The Weiner Component Vol.2 #3 – The Purpose of Government

English: Citizens registered as an Independent...

English: Citizens registered as an Independent, Democrat or Republican. Derived from :Image:Party affiliation USA.jpg. (Photo credit: Wikipedia)

If the question of what is the primary purpose of government in the 21st Century is raised then depending upon which major political party you adhere to you get different answers. 

 

Historically people have always been social animals, always functioning in groups with some form of social organization.  Traditionally governments have functioned to provide a framework in which people have lived.  They have provided rules or laws that have allowed them to live together, kept them safe within the society and from foreign invaders, provided the necessities for reasonable living conditions and protected their property.  These governments have provided a currency and regulated trade within and with other nations.  Other than that people have provided for their individual needs for themselves.  This, in essence, is the Republican concept of the function of government.

 

In 1929, through following these concepts and unlimited growth on the stock market, the United States economy crashed and billions of dollars were lost almost overnight in the 1929 Great Depression.  From 1929 through 1932 feeble attempts were made by the Republican dominated government to allow the Stock Market to adjust itself.  Instead it kept dropping lower.  This occurred from 1929 through 1932, when it and the rest of the economy reached its lowest level.  The Market Model was unable to adjust itself; it had been abused too much.

 

In 1933, the Democrat, Franklin D. Roosevelt became President, replacing the Republican, Herbert Hoover.  Roosevelt, in dealing with the massive unemployment problem, extended the purpose of the Federal Government, by having the Federal Government assume responsibility for those people who could no longer function successfully within the broken society.  He created mechanisms whereby these people could again function with a measure of success within the economy.  The Federal Government had now assumed responsibility for the people in the country who could no longer provide for themselves.  This now became the new additional function of the Central Government. 

 

While conditions improved considerably the Great Depression did not end until about 1940 with the outbreak of World War II when first European and Asian nations bought unlimited goods from America and at the end of 1941 when the Federal Government began unlimited spending in fighting the war. 

 

The government had dedicated itself to a new purpose which would continue on after the war had ended, more or less, depending upon which political party controlled the Central Government.  The Republicans tended to favor business and the wealthy, limiting social spending as much as possible, while the Democrats favored the middle and lower class extending this practice as much as they could.

 

Currently with the Republicans in control of Congress and the Presidency they are moving to get rid of Obamacare (Affordable Health Care).  They are presumably going to replace it with Trumpcare, whatever that is.  Probably it will be a voucher system that will be cheaper for the government to operate, but will gradually become more and more expensive for its recipients as medical costs increase but government vouchers do not.

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Two events occurred: one began in the 1970s, an increasing need for more money to be available in the National Cash Flow; and the other in the 1980s with the election of Ronald Reagan to the presidency.  In the earlier decade the major banking houses in the country began packaging mortgages in small fractions and selling them.  They did this gradually on a larger and larger scale.  The process took off in the 1980s with the Reagan White House.  This, in turn, increased the value of the homes.  In essence a percentage of the population began mortgaging and refinancing the ever increasing value of their houses over and over again.  At no time during the 30 years of this period was there any real inflation in the country.  For the first 10 years the country was in an inflationary cycle that began with the Viet Nam War.  This was ended at the beginning of the 1980s.

 

Reagan was the first of the really Conservative Presidents.  Forty-five years earlier he had majored in economics as an undergraduate in college.  Since that point in history economics had developed far from where it had been when Reagan was a college senior.  Much more about its functioning was understood in the 1980s.

 

Adam Smith began modern economics with the publication of his work,  “An Inquiry into the Wealth of Nations,” in 1776.  In this work, among other things, he developed the Market Model, which functioned through the use of the “invisible hand.”  The invisible hand is the profit motive.  Smith believed that the profit motive would best make all the Market decisions of what to produce and how to produce it. 

 

President Ronald Reagan and a good percentage of Republicans in Congress also believed this.  During his presidency hey did away with all bank regulatory laws that had been developed during the 1930s and beyond to avoid another Great Depression.

