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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

Mineola Street Fair Volunteers

Audition Hosts: Eleanor Rigby’s Restauant, Mineola Village Hall, Piccola Bussola and Plum Tomatoes

Audition Team: Master  Performance Artist Ed Dennehy of Huntington/ formerly of Mineola 

Robert Busch, Little Neck and Melville Fire Department, Adrian Gaeckler: Oyster Bay/ Nassau Coliseum Staff, Nigel Gretton: Hempstead/ St John’s University Performing Arts Chair Lady Laura,  Hempstead/ Global Performing Artist, Ralph DeSalvo: Williston Park, Musician/  Band Leader.   

Al Trompeter, Entertainment Promoter 

Special Touches: Bagelman of Mineola ( Entertainment Committee Host) 

Creations de Belle of Mineola (Street Decorations/ Balloons)

Tom Hayden has been a member of Mineola Golden Age for nearly 20 years. 

 

Growing up in Flushing, Queens, he has lived in Mineola for about 40 years.  Hayden has five children—two on Long Island, two in Florida, and one in Maryland—and 13 grand-children, all girls.  


Sports

The Mineola Mustangs ended last year’s playoff run in a 34-6 drubbing from the West Hempstead Rams. Mineola was poised for another post season push in 2014 and it showed last week, with a 15-14 victory over the Rams in homecoming weekend.

 

With a slow start in the first half, Mineola (4-1) put their first points on the board in the second quarter with a field goal by senior Robert Lang.  After a touchdown by the Rams (2-3), they headed into halftime 7-3.

FC Mineola Stumbles Against Hota

Despite two goals from Liam Going, the BU11 Mineola FC squad fell to a relentless and talented Hota Panthers team at Soccer Park in Plainview on Sept. 6.  Hota jumped out to a 4-0 lead before Going connected on his first tally, launching a 30-yard free kick that dropped over the Hota keeper. The Mineola striker’s second goal brought his team to within two goals of their opponent, but Hota scored several more goals in the second half in a strong performance.  Mineola’s Nicholas Buffolino and Luke Sommese gave solid efforts for Mineola in the season-opener for both teams.


Calendar

Exercise Class - October 15

Mineola Faces Oyster Bay - October 16

Bingo Night - October 17


Columns

1959: The Year The Music Stopped Playing
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The Eccentric Heiress Of ‘Empty Mansions’
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