The Banking Interests Behind the New Deal

In 2014 Nomi Prins wrote this piece in Fortune about the bankers behind the New Deal.  The New Deal was a banking revolution. The social aspects, cherished by the Democratic Party, were window dressing. Franklin Roosevelt had been a Wall Street fund manager, and he gave the American monetary system to Wall Street. That was the main point of the New Deal. 

Prins's story leads to Winthrop Aldrich, uncle of Nelson Aldrich Rockefeller and David Rockefeller.

Aldrich's father, Senator Nelson W. Aldrich, was the architect of the Federal Reserve Bank.

Incidentally, Bush's great grandfather, Samuel P. Bush, had served on the first board of the Cleveland Federal Reserve Bank. Samuel had been the president of Frank Rockefeller, John D. Rockefeller's brother's, company, Buckeye Steel.

FDR's great great grandfather, Isaac Roosevelt, had been Alexander Hamilton's partner in founding the Bank of New York, now part of Mellon. There's documentation, including a court case, that a bank for which Prescott Bush, Bush's grandfather, served on the board had helped fund Hitler.

Franklin Delano Roosevelt's uncle, Frederic A. Delano, was a Hong Kong-based railroad tycoon who served as the first vice chairman of the Federal Reserve Bank in Washington in 1914.

FDR represented the open control of America by elite financial interests that his cousin, Theodore Roosevelt, had put into play. Wilson signed the Federal Reserve Act, but Wilson would not have been elected if TR had not run as a third party candidate. The funder of his party, the Progressive or Bull Moose Party, was George Perkins, a close assistant to JP Morgan and former president of International Harvester.

Frank Vanderlip, who was present at the famous Fed-planning session at Jeckyll Island in 1910, was also a personal friend of Woodrow Wilson because of their work on shaping the modern American university system. Wilson, who had met JP Morgan because Morgan was a donor to Princeton, dropped Vanderlip as a friend and associate at the point at which Wilson entered the 1912 race. Vanderlip talks about that in his letters. No one knows the reason for sure, but it seems obvious.

Long Live the Electoral College

I favor the Electoral College. Direct democracy was a failure in Athens; it is a failure in the US. The American people are easily manipulated by special interests and hardcore, tyrannical socialists like Bernie Sanders.

American politics has become a debate between two self-interested, elite interest groups: the Democratic Party, including academics, professional interests like psychologists, schoolteachers, and lawyers, and some investment banks; and the Republican Party, including economic special interests like pharmaceutical companies, natural resource interests, agribusiness, and some investment banks.

Direct democracy represents one or the other of the corrupt special interest constellations, so it has failed. Big government is incompatible with direct democracy. The delusion of direct democracy is one of the principle methods that the Democrats use to manipulate the public into imagining that the Democrats' corrupt special interests somehow represent the public,

The public has done much worse since the establishment of the current presidential primary system and the ending of the republican principle by the 16th, 17th, and 18th Amendments.

The founders saw the need for a republican form of government, one that combines majority and aristocratic rule. Overt aristocratic rule by the Senate led to the best American statesmanship, a point that De Tocqueville explicitly observes in Democracy in America.

American workers fared much better before the Progressive era than they do today. There was more freedom; wages increased every year; savings rates were at 30%. The use of eminent domain to steal private property was comparatively rare. There was more income equality (less income inequality) under the republican system than under the Progressive and post-New Deal systems.

One of the safeguards the founders put in place was to limit the power of urban areas. Urban areas are prone to totalitarian, extremist impulses, and we witness that today with Mayor de Blasio's Red Guard-like lynching of history and his eagerness to smash statutes of Christopher Columbus and Theodore Roosevelt.

The states signed on to a Constitution (a) that was limited to delegated powers and (b) that weighted voting power to limit the authority of the totalitarian-tending masses in urban areas. One of the ways it did this was the Electoral College.

The principle of delegated powers was overthrown by authoritarian, urban elites (in the person of Hamilton and the party of the Federalists) almost as soon as the Constitution was passed; the principle in the Declaration that government exists by the consent of the governed was overturned in the Civil War; the republican principle was overturned by the Progressives in the 16th, 17th, 18th Amendments. All of these centralizing policies were mistakes, but only the 18th Amendment, Prohibition, was repealed.

The people of rural America would be fools to favor ending the Electoral College.

Growing States Have Right to Work Laws; Declining States Do Not

According to the  Albany Times Union:

New York’s [population] percentage increase was just 0.1 percent making it the 41st fastest-growing state in terms of percentage increase. Idaho was the fastest growing at 2.2 percent from July 1, 2016 to July 1, 2017, according the Census Bureau.  

