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About the Author

Ralph J Massey was born in 1929 in Cleveland, Ohio, son of a

police officer and grandson of a railroad brae!an and a coal
#here he graduated magna cum laude/$hi %eta &appa
fro! Case'(estern Reserve )niversity* and then studied at the
)niversity of Chicago in the early'19+,s when Milton
-ried!an e!erged as a leading conservative econo!ist" .e
was a .arry A Millis -ellow in /ndustrial Relations and a
Research Associate in the 0epart!ent of 1cono!ics"
.e left the )niversity with a !aster2s degree in 1cono!ics
when the /ndustrial Relations Center was closed* and then he
pursued a 34'year business career at -ord Motor, &i!berly'
Clar, Johns'Manville and Che!ical %an"""now a part of
J$Morgan Chase"
.e was a founding !e!ber of the 5assau /nstitute and a
consultant to the .otel 1!ployers Association of the %aha!as"
.e is the father of seven children and has been happily !arried
for +6 years"
7(hat .appened to A!erica89 is his perspective on a
century of profound tur!oil : two ;reat (ars, two ;reat
0epressions and periods of real prosperity : and what A!erica
did and did not do on the road to what !ay be a financial
Ra l p h Ma s s e y
A M E R I C A ?
D R E A M S , P O L I T I C S A N D
Copyright Ralph Massey
#he right of Ralph Massey to be identified as author of this wor
has been asserted by hi! in accordance with section 66 and 6< of
the Copyright, 0esigns and $atents Act 19<<"
All rights reserved" 5o part of this publication !ay be
reproduced, stored in a retrieval syste!, or trans!itted in any
for! or by any !eans, electronic, !echanical, photocopying,
recording, or otherwise, without the prior per!ission of the
Any person who co!!its any unauthori=ed act in relation to this
publication !ay be liable to cri!inal prosecution and civil clai!s
for da!ages"
A C/$ catalogue record for this title is available fro! the %ritish
/?%5 96< 1 <@943 6<+ +
-irst $ublished A2,1@B
Austin Macauley $ublishers >td"
2+ Canada ?Cuare
Canary (harf
11@ +>%
$rinted and %ound in ;reat %ritain
P e ! a" e
After its 7Revolution of /ndependence9 in 1664, the )nited
?tates uniCuely evolved fro! its 1nglish roots to beco!e by
19+, the do!inant power in the world"
O#a$a Falla"# %&'(')(**+,, the sensational international
Dournalist, anti'-ascistEanti'Jihadist war correspondent and
novelist wrote about A!erica in 2,,1 '
7?ince A!erica is the richest and strongest
country in the world"""the !ost powerful and the
!ost capitalistic"""and since her !ilitary
supre!acy scares the world, A!ericans
the!selves used to cherish the illusion of her
7%ut A!erica2s vulnerability lies eFactly in
her strength"""!y dear"""in her richness, her power
and her super'capitalis!"
