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Phil-osophically Speaking

The Inflation Paradox

There is, I confess, a kind of perverse pride at work when I consider that my predictions about Obama’s economic policies have been borne out: an environment of minimal growth, alarming indebtedness, higher taxes and steep and protracted unemployment. Still, I would rather be a jovial myopic than a dismal prophet.

But this is not an exercise to flatter my vanity or celebrate my prescience, I can regale you chapter and verse on where I’ve gone awry in the past. Instead I choose to focus on what I got wrong on a subject in which I got nearly everything right. In a word it’s inflation. It’s almost non-existent and in an economy flushed with cash, courtesy of the U.S. Treasury Department, there should be too many dollars chasing too few goods. The effect of such an imbalance is inflation. But we’ve had very little of that and that’s a good thing since inflation is theft; it steals value from people’s savings and savings is a symptom of a healthy economy. 

So what gives; have we been hoodwinked by the mysterious workings of the Federal Reserve Board chaired by one Ben Bernanke? What happened was that after several years of virtually zero interest rates and the economy moving forward like a tortoise with severe leg cramps, the Federal Reserve put the economy on steroids via quantitative easing. This delicate operation increases the money supply by having the central bank purchase bonds or assets from the government. This extra cash is supposed to stimulate spending that will grow the economy. But this old bit of Keynesian theorizing fell flat on its flat face, since every study showed that both consumers and corporations continue to hoard cash. Uncertainty is one of the great restraining forces of the Universe and our economy is up to the gills with uncertainty.

 In its centennial year the Federal Reserve implacably defies the purpose of its creation, which was to be an independent regulator of the money supply among other things. Instead, it behaves like chattel in thrall of its master: Congress and its profligate ways. How else to explain the Fed covering Congressional deficits of more than a trillion a year with worthless paper? These measures, however, delay the inevitable. Financial policy is abstract and complex, but the laws of supply and demand are a force of nature and, much like gravity, it’s bound to have its way no matter what artificial controls the Fed applies. Because of such rude intrusions one begins to understand why Ron Paul and other libertarians want to audit the Fed if not dismantle the Leviathan.

I would not push the envelope so far since the Federal Reserve, like the deservingly maligned United Nations, has its uses, though one has to scratch his head some before discerning what they are. There was a time when the informed, like the suavely persuasive Walter Heller, one of President Kennedy’s principal economic advisors, could argue that the Federal Reserve served a purpose in reacting to external events: A jump in OPEC prices, a surge in consumer spending, the overreacting of capitalism’s animal spirits. It is therefore sensible to have someone at the command post of fiscal and monetary policy to change course and make adjustments. This was a questionable practice even when Heller was around, but now we have the Fed reacting not so much to external events as internal ones in the form of massive government expenditures.   

The Federal Reserve reminds me of what the long time New York Times editorialist James Reston said about Richard Nixon: He inherited some good instincts from his Quaker forebears but by diligent, hard work overcame them. So it is with the Fed as they labor to manage an economy that naturally defies being managed. Just as government policy has an abysmal record with wage and price controls, it’s certain that it will do no better at fixing the rate of inflation and interest rates. My suspicion is, and I believe it’s an informed suspicion, that as soon as there is a bona fide recovery both interest rates and inflation, unless thwarted by a change of heart in the Oval Office, will find their launching pad.

Meanwhile, the démarche of the Fed is to keep buying long-term bonds in an effort to temporarily drive down long-term interest rates. For now the lion’s share of this money is going into stocks, since bonds, money markets and savings accounts yield no revenue. The brush dips into the colors of a dark palette; for while the Federal Reserve generally acted properly in being a lender of the last resort during the 2008 economic meltdown, it caused the Great Depression, not acting decisively enough and by then protracted that god-awful calamity by letting the money contract by one-third in the 1930s. There are other examples including the very recent dot com bubble of 1999-2000, but time and space forbids analysis.

