Getting Beyond the land of OZ to a Strong Us Economy As the Scarecrow, the Lion and the Tin Man went

searching for the Wizard of Oz, so we continue to hope some economic theory will magically provide a new robust economy. Six years after the Recession, and the US economy is still barely creeping along? We have interest rates at zero for the banks. We have tax cuts, and we had a trillion dollar stimulus program. And the Fed has printed 4 trillion dollars. In spite of these efforts, Janet Yellen today (11/18/13) admitted that the real unemployment number is above 10%. The world has never done so much coordinated stimulus in the history of modern economics and yet we still have global malaise for the 99% and huge riches for the one percent. Why? Could it be that nearly every economist in the world is wrong and that lowering tax rates, spending more, increasing debt and the monetary base are ideas that worked only in the past, in a Cold War era when the West and East took cheap resources from two thirds of the world, sold back the finished goods to colonial subsidiaries and traded amongst themselves. It was clear in the seventies that the superpowers were losing their grip. The US experienced stagflation under Nixon, and the initial cracks in the Soviet Union could already be seen, with some experts predicting its demise. In the 80’s, the Reagan revolution unleashed debt for both public and private sector. Wall Street went from being a supplier of capital to being the controller of global finance. Wall Street purchased DC and thus became the center of the universe. Due to this shift, the West appeared to have beaten the Soviets with the triumph of Capitalism over Communism. This apparent victory spurred a very communist China to completely overhaul its economy to state-controlled capitalism. And the rest of Asia followed, using mercantilism on steroids. As the Berlin Wall came crashing down, the greatest stock market expansion began not only in the West but also in Asia. As the 20th century came to an end, the internet and globalization promised a new economic world where the parts of the globe that initiated capitalism would prosper. Then in 2001, world stock markets crashed. So what did the central banks of the world do? They lowered interest rates and created a housing boom that eventually crashed in 2008. Six years after the last crash the stock market is now at all-time highs, and all asset classes from around the world are setting new highs, but global employment and GDP are still stagnant. Attempts to get this huge global engine running again are not working. The reason for this is that the past 24 years, starting with Reagan, have been one big sugar high with debt hiding the dismantling of our economic engine. The world economy is not responding, because those in power are using economic ideas of the 20th century in the 21st century. And worse than that, the economic ideas of mercantilism that were born in the 19th century are the basis of the Asian miracle. Have we reached the day of reckoning? The day that we thought would come but never did, so we started to believe that income disparity, huge government spending and debt, wasteful wars, corporate destruction of middle class jobs and so much more was just part of a worrisome nonsense. The proponents of such negative “did not understand the power of capitalism to create such wealth to overcome the problems.” We are not progressing, because we all believe in an economic Wizard of Oz that will save us. The following myths represent Oz, and the pulling of the curtain forces us to face the economic reality. It will take real adults, with God-given hearts, brains and courage to face the economic reset that is needed. A Dozen Myths That Economists Spread Today...

