Motley Fool letter to Congress

[cpeterka]

An Open Letter to Congress
By Todd Wenning - Motley Fool
November 19, 2008

Dear Members of Congress:

In recent months, we have seen numerous comparisons made between our country's current economic crisis and The Great Depression. Unfortunately, I believe these comparisons are too narrow in their historical scope and discount the scale and the urgency of the situation we face as a nation today.

While the lessons of The Great Depression should never be forgotten, a more appropriate comparison to the United States today is the economic mismanagement that caused the downfall of the Roman Empire. Like Rome after the death of Augustus in A.D. 14, the United States today faces the serious combination of slowing economic growth and mounting government liabilities.

How Rome chose to address its economic issues ultimately sealed its fate and it's important that we learn from its mistakes and not repeat them.

As you may recall from history, the fall of Rome stemmed from the overextension of the empire's resources and the consequent suppression of individual economic freedom. The decline in moral values, political corruption, and the rise of the barbarians, which are three oft-cited explanations for Rome's demise, are only corollaries to the root problem of flawed economic policies.

Following the conquest of Britain by the emperor Claudius (A.D. 41-54) and the final geographic expansion of the empire by Trajan (A.D. 98-117), Rome no longer generated additional revenue from new territories. Going forward, it would need to finance its mounting expenses from existing lands.

This was a strange and new reality for Romans, who had become accustomed to a near-constant influx of gold from conquered lands to fuel their gluttonous consumption habits. Once that influx stopped, Rome was forced to reevaluate its economic principles.

But rather than become more fiscally responsible or encourage economic freedom as Augustus had done a century earlier with great success, subsequent Roman emperors instead took the easier political route. One after another, they debased their currency by reducing the precious metal content of the coins in circulation. This artificial increase in the money supply only encouraged the insatiable consumption of the people at the very moment it was so critical that it be impeded. Moreover, the gradual devaluation of the currency only served as a backdoor tax for the people since it watered down the value of their wealth; Roman merchants responded to the devaluing of the currency by raising prices, thus fueling inflation.

Another political strategy employed by the emperors was to increase taxes on the wealthy and even confiscate their lands. Unfortunately, once the wealthy Romans could no longer shoulder the tax burden and the economy dried up, the heavy taxes were shifted back onto the already-suffering lower classes.

This tragic process of mismanaging the empire's fiscal and monetary policies snowballed for two centuries so that by the time of Diocletian (A.D. 284-305), inflation was out of control, the currency was essentially worthless, and the economy was at a standstill.

Within 150 years after Constantine's death in A.D. 337, the Roman Empire was split into two: a Western and Eastern Roman Empire. Rome was then sacked by Visigoths, and the Western Empire was ultimately destroyed in A.D. 476.

While the American economy is far more dynamic than that of ancient Rome, the similarities between our current economic crisis and the events that led to the fall of Rome are many and equally as dire and urgent, if not more so. How we decide to address this issue will resonate for generations to come.

First and foremost, we must learn from the Roman mistake of further debasing our currency. The government's short-term solution of printing and spending dollars it doesn't have breeds dangerous long-term consequences for future generations of Americans. Using $700 billion in fake money to bailout financial companies like Bank of America (NYSE: BAC), Wachovia (NYSE: WB), and Citigroup (NYSE: C) that took on too much risk, homebuyers that bought too much house, consumers who racked up mounds of credit card debt, and poorly run automakers like Ford (NYSE: F) and General Motors (NYSE: GM) simply masks the underlying problems we face, does nothing to solve them, and creates a culture of dependency on the government.
The government handouts may seem innocuous enough in the short-run, but they can have far-reaching and unintended costs. Lincoln once said, "You cannot build character and courage by taking away a man's initiative and independence." Setting a precedent for dependency on the government would take away both, at the expense of the spirit of hard work and the optimism that built this great country.

Not only will more bailouts hinder economic growth and compromise individual liberty, with our national debt now over $10 trillion and still growing we simply can't afford to take on any more dependents. Moreover, as we learned from the Roman demise, you can't sustainably sacrifice the productive members of a society for the benefit of those who do not produce. At some point it's no longer in the productive group's best interest to produce. This is what effectively happened in Rome: Economic incentives disappeared and eventually so did the tax revenues and later the empire itself.

Fortunately, we are not bound to the same fate as the Romans, but we nevertheless have an important decision to make at this critical juncture in our country's history. If we are to return this country to sustainable economic health, we must encourage innovation, empower the individual, eliminate wasteful government spending, and simplify the tax code.

