On the one hand each nation today tends to be strongly nationalistic seeing itself as a unique entity while on the other hand each of the national and regional groups are also strongly interdependent. When any one nation is adversely affected economically then all the others are also negatively impacted. A prime example of this would be the late 2008 bursting of the U.S. Real Estate Bubble whose effect was felt throughout the major industrial nations for at least seven years.
We are today in the 21st Century and interdependent; either we all prosper or we are all undergoing stages of recovery from different levels of recessions. This situation seems to be intensified in some of the 19 nations that make up the Eurozone, which is actually a smaller version of the overall economic world. Whether they survive as an economic unit or not depends upon decisions they will make in the next few months
Most countries have a central government bank like the Federal Reserve in the United States or the European Central Bank for the Eurozone but there is a wild card in all these countries or regions and that is the private banks. To some extent they are limited by the National Banking House but mainly they operate for profit in a Market Economy environment. These banks are motivated by profit and their lending policies can create money or shrink the expenditure of funds within an economy.
An example of this would be in the U.S. after the Real Estate Bubble burst in late 2008. The major banks had recently been bailed out of bankruptcy by the Federal Government with loans and were expected to have a loose money policy to enhance economic recovery. The private banks, however, became ultra-conservative, essentially hording their monies and considerably slowing down the rate of economic recovery.
These banks as they exist today are necessary for the functioning of any National economy. But, mainly, they exist for profit through fees or the interest rate they charge on their depositor’s savings and checking accounts. The banks are responsible for the flow of money through the entire economy. Their CEO’s or presidents take home salaries in the millions of dollars while the government banking houses like the FED or ECB take home salaries that are in the thousands of dollars. These private banks are necessary, yet they pose a contradiction within the Free Market system.
The economic system of a nation works simply. It always seems to follow the following
THE NATIONAL BUSINESS CYCLE MODEL
The above model is continuous. The duration of each cycle can vary from a relatively short period of one to several months to a number of years. The Great Depression of 1929 lasted until the Second World War, ten to twelve years before recovery was completed.
All of this operates in a Market Economy where the forces of the Market or Free Enterprise determine what is happening. And what causes the Market to operate is the goal of profit. During a period of prosperity many businesses that are doing well want to expand and do better. They generally borrow money from the banks in order to do this. There may in addition be a shortage of labor and wages will be bid up raising the costs of production. Eventually more is produced than can be sold, be it manufactured items or food products; prices drop, there is overproduction, people are laid off, unemployment rises. The economy moves into a recession which can lead into a depression or if it misses that then directly into the recovery stage, and the cycle eventually begins again with a level of recovery. This pattern has been endless lasting at times for months and at other times for years, or for some period between the two. And always it has been propelled by profit
This is, of course, a simplification of the many forces at work within each economy during the business cycle but it is essentially the root that powers the economies, the wild card that the Central Banks can never really totally control. And when one country is affected it is like a virus that then spreads and in different degrees affects other nations.
It can be and has been argued that a planned economy controlled by central planners in the government, as it was in the Soviet Union, never worked. They were always beset by bottlenecks when production stopped while the factory waited for some necessary part to be produced and shipped to them before they could finish their product. This did occur prior to World War II when the Soviet Union was undergoing its 5 Year Plans that were to turn it into an industrial nation. And if we check carefully we will find that it did also occur in countries with the Market System.
It can also be argued that this is a form of socialism which is by definition bad and has never worked. But if one examines the history of socialism he or she finds that it is a late 19th and early 20th century form of utopianism, which in many cases also had religious overtones. They were reaching for a state of being in an early industrial society where everyone could live happily and fairly ever after. We are looking at a state of being that could not, with the limited resources that existed then, really exist at that time in history.
What we are considering now is a state of being that is utilitarian; that is a possible and logical outcome to what is the most efficient course of action today. Most industrial nations have from some to many aspects of the society that are operated by the government for the public good.