1. Austrians, Keynesians and Monetarists are Relevant We are using economic models based on a system in which Western natons bought cheap resources from poor countries and in return, produced finished goods for themselves and their feudal partners. If our governments and businesses spent more money, this increased demand for finished products and services, creating a stimulus to invest in more business. This actually worked well through the 1960’s because of the huge infrastructure build-outs, but big cracks began to appear in these archaic ideas as soon as OPEC decided to challenge the status quo. Of course, none of the models were based on the idea that Western governments would be in a constant state of war and debt expansion. Then globalization took effect with Asia, South and Latin America producing a modern form of mercantilism using cheap labor as an economic weapon. Due to these transitions, all of the mentioned ideologies and their laws were thrown upside down by increasing input costs from outside, along with expensive Anglo-based labor. Corporations responded to these costs by moving labor oversees, which they would have done anyway. To counter the economic impact of lowering of wages of the middle class, massive credit expansion began. Basic macroeconomic theory has not adjusted to this debt-versus-wage growth and Asian power worldview, which is why both the “austerity” and “growth” sides have failed in creating consistent job and wage growth. Abusive financialization of the world’s economies has made economic concepts like Taylor’s Law or the Phillips Curve nearly meaningless. Concepts of utility and economies of scale and pricing are as important as ever; however, massive financialization seems to have hidden the impact behind the archaic concept of aggregate demand. All economic theories are broken. Throughout economic history, growth has been neither top down nor bottom up, as the primary economic ideologies suggest. Since the very first economic transaction, real economics has begun in the middle, with two people making a transaction. There is no stronger correlation to economic growth than the creation of a strong middle class. The Republican idea of tax cuts for the rich (top-down) or the Democrat idea of increasing spending for the masses (bottom-up) are proven failures. And the Democratic idea of bottom-up economics is really top-down, as all decisions on spending are made in DC. It’s really just a question of who controls the pie. That is why each party gets thrown out, because everything stays the same. The global economy is a mix of cultures and worldviews that current economic models are not in sync with. Key Data Point: The stock market and GDP are at all-time highs. The greatest monetary expansion in human history, along with near lowest tax rates, and real wages for the middle class still continue to decline along labor market participation. Economies can’t expand without a middle class. Financialization is now 9% of GDP compared to just 3% in the 1950’s. Combining this with multinational profit margins that are also at all-time highs disproportionately impacts GDP and misleads real broad growth. The lack of breadth as profits are centralized in a few hand reduces velocity of money and more importantly economic activity. A new model that evaluates economic breadth and velocity needs to be injected into these old evaluators or they will continue to mislead economists. 2. Increasing Aggregate Demand Increases Wealth and Jobs. The increase in government spending now has no multiplier and more spending is just that. But more spending no longer begets more spending. The impact of the multiplier is dead, as the money is controlled by the one percent, and thus velocity is nearly at an all-time low. Somehow along the way, we have equated increasing demand as a means of economic growth with increasing middle classes wages and wealth. In a global economy that has huge excess capacity, pushing on the string can’t

work. And particularly to the US and Japan fewer, not more, retail outlets are needed. The use of leverage over sound debt means present and future demand has already been spent. Now economists like Summers are trying to introduce nominal negative interest rates to increase demand. How much more junk do Americans need? What happened to the buzz-word “sustainable”? The problem is that people are not buying enough? I think our overfilled landfills refute that asinine concept. Aggregate demand is nothing more than a snapshot of all of the transactions within a defined area. When there are many players exchanging of similar size with mean, median and mode fairly close than it provides a quality picture. However, when global corporations, huge financial firms trading huge electronic currencies, are coupled with small business, the evaluator has now become the antithesis of what it was designed to describe. The mean and the median/mode don’t show the same picture. The bottom line is that most studies have shown that government spending no longer has a multiplier effect on the economy. This is a radical change from the past, when it did. This is probably the case because the economy is so big, and there is so much overcapacity that any company can handle the order or service without additional staff. Then there are plain old diseconomies of scale. Also, most government spending went to growth activities like highways, that increased trade. Fixing a road just keeps trade the same, and creates no stimulus for additional trade. This is why infrastructure spending in today’s mature economy offers little beyond the initial spending. We live in a new world, and I wish my Keynesian friends could grasp this. In the end, our economy has been broken by Wall Street and by a lack of planning to deal with globalization. And additional spend is just that. It adds debt that, while it will only be rolled over, still has to be serviced by crowding out other government investment options or by monetizing the dollar. Neither option is good for middle class wage growth. Another major change as far as the US economy is concerned is the re-emergence of social communities that share resources and social capital. New communities are popping up with people sharing tools, goods and skills. This new sharing economy is not counted in AG but is very much a part of the new economy, although it does not create jobs. China actually discourages this type of activity to ensure that consumers must buy new items. New communities around this country are rejecting the consumerist model in favor of sustainable living. It’s clear our government, along with a profit-fixated Wall Street, is not prepared for this evolutionary response. 3. Lower taxes increase economic activity Higher taxes are seen by both conservatives and liberals as a progressive means to redistribute wealth. And in some cases they have worked out that way. More and more research is showing that lowering taxes is the least effective stimulus activity. The opposite, raising taxes, is supposed to be a drag on the economy, but as we saw during the Clinton years, higher taxes coincided with some of America's greatest economic growth. Actually, some of America’s greatest job and GDP growth occurred when the top rate was 90%. The increase in the recent payroll tax was supposed to push us into a recession, but that did not happen. Tax rates do matter, but not nearly as much as the tax code itself. And when credit is expanding, tax rates have minimal impact on GDP in either direction A new corporate and small business tax policy that capped profits could impact growth by rewarding labor and capital investment. This type of profit cap could only work if the government were to control its costs (not have a crowding-out effect for capital) and use taxes as a means to encourage labor investment and compensation and to ensure free markets for business and labor. Capping profits is not a means to wealth redistribution, but a means of using free markets to find the best value creators and set them free to create growth. Only companies

