"Even some of the bailout program's harshest critics acknowledge that things most likely would be even worse without it, and that the bailout had accomplished its most important goal, which was to prevent a complete collapse of the financial system.
"Since last September, no major banks have failed and the credit markets have thawed somewhat."

Ed Andrews, "Deeper Hole for Bankers," New York Times,
1-14-09, p. A-1, A-21.

As one of the bailout program's harshest critics, I would like to tell Ed Andrews that I acknowledge no such thing. Rather it is economic gibberish such as this which gives me an important clue as to what is going on in this country and some insight into what people have to do to protect themselves from this insanity.

"Since last September, no major banks have failed…." This is somehow the criterion which has been erected to justify the stealing of $750 billion from the working people of America. Well, Mr. Andrews, let me explain to you how a free economy is supposed to work.

In a free economy, every active agent is trying to create wealth. A business, for example, has costs, and it has income. It is the job of the owner to run his operation so that income exceeds costs. If he can do this, it is a sign that the business is creating wealth. The income represents the economic positives. Since customers paid that much money in to the company, they must have received at least that much value from its products. On the other hand, costs represent the economic negatives. These are the resources which might have been used for other purposes.

Thus a business which is running at a loss is destroying wealth. Its negatives are greater than its positives. For a government to establish a policy of saving businesses which destroy wealth is to make the country poorer. The American economic system, up to now, has allowed losing businesses to fail. Many important companies have failed in American history. The weeding out of these wealth-destroying enterprises helped make the country stronger in the same way that a surgeon's removal of a cancer helps makes a patient stronger. Hence the Government's bailing out of these big Wall Street institutions is not a sign of success. It is a sign of failure. Mr. Andrews is not on the side of the patient. He is on the side of the cancer.

And the proof he offers that the policy is a success is, "Look, the cancer is still alive and growing."

This upside down and backwards view of economics is very typical of what I read in the Times. Repeatedly you rehash the Keynesian notion that it would be a good thing for all the people of the country to spend: SPEND, SPEND, SPEND.. Any possibility of saving is looked upon as a danger to be avoided at all costs.

Let me teach you a little economics, Mr. Andrews. If you want to represent the economic level of the world from the beginning of recorded history, it is pretty much a straight line. There is a bit of a dip during the Dark Ages and a recovery at the time of the Renaissance, but basically George Washington drove the same kind of coach as Julius Caesar. There was no economic progress for several thousand years.

Then, in the brief space of one century, there was more economic progress then there had been for all the rest of human history. In the year 1790, the above straight line turns at almost a right angle and explodes: the railroad, the many uses of electricity, the telephone, the internal combustion engine, the automobile. The average person was able to live better than the kings of the Middle Ages. (The kings of the Middle Ages didn't even have central heating.)

Furthermore, these great improvements occurred in two countries: the United States and Britain (including many of the British Commonwealth countries). They occurred to a lesser extent in countries close to these two who were influenced by them and decided to imitate them.

What happened in the United States and Britain shortly before the year 1800 that might account for this giant increase in wealth? The answer is that paying interest was legalized in both countries, and the people therein began to SAVE.

I understand that in your philosophy that "save" is a four letter word, but here I am interested in the facts. This is, of course, the method of science. And the fact is that the two countries which were famous for saving, early 19th century Britain and America, became far and away the richest countries that had ever existed.

Specifically, in the U.S. Noah Webster took a trip through the 13 new states in 1785-86. He talked to influential people and state legislators and convinced them to legalize the paying of interest (which was then called usury). In 1787, Jeremy Bentham in England wrote "A Defense of Usury." And paying interest was soon legalized in both countries. People saved their money and lent it to a businessman who invested it in a factory. This factory used the latest machines to increase production, and there was more wealth in the world. The people of these two countries then began to astound the world with their prodigious feats.

Mr. Andrews, was there ever a country which did not save, which practiced the Keynesian prescription of spending, which astounded the world with its great wealth, Albania perhaps? or perhaps Zimbabwe?

Zimbabwe is a good case in point for Keynesian economics. The leader of this country has done wonderful things to stimulate demand. Every week he prints up a huge amount of money, hands it out to his supporters, and they demand things. As a result, the people are starving. Cholera is sweeping the country (because hospital wages lagged way behind prices and the hospital workers quit). The country cannot provide enough food to feed itself. And a lucky few travel into South Africa to find jobs.

The answer is no. There is not one case in world history where the theory of stimulating demand has ever worked. The most famous case before Zimbabwe occurred in Germany from 1914-1923. Demand was stimulated so forcefully that the same loaf of bread which cost 1 mark in 1914 was priced at 1 trillion marks in late 1923. The idea that the "problem of production has been solved" turned out to be crackpot nonsense. The entire middle class was wiped out, and the young German democracy was so discredited that, a few year's later, the people voted for a radical socialist named Adolf Hitler.

And here we are, 85 years later, trying to work that same crackpot theory.

You went to college, and you took classes in economics. You have a degree which says that you know economics. Well your teachers were crackpots, your degree is a lie, and you don't know anything about economics. Shortly after WWII a group of New York bankers decided to take over the teaching of economics in this country. F.D.R. had recently given them the special privilege to create money. They had discovered a group of crackpots who were teaching that the creation of money was "the road to plenty." These bankers then bribed the nation's leading colleges to hire these crackpots, and from that time they have dominated the teaching of economics in this country. They weren't even subtle about it. John Kenneth Galbraith's chair of economics was named "The Paul Warburg Chair of Economics." Paul Warburg, of course, was the head of the Manhattan Bank and is called the father of the Federal Reserve.