In the United States, for example, there is Social Security, Medicare, and Affordable Health Care to name some social programs. One can even quote the Tennessee Valley Authority (TVA) which serves only a section of the country supplying water and electricity sold by the Federal Government. Even some municipalities will sell water and/or electricity to their residents. These are all social programs run for the public good rather than for profit.
Most industrial nations have many more social and industrial programs that cover their citizens from the cradle to the grave. Their taxes are high but their protections for their citizens are far more extensive than those in the United States where many of these programs cost the citizens far more than these other industrial nation’s people pay for them in taxes.
The problem as it exists in the United States and many other industrial nations is that most of the major banking houses are too big to fail. They keep a goodly percentage of the cash flowing through the economy. If they were to disappear by going bankrupt through bad speculation or otherwise then the nation or nations would go into a deep depression. The banks are in the business of making large profits with their depositor’s money, which generally is insured by the Central or National Government, but their executives make decisions that could lose that money as happened toward the end of 2008 when the Real Estate Bubble burst. The governments bailed out most of the banking houses like the Bank of America. The banks were needed for the economy to keep functioning.
If we, as individuals, invest money foolishly we can lose our investment but if the banking houses do it the National Government using taxpayer money will have to pay for the loses. They seem to have an advantage over the rest of the society, a very unfair advantage.
In the March 4, 2015 edition of the Los Angeles Times there was a short article dealing with the J.P. Morgan Chase bank. They were to pay 25,000 thousand homeowners $50 million for failing to properly review payment-charge notices sent to these homeowners in bankruptcy. The bank acknowledged that it filed about 25,000 payment change notices without a proper review. They were signed in the names of employees who no longer worked for the company or who hadn’t reviewed the filings.
If we do a review of the major banking houses from 2009 to the present we find that all of these banks paid fines to the Federal Government of multimillions of dollars for various nefarious and outright dishonest practices with virtually no one going to prison for any of the illegal activities. Outside of a fine there has been no legal penalty for banking houses instigating illegal activities. In fact even after the fines were paid the banks, in most cases, still made a profit on these activities.
Are there solutions to these problems? The banking practices as they now work are completely out of kilter with the needs of society. In fact in many instances they seem to go against the interests of the general public. A simple solution to this would be in the United States to expand the powers of the Federal Reserve which would allow them to deal directly with the general public.
The Federal Reserve divides the United States into twelve Federal Reserve Zones. Each has a main Federal Reserve Bank and ancillary banks. The zones could be expanded to also include Federal Commercial Banks that would deal directly with the public
There are many advantages to this. The Federal Reserve can exercise its power more rapidly over the overall economy as it continually adjusts the business cycle and national cash flow, keeping the economy in a healthier state. The contradictions in the system disappear with the Federal Banks serving the people for their benefit and not for profit. It makes for a far healthier economy and the negative shifts in the business cycle should be massively reduced in a positive direction.
As to the concept of interdependence we need a consortium of the heads or leaders from each of the National Banks who would meet regularly and have the power to deal with the problems that affect all the member nations. They can work toward international levels of prosperity for all the member nations.
Is all of this possible in today’s world? The major nations are presently cooperating in the direction of ending national flare-ups. They are cooperating in attempting to wipe out the terrorist group ISIS and other terrorist groups in the Middle East and North Africa.
Setting up an international economic consortium would just be another step in this direction. Currently there is the G-20, an international forum for the governments and central bank governors from 20 major nations. It attempts to address issues that are international in content. Collectively the G20’s nations account for around 85% of the gross world products, 80% of world trade, and 2/3ds of the world’s population.
They have been meeting annually since 1999. Actually under other names they have been meeting since the end of World War II. The leaders of these nations confer together and can bring home recommendations to their individual governments. If the individual nations were to give up a percentage of their sovereignty the group’s representatives could meet more often and they could be given power to implement their economic recommendations as acts of international law.
In addition there is the United Nations which has operated on various levels since 1945, the end of the Second World War. In part it has been politicalized but that can be changed and it can be brought to operate as a world union
The tools for all these changes already exist. All that is required is that they are positively developed.