that have anti-competitive practices that hurt free markets would see tax penalties. Key Data Point: The velocity of money is at an historical low. The rich have little incentive to spend more money due to the wealth effect, because they already own everything. 4. More debt creates wealth Debt can create wealth if it’s paid back from revenue generation. Once debt needs scale, its leverage becomes too high, and by their very nature diseconomies of scale will erode the effectiveness of leverage. Research has shown that since 1966, when every dollar in debt produced about 90 cents in GDP, that number has consistently fallen to about 30 cents today. In 2007, private and public debt reached the level of the Great Depression, and that did not include derivatives. The Federal Reserve has had to print four trillion in debt to date to cover the leverage to that point. It’s important that the reader catches that the Fed has not printed four trillion in new currency. No! The Fed could have done that, but instead they chose to provide capital to the banks so they own our debt. The problem with debt is that economists treat all debt as equal. Nothing could be farther from the truth. Debt has what I call a “Credit Life Cycle” which equates both on the micro and macro levels. Debt is like a product. It works on an S-curve cycle. Early debt taken on in a company to buy more inventory to produce more increases the marginal return. Taking on debt is fine as long as the marginal return is getting bigger. Once you have leveraged to the point that each additional leverage dollar is providing less and less profit, debt should begin to decelerate until the company is ready for an upswing. The same goes for macro-economies, and recessions have a way of cleaning out bad debt. We also see the diminishing impact of debt from the 50’s to today. Debt has a life cycle. Some debt is good and some is bad, but all debt is not equal. 5. The National Debt does not matter, or it’s about to implode our country Again, I am forced to take another position between the extremes of the Krugmanites. who say the debt does not matter, and the Tea Party, who say implosion of our currency is just around the corner. On one side, I see where Paul Krugman is coming from. We own much of our own debt, and if need be we can print money to pay back other debt. The dollar is still the world’s reserve currency, and such a move would lower its value but would still allow us to make aggressive moves to create growth. Krugman is right that such a move would be painful to many, but he believes that the growth created would make us stronger in the long run. Does this make sense in theory? Yes! Will such debt acceleration fix the economy? I’ll bet him that it won’t and that it will actually cause more pain for the already dwindling middle class. The Tea Party’s position is that all this debt is going to implode on us and destroy the US economy. They always say how China will one day sell all its bonds and stop buying our bonds. Such statements make it clear that they don’t understand how trade works. They stop buying our bonds, and we stop buying their goods. To say that our national debt is not an issue at this point is misleading, as the Fed can never let interest rates on bonds go back to normal. The current economy could never handle the debt servicing costs. At the same time, the national debt is not the biggest obstacle to recovery, as the Republican say. It’s the fact that our economy is broken. Fix that and the debt will take care of itself.

Key Data Point: The total national debt of $17+ trillion is not terribly out of whack on a historical percentage basis. However, historically we have never had $70-200 trillion of liabilities in social security and Medicare around the corner. As a mature economy, 3+% growth years are going to be rare. If interest rates normalize, then debt servicing will cost a trillion dollars alone within a decade. These are not end-of-the-world numbers, but they do need attention or crisis will ensue. Choosing to inflate or grow our way out sounds simple but creates huge potential problems mainly for the middle class. 6. Inflation is good Janet Yellen can do all the studies she wants, but inflation is a tax on the middle class and not a tool for growth or monetization of debt. Clearly the new Fed Chair has made the obvious mistake of confusing correlation and causation. In the past, inflation occurred because of both wage growth and monetary expansion. During these periods, wages exceeded inflation so demand continued to grow. However, when inflation has exceeded its two year moving average a recession follows. Inflation that exceeds wage growth is a tax and freezes spending and increased savings, as we see in both China and Japan today. Abe is begging Japanese corporations to raise wages to exceed the monetized induced inflation Battling this myth is so critical, because some liberals think inflation is the only option left to deal with debt and spur demand. This can be seen in Krugman's blog post, as he concludes on December 13, 2013:
“What might change this scenario? One key point could be trade. Before the 1980s, the US had more or less