Will we as a people acknowledge our economic excesses and accept the responsibilities that come with them, or will we, like Rome did, deny them and push the consequences of our actions onto future generations of Americans? This is the fundamental question that must be answered. I hope we choose the former. For as we learned from the downfall of Rome, the wrong choice may ruin all that this country has worked and fought for in its 232-year history.
Sincerely,
Todd Wenning

http://www.fool.com/investing/divide...-congress.aspx

[Michael]

Interesting, although I think it is a real stretch to find parallels with either Rome or the Great Depression.

How about the old Soviet Union? They went broke in the middle of their Afghanistan war. The reason was over reaching themselves in pursuit of Empire. Their military spending was main driving force behind the collapse, as there was a cold war and arms race with the United States.

We should have been trying to learn from the experience of the USSR instead of patting Reagan on the back for "winning." We have no world power adversary to compete with, yet our military spending is still very high as we pursue the neo con dream of an American Empire. We need to purge government of neo cons and drop ambitions for being the number one world power and American Empire.

And to be as direct as possible to address the real causes of our current economic near collapse, REGULATION is needed. Extremely assertive regulation is needed, which means billionaire corporations and their legion of lobbyists need to have their influence removed from government.

[flourbug]

How about the old Soviet Union? They went broke in the middle of their Afghanistan war.

I think the fact that we're going broke in the middle of a war is just coincidence. The $350 billion cost for the war pales in comparison to the 7.7 trillion for the bank bailout. I place the blame for our economic woes right at the feet of those who repackaged and repackaged and repackaged mortgages and in doing so drove up their value. Then when housing went into a downturn, as these things are wont to do, the house of cards came tumbling down around them.

And to be as direct as possible to address the real causes of our current economic near collapse, REGULATION is needed. Extremely assertive regulation is needed

What is needed is full takeover of anyone who comes to the government and claims they need a bailout. Take them over, break them up, sell the parts.

I am tired of foxes being put in charge of the henhouse. They regulate our money right into their pockets. Regulations are fine, IF we clear all the people who profit in that line of business from the committees that form the regulations.

[Ought Six]

Another political strategy employed by the emperors was to increase taxes on the wealthy and even confiscate their lands. Unfortunately, once the wealthy Romans could no longer shoulder the tax burden and the economy dried up, the heavy taxes were shifted back onto the already-suffering lower classes.

This tragic process of mismanaging the empire's fiscal and monetary policies snowballed for two centuries so that by the time of Diocletian (A.D. 284-305), inflation was out of control, the currency was essentially worthless, and the economy was at a standstill.

This is precisely where we are headed with Obama's "eat the rich" class warfare economics.

[Michael]

Originally Posted by flourbug

I think the fact that we're going broke in the middle of a war is just coincidence. The $350 billion cost for the war pales in comparison to the 7.7 trillion for the bank bailout. I place the blame for our economic woes right at the feet of those who repackaged and repackaged and repackaged mortgages and in doing so drove up their value. Then when housing went into a downturn, as these things are wont to do, the house of cards came tumbling down around them.



What is needed is full takeover of anyone who comes to the government and claims they need a bailout. Take them over, break them up, sell the parts.

I am tired of foxes being put in charge of the henhouse. They regulate our money right into their pockets. Regulations are fine, IF we clear all the people who profit in that line of business from the committees that form the regulations.

My reference to military expenditures is related to the longer term recovery. We can't keep spending more than all other countries combined on the military, weapons and weapons development.

Why do we need over 750 military bases world wide? No one else is functioning on that level or even close to that level. Why not follow Canada's role model and start selling of government assets (bases) to offset deficits.

Foxes in charge of the hen house? I agree. Full take over and sell off the parts? As long as government does not enter into the market as a player.

Clearing out people from government that are on the take from corporate lobbyists? I'm more than OK with that. Make lobbying illegal. Time to purge the government, yank the chain, flush the fed commode.

[flourbug]

Originally Posted by Michael

My reference to military expenditures is related to the longer term recovery. We can't keep spending more than all other countries combined on the military, weapons and weapons development.

Why not?

Every country has major industries that fuel their economy. One out of five Americans is employed by the government. That includes the military. As long as the Pentagon is purchasing goods made in America, the money invested in a strong military comes back to us in paychecks and profits. For the same reason I have no problem with investing in our education, corrections, public health systems or infrastructure improvements. This is our tax money being put to good use as it is returned to circulation. Now, is there waste WITHIN these systems? Are they completely screwed up? Of course. THAT needs to be addressed. But I wouldn't toss the baby out in order to get rid of the dirty bathwater.

On the rest, we agree.