Monday, September 8, 2008


(Week 7 - Monday, Sept. 8)

In yesterday's column I suggested that not only management, but also the participants in the labor movement would perhaps benefit from examining more closely their roll in the whole Flint drama.

The laborer who lost his job may indeed, with justification, criticize the board and CEO of GM for what they perceive as the board's callous decision to move the majority of the plants to "cheap labor" locales. On the other hand, to even suggest that those who lost their jobs may have had a hand in the disaster may seem to many to be grossly insensitive, given the difference in the political power, monetary compensation and personal suffering experienced by those on the respective sides in the matter.

In last week's columns I offered the view that the Flint episode was a prime example of a phenomenon that is happening throughout the country, caused in large part by a lack of awareness in the corporate world of the effect of the private-bank-loan transaction by which our money is created and issued within our present monetary system.

It is only reasonable to ask, given that the unconsciousness about the monetary system is culture-wide, if the labor movement, like management, is not in its own way susceptible to a narrowed vision on the same subject, and thereby also an unwitting contributor to the calamities (like Flint) that have befallen its members.

The heroic pioneers of the unionization movement truly were the leading edge of a just attempt by working people to at last secure, among other things, a better-than-starvation share of the economic pie for their labors. The lot of, not only the strikers, but virtually all working people was transformed for the better, and the industries they worked for benefited as well because they now had customers for their products with money in their pockets. It was a win-win.

Over time, however, something began to change. That is that, for a variety of reasons, the "interest" payments necessary to keep a burgeoning cold-war, consumer-society superpower supplied with money began to double and redouble. This meant that, while the economy was expanding by leaps and bounds, and while it seemed to many (maybe most) citizens that it could go on doing so indefinitely, there was a growing shortfall in the ability of the citizens of the nation to, as consumers, purchase the full value of their own production in the nation's domestic marketplace.

For people who worked for a livelihood this meant that, because so much money was being lost to the "interest" payments required to service the "debt" against the large and growing money supply, there was certain to be a shortage of purchasing power circulating in the economy to pay their wages, regardless of how high or low they were (or how productive they were in their labors).

This shortage of buying power was at core, not a wage-price-and-productivity problem (important as these considerations are), but a monetary problem. Like the world of corporate management, the labor movement did not recognize that. The result was that, like management, they took measures that only made the matter worse, and hastened the crisis that culminated in the virtual abandonment of Flint by the auto industry.

Flush from their victories in the late thirties and forties, the more powerful unions struck for very high wages and benefits, thinking that there would be a ripple effect from their gains that workers in the rest of the economy would be caught up in. Gains were made for a time, and it seemed to be working, but then it all came undone. Wages and benefits have since plummeted, and the organized labor movement itself is greatly diminished and in disarray. The unions were criticized for using their new-found clout to make demands that proved to be too high to sustain, relative to other segments of the workforce. A strong case can be made for this argument.

I think, though, that whether their demands had been high or modest, a process similar to what happened at Flint would still have unfolded. This is because the real issue for the worker is not whether the numbers on his paycheck are big or small. It is, rather, whether there is enough money circulating in the economy for the consumer (who is just the worker when he goes home) in the aggregate to buy the full value of whatever the workforce (who is just the consumer when he goes to work) in the aggregate produces.

A problem arises because this nation's money supply is borrowed from a private banking system, and so a large part of the average worker's wage is lost to "interest" payments for which he does not receive anything of value. This makes it inevitable that unsold goods, equal in value to that lost purchasing power, will pile up in the marketplace.

The pressure caused by the disparity between production costs and consumer buying power can be relieved in the short term by participants in the economy (including the Federal government)borrowing more money into circulation from the private banking system, selling the surplus goods to foreign countries, laying off workers (the cost of which is picked up by a public welfare system), or by corporations cutting their "short-term financial costs" by closing plants in the U.S. and relocating them in locales that have "lower productions costs" (i.e. "cheaper labor").

If the nation had a system whereby its money supply was issued directly out of the public domain (i.e. U.S. Treasury), a balance between the costs of production and consumer buying power would be assured. Unions, like management, don't seem to understand that. Their strategy of striking for high wages and benefits for the particular part of the workforce they represent, and assuming that this would cause a tide that would lift all boats, has proven to be disastrous in practice. It is time, I suggest, to reassess this approach.

In the end, I think that what will be found is that management and labor are not natural adversaries, but rather productive compliments of the economic whole. If they could but realize that and join together in the quest for a just and equitable monetary system, tragic episodes such as what happened in Flint, Michigan could be a thing of the past. Michael Moore and the CEO of General Motors might even become fast friends. Wouldn't that be worth a movie?

Richard Kotlarz

The complete set of columns from this series is posted at the following websites:


enkain said...

Rich, with the weekend's government bailout of Fannie Mae and Freddie Mac, could you post a brief comment with your views on this? Is it similar to the Bear-Stearns fiasco posted at

The common perception is "this will cost taxpayers billions", and my instructor was interested in your insights on this.

Thanks! - elaine

richkotlarz said...

The imperative that drives the economy is that it must go further into “debt” to stay “solvent” (i.e. continue to pay its bills). Someone has to be borrowing an accelerating amount of money into circulation from the banks all the time. It doesn’t much matter if the party doing the borrowing comes from the private sector (individuals and corporations), or the public (federal, state and municipal governments), but someone has to do it.

Right now the public is tapped out. It no longer has the ability or confidence to borrow a lot more money. It is trying hunker down and pay its bills in the interest of surviving. The public is not in an expansionist mood. That means that means that it falls to the government, particularly federal, to make the trip to the bank.

One factor that has brought a lot of money into the economy is the Iraq War (virtually everyone thinks the war is “costing” the economy money, but in reality it is the great engine of public credit that has been pumping money into circulation). With the consumer’s increasing inability and/or unwillingness to take on more “debt” (e.g. millions are getting maxed-out on their credit cards) the government has to take on the task of doing the borrowing to an even greater extent, but since it is political poison to spend it on “liberal spending programs,” it opted to just borrow more money and mail it out to the public in the form of “rebate” checks.

The numbers are mounting, however, and so even this “stimulus” is no longer sufficient. The scheme in play now is to bail out the big financial players, like Bear-Stearns, Fannie Mae and Freddie Mac. There is a lot of wailing and knashing of teeth in the media about how much this is going to cost the taxpayer, but the burden of all this “debt” money of whatever form falls on the taxpayer anyway. The main difference now it that the numbers are getting so fantastic that they no longer can be supported by real economic activity, especially when a lot of individuals and entrepreneurs are try scale back to lower their exposure to “debt.”

The compelling economic logic behind the Fannie Mae and Freddie Mac bailouts (whether those controlling the “rescue” are conscious of it or not) is that someone has to borrow more money into circulation, or see the air taken out of the “debt” bubble that the world of financial speculation lives on by a massive wave of bankruptcies.

The Federal Reserve banker John Exter warned, “the Fed is locked into this continuing credit expansion. It can’t stop. If ever bank lending slows . . . the game is up, and the scramble for liquidity starts.” and “The Fed will be powerless to stop a deflationary collapse once it starts.” This is coming to pass.