What Galbraith, and the other followers of Fosters and Catchings, taught was that printing money out of nothing "stimulates the economy." "Stimulate the economy" is one of those confidence-man phrases which suggests that wealth is being created but doesn't quite mean it. For example, in the 1970s and 1980s the Republicans adopted the policy of printing money. In 1972, the average wages of the American worker started to decline, and they have been declining for a period of over 36 years.

Now this would seem to me to be the most important economic news of our generation. This has never happened in American history. In the late 19th century - which you condemn as the age of the robber barons - the average American worker almost doubled his real wages over a 35 year period. Large numbers of immigrants came to this country to get these high wages. The country created jobs for all of them. According to Historical Statistics of the United States, Colonial Times to 1954 unemployment in 1906 dropped to 0.8% in the face of massive waves of immigration. And yet here today the wages of the average American are declining.

You are an economic reporter. Isn't that the most important economic news of our age? Why don't you report it? Instead all I read in the Times is lies about the period of the early 1930s. There was no depression in the 1930s. A depression is a period where the whole country gets poorer. There have been 3 depressions in America over the past 100 years: World War I, World War II and the period of 1972-present. All of them were caused by extreme printing of money.

In the early 1930s, there was no printing of money. Just the opposite, the money supply dropped by 30% over a 3 year period. This caused prices to fall. And since wages tend to lag behind prices (both on the upside and the downside), the real buying power of wages rose. Since business had difficulty paying those high wages, this caused unemployment. This was not a good thing, but it was not the unmitigated disaster your crackpot professors taught you. The 75% of the working force which remained employed received above normal wages. Eddie Cantor had a popular song about it: "Tomatoes are cheaper; potatoes are cheaper; now's the time to fall in love." Statistics show that annual consumption of meat per capita rose from 129 pounds per person in 1930 to 144 pounds per person in 1934. (See Historical Statistics of the United States, Colonial Times to 1970, Dept. of Commerce, series G-881, p. 330.) Americans also shifted from margarine to butter. Butter consumption went from 17.6 lbs per person in 1930 to 18.6 lbs. in 1934. Margarine consumption went from 2.6 lbs per person in 1930 to 2.1 lbs. in 1934. (See Ibid., series G-888, 889, p. 329, 330.)

Neither did the "great depression" come out of nowhere. It was a deliberate policy of the Republicans of that time. Prices in the country had doubled during WWI, and in 1920 the Republicans adopted the policy of bringing prices back down to their pre-war level. Since cigars had gone from 5˘ to 10˘ during the war, this was expressed as "what this country needs is a good 5˘ cigar." And indeed this policy was successful; in 1933 prices returned to their 1914 level (which is the same level they had been at in 1793 - 140 years of price stability).

The Republicans based their policy on what had been done after the Civil War. The money supply had been reduced, and the price level declined so that by 1879 prices were back to their 1860 level. This caused what your crackpot professors call a depression. From 1873-79 there was high unemployment. But this was the period when the United States moved into the economic leadership of the world. It was the age of Thomas Edison, Nicola Tesla and Alexander Graham Bell. It was the period which transformed America from a rural, primitive economy to a modern economy, and, as noted, millions of immigrants came to this country to share in these benefits.

Not only was this policy of restoring the value of the currency good for the country, it was also popular. The Republicans (the hard money party) dominated politics from 1868 to 1912. When the Democrats got a chance (because of a scandal), they played it safe by nominating a pro-gold Democrat (Grover Cleveland). They didn't want to risk losing their chance by running a soft money candidate. The idea of the Republicans was that the currency had to be restored in value to protect the savers of the country. Since the savers were, order of magnitude, 95% of the country and the unemployed only got to 25%, it was the lesser evil to suffer through some unemployment for a couple of years than to destroy the entire class of savers. (As noted, Germany made the opposite decision and wound up with Hitler.)

All my life I have heard crackpot leftists posturing as the friends of the unemployed. But I know better than that. I spent 4 years at Harvard. I didn't learn any economics at that time, but I observed a lot of intellectual leftists. They hated "the masses." They had no sympathy for the unemployed. Their whole lives were spent trying to kiss up to the rich.

What has the Times done for its readers over the past few decades? In 1982, you were telling people to follow Dr. Doom. What a disaster. In Sept. 1985, you opined that the stock market looked like another 1929. (The DJI was then 1300 and doubled over the next 2 years.) You missed the prediction of Black Monday. And by 1999 you were predicting "Dow 36,000." At the One-handed Economist, my record is much better than that. I was extremely bullish on stocks in 1982 and remained bullish for most of the next 25 years (taking time out to predict Black Monday). I was bearish (for a while) in early 2000. And I returned to being a gold bug in 2002. Right now I am telling the world that you people at the Times are crazy. The economic crisis that you fabricated in September was an excuse to rob the ordinary people of this country in order to give to the rich. Right now the Demipublicans are printing money as never before. Over the past 4 months, the monetary base has doubled. Over the next few years, consumer prices in this country are going to multiply by 2-3 times (at least). Already commodities have bottomed and are on the rise. Gold bottomed Oct. 24. The CRB index bottomed Dec. 5 (along with most of the grains). The stock market probably bottomed Nov. 20.

You are wrong on your predictions because your theories are crackpot. At the One-handed Economist, I make predictions which are usually right. You are robbing from the people. I am helping them. I have a free website at www.thegoldbug.net, where people can find original and interesting social commentary. and the One-handed Economist costs $300/year. (The N.Y. Times costs $728 at the newsstand.)

The people of America are free to pay their money and make their choice.