balanced trade. During the Great Moderation era, it ran an average current account deficit of 3 percent of GDP. Eliminating that deficit somehow would reverse most of my shortfalls. I would say, however, that the most likely way to reduce the deficit would be via a weaker dollar, achieved through low real interest rates, achieved in turn with a higher inflation target.” In Krugman’s mind, we fix our mature economy with dollar devaluation and inflation. The sad part is that he may be right in that this policy may be the best option, because American voters will not be open to the structural changes necessary to save the economy. Our only hope may be to force inflation and pray that things change. I am sure in the end the country will probably choose this coward’s way. In the end, devaluation is not an option, since everyone would devalue and what will this do to the growth story of emerging markets. This is a zero-sum game in the short-term. In the long-term. all boats can rise, but it takes a coordination and real growth.

8. The Wealth Effect This is wonderful (sarc) concept that has no validity but is promoted all the time. Why? Because when economies are emerging or re-inflating investments in real estate, stocks and bonds take off, creating an initial wealth effect. The huge problem with this is that without coupled wealth creation for the middle class, risk asset appreciation 100% of the time reaches bubble levels and sells off, because there is nothing to support new asset valuations. It becomes a type of Ponzi scheme that works for early adopters, but those late to the game take huge losses. And this creates a period--in the case of Japan a long period--of deflation and economic malaise. Compare this to an economic power like Germany that has put its national wealth into creating a powerful manufacturing industry that benefits a vast breadth of the population, instead of focusing on asset appreciation,

and as a result saw limited impacts from the great recession. If there is a bottom line to all these myths, it is that no economist can show me any robust economy in history where middle class jobs and wages were not rising. It’s impossible. Most of the mature economies of the world, US, Europe and Japan, have dwindling middle classes and are using credit expansion to hide the impact. There is no wealth effect or anything that is meaningful past the initial movement. The Fed’s belief in this myth and its atrocious implementation of QE is creating mispricing of all risk assets. When free markets lose the ability for price discovery, they chase yield, not investments. That is why nearly every profitable company is choosing to borrow money at 2% and buy back stock instead of long-term investments. The irony of using the wealth effect is that the Fed is encouraging corporations to keep wages down to improve profits. Without revenue gains, corporations’ only choice is to cut costs. So the Fed is taking credit for an improving stock market and is also taking credit for keeping down wages. Of course, the Fed has yet to see this irony and thus keeps this destructive policy going. Key Data Point: The velocity of money is at an historic low. The rich have little incentive to spend more money due to the wealth effect. 9. Technology and innovation create more jobs than they eliminate. There is probably is no bigger myth than this one. Even with some of the best studies coming out now, showing how technology is so efficient that jobs are losing ground at the micro and macro level, people still believe the myth that any job lost is replaced by other jobs at a higher level. The South and the African American community today are still suffering from the effects of mechanized farming. This technological advancement made landowners rich in the South but destroyed the agricultural economy. After the invention, much of the supporting industries of cotton picking were lost. All the equipment was bought from the North with loans from the North. The African American community migrated to the North to look for work. The problem is, the North didn’t want them as they moved operations to the suburbs. Today, these blighted areas are still destitute with no jobs and lousy education. And to hide this fact, we just eliminate them from the unemployment numbers. And when these PhD’s write their studies on job creation they don’t have all the data sets, because we have hidden this set. Let’s be clear. When the greatest migration in human history occurred, most of these people were employed because of the war. Once the war was over we have never needed this group again. Don’t misunderstand the point. Technological advancement creates massive new jobs for those who are well positioned. Society should not do anything to curtail advancement. However, to fail to recognize the long-term negative impacts has created huge inequalities in today’s robust regions and as this chasm continues to get bigger. The dramatic rise in income inequality is a direct consequence of this spectacular reallocation of income to capital and away from labor. Key Data Point: The US manufacturing industry has doubled since the 1970’s, and production is at an all-time high. The only problem is that this production is done with 7 million fewer jobs. The US, not China, will lead world manufacturing for years to come, but this will come through robotics, not an increase in employment. 10. Military spending creates jobs There is probably no bigger long-term macro job killer than military spending. The US spends on its military as