 

In the period before the 1929 Stock Market Crash many bank executives had taken depositors monies and invested them in stocks.  Shortly thereafter when the price went up they had sold the stocks and pocketed the profits.  People could also buy stocks on margin; all an investor needed was 10% of the value of the stock he/she bought, the banks would lend the remaining 90%.   The problem here was that many people were in love with the concept of the stocks, not with their true value, and they kept forcing up the value of all the stocks by continually buying and selling them.  This created a bubble that had to burst at some time.  When it did, from 1929 on, it not only bankrupted innumerable stockholders but also innumerable banks with unbelievable negative effects upon the overall economy.

 

The result of what Reagan considered reforms was that a multitude of banking organizations began an almost limitless level of refinancing homes, allowing people to take their ever increasing equity out of their properties to buy whatever, and countless billions of dollars were created in the National Cash Flow allowing almost endless spending.  All of this occurred until 2008 when the bubble burst.  Interestingly some of these companies insured the bank loans, charging generous premiums.  These companies and many banks faced immediate bankruptcy with the crash.

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In the year 2008 the Housing Bubble, that had been developing over the last forty years, burst, bringing about an almost instant and complete drop in home property values.  People’s home values virtually dropped overnight hundreds of thousands of dollars per single unit leaving a percentage of homeowners underwater, suddenly owing more on their home properties than they were worth.

 

This process had been slowly building since the 1970s, with it massively accelerating during the Reagan administration in the 1980s, when virtually all banking laws, many of which came into being during The Great Depression in the 1930s, were done away with and the country followed the administration’s mantra of letting the Free Market make all the economic decisions.  A good percentage of the population, with strong encouragement from the banks, had gone through a wild period of spending.

 

Specifically what happened was that the country did not have enough money in the National Cash Flow to meet its needs.  There was a shortage of money in the overall society.  The banks, among the many services they perform for the general society, also can increase or decrease the amount of cash available within their specific regions.  They do this through their lending or non-lending practices.  Most exchanges of cash at this time was through the transfer of funds by writing checks, bringing about an exchange of numbers in different columns of different bank ledgers.

 

People discovered the advantages of their equity in their home loans by taking out First, Second, and Third mortgages based upon their equity.  Over the forty year period as people borrowed upon their homes the value of their homes went up continually.  It seems the continual borrowing created a desire in people who rented living space to attempt to buy homes, forcing up the value of the homes even more for this forty year period.  Properties that were purchased for well under one hundred thousand dollars, because of the sudden great demand, were worth hundreds of thousands of dollars. 

 

For the forty year period, well into the year 2008 home values kept rising.  People refinanced their properties over and over again buying whatever they wanted.  The overall economy prospered.  People bought all the toys they ever wanted: boats, mobile homes for traveling, whatever.  There was no real inflation.

 

By the year 2007 the indications of a collapse were present for those in a position to understand what was going on.  But the bankers, who had taken home millions in compensation, were in total denial.  They were incapable of understanding that conditions could change.  To encourage further refinancing many banks raised the level of refinancing homes to 125% of the appraised value of the property.

 

Toward the end of the year 2008 the bubble burst or the crash came.  Many homeowners suddenly discovered that they were underwater, owing more on their home than they were then worth.  Some just walked away from their properties, leaving a deserted house behind them.  Others just stopped making payments they could no longer afford.  Unemployment rose significantly. 

 

Hedge Funds that had been developed from some of this mortgage paper were suddenly worthless.  Banks foreclosed upon properties that they both owned or had owned and sold to hedge funds.  The entire situation was a total mess.  Hedge funds were suddenly worthless, many banks were on the point of bankruptcy.  It looked like the entire economy was on the point of collapse.

