The Third Option
January 7, 2014 • 11:31PM

The Third Option

By Leandra Bernstein

The 113th Congress is reconvening this week and on their agenda is the fallout from the budget agreement made prior to the winter recess. The budget, as passed, fails to address virtually all of the nation’s underlying economic problems--from unemployment and an increasingly unqualified workforce, to physical economic deficits, an overall lack of productivity, and the looming disaster of the financial system under the post-Glass-Steagall system.

On January 7, the Information Technology and Innovation Institute (ITII) held an event in Washington DC titled, "A Plan for Growth-Oriented Deficit Reduction" boasting a proposal to "boost U.S. productivity, innovation and competitiveness" and break with the “Washington budget consensus” of treating the deficit as a monster to be cut, slashed or chained.

Dr. Robert Atkinson, the President of ITIF, opened the event by arguing that, in fact, we should consider digging ourselves deeper into debt. “The U.S. economy has been underperforming both in the short term and in the long run. People worry that debt will impact growth, but debt is not a problem unless it leads to other problems.” Atkinson outlined a program of investment and tax credits to spur growth, saying growth is the most proper outcome for an economy. In pure numbers, he said, the budget will look worse, but the gains in the future will override those numbers; the overall budget impact could be zero. He championed the idea of investing in innovation, capital goods, surface transportation, other infrastructure, and stressed the need to invest in research and development. As of 2010, the United States ranked 28 out of 34 OECD nations in terms of federal, non-defense R&D. In terms of university R&D, the U.S. was 24th out of 39. (For example, funding of fusion research in university laboratories; NAWAPA XXI: Gateway to the Fusion Economy.)

However, while pointing to obvious problem areas desperately in need of sane budgeting, Atkinson and the other speakers failed to escape the typical Budget Trap and were caught between the Scylla of budget cuts on the one side, and the Charybdis of tax increases on the other. As in all seemingly impossible situations, there is almost always another option, but one that requires imagination and the ability to think outside of the Beltway. This being the case, I intervened on behalf of LaRouchePAC with the only question of the morning, and made the following criticism of the proposals being discussed.

The idea of spending money to increase productivity and remedy the “investment deficit” (i.e. lack of long-term investment in infrastructure, capital goods, etc.) by growing the economy is the right approach. However, the question that comes up is: How do you plan to pay for it? As a student of American history, it is shocking that so few policy makers choose to familiarize themselves with the principles and precedents that were successful, like President Franklin D. Roosevelt’s Reconstruction Finance Corporation, or Alexander Hamilton’s National Bank. There is a third option that doesn’t involve issuing carbon taxes, increasing the retirement age, reducing Medicare benefits, cutting unemployment benefits, or cutting agriculture subsidies--all of which were proposed during the event. That third option starts with Glass-Steagall.

Immediately, Glass-Steagall prohibits regular, deposit-taking banking institutions from investing in gambling activities that promise them 30% or more in returns...unless, of course, they lose the bet. Without the allure of those kinds of profits, the banks will be limited in their loans. At this time, the U.S. government will be the most secure investment, and the Glass-Steagall compliant banks can begin lending again, putting funds to use in a revised RFC type program, or, ideally a Third National Bank of the United States.

As Isabel Sawhill of the Brookings Institute noted, companies in the private sector have retained earnings, they have money they can reinvest but are not reinvesting. Similarly in the banking sector, where overall lending has plunged by about $1 trillion from 2012-2013 despite the inflows from Quantitative Easing. That is all to say, the funds exist to be lent; the potential for productivity and growth is there. Franklin Roosevelt best expressed this in his 1940 budget address, saying the United States alleviated the Depression “by borrowing idle funds to put idle men and idle factories to work.” He continued, “The deliberate use of Government funds and of Government credit to energize private enterprise...had a profound effect both on Government and on private incomes.” (See:Franklin Roosevelt’s Credit Budgeting.)

Following the criticism and the question of whether they would support a restoration of Glass-Steagall, the speakers at this budget event ironically plead ignorance in matters of finance. However, the solution as LaRouchePAC has presented it, is neither obscure nor impractical. As the Congress comes back into session they will have to face an economic and financial crisis of epic proportions. Congress must be told the consequences and benefits of their support for a program that will work, and they need to hear it from their constituents even more than off-the-Hill experts. On each members’ desk, in the House and the Senate, is a bill calling for the immediate reenactment of Franklin Roosevelt’s Glass-Steagall Act (HR129 & HR3711, and S.1282), the starting gun for initiating real growth in the economy.