wws@siemens.UUCP (William W Smith) (07/24/84)
This election year, the economy of the United States is being used by both parties as a reason to vote against the other. Ronald Reagan wants us to see that unemployment has gone down, income has gone up, and the ecomomy is expanding--proof that his "policies" are working. The Democrats and Walter Mondale point to the future. We have an obscene deficit, interest rates are going nowhere but up, and we are heading toward an economic crisis. As one who cast his ballot in his first presidential election against Mr. Reagan, I accept the Democratic portrayal of the future as more realistic. The causes of our economic crisis are complex. We can point fingers at any of a number of factors: increased oil prices damaging economic stability, deficit spending of the government, the economic policies of the incumbent (Jimmy Carter in 1980, Ronald Reagan in 1984) to name a few. One factor that is mentioned as an effect of our problems (but rarely as a cause) are the soaring interest rates. While risking an oversimplification, I submit that interest rates are the chief economic culprit of our economic problems. I think there is a lot of evidence to at least support the position that interest rates are as much a cause as an effect of economic problems. One fact that strikes me the most is that when the interest rates started rising in the late 70's, many states were forced to rewrite their usury laws. Banks now regularily lend money at rates that were illegal ten years ago! I know from personal experience of the destructive effects of these interest rates. My father is the owner/operator of a fairly large (by Indiana standards, not Florida's or California's) dairy farm in Northeast Indiana. Over the past few years, it has become more and more risky financially for him to continue farming. Paying interest on the debt incurred in buying the farm has made it impossible to make a profit, and made it likely to go bankrupt. He has said that bankrupcy has only been avoided by the good will of our bank in accomadating cash flow problems. (It reminds me of some 3rd world debtor nations.) Anyway, rather than go bankrupt, he has tried for some time to sell the farm and go back to a more secure job in engineering. So, he is at risk economically because of interest rates. (And also gov't farm policy, which I would be happy to discuss, but not here.) He has good land, excellent cattle, and good facilities, so he should be able to sell it. The problem is that a dairy farm is a long term, low yield investment that to boot requires a huge investment of caring, skillful human labor and management. Anybody who has the talents and will to run a farm has nowhere near the money to make a go for it. The only way to buy a farm is to be independantly wealthy--but then who in their right mind would invest in a farm when all he has to do is by CD's at 12% and not even need to work? The interest rates make it impossible to farm and impossible to get out of farming. On a wider scale, I have seen comments in magazines to the effect that capital investment in business is also hurt by the possibility of earning interest instead of investing in capital and equipment. Internationally, Third World countries with large debts would not be suffering under austerity programs if they didn't have to pay the banks in the United States the interest rates that they are forced to pay. Global investment patterns are distorted by the same phenomena mentioned in the previous two paragraphs--easy money earned (?) through interest rates in the U.S. In San Francisco, Gary Hart mentioned that a fraction of our national debt is financed through borrowing from Europe and elsewhere. He said that the trend of foreign borrowing will be increasing until about half of personal income tax will pay interest to foreign investores and countries. This is alarming to put it mildly. How many of us would be willing to undergo the austerity measures we have imposed on Africa, Asia and S. America? It seems that this is a bigger threat to U.S. sovereignty than Russian and Cuban meddling in Grenada. Since this is getting long, my discussion will be continued in part 2. Bill Smith princeton!siemens!wws P.S. My father seems to be out of danger now through creative management of the farm, assistance from many neighbors and a half-time Electrical Engineering job given to him by a company that was willing to see his ability and not the 12 years since his last EE job with IBM, and also a large dose of hope that something could be done.