There are unhappy parallels between today’s recovery and that recovery of the 1930s. In short, there was no recovery. During the ’30s, there was more than a doubling of government spending, the imposition of higher taxes, the National Recovery Act and the Wagner Act all increased the cost of doing business and arrested job creation. With the exception of tariffs that were imposed on 20,000 durable goods during that Depression decade it all seems eerily related to today’s deplorable state of affairs. The world still trusts our dollar and that is also helping to keep things afloat but by no means swimmingly. We are more or less treading water. 

Twelve years after the crash of 1929, America was still plagued with 14 percent unemployment. It was only after the war when savings were high, the debt liquidated and taxes cut that the corner was turned. It was a recovery waiting for a work force and it got it with millions of soldiers coming home.  While income taxes rose dramatically in the 1950s (though no one in the highest brackets actually paid those rates) there were no deficits since Eisenhower was an uncompromising deficit hawk and no competition from a world still digging itself out from the ruins of war.

To believe after all this stimulus spending that the road to economic recovery is by more spending would be bizarrely jejune if the enervating effects of the economy were not so punishing.  Every longitudinal study across the globe shows repeatedly that the best way to balance the budget and achieve economic sustenance is to cut spending and not raise taxes. The Obama Administration speaks eloquently about helping the poor, but all its doing is widening the safety net until it becomes unaffordable and unsustainable. If inflation is ever released from its imaginary cage, we will receive our just desserts, which I’m afraid will not be recovery but retribution.


News

In a typical Long Island community packed with houses and backyards, there are a couple of acres of open land of community gardens where people are growing basil and dahlias and roses and cabbages—people like Terry Dunckey of Westbury and Peg Woerner of Great Neck, tending their small plots and helping to promote sustainable and organic practices.

East Meadow Farm, off Merrick Avenue, is owned by Nassau County and operated by Cornell Cooperative Extension (CCE) of Nassau County. Previously it was a family-owned farm that was purchased by the county through the Environment Bond Act Program, a $150 million program that called for, among several mandates, the preservation of 400 acres of open space. In 2009, CCE of Nassau was awarded the lease to the land and in January 2012 took possession of the property. East Meadow Farm is a place where we can get the best advice on how to make our gardens grow without harming the earth. Part of the CCE’s original proposal was the establishment of a farmer’s market and, now, the market is open two days a week, a place to purchase organic vegetables and flowers during the growing season.

Drivers—get ready to slow down. Nassau County is currently in the process of installing school zone speed cameras in an effort to enhance safety by encouraging drivers to travel with caution, as well as support law enforcement efforts to crack down on violators and prevent accidents caused by speeding.

Nassau County officials say they’re still investigating locations in the Mineola School District, while leaning towards installing cameras near the North Side or Willets Road schools in the East Williston School District. Cameras could begin operation in September.


Sports

Nobody wants to make excuses, but sometimes when the injury bug hits, it’s impossible to overcome. Mineola Mustangs football head coach Dan Guido, entering his 28th season at helm, knows the injuries were the cause for their first-round defeat at the hands of the West Hempstead Rams last November.

“There was too many injuries on the offensive line last season,” said Guido. “It was supposed to be our strength and it ended up being a weak link by the end of the season.”

Even with those injuries, the Mustangs went 4-4 during the regular season.

The BU15 Mineola Revolution were crowned champions of the Roar at the Shore Tournament 2014 in West Islip on Aug. 10. After dropping the opener 2-0 against North Valley Stream, Mineola bounced back to beat Freeport Premiere 2-1.

The Revolution’s offense exploded in the third game as they beat West Islip 7-0. Mineola’s final game pitted them against Quickstrike FC, which entered the contest without a loss and within a point of winning the tournament.


Calendar

Zoning Meeting

Thursday, Aug. 28

Mineola Village Meeting

Wednesday, Sept. 3

School Board Meeting

Thursday, Sept. 4



Columns

1959: The Year The Music Stopped Playing
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The Eccentric Heiress Of ‘Empty Mansions’
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Yellow Margarine And A Pitch For The Ages
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