7#hese are the reasons why she ignites every
ind of Dealousy and hate"9
My 75arrative9 on 7(hat .appened to A!erica9 is less
colourful and dra!atic"
#he first siF Chapters deal with The Ne- Le!., the period
when the A!erican political econo!y started the big shift to
the left" #hen the politics of 7?pend, %orrow G $rint9 too
hold of both political parties* and it borrowed see!ingly
without li!it to finance both an eFpanded role in world politics
and a ;reat ?ociety of burgeoning social entitle!ents"
#he neFt eight chapters discuss the factors that led to a
7%loodless Coup9 by The Fa Le!. when the country elected
?enator %arac Oba!a $resident" .e was a Radical ?ocialist
whose oratorial sills rivaled those of -ranlin 0elano
The Na a. # /e
A!erica is facing econo!ic and political crises of enor!ous
proportions" More than ever before"""politicians, citi=ens and
the !edia are polari=ed on a nu!ber of econo!ic, political and
cultural issues" #his narrative will focus solely on the do!estic
econo!ic crisis"
/n this regard, the author believes that the )"?" got to
where it is in two !aDor steps with the 5ew >eft and the -ar
>eft" #he critical pivot point in this narrative was the election
of $resident %arac Oba!a in late 2,,<"
%ut first"""this situation should be put into perspective"
Although it !ay not be apparent to !any, the !ost obvious
econo!ic develop!ent after 1961 was A!erica2s willingness
to 7?pend, %orrow G $rint9 well beyond its inco!e"
/n 19@, the total -ederal debt was H+1 billion Aor H,"+
#rillionB* today it is over H16,,,, %illion Aor H16 #rillionB, and
is eFpected to eFceed H24 #rillion by 2,23" #he ;overn!ent
today borrows @, cents of every dollar it spends* and it prints
!oney at an annual rate well beyond the growth of the things
that its econo!y produces" #his creates the lielihood of future
7adverse unintended conseCuences9 that can include hyper'
inflation, sustained high levels of une!ploy!ent and social
%ut"""let2s go bac to the beginning, the &eynesian
Revolution in 1cono!ics that began in the 193,s"
01h$ May$a2 Key$es %&334)&'5+, was the !ost
i!portant econo!ist of the first half of the 2,
Century" .e
looed at une!ploy!ent in ;reat %ritain and wrote his
General Theory of Employment, Interest and Money. .e
addressed what a govern!ent could and should do to end the
scourge of une!ploy!ent"
.e assu!ed and asserted that free !arets could not be
relied upon to cause a spontaneous rebound fro! a slu!p in
econo!ic activity* it was the eFcessive saving of the 7wealthy9
that caused a shortage of de!and and 7unnecessary9
une!ploy!ent" #he solution was direct govern!ent
intervention to boost de!and"""specifically govern!ent
spending and preferably fiscal deficits" According to &eynes
this would 7save9 capitalis!"
One cannot understate the 7clean sweep9 of acade!ia and
govern!ent policy'!aing that this !essage produced"
/n the )nited ?tates, for instance, $aul ?a!uelson2s 19@<
Economics college teFtboo beca!e the introduction to
&eynesian theory" An esti!ated @ !illion copies in 19 editions
and @1 languages were sold" 1verywhere &eynes overwhel!ed
those who saw the future adverse conseCuences and the proven
longer'ter! effectiveness of free !arets and econo!ic
#hen M#l.1$ F#e26a$ %&'&()(**+, beca!e the !ost
influential Conservative econo!ist and &eynesian critic in the
second half of the 2,th century" .is !onu!ental wor on the
tendency of people to save and the role of !oney and
govern!ents in causing and a!plifying business cycles
effectively under!ined &eynesian econo!ics" /n the 19
editions of $aul ?a!uelson2s Economics -ried!an2s na!e
does not appear until the 1,th edition in 1964 and then only in
the footnotes" /n the 19<+ edition ?a!uelson 7conceded that
early &eynesianis! had benefited fro! the Irediscovery of
!oney2" Money definitely !attered"9
#hat2s a thu!bnail setch of an i!portant past econo!ic
78es.#1$J %ut what did the politicians and citi=ens of
A!erica learn fro! it8
A$s-eJ /n the short run govern!ent intervention and
spending could sti!ulate the econo!y and relieve hu!an
hardship* A50"""in a popular de!ocracy lie A!erica"""it
could secure critical popular votes" /t was as if -ried!an2s
!essage on the longer'ter! virtues of !onetary stability and
fiscal responsibility fell on deaf ears* and 7?pend, %orrow G
$rint9 was e!braced by both parties"
%ut Milton -ried!an did effectively pro!ote the concepts
of li!ited govern!ent and free !arets with world leaders
such as Margaret #hatcher and Ronald Reagan* and he even
