Professional Documents
Culture Documents
By Mason Giem
11/2/08
As citizens of the United States we are lead to believe we have a stable economic
system, when in fact it has only become more unstable during the low interest rates and
neo-liberal ideals of the last 20 years. Several key Neoliberal strategies like the
deregulation of the economy, the liberalization of trade and capital markets, tax cuts (for
corporations and the wealthy), strict control of interest rates, reducing the power of
organized labor, cutting social-service expenditures, and reducing the size of the
government economic have added to poverty and have gone unnoticed by a majority of
the public. According to the U.S. Census Bureau, in the past 20 years the percentage of
people in poverty living in the United States has increased to 12.5% 1. By looking at the
governmental affairs and the motivations behind those in power, I will show that poverty
in America is not an accident and is intended to keep the richest one percent of the nation
The first attempt at a Neoliberal ideology was at the creation of the Federal
Reserve act, and it was passed on December 23, 1913. The Act, provided for the
in the United States, and for other purposes.2 The bank was originally founded by
1 http://www.census.gov/hhes/www/poverty/histpov/histpovtb.html
2 http://www.federalreserve.gov/pf/pdf/pf_1.pdf
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donations from one of the country’s most wealthy family, the Rothschilds. The Federal
Reserve System enjoys many undemocratic benefits including the fact that the Chairman
of the Federal Reserve does not need to be approved by the senate.3 Then there is the fact
that they claim to be an independent organization within the government, and should be
“The Federal Reserve banks are exempt from all taxation. These people
Power of the organization has only grown since its inception because of its ability
to have regional branches that help regulate the amount of money in our economy
through a currency system that is not backed by gold but by speculation on the future of
the economy. “ They will provide an elastic currency, issuing notes secured by their
commercial interests”.6 This power has freed our economic system from the pressures of
not having enough money to supply unlimited growth. Unlimited Growth is an ideal that
has been supported through the de-regulation of the banking system and low interest rates
and now has led to what may be considered the second economic crash Federal Reserve
has created7. The first crash occurring in 1929, and the second in the fall of 2008. The
subsequent effect of these economic crashes on the communities of the United States has
been devastating.
3 Wayne N. Krautkramer, 2004, The Federal Reserve - Its Origins, History & Current
Strategy, http://news.goldseek.com/GoldSeek/1095269452.php
4 Wayne N. Krautkramer, 2004, The Federal Reserve - Its Origins, History & Current
Strategy, http://news.goldseek.com/GoldSeek/1095269452.php
5 Wayne N. Krautkramer, 2004, The Federal Reserve - Its Origins, History & Current
Strategy, http://news.goldseek.com/GoldSeek/1095269452.php
6 The Federal Reserve Act of 1913, O. M. W. Sprague, The Quarterly Journal of
Economics, Vol. 28, No. 2 (Feb., 1914), pp. 213-254, Published by: The MIT Press
7 The Federal Reserve's Role in the Great Contraction and the Subprime Crisis,
Timberlake,Richard H., Cato Journal, 2008, 28, 2, 303-312
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The creation and subsequent implementation of the Federal Reserve banking
system was the first step to the American loss of economic freedom. The next steps are a
complicated network of the slow growth of Keinsian economic policys and neoliberal
ideals that have taken America into historical debt and the highest G.D.P. in the world.
Having the highest GDP in the world has come at a price for the American people, and
her future generations. The lowering of interest rates, and deregulation of sub-prime
mortgage lending during the rise of the Neoliberal ideals fueled the rise of individual
debt.
In our society we are often forced to borrow money to make money. Thus, we
have lost much of our freedom and have become the equivalent modern day serfs to the
feudal rulers of the national banking system, and all those who profit from our
dream house for 0 down at a %5 interest rate, the high cost of higher education, and the
high cost of healthcare. During the current Bush administration, Americans’ savings rate
actually went to an all time low, while household debt as a percentage of GDP soared
above 130%, a doubling in 25 years8. The resulting effects on communities have been a
nation with a savings rate of less than one percent9, which expects to keep on growing
forever. A country with such low savings rates decreases the value of its currency, and
thus a spiral into recession is the only logical conclusion. This is shown by the decreasing
value of the United States currency compared to that of Canada or the European Union
and our current recession. Where will this trend lead? As Harvey Molotch ,1976, would
point out, the battle for the nicest car, house, kid, is exactly the kind of power game the
development but there is one person that I feel has been a cheerleader for these short-term
economic growth packages, Alan Greenspan. Alan Greenspan, former Federal Reserve
Chairman, and large supporter for de-regulation of the banking industry, claimed on
October 23, 2008, that perhaps there was a flaw in his free market ideology11 (Andrews,
“He noted that the immense and largely unregulated business of spreading
financial risk widely, through the use of exotic financial instruments called
derivatives, had gotten out of control and had added to the havoc of today’s crisis.
