001.
None of your proposals would revitalize the producing economy or restore
consumer income. You seem to be mainly trying to re-inflate the
asset-financial bubble in your own way.
You say: "The underlying problem is simple: Even in the heyday of finance,
there was a huge gap between private rewards and social returns. The bank
managers have taken home huge paychecks, even though, over the past five
years, the net profits of many of the banks have (in total) been negative.
And the social returns have even been less -- the financial sector is
supposed to allocate capital and manage risk, and it did neither well. Our
economy is paying the price for these failures -- to the tune of hundreds of
billions of dollars."
I say: It is true that bank manager salaries and bonuses are obscene, but
the way you characterize "social returns" is shortsighted. You speak of bank
profitability falling short even though, since the financial deregulation of
the 1980s and 1990s, the banks have become the nation's chief growth
industry, with profits as late as 2006 of over $500 billion. Further, the
financial sector doesn't really "allocate capital." What it does is skim the
cream off the top of the producing economy by financing consumption and
facilitating the most irresponsible types of speculation in the real estate,
equity, hedge fund, and derivative markets. For example, up to 97 percent of
futures contracts comes from bank loans irrespective of whether such lending
has any benefit for consumers or producers. The banks allocate capital
primarily for their own benefit, which I believe you recognize, but we now
need to find alternatives to a monetary system based on bank-created debt,
not just try to get it running again while ignoring the disasters that have
befallen working men and women and their families.
You say, in regard to the ongoing government actions: "But even were we to
do all this -- with uncertain risks to our future national debt -- there is
still no assurance of a resumption of lending. For the reality is we are in
a recession, and risks are high in a recession. Having been burned once,
many bankers are staying away from the fire."
Again, you speak favorably of a "resumption of lending" as resolving the
problem. I say: "What you are proposing is simply to shore up our debt-based
monetary system without addressing the facts that our manufacturing jobs
have been exported to China and other low-cost labor markets, our automobile
industry is collapsing due to the failure of consumer demand, wages and
salaries have stagnated for two decades, workers have not shared in
productivity increases, and the total societal debt load on a GDP of $14
trillion is now approaching $70 trillion. These are the problems that must
be addressed, not getting the banks to lend again when people can't pay off
the debts they already have.
You say: "What's the alternative? Sweden (and several other countries) have
shown that there is an alternative -- the government takes over those banks
that cannot assemble enough capital through private sources to survive
without government assistance Inevitably, American taxpayers are going to
pick up much of the tab for the banks' failures. The question facing us is,
to what extent do we participate in the upside return?"
I say: "Having the government run the banks instead of the private sector
will not restore the economic fundamentals of a weak economy. Availability
of bank credit does not by itself lead to greater production of goods and
services. What it should do is make the liquidity available for the
production-consumption cycle to work smoothly. The idea that a deregulated
financial sector should be given precedence over all the other economic
sectors is the essence of the supply-side, trickle-down philosophy that
began during the Reagan years and has catastrophically failed.
You say: "Eventually, America's economy will recover. Eventually, our
financial sector will be functioning -- and profitable -- once again, though
hopefully, it will focus its attention more on doing what it is supposed to
do."
I say: Please tell us exactly HOW America's economy will recover. Will it
recover after real unemployment, including "discouraged workers" hits 20
percent, which it is likely to do over the next few months? Will it recover
after millions of more people have their homes foreclosed? Will it recover
after the automobile industry dies? What exactly is your prescription? If
you don't have one, I would ask you to consider what I am proposing in my
paper: "A Bailout for the People: Dividend Economics and the Basic Income
Guarantee." In that paper I put forth what I am calling the "Cook Plan."
This consists of a $1,000 a month payment per capita made by the government
through a system of vouchers for necessities that are then deposited in a
new series of local community savings banks that would lend at one percent
interest for small business, local manufacturing, and family farming. The
vouchers would be a dividend, distributed as each citizens' fair share of
our amazing productive economy without recourse to government taxation or
debt. The dividend would provide income security, eliminate poverty, and
result in a renaissance of local and regional economic activity, and it
would start to act immediately, not "eventually."
On Friday, February 27, 2009, I will be in your hometown of New York City
presenting the "Cook Plan" at the 8th Congress of the U.S. Basic Income
Guarantee Network and the Annual Convention of the Eastern Economic
Association. That evening I will present the program at a Town Hall meeting
in connection with President Obama's series of citizens' forums at Nola
Studio B, 244 West 54th St., 11th floor in Manhattan, at 8 p.m.
On the evening of Saturday, February 28, I am free, and would be glad to
meet you to debate these ideas at a location of your choosing.
Respectfully,
Richard C. Cook
Richard C. Cook is a former U.S. federal government analyst. His book on
monetary reform, "We Hold These Truths: The Hope of Monetary Reform," is now
available. He was an advisor to Congressman Dennis Kucinich in his 2004 and
2008 presidential runs. He is also the author of "Challenger Revealed: An
Insider's Account of How the Reagan Administration Caused the Greatest
Tragedy of the Space Age." He can be contacted through his new website
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