The high-tax, pro-union states are the slowest-growing or declining while the low-tax, right to work states are the fastest growing: 

Right behind Idaho, with increases were Nevada at 2 percent; Utah, 1.9 percent; Washington; 1.7 percent; and at 1.6 percent each, Florida and Arizona.  

Only one of the high-population-growth states, Washington, is not a right to work state.  

According to Governing.com, the states with declining populations include Illinois, New Mexico, Maine, and Vermont, which don't have right to work laws. Vermont is the state that has repeatedly elected Bernie Sanders. It has among the worst population declines in the country.

West Virginia passed its right to work law in 2016, so although it has had a declining population and numerous other problems, it will be interesting to see whether its declines start to reverse as it deregulates. Vermont is the state that has repeatedly elected Bernie Sanders. It has among the worst population declines in the country.

The only state with a declining population and a longstanding right to work laws is Mississippi.

The Disadvantages of Trade Are Due to Federal Intervention

The federal government, not trade, is the source of social losses from the exit of manufacturing firms. Trade always results in making the parties to the trade better off. It may result in one party's being made better off to a greater degree than the other, but without both parties' being made better off they wouldn't trade.

The declining automobile industry and Chinese manufacturing illustrate separate issues. With respect to the US auto industry in the 1960s and into the 1970s, when I was in high school and after, consumer advocates talked in terms of "planned obsolescence"--that American car makers deliberately produced badly made cars so that consumers would be forced to buy new ones within a few years. That was probably an exaggeration of the Big Three's competence: They produced bad cars because their management systems were crummy, not because they consciously made bad cars. The 1979 book by John Z. DeLorean and Patrick Wright "On a Clear Day You Can See General Motors" covers GM's often laughable incompetence.

Thus, global competition has been a boon to Americans. It increased the quality of cars because of the Toyota production system invented by Taiichi Ohno and the Toyoda family. The result is that cars that once had to be junked at 100,000 miles or less now frequently last 300,000 miles.

That means every American who buys a car enjoys three times the value. Although American auto workers lost their jobs (a plight amply illustrated in Michael Moore's best work, "Roger and Me"), Americans have on balance been made better off by trade.

With respect to China, there is a combination of issues. First, labor costs are lower in China, and there is a reason to move labor-intensive plants there and to other low-wage countries. Low labor costs mean lower prices to Americans. One of the reasons we have sustained a relatively high standard of living is the inexpensive merchandise at big box stores due to low labor costs in China.

At the same time, plant relocation requires capital investment, and when capital is at its market rate, there is an impediment to making risky and costly moves. The costs of relocation have been suppressed by the federal government and the Federal Reserve Bank. By keeping interest rates artificially low, firms have been able to invest in plant relocation and make other labor-cutting capital investment at subsidized cost. There likely has been overinvestment in labor-saving technology as well as plant relocation because of suppressed capital costs.

Hence, the relocations and the loss of blue collar jobs are not entirely due to free trade. They are in part due to the federal government's subsidization of capital investment.

That's not the only way, though, that big government interventionists have hurt blue collar workers. During the same period that it subsidized plant relocations, the federal government increased all kinds of regulation, from human resources and employee benefits to OSHA, to environmental regulation, to Sarbanes-Oxley, to product liability. In addition, it raised corporate tax rates. The Democratic Party's policy mix seems designed to force manufacturing to move overseas.

Moreover, and most importantly, the federal government through its protected monopoly, the Federal Reserve Bank, has inflated the money supply while the dollar is used as the world's reserve currency. Foreign holdings of dollars limit the inflationary effect of historically low interest rates. The dollar remains relatively strong despite massive increases in the number of dollars.

In a free market trade regime, if many manufacturers exit a home country and sell their goods back to the home country, the value of the home currency will decline. That has not occurred. Rather, the dollar has retained its relative value despite the exodus of manufacturing to China. The reserve currency status of the dollar allows the Fed to subsidize privileged industries in services, government, education, and health care while it drives productive industry to China.

It is not surprising that President Trump's often-blue collar supporters have been skeptical of trade, for the managed version of it has harmed their interests. In contrast, the well-to-do beneficiaries of Fed policies, stock market investors, Wall Street, government employees, beneficiaries of government welfare plans, real estate developers, professionals like psychologists who benefit from state programs, are key constituencies of the big government economy. Notice that none of these produce much of value. America's has increasingly become a vampire economy.