Economics, Part II Why YOU are losing the economic battle

Too Big to Fail

Why YOU are losing the economic battle

The answer to this statement is relatively easy to understand if you will bear with me for a two page explaination. It requires a basic knowledge of three topics generally conceded as being dry and boring but they areas of interest to me. Professional treatments of these subjects tend to become too deep with explanations of the underlying cause and effect. The topics are political philosophy, economics and history.

First a look at history and then an explanation of how it ties to current economics and political philosophy.

The Gilded Age and the Progressive Era - 1870 to 1914
During the last 30 years of the 19th century several men were able to take control of the steel, petroleum and railroad industries and form corporations that eliminated competition by various means.

The railroads
Cornelius Vanderbilt and his son William bought out and consolidated many of the railroad companies in the eastern United States enabling them to cut operational costs which in the end forced their competition out of business.

As the railroad industry grew without government regulation they were able to generate enormous profits using any method no matter how corrupt it might be. Eventually the Vanderbilt fortune topped $100 million, an immense sum during that period. Common practices of the railroad companies such as forming dummy companies and hiring themselves out at huge prices and reaping enormous profits while bribing congressmen to keep quiet about the scandals became a disgrace. Railroad companies inflated the value of their stocks and gave out noncompetitive rebates to client companies in return for exclusive service. The Vanderbilts were also known widely for their lack of respect for the working man.

Although state laws were passed to regulate the railroad industry the Supreme Court set a precedent, by ruling on the Wabash Railroad case, stating that only the federal government could regulate interstate commerce.

The steel industry
Andrew Carnegie, a Scottish immigrant, built a steel empire from a single production plant using a tactic known as vertical integration by buying out companies to supply everything needed to produce his steel and the companies that shipped and sold it as well as competing steel companies.

He eventually sold the company to banking magnate J. P. Morgan who used the company as the foundation of the U.S. Steel Corporation. By the time he passed away he had become one of the wealthiest men in America with a fortune of over $500 million.

The petroleum industry
While there was very little demand for oil prior to the Civil War demand for petroleum products increased dramatically during the period of1880 to the early 1900's with the need to lubricate and run the machines of industry and the coming of the automobile.

John D. Rockefeller, founder of the Standard Oil Company used the tactic of horizontal integration by buying out competing oil producers and refiners to the point that there was virtually no competition. Standard Oil became one of the first monopolies, or trusts, that cornered the market of a single product, petroleum. Standard oil produced all of the lines of fuel and lubricants needed by the growing industrial age and automobile industry.

Many of these wealthy businessmen came to believe in the theory of natural selection proposed by Charles Darwin and believed they were superior to the lower classes.

Deja vu all over again
From 1980 through 1991 and again from 2001 through 2009 the United States presidents Ronald Reagan, George H.W. Bush and George W. Bush revived the political philosophy of laissez faire, an economic doctrine that opposes governmental regulation of or interference in commerce beyond the minimum necessary for a free-enterprise system to operate according to its own economic laws.

Their ignorance of the disastrous results of this type of governing during the Harding, Coolidge, Hoover years is a great example of either being oblivious to or forgetting history. These policies led directly to the recession of 2006 to the present time. During the 20 years that these three men held office as president they managed to increase the debt to GDP ratio by a whopping 42.9%

The only event that saved the current economic situation from becoming a full blown depression was the election of Bill Clinton to the presidency during the eight intervening years between the two Bush administrations.


Clinton's policies reversed the decline of the GDP to debt ratio over the span of his years in office with a net of 6.8% after fighting to control the economy and suffering a loss of 3.0% during his first term. This record is an amazing feat when considering that the congress, for six of those eight years, was dominated by the opposing party.

Be aware
Whenever there is an opportunity to enrich oneself when there is no one watching there are certain men who will take unfair advantage of their fellow man. The idea that government can take a hands off approach to business and commerce is rife with examples of the greed and corruption of the few.

Americans need to have a basic knowledge of history because everything repeats due to the fact that our elected leaders are not well versed in history. Economics is basic as is political philosophy.

I am neither a Republican nor a Democrat but I do believe in fairness and I believe that government, we the people, owes help to those who cannot help themselves. This last is undertaken with full knowledge that greed is not solely the province of the rich and there will always be some who will attempt to take unfair advantage. It is the responsibility of ALL individuals to take steps to prevent this from happening.