 

At this point President George W. Bush and his Treasury Secretary, Hank Paulson, arranged for bank loans to keep many financial institutions from going bankrupt.  Then Bush was replaced by President Barack Obama who continued the bank loans and also bailed out the American auto industry which was also at the point of bankruptcy at that time.  With President Obama’s massive spending efforts what could have been a greater depression than the Great Depression of 1929 turned into what has been called the Great Recession, from which the country is still on its way out of.  By January of 2017 unemployment in the United States had dropped to 4.8%. 

 

The problem that existed here is that from the 1970s on more money was needed in the economy that should have been supplied by the Federal Reserve on a more gradual level.  A controlled increase of funds for the nation would have allowed for a slow healthy economic growth with no crash in 2008.  Allowing the banks to do this with just the profit motive led to unlimited and reckless greed as the major factor controlling the economy.

     

English: Franklin Delano Roosevelt and Herbert...

English: Franklin Delano Roosevelt and Herbert Hoover in convertible automobile on way to U.S. Capitol for Roosevelt’s inauguration, March 4, 1933 (Photo credit: Wikipedia)

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Th

e Great Depression was caused by the Republican’s legislating after World War I.  This was from the election of Warren Harding to the presidency through Herbert Hoover.  They created the necessary laws and general milieu that allowed it to come about.  The Housing Crash of 2008 was set forth by the policies of President Ronald Reagan.  He inspired and brought about the environment that allowed the financial institutions to go berserk through the unhampered use of the profit motive.  Now, with the election of Donald J. Trump to the presidency an equally horrible situation exists with the Republican legislature and Trump promising to do away with Affordable Health Care and the distinct possibility of taking medical care away from about 30 million citizens.

 

During his first year as President in 1993 William Jefferson Clinton, among other things, attempted to set up a system of Universal Health Care for all the people in the United States.  He placed his wife, Hillary, in charge of a task force that was supposed to develop a plan for this.  The Republicans were strongly against it.  They tried everything they could to kill this plan.  Finally they succeeded when they came up with a slogan: “There has to be a better way.”  The “better way” ended up being: No way.  With this mantra they successfully ended the plan for universal health care in 1993.

 

During President Barack Obama’s first two years in office he had a Democratic majority in Congress.  Together, they came up with a plan for the majority of people in the country to achieve health care.  The plan had been developed by a Republican think tank for Mitt Romney, when he was governor of Massachusetts.  I imagine that President Obama assumed that a Republican Plan would gain some Republican support in both Houses of Congress.  But by that time the Republican members of Congress had in a caucus and taken an oath to make Obama a one term President by not supporting anything he supported or for which he could take credit.  As a consequence they have vigorously opposed and continually denounced Obamacare (Affordable Health Care), which was in actuality their plan.  Affordable Health Care was passed in Congress strictly on a party basis, not one Republican Congressman voted for it.

 

In 2011 the Republicans gained a majority in the House of Representatives.  From then on the House passed bills to do away with Affordable Health Care; this was over fifty times.  While the Democrats controlled the Senate the bill was not even taken up there.  In 2014 the Republicans also gained the majority in the Senate.  In 2016 they gained Donald J. Trump as the new Republican President.  They are promising to replace Obamacare with a new and better policy.  But no specific plan seems to be on the horizon.  Meanwhile the first steps have been taken to begin the process dismantling Affordable Health Care.

 

Interestingly even the Republicans are now stating their sense of responsibility for the medical welfare of the general public.  But Affordable Health Care was their plan for universal health care.  It entails using private enterprise to bring universal medical care into existence. 

 

What is interesting or strange is that in 2012 when President Barack Obama ran for reelection, his Republican adversary, Mitt Romney and his fellow Republicans seem to have totally forgotten the Crash or Great Recession of 2008.  When elected they were going to do away with the laws passed in 2009 and 2010 to avoid that situation from occurring again.  And the same is true about the Presidential Election of 2016.  It would seem that the Republicans have some sort of collective amnesia about their own past.  The difference is that in 2016 the Republican candidate, Donald Trump and his fellow Republicans won the election, not only the presidency but also both Houses of Congress.  What will they do?  It seems that the Republicans themselves are not sure