Reality Is Knocking at the Door: What Can Be Done, And What Should Not Be Done

March 13, 2020
Vienna, March 11, 2020: Two Armenian tourists pose in good spirits with gloves and mouth masks in front of St. Stephen's Cathedral, which, like all federal museums, was already closed due to the corona pandemic. (Michael Gubi flickr CC BY-NC 2.0)
Vienna, March 11, 2020: Two Armenian tourists pose in good spirits with gloves and mouth masks in front of St. Stephen's Cathedral, which, like all federal museums, was already closed due to the corona pandemic. (Michael Gubi flickr CC BY-NC 2.0)

What are people experiencing in the world now? An Italian sees a spreading virus shutting down schools and businesses, causing near-riots at grocery stores, and about which it is difficult to have a sense of when it will end. An American with some savings for retirement has witnessed, over the last two weeks, a loss of 25 to 30% of the value of their stocks only two months after mourning the death of a family member from opioids. A Kenyan, confronting the worst locust swarms in 70 years, sees some efforts at pest control, but the numbers of pests continues to increase, as a new generation is hatching: “Doesn’t the world care?” A Chinese nurse, exhausted from the efforts involved in providing care in Wuhan, is spending two weeks in isolation at home in Nanjing, hears Westerners on television blaming China for not doing enough to stop the virus and wonders whether peaceful, honest relations are possible.

We are living in a Dark Age, both in the sense of the physical conditions confronting us, and in the cultural outlook that has brought about those conditions and resists efforts to change them. From the European Dark Age sprang the Renaissance, and from today’s calamities can be forged a new paradigm of economics and society.

How can this be done? And what should not be done?

First, the world does not need more money. The big Wall Street and London-centered banks must not be bailed out; they must be broken apart. Any bailouts would, like last time, be passed along to speculative units, client hedge funds, investment banking units, etc., and would never reach the real economy. Restoring the Glass-Steagall Act will put these speculative units out in the cold while protecting the large lending bank units from themselves—they will have to sell off the speculative units quickly, stop lending to them, and let them fail. Retirement funds will have that short time to get out of these speculative investments.

Interest rates should not be lowered further; they should be raised, and effectively split into two tiers, with lower rates for lending to productive investments in the physical economy. Glass-Steagall will almost immediately cause interest rates for short-term speculative lending to rise sharply. The desperate hedge funds trying to borrow hundreds of billions every morning from the New York Fed must be allowed to go dry.

Most important, the President and Congress must cooperate to create a capital budget for new infrastructure construction: concentrating initially on building new hospitals, laboratories and other public health facilities, bringing more high-tech companies into producing stockpiles of medical devices and protective equipment, and building the additional electricity capacity and clean water supplies this expanded hospital/public health/sanitation system needs. There is plenty of other new infrastructure needed as well. Building such new economic infrastructure can be a healthy activity, especially when done in the fresh air of the spring and summer.

New Federal bonds—construction bonds—have to be issued for this capital budget, whether by an emergency nationalization of the Federal Reserve, or, more quickly, simply by creating a Reconstruction Finance Corporation (RFC) backed by the Treasury. These bonds should bear interest rates higher than current Treasury long-term rates, and include small denominations. This will attract investment by the public, prevent further collapse of Treasury interest rates, and encourage productive bank loans by having the RFC participate in them.

Companies don’t need more money; they need new demand for production and construction. Without that, lots of small business loans won’t be used.

Some Federal taxes should be raised, not lowered: capital gains taxes, for example. The 1935-75 period of solid growth in U.S. labor productivity, real wages, and income equality, along with rapid technological advances and formation of new industries, was accomplished with Federal tax rates of nearly all types far higher than they are today, and with bank lending rates in the range of 3-6%.

Lyndon LaRouche’s Four Laws are the needed framework for the physical economic recovery that will support the future ensured survival of the human species. Take the opportunity to uplift people in need of solutions, by presenting a future they can look forward to with true hope!