had so!e success with dictatorships in China and Chile"
5evertheless, Radical ?ocialis!, a !oderni=ed MarFis!,
did e!erge in acade!ia and local politics"
/n acade!ia it was powered in 1944 by the ideas of
$rofessors Cloward and $iven at Colu!bia )niversity,
principally their strategy of 75on'Refor! Refor!9, and by
?aul Alinsy in his boo, Rules for Radical: A Pragmatic
Primer for Realistic Radicals published in 1961" Rules beca!e
the pri!er of the -ar >eft, a 7veritable blue'print for a socialist
revolution in A!erica that Alinsy called I.ope and
Change"29 #his boo2s historical i!portance cannot be over'
stated since it beca!e a vital part of $resident Oba!a2s core
And"""A!erica was vulnerable" According to Fa$91#s
F8e. %&'(:)&'':, the -rench historian, when co!!enting on
2,th century Co!!unis! :
>iberty and eCuality were 7unli!ited
pro!ises that proved proble!atic as soon as
anyone atte!pted to apply the! to society"""-or
such abstract pro!ises create an unbridgeable
gap between people2s eFpectations and what the
society can actually offer the!" #hey ill off
any debate or agree!ent on the li!its of
#his did happen in A!erica" #he 5ew >eft did e!erge*
and it did fro! the re!nants of :
K #he Russian espionage networ of the Cold (ar
that was larger than anyone reali=ed at the ti!e"
K #he ?tudents for a 0e!ocratic ?ociety Athe ?0?B,
an esti!ated 1,,,,,, college activists" #hey
successfully protested the draft during the
Lietna!ese (ar and then Doined the credentialed
elite of acade!ia, the law, the !edia and the
govern!ental bureaucracy"
K #he (eather )nderground, a clandestine
revolutionary group that violently tried to
overthrow the )"?" ;overn!ent"
K #he Association of Co!!unity Organi=ations for
Refor!" AACOR5B was founded by a dropout
fro! (illia!s College and peaed at over
+,,,,,, !e!bers in !ore than 1,2,,
neighborhood chapters in over 1,, cities before
dra!atically dissolving"
#he author contends that the -irst Revolutionary ?tep was
taen in 1991 by the )"?" ;overn!ent when it !andated
recless and ill'advised financial behavior in connection with
the 7Affordable .o!e Ownership for All9 initiative" /t was a
true ?ocialist 0rea! or /llusion* and it produced the second
;reat 0epression, the end sought by the 7Radical ?ocialists9"
/t was a 75on'Refor! Refor!9 that used the welfare benefits
of a popular de!ocracy to 7destroy capitalis!9"
A50"""it set the stage for the e!ergence of %arac Oba!a
as a 7viable9 $residential candidate of 7!any gifts but precious
few acco!plish!ents9"
.e was the 7$erfect ?tranger9, a candidate who was
thoroughly grounded in socialist ideology beginning
in childhood* but who, as a $residential candidate,
convincingly !isrepresented hi!self as a !oderate
prag!atist"""the cha!pion of 7.ope and Change9"
)nchallenged on his rMsu!M and fitness for office by
the national !edia and his opposition"""and with a
political organi=ation unseen before in
A!erica"""?enator %arac Oba!a disar!ed his
opponents and achieved a true %loodless Coup"
.e said his first priority was Dobs" %)#"""the econo!y
has not bounced bac sharply as it did with all the
recessions of the last three'Cuarters of a century" #he
country has fallen below its long'ter! econo!ic
growth path and the level of Dob creation associated
with that historic rate of growth" #his is the growth
that creates Dobs for school leavers"
%ut his !ain obDective, in fact, was not Dobs"""it was
socialist change" -or instance, with Oba!aCare, his signature
piece of legislation, public eFpenditures are eFpected to be up
to five ti!es the a!ount forecasted in the %ill* the new taFes
and fees i!bedded in it do adversely affect e!ploy!ent* and
co!pliance will be policed by the /nternal Revenue ?ervice
with a new ar!y of bureaucrats"""allegedly 14,,,, strong with
over 3,,,,, pages of regulations" #hat2s Radical ?ocialist
#he unintended conseCuences of 7?pend, %orrow G $rint9,
Radical ?ocialis! and A!erica2s unli!ited de!ocracy leave
the country on the edge of an econo!ic 7Abyss9"
#he opti!ist looing at the future can point to
the riches of the country and the possibility that a
suffering and enlightened electorate !ay elect
courageous leaders who will end the Radical
?ocialis! of the -ar >eft and put the country bac
on its historic path of econo!ic growth"
?uch an opti!ist !ay also wonder about the
election and re'election of %arac Oba!a"""the
gifted presidential candidate and $erfect
?tranger"""who is liely to !ae the welfare of the
average A!erican !aterially worse rather than
The Ne- Le!.