much as the whole world put together. This spending does provide powerful short-term stimulus for regional jobs, but at the stake of taxing wealthy cities and regions that are not the recipients of contracts. There are numerous regions in the country creating surplus capital that could be put back into creating stronger economic regions, but instead some of this money is taken to subsidize a military complex that is fraudulent, bloated and misdirected. Economists and business executives along with Congress have missed the point on this confiner of free markets when reviewing reports praising it as a powerful stimulus. First, military spending on ships, tanks, missiles and bases are purchases of depreciating assets that produce no revenue. Second, much of military spending is done with debt, which always coincides with currency devaluation. Look at any graph and match wars to dollar devaluation, which attacks middle class buying power. Third, a tank or a missile does not create economic opportunities. However, Paul Krugman might counter that, if we use those weapons to blow up cities and then rebuild them, it would create new jobs for construction and new weapons. What is even more scary, a Japanese cabinet member, referring to Abe strong leadership, said, "just as Germany needed a strong man like Hitler to revive defeated Germany, Japan needs people like Abe to dynamically induce change." This is a terrible understanding of Germany up to World War II. Yes, every German had a job, but they could not afford to buy anything because all resources were going to the war machine. If Germany had not gone to war it would have folded, and by going to war it folded. Military spending is a long-term negative multiplier, because what it produces can’t be built upon by the free market economy. The bottom line is that any empire that attempts to stay in constant war falls. The US and the Soviet Union tried to be the first empires to last constant war. As we know, the invasion of Afghanistan finished them off. The US declared victory, but it looks like that might be a bit premature, as it’s continuous wars, not Social Security promises that have put this country in a position to not be able to afford the military it thinks it needs. The irony of it all. Obsessive defense spending has put the country at risk. Key Data Point: There are hundreds of studies detailing the multiplier of military spending ranging from negative 1.1% to positive 1.3%. The outcomes of all the studies, even the ones that agree with my points fall short of adequate comprehensive data collection. The bottom line, as Henderson (2010) points out, is that despite the massive
drop in government spending—from 41.9 percent of GDP in FY 1945 to 14.7 percent in FY 1947 —unemployment rose only modestly from 1.9 percent to 3.6 percent. Similarly, the economy grew a respectable 3.3 percent annually from 1978 through 2000, even as the share of defense spending dropped from 7.4 percent of GDP to 3.7 percent. Again, during the 1990’s peace dividend as defense spending dropped, we had one of the highest GDP labor growth periods. In the end, the military produces no other free market benefits thus the historical impact of military overspending throughout history is enough data to ignore the short-term sugar high it seems to provide. Long-term, it taxes non-defense-spending areas, and you can't build new economies around the outputs.

11. Capitalism and Free Market Economics are the Same Free markets are about endless opportunities for people of any class to participate in a highly energetic environment that has minimal barriers of entry. Capitalism is about accumulating capital and assets to control markets and make barriers of entry difficult. Free market economics and capitalism are often mistakenly used interchangeably when they are counterparts that have coexisted and mistakenly been seen as friends. The statement that “capitalism is superior to Socialism/Communism” is almost a universally accepted truism. Capitalism’s longevity has not been because it’s superior, but because it’s always coupled with free markets and personal liberty. It’s free markets that allow for competition, and easy access to the market makes for innovation and job creation. Capitalism by its nature is about wealth creation and controlling markets, eliminating competition by buying the government to stifle new ventures, using patents to strangle new ideas and

