Ellen Brown, August 4th, 2007
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Only five confirmed deaths have so far resulted from the dramatic collapse of the I-35 bridge in Minnesota on August 1, but in some ways the disaster was more of a shock and a wakeup call than the collapse of the New Orleans levees that took many more lives. After all, most of us will never be faced with a category 5 hurricane; but we expect the bridge that carries us to work every day to hold us up, just as we expect the lights to come on when we flick on the switch and the water to come out when we turn on the tap. All of this infrastructure, which we have always taken for granted, we are now learning is in jeopardy. A 2005 report by the American Society of Civil Engineers gave the nation's infrastructure an overall grade of D – or nearly failing – including roads, bridges, drinking water systems and other public works.1 The Minneapolis bridge, which was rated structurally deficient by the U.S. government in 1990, was only one of more than 70,000 bridges across the country with that rating.2 The American Society of Civil Engineers estimates that it would take nearly $190 billion to fix the country's failing bridges over the next two decades. "We need to establish a comprehensive, long-term infrastructure plan," said the Society's president. We need to but we haven't, because government at every level is broke.
While Democrats call for more money for needed repairs, Republicans complain of pork-barrel politics that merely impose further taxes on a citizenry that is already tapped out. Repairs cost money, and where is it to come from? In the 1930s, Franklin Roosevelt built infrastructure and got a severely depressed economy back on its feet at the same time, by borrowing the funds the government needed to pay for workers and materials. But while "deficit spending" was credited with pulling the country out of the Depression, the long-term effect was to plunge the federal government heavily into debt. Wholesale endorsement of deficit spending caused the federal debt to balloon from $22 billion in 1933 to a staggering $8.9 trillion today. The debt has grown so large that just the interest will soon be more than the taxpayers can afford to pay.
There is another way to fund investment in national infrastructure, and it is not the privatization solution being pushed by Wall Street investors. In fact, it could keep those hovering vultures away. Investment firms including Goldman Sachs, the Carlyle Group, Merrill Lynch and Morgan Stanley are poised and eager to pounce on juicy public infrastructure projects; but privatization (the sale or lease of public assets) means governments will be relinquishing control over key infrastructure for years to come.3 It also means higher prices for users, since the investors expect to take their profits off the top; and these increased prices don't necessarily translate into improved service. To the contrary, surveys have shown that in-house operation of publicly-provided services is generally more efficient than contracting them out, while privatizing public infrastructure for private profit has typically led to increased inefficiency and corruption.4 A case in point is the deregulation and privatization of electricity in California, which met with heavy criticism as an economic disaster for the state.5 Complex publicly-provided services tend to break down with privatization, just from the complexity of contracting and supervising the contract. Privatization of the British rail system, for example, caused rate increases, rail accidents, and system breakdown, to the point that a majority of the British public now favors returning to government ownership and operation.
Okay, so who has a better idea? The government of the island of Guernsey does, for one. Located among the British Channel Islands just south of Great Britain, Guernsey is so small that it has been able to stay under the radar long enough to try some experimental financing without raising the hackles of the international banking establishment that is normally in control of such things. When the Guernsey government needs funding, it simply issues the money it needs. In 1994, Dr. Bob Blain, Professor of Sociology at Southern Illinois University, wrote of this remarkable island:
In 1816 its sea walls were crumbling, its roads were muddy and only 4 1/2 feet wide. Guernsey's debt was 19,000 pounds. The island's annual income was 3,000 pounds of which 2,400 had to be used to pay interest on its debt. Not surprisingly, people were leaving Guernsey and there was little employment.
Then the government created and loaned new, interest-free state notes worth 6,000 pounds. Some 4,000 pounds were used to start the repairs of the sea walls. In 1820, another 4,500 pounds was issued, again interest-free. In 1821, another 10,000; 1824, 5,000; 1826, 20,000. By 1837, 50,000 pounds had been issued interest free for the primary use of projects like sea walls, roads, the marketplace, churches, and colleges. This sum more than doubled the island's money supply during this thirteen year period, but there was no inflation. In the year 1914, as the British restricted the expansion of their money supply due to World War I, the people of Guernsey commenced to issue another 142,000 pounds over the next four years and never looked back. By 1958, over 542,000 pounds had been issued, all without inflation.6
Guernsey has an income tax, but the tax is relatively low (a "flat" 20 percent), and it is simple and loophole-free. It has no inheritance tax, no capital gains tax, and no federal debt. Commercial banks service private lenders, but the government itself never goes into debt. When it wants to create some public work or service, it just issues the money it needs to pay for the work. The Guernsey government has been issuing its own money for nearly two centuries. During that time, the money supply has mushroomed to about 25 times its original size; yet the economy has not been troubled by price inflation, and it has remained prosperous and stable.7
How could the money supply increase by 25 times without creating runaway inflation? Price inflation results when "demand" (money) increases faster than "supply" (goods and services). As British economist John Maynard Keynes pointed out, adding new money to the economy will not drive up prices so long as the money goes to produce new goods and services, because supply will increase along with demand. This modification of the classical "quantity theory of money" helps explain such paradoxical data as the "economic mystery" of China. The Chinese have managed to keep the prices of their products low for thousands of years, although the money supply has continually been flooded with the world's gold and silver, and now with the world's dollars, as those currencies have poured in to pay for China's cheap products.8 The Keynesian explanation is that prices have remained stable because the money has gone into producing more goods, increasing supply along with demand.
Note that in creating money with accounting entries, the government would merely be doing what banks do every day. Every time a bank makes a loan, it creates new money. (See E. Brown, "Dollar Deception: How Banks Secretly Create Money," www.webofdebt.com/articles, July 3, 2007.) The power to create money was delegated exclusively to Congress in the Constitution, but that power has now been usurped by a private banking cartel. Congress just needs to take its money-issuing power back.
With the impending collapse of the housing market and of global credit markets, there are clear signs that we are heading into another Great Depression. We can pull out of it in the same way Franklin Roosevelt did, by injecting money into the economy in the form of massive public investment in infrastructure. But instead of borrowing the money from banks that create it out of thin air, leaving the government massively in debt, this time the government should try creating the money itself, debt- and interest-free. If the people of Guernsey can fund infrastructure with government-issued money, so can we. Monetary reform has not been a key political issue since the depressions of the 1890s and 1930s. It is time we looked at this issue again.
|1||"Crumbling Nation? U.S. Infrastructure Gets a 'D'", MSNBC.com (March 9, 2005).|
|2||"Following Minnesota Bridge Collapse, New Scrutiny for Nation's Ever-privatizing Roads," www.democracynow.org (August 3, 2007).|
|3||Emily Thornton, "Roads to Riches," www.businessweek.com (May 7, 2007).|
|4||Betty Reid Mandell, "Privatization of Everything," New Politics 9(1-2) (2002).|
|5||See Harvey Wasserman, "California's Deregulation Disaster," The Nation (February 12, 2001).|
|6||Bob Blain, "The Other Way to Deal with the National Debt," Progressive Review (June 1994).|
|7||David Kidd, "How Money Is Created in Australia," http://dkd.net/davekidd/politics/money.html (2001); Michael Rowbotham, "How to Cancel Third World Debt," in Goodbye America! Globalisation, Debt and the Dollar Empire (Charlbury, England: Jon Carpenter Publishing, 2000), pages 188-89.|
|8||Keith Bradsher, "From the Silk Road to the Superhighway, All Coin Leads to China," The New York Times (February 26, 2006).|
Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and "the money trust." She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Brown's eleven books include the bestselling Nature's Pharmacy, co-authored with Dr. Lynne Walker, which has sold 285,000 copies.