pend, !orro" # Print
1Factly 7(hat .appened to A!erica89 #hat Cuestion and its
!any answers do!inate the politics of today" One witnesses a
tango between political adversaries trying to avoid being
bla!ed for !any things"""but in this case"""the 7loo!ing
financial cliff9, the abyss where past co!!it!ents co!e due"
/n one sense the origin of the proble! is incredibly si!ple to
Just loo at the country2s national debt """ fro! the
total outstanding in 19@, to the forecast by the
Congressional %udget Office for 2,23" /t was H+,
%illion AH,"+ #rillionB in 19@,* today it2s over
H14,6,, %illion AH14"6 #rillionB* and in 1, !ore
years it2s eFpected to reach H3, #rillion"
/n any enterprise such a record would suggest both bad
!anage!ent and business failure on a grand scale"
/ contend that the )"? has eFperienced a failure in
responsible political leadership, the necessary
popular support for such leadership and a co!pleF
history that has created what appears to be a
loo!ing econo!icEfinancial stor!" #his narrative
loos at this situation fro! the point of an
/n addition to the -ederal 0ebt, there is the Money
?upply : M2 that includes )"?" currency, the
#reasury2s pro!ises to pay on de!and, ban
deposits, etc"" #hese totaled H,"3 trillion AH3,,
%illionB in 194, and reached H11 trillion AH1,,+26
billionB in 2,13"
#he highest annual percentage increases occurred
during the ad!inistration of Richard 5iFon,
11"6N per year in 1961" #he lowest were 1"2NN
per year under ;eorge %ush 7@19 in 1991 and
,"@N per year in 199@ under %ill Clinton"
#he rate of increase in the !oney supply has been
consistently both erratic and on average a !ultiple
of the long'ter! rate of growth in real econo!ic
output that before 2,,6 had been an average 2"+
percent per year" A50 the -ederal Reserve
%an"""!ore than five years after the start of the
2,,< recession"""is 7printing !oney9" /t is buying
its longer'ter! debt with newly 7printed9 !oney,
its short'ter! notes, trying to sti!ulate de!and in
the short run but adding fuel to the adverse
conseCuences in the longer run"
Key$es ; F#e26a$
>et2s start with econo!ic theory and begin with the !ost
i!portant econo!ist of the first half of the 2,th Century, 01h$
May$a2 Key$es %&334)&'5+,"
.e rose to international fa!e with his outspoen criticis!