leveraging power and capital advantage. The free market system is highly inclusive and facilitates new ideas by ensuring that there is an equal playing field for entry. Capitalism and the focus of controlling the market has been America’s chief economic issue since the Civil War. Even Lincoln warned against this. Please understand that we are in this mess because of capitalism with its focus on wealth creation over free markets. Neo-Communism is state-run Capitalism, like the Chinese system today. Capitalism in the Western world is like corporate-run fascism. Free markets are about giving everyone equal access to the marketplace, ensuring the exchange of ideas, services and products. The government-heavy Western and Eastern-based Capitalisms are focused on asset accumulation and are very power-centric, heavily restricting opportunities for the middle class to acquire capital to enter markets. Let there be no confusion. This is not anti-capital/ownership or profit position. Both the access of capital and profit are critical parts of free-markets, as long as they are not used to reduce competition, hoard capital and harm the economy, as we see today. Even Adam Smith with the invisible hand saw that markets needed some form of intervention to keep that status quo from getting too powerful. 12. There are national economies Since national leaders continue to implement national solutions to regional issues of lack of production and trade, money and time have been lost. Regions that have seen huge growth during the past six years are just getting stronger as other regions go broke. Why is this happening? City regions compete with each other, no matter where they are on the globe. New York competes with London, Singapore and Hong Kong--not with Seattle. There are huge robust regions like Seattle, San Francisco/Silicon Valley, Austin/Dallas, Oil/Gas basin and Boston/New York that are strong growth economies. Other parts of the US, like the once great Detroit, are actually taxing these robust regions from even greater growth. This is also true globally. Before World War II, Northern European areas were rich, and after massive Marshall Plan investment, 30 years later the north is rich and the south is still poor. There is no better example of this than the 12 different regions now competing for the production of the Boeing 777. Which also brings up the point that there are no longer US corporations. Companies now see themselves as entities independent of national origin and act accordingly. Having a national agenda that is one stimulus that fits all fails to allow specific regions to develop their economies. An example of this: while I am in favor of a higher minimum wage, I know that unless that area is exporting goods and services along with being self-sufficient, there will be few jobs to require the wage. A national wage should be debated but can reduce a region's ability to be competitive and create its own goods for itself without the wage benefit that at one time gave China an advantage. A better way would be to create economic regions and have each one create a specific minimum wage. Lets also be clear that before World WarII northern Europe areas were rich and after massive Marshall Plan investment 30 years later the north is rich and south poor. Regions not nations rule the economic game. If there is an exception, it would be Germany. They have done a good job of creating a strong national education system that dovetails with high-end industry. They have coupled this with a reasonable social

net. Perfect? Not even close, but they are the closest major economy that has national impact without large areas not impacting the econom. It may turn out that smaller landmasses like Singapore, Hong Kong, Taiwan and Germany may be of the size and homogeneous environment necessary to act like a region. Broken down, economics is a regional phenomenon that begins with a spark (printing press, trade routes, energy, railroads, highways, internet) that draws interactions. As these interaction increase, opportunities increase, and this draws people into the region. As more people are drawn into the area, capital follows. National economies and empires always fail, because they get spread too thin. Diseconomies of scale set in, and this taxes the energy-producing regions to the point that diminishing returns set-in. 13. QE III is good for job growth This myth has actually been propagandized by the Fed and earned Bernanke Time’s Man of the Year award. QE III has stolen from the middle class and has encouraged low paying part-time jobs, but real job growth is not happening because QE covers the symptoms of our broken economy. Have some jobs been created due to increased trade due to the weaker dollar? Yes, but not enough to cover the job losses elsewhere. The irony is that it is now clear that QE III is either job neutral or at worst, killing jobs. If corporations could not sell bonds for 2% and buy back shares, then they would have to expand operations through hiring and capital expenditures to improve earnings per share, which is the primary driver of stock prices. QE allows corporations to take the safest route to stock appreciation, which is the CEO’s number one job today. The real question is, “What is the best response to long-term, non-bubble, non-inflationary inducing, sustainable job growth?” Not QE III. QE I was needed to put liquidity back in the market so we could sort things out without total chaos. QE II was used to do the same for Europe (Yes QE II was to bail out Europe - bet you did not know that). QE III is nothing more than taking from the middle class and giving to the rich. The top one percent have accumulated 106% of the wealth during this period. On January 10, 2014, the Labor Department announced that the labor force participation rate had dropped to a 25-year low reaching 62.8%, a level not seen since 1978. 14. Infrastructure Spending is the Best Stimulus Another great economic myth that both camps believe is that infrastructure projects create economic growth. In the past, infrastructure spending has been a proven stimulus of economic growth, but lately this has come into question. Why the change? It’s quite simple to understand. Infrastructure spending that creates movement of people and trade creates a multiplier effect. Spending on replacement infrastructure fails to create new growth, thus its absence of the huge multipliers of the 40’s, 50’s and 60’s. There are projects today that, if built, will allow more people easier access and will have a greater stimulus effect. Any government spending that encourages economic activity by trading ideas, products and services is powerful stimulus. Projects that build bridges to nowhere or to fully developed areas are not stimulus activities. Getting Beyond Our Myths As the characters in Oz believed that if they could just get their brain, heart or courage, all would be well in the world, we too believe that if we can just practice our economic religion, all will be well. Creating an economic faith gives us a sense of understanding of our world. When confronted with the fact that we have spent our whole lives following a false religion, whether it’s a god or an economic theory, we go into denial of