As far back as 1994, Mr. Greenspan staunchly and successfully opposed tougher
regulation on derivatives”12
The Chairman, appointed by the president, casts his large shadow of influence on the
entire nation by raising or lowering interest rates or speculating what the Neoliberal
buguasie wants the economy to do. The rational-legal authority presented ,Weber ,1968,
illustrates that the power the Federal Reserve chairman holds is given to him by law and
important that we should be electing and holding the chairman responsible to the
American public. In order to understand how an unelected individual has so much power
The power of the banking industry on government policy has allowed for a
With the widespread use and subsequent abuse of derivatives assuming their
value on an inflated home value bubble, the American investment banks were able to
spread the loans all over the planet.15 The spread of these loans was supposed to stabilize
the market and allow for more Americans to become the mass consumers that drive our
GDP to the highest in the world. Molotch would say that this is a perfect example of how
politics revolve around the conditions for creating growth and distributing the resources
obtained from growth.16 With the national government as an example, I claim the
American people have been convinced that it is OK to get rich quick, even if it means the
cost of the American ideal of pulling yourself up by the bootstraps. The question we need
to ask ourselves is why do we put so much trust in an ideology that of the well-being of
The Neoliberal ideology requires that certain policy directions are taken that
increase the percentage of those in poverty while increasing the amount of wealth owned
Let me now discuss the unacceptable cost of higher education compared to that of
other countries and its subsequent effect on the kidnapping of American freedom. “Over
the past 10 years, tuition fees at four-year public colleges have grown at a rate of about
4.2 percent a year after inflation, according to the College Board. Tuition has grown at an
annual average of 2.4 percent at private four-year schools, and at a rate of 1.4 percent a
14 http://www.investorwords.com/1421/derivative.html).
15 The Federal Reserve's Role in the Great Contraction and the Subprime Crisis,
Timberlake,Richard H., Cato Journal, 2008, 28, 2, 303-312
16 The City as a Growth Machine," by Harvey Molotch, in The American Journal of
Sociology, © 1976 by The University of Chicago.
17 America Transformed, Globalization, Inequality, and Power, Gary Hytrek, Kristine M.
Zentgraf, 2008, pg 8.
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year at public two-year schools” (Saturday, November 1, 2008, College costs going up,
education has succeeded in discouraging students from competing their college degree.
As evidence by the graduation rate that has remained steady over the past four years and
has dropped only slightly over the past 10 years down from 54 percent in 1992
(http://www.act.org/news/releases/2002/11-15-02.html#1).
((http://www.act.org/news/releases/2002/11-15-02.html#1).
The cost of healthcare in the United States has also risen as corporations receive
more power in our society. I can speak from personal experience knowing that my
grandmother was being assigned multiple medications that were unnecessary and in some
cases off setting the effects of other medications. “From 1987 through 1994, of the 11.9
percent average annual rate of spending growth, about half reflected the direct effects of
increased prices, while the remaining half is attributed to utilization growth. In contrast,
from 1994 through 1999 the growth rate remained in double digits, but only about one-
fifth was directly attributable to price changes; nearly 80 percent of increased drug
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spending was related to growth in utilization”
are many influences that have worked together to reduce the amount of economic
(http://content.healthaffairs.org/cgi/content/full/20/2/100).
I would like to challenge every one to think about what constitutes a better life? Is
it a nicer car or bigger house? What about happiness? Happiness levels in the United
States from the 1970s until the present have not changed much, even though it has been a
period of unprecedented prosperity. To the extent they have changed, they have dipped
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downward very slightly (the explanation usually given for that drop is the unevenly
shared nature of the economic gains) (Gross National Happiness and the Economy
Happiness, Global Economics, U.S. Economy, Financial Markets, Carol Graham, Senior
TheGlobalist, http://www.brookings.edu/opinions/2008/1024_happiness_graham.aspx).
If happiness hasn’t gone up over the last 35 years, than why has our savings rate been
dropping (http://www.camillieconomics.com/PDF/Economics%20for%20Your%20Life,
%20Vol%201.2.pdf)?
the media tells us that if we don’t have the latest product or credit card, we are not happy.
I detest the veil of glamour that has caused our society to become the sheeple of the
corporate agenda. If we were truly free and informed citizens we would realize that the
very nature of a country run by corporations is one in which the human rights to life,
liberty and the pursuit of happiness, are a lower priority than making money. Excessive
wealth does nothing but lead to gluttony, war, and lethargy, all of which were very
prevalent in ancient Rome before its fall, and are currently at all time highs in American
society.
In this paper I have used the political economy approach presented by Harvey
Molotch and Max Weber in understanding some of the biggest issues of our times. I have
yet to state my own beliefs about the reasoning behind our current modes of operation.
Harvey Molotch would completely agree that we are in a truly political economy, and
one side is winning, the corporate side. America has been known as the best place in the
world to invest because of our free market ideology. Our current believe in Reganomics
or the trickle down theory, is the idea that the market will take care of itself and
regulating it will only subtract from its potential to create a better way of life for its
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people. This theory is presented by Harvey Molotch, and motivated by the centralization
of monetary power in the hands of rich, which control the flow of goods and recourses
within our country. These rich do not want to lose their power, and have thus have done
everything within their power to reduce the chances of individuals from lower classes
moving up into the upper classes. This principle motivation to look out for oneself even if
considered. It seems to me that the people of power in our society understand and
implement the political economy approach to understanding society. This is why we need
to take back the future of our country from the deadly grasp of corporate agenda, if we
are to enjoy the freedoms of life, liberty and the pursuit of happiness, as granted to us by
Mason Giem