Image by Eric Brehm.

The Musk and Trump cuts to government programs are part of a larger movement towards ‘free markets’ began a little over fifty years ago when we abandoned fixed exchange rates (rates set by the government) in favor of floating exchange rates (the Float). In other words, the government past the decision making for determining the rate of exchange between two currencies to the market (those buying and selling currencies).

The Float was a watershed moment. It began a shift away from government in favor of business and letting the market sort it out. This coup was a victory for the Johnny Appleseed of free markets, Milton Friedman. The Friedman Doctrine held that business had no social responsibly except to maximize profits.[1] He felt government programs initiated by FDR to help the average American, such as the minimum wage and Social Security were wrong.[2]

Labor who had benefitted from New Deal programs like the Wagner Act saw their power begin to wane; while business gained. Conservative and pro-business groups like the United States Chamber of Commerce began advocating for market-based solutions, arguing government regulations and taxation were business impediments.[3]

When Reagan was elected he became the voice for the market movement saying, “government is the problem.”[4] He cut taxes and plunged America deeper into the red.[5]

Sometime in the 1980’s monetary policy triumphed over fiscal policy. Fiscal policy (spending, tax rates,…) is the domain of elected officials. Monetary policy is conducted by the Federal Reserve (Fed) run by an unelected bureaucrat whose governing board consists of big banks. The market was now in control, money had toppled