facts. Congress, college professors and Federal Reserve board members spent their whole lives following a worldview that is incorrect and would rather go down with their false faith than face the fact that they have spent most of their lives believing in a false worldview. It takes a special person to face their fears and make change. As the Church must face the challenge of science, so the different churches of economic theory (for they are just that) must face the data that clearly shows that all these theories are flawed. New macroeconomic theory must be reductionist in that it should simply be about helping trade regions increase basic product and service exchanges among as many people as possible within the region first and developing external trade second. Multinational corporations must be redirected and forced to focus on the supply chain, stepping away from the higher margin of the final retail sale. Taxation should encourage and reward risk and hard work but not elevate greed. Success should not be equated with monopoly and power but the status to be emulated of accomplishing profits and making communities stronger. Ultimately, economics in not about debt, tax rates, GDP, monetary or fiscal policy. It’s about understanding how to include the most people possible in the daily process of making exchanges. It’s about making sure that everyone feels some sense of ownership, whether they offer labor, a product or a service. Increasing dynamism of human interaction has been the cause of every economic explosion. Economic explosions do not occur with a focus on financialization, as the Fed, the President and congress seem to believe today. And they don’t bring forth the entrepreneurial spirit through railroads, highways or the Internet, as these are just the spark plugs that make the engine run. They are just platforms that make the movement of people’s energies easier. Our current policy is to make the people who own money richer and to destroy the energy of small entrepreneurs and laborers. Both parties and their supply-side and demand-side conspirators have perpetuated a power-centric model that can only fail. We must find another way that creates energy, not fear, for the majority living in the middle. Enlarging and empowering the middle reduces the power of the rich and gives motivation to the poor to reach higher. Our current middle-class-reducing policy has centralized power at the top and left the poor with little hope to cross classes. The war on poverty has failed, because it is the middle class moving down, not the other way around. Addendum The biggest myth today is that the economy is getting better. Both the US and the global economy as a whole are worse off today than five years ago if you are part of the bottom 80%. If you are part of the middle 80 to 90 percentile, you’re doing ok, and if you are part of the top ten percent, your economy is great as those with assets like stocks and real estate are seeing them appreciate at record levels, and your debt is used to buy revenue-producing assets. The other problem that the press fails to communicate is that this small fraction is spending as a part of GDP at its maximum spending level. Any wealth effect however minimal may have already been experienced. If you are part of the bottom 80%, your real wages continue to decrease, and you are using credit to buy non-revenue-producing, depreciating assets. A depreciating asset purchased with credit becomes a liability. This is a structural problem that no one has attempted to fix. If assets are at record valuation levels, the rich are at historical spending maximum rates, and the bottom 80% are still close to debt maximization with falling wages and empty pension promises, where is this real improvement?