of the Lersailles #reaty ending (orld (ar / and the post'(ar
econo!ic policies of the %ritish ;overn!ent" #he ter!s of the
for!er set the stage for (orld (ar // and the latter produced
unacceptably high levels of une!ploy!ent in ;reat %ritain"
&eynes, the Ca!bridge professor, developed and
published the General Theory of Employment, Interest and
Money in 1934" /t addressed what a govern!ent could and
should do to address the scourge of une!ploy!ent" /n doing so
he created !odern !acro'econo!ics and business cycle
.e asserted that free !arets could not be relied upon
to cause a spontaneous rebound fro! a slu!p in
econo!ic activity"
.e contended that at the botto! of the econo!ic cycle
a chronic shortage of de!and caused a slowing of
business and 7unnecessary9 une!ploy!ent" #he
solution was direct govern!ent interventionO
govern!ent spending and preferably fiscal deficitsO
to boost de!andOconsu!er spending"
.e believed that this was caused by eFcessive total
savingsOas inco!es rise, the share of total inco!e
spent decreases" #his produced an eFcess of saving
and a fall in econo!ic activity below 7full
e!ploy!ent and !aFi!u! output9"
.e was concerned with the cycle2s deter!inantsO
inflation, interest rates, and eFchange rates and
overlooed the i!portance of !oneyOreviewing it as
a technical issue and not a factor deter!ining
econo!ic stability"
One should note, however, that &eynes clai!ed that he
was not a socialist"""he was Dust against 7laisse= faire9 and
7free !arets9" .e contended that Capitalis! could be wisely
!anaged and 7saved9* and his General Theory created the
logic for greater ;overn!ent intervention, spending and
One cannot understate the 7clean sweep9 of acade!ia that
these ideas produced in the )nited ?tates" -or instance, $aul
?a!uelson2s 19@< Economics college teFt beca!e the
introduction to &eynesian theory selling an esti!ated @'!illion
copies in 19 editions and @1 languages"
&eynes and his 7followers9 overwhel!ed their
conservative critics who saw the proven effectiveness of free
!arets and the i!portance of econo!ic freedo!"""but who
were initially ineffective and isolated in the wae of the
&eynesian Revolution"
M#l.1$ F#e26a$ %&'&()(**+, beca!e the !ost
influential Conservative econo!ist and &eynesian critic in the
second half of the 2,th century"
.e studied at the )niversity of Chicago and Colu!bia and
wored at the 5ational %ureau of 1cono!ic Research" As a
!athe!aticianEstatistician during (orld (ar //, he and three
others invented 7seCuential analysis9 that 7ensured that the
detonator on the ato! bo!b wored9" .e returned to the
)niversity of Chicago in 19@4 to teach econo!ic theory and
re!ained there for three decades"""creating the Chicago ?chool
of 1cono!ics"
/n the 19+,s and early 194,s he !ade contributions in two
areas that undercut &eynesian theory"
Sa/#$<s= &eynes related changes in aggregate consu!er
spending to changes in 5ational /nco!e"""a nu!erical ratio
called the Consu!ption -unction that was a critical building
bloc in his ;eneral #heory" /t assu!ed"""as noted above"""that
an eFcess of savings eventually reduces e!ploy!ent below the
full'e!ploy!ent level"
/n his boo A Theory of the $onsumption %unction
published in 19+6, Milton -ried!an rigorously challenged this
assu!ption with the direct observation of data that showed it
to be funda!entally flawed"
/n the short'run 7rich9 people did save !ore of their
inco!e as it rises co!pared to the 7poor9* %)# he observed a
surprising ano!aly"""over the long run consu!ers as a whole
saved a relatively constant share of total inco!e" /n the )"?"
for instance, 7household savings was @"3N in 1929 and @"2N
in 2,11 although inco!e grew by roughly 1@ ti!es over that
M1$ey= /n 1943 he and Anna ?chwart= published A
Monetary &istory of the 'nited tates ( )*+,-).+/ that with
the passage of ti!e is now viewed as a !onu!ental and
enduring contribution to the study of econo!ics" /t eFplained
what did happen in the ;reat 0epression of 1929"
5a!ely"""7the depression was pri!arily the result of an
inappropriate !onetary policy that allowed the !oney supply
to contract9, bans to fail and une!ploy!ent to rise" Robert 1"
>ucas, $rofessor of 1cono!ics at Chicago, noted in 2,13 on
the +,th anniversary of the boo2s publication that the authors
created a new 7ti!e series9, the !oney supply today nown as
M2 and its co!ponents for the entire 93'year period broen
down into 11 sub'periods"