Learning from History: Influenza and the Economy

[Originally published in the spring of 2020]

In October 1918, the so-called Spanish Flu killed 195,000 Americans -- the nation had just 103 million at the time. What happened to the US economy? Nothing. The Spanish flu killed many young and productive workers -- something that had a real effect on the US economy, but the economy kept growing. It was more than a year later that the economy suffered a brief, sharp deflation blamed on (1) wages dropping due to an increased supply of labor as soldiers returned after WW1, (2) dropping prices for agricultural products due to the end of the war. It lasted 18 months and was followed by the spectacular economy of the 1920s.

Fast forward to 2020. This time, government caused a severe recession, then manufactured currency and distributed it in the hope this would trick people into spending money. When this falls short, as it seems likely to do, it will manufacture more money.

That was the solution employed in Germany when it was unable to pay reparations after WW1. When the German Government didn't pay the reparations, France took over the industry and Germany told workers to give no aid -- and paid them not to work. The result: a hyperinflation and a financial collapse.

The German currency lost about half its value during WWI -- but when the war ended, the value of the currency declined at a faster and faster rate -- going from about 8 marks to the US dollar in 1918 to about 4 quadrillion marks to the dollar by 1924.

The intervention and the expansion of the US Government launched the Great Depression and maintained it for a decade. This time, confidence in the belief that government is the solution to all ills, economic difficulties may go on longer.

There Is No Money Any More

In 1977, I wrote a magazine article about gold for Medical Economics. The paper money of the US was said to be backed by gold for decades, but this "gold standard" had been abolished. Even foreign governments could not ask for the gold in Fort Knox in exchange for the paper promises of the US Government.

Gold wasn't money any more. 

Some thought this was the time to buy gold. Inflation was high and gold had for centuries held its value -- it would buy as much tomorrow as it did yesterday. 

But people are swayed by emotion -- they fear missing out and they fear getting caught in, so gold was not quite so predictable. The value of gold, as measured in US dollars, rose dramatically. It clearly seemed the ideal way to preserve one's wealth. 

Except it wasn't. In the summer of 1977, gold was worth $700 an ounce in today's currency. By the spring of 1980, gold reached more than $2,500 per ounce. Then, over the next 20 years, gold fell -- dropping below $500 in the year 2000. Then, over the next decade, it rose again above $2,300 in real terms. Then it dropped below $1,400 before rising again above $2,300 as the covid pandemic created turmoil.

In the past month the price has ranged from $1,912-$1,977.

In other words, the value of gold has not been something stable or certain. It fluctuates with the mood of those who might feel comfortable or uneasy about other ways of storing value. As predicted nearly 50 years ago, gold will buy roughly the same thing today as it did long ago. But as noted then, it is a volatile investment -- not to be trusted as if it were money.

Meanwhile, we seem forced to rely on the declining value of our currency. The US Dollar is not money either. 

Money must be a store of value as well as a medium of exchange. Money is something that not only can be used to buy things -- that would be currency -- it is also a trustworthy way to have the same purchasing power tomorrow that you have today. Money will be worth as much in ten years as it is now. 

In ancient times unscrupulous governments and greedy citizens would cut a bit of gold or silver off of coins, diminishing their value. Today it is the policy of the US Government to do just that -- to steal 2% every year, sometimes more. Since the creation of the Federal Reserve in 1913, the theft has averaged just over 3% per year. If a 1913 dollar were money, it buy would $30 worth of goods today. Looked at another way, today's dollar is worth about three cents. Tomorrow it is likely to be worth less.

The Fed creates currency out of thin air -- more at some times, less at other.  As God said "fiat lux" -- let there be light, Government says "fiat pecunia" --  let this [paper, metal, electronic signal] be money. And people believe.

In such a world, what is money? What is a reliable store of value that can be used to buy and sell things?

There is no money.

Black Crime Matters

Americans are often criminals -- more than 25 million have been convicted of a felony -- one out of 12 people, and a much higher percentage of adult men of all races. Extrapolating from a study made in 2010, an estimated 10 million Americans have been convicted and jailed for committing a felony. Most of these criminals did not go to prison -- about 10 million did, including 3 million black men (about 1 out of six).

We often see police seem to target blacks -- and some claim this is racist. But one-third of all black males have been convicted of a felony, and one in six have been in jail. This means that there are 7 million black male felons -- one in three. Among all other groups, there are about 18 million -- one in ten men.

So, black men are three times as likely to be convicted felons. Black Crimes Matter. It is unfortunate that innocent black citizens may be detained by police because of the criminal behavior of others whose skin color is the same.

Are We Arming Ukraine to Enrich the US Military-Industrial Complex?

What most people believe about the workings of the world is not based on actual experience. Most people have never worked for the Federal Government. Most people have never worked for a non-profit. Most people have never worked for a large corporation. Most people have never lived and worked in a foreign country.

Most people are dependent on others and come to believe what they are told. They are told, too, for the most part, by people who have no direct experience. These influencers build on and pass along the opinions of others who think as they do. What passes for knowledge in modern society is the summary of a long chain of opinion that often has its origin in speculation, in theories about the way things work. 

Few people in this daisy chain of opinion stop to do even the most basic research. Even fewer take time to reason about how things work. To believe what you are told, even by sincere people with impressive credentials, is likely only to confirm your biases. Humans avoid listening to contrary views and readily discount anything that challenges their beliefs. Confirmation bias assures that we will continue to firmly believe what we believed to begin with.

Still, I offer this to those willing to learn.

There are more than 4,000 US companies large enough to be listed on a stock exchange and owned directly or indirectly by millions of people.

The largest companies? Walmart, Amazon, Exxon Mobil, Apple, United Healthcare, CVS, Berkshire Hathaway, Alphabet (Google), McKesson, Chevron — the next ten are health, computer, oil, and retailing companies. You will find more than 50 companies larger than any corporation supplying the military.

In 2020 the defense industry contributed about $50 million to elect Democrats and Republicans — roughly half to each party. That year $14.4 billion was spent by all candidates. So the defense industry provided about 1/300th of the money spent to win a typical office. Is this enough to control any of the people actually elected?

The defense industry spends about $125 million a year on lobbying. Once people are in office, you want to do what you can to influence them. More than 800 lobbyists represent more than 300 different defense corporations. While they might conceivably work together to get a paragraph into a 2,000-page tax bill, that is usually the limit of their power.

What of companies like Walmart and Exxon. If they were to elect Biden and the Congress, would they direct them to go to war in Ukraine with the goal of increasing their wealth.

As a corporation executive I sat on the strategic planning committee for the largest defense division of a Fortune 100 company. Our strategy was to figure out what the military would be looking for and to determine how we might best supply it. 

Division executives donated a small amount of money to candidates for Congress, but this was little more than a courtesy. The local congressman would meet with us because we employed 5,000 people in his district. Our parent corporation had a Washington representative, but he was useless and everyone knew it. When I attempted to recruit a close friend of Bob Dole (and a former NASA head of legislative affairs) to help us in dealing with Congress, the company was unwilling to spend even an amount equal to 1/4th of my salary for this purpose.

The idea that (1) a single corporation might influence anyone in Washington to go to war is silly, and (2) while a large and powerful group of defense corporations might, in theory, conspire to foment military action, companies are competitive and have no ready mechanism to work together in any way that would be likely to directly benefit the entire industry, much less one company’s bottom line. The military-industrial complex benefits by constant saber-rattling, not by the letting of blood. Fear provides profit. War is unnecessary.

A good example to show how things actually work? Sperry Univac sold a computer system to the USSR. Unfortunately for the corporation, Jimmy Carter and Zbigniew Brzeziński, his Polish National Security Advisor who hated the Russians and wanted to play the Great Game (he later wrote The Grand Chessboard), had decided to destabilize Afghanistan, which had a pro-Russian government. When the USSR came to the aid of the Afghan Government, Carter & Co. called it an invasion and  canceled US participation in the 1980 Olympics. The Carter Administration then raised a trial balloon suggesting it would cancel Univac’s computer sale — worth about $40 million in today’s currency. I proposed we speak up before the sale was actually blocked. The corporation was unwilling to stand up to the Government and the sale was denied on specious “national security” grounds.

That is the reality. While you may wish to believe that candidates are the servants of the rich, once elected, they are loose cannons and thousands of contributors rush to pacify them for fear that a cannon will be aimed at them. When I asked about our local congressman, the division president said that business leaders on Long Island couldn’t find anyone willing to run — and that the candidate who finally took on the task was an idiot member of a local city council. When I was later recruited to work for the House Science Committee, I found that its chairman was dim-witted and turned the offer down. 

That, sad to say, is the reality. No one hires these bozos and no one would trust them to do as they were told. Give them power and it will go to their heads. While the influencers in the public square — media pundits, intellectuals, professors, ex-officials, authors — may affect what politicians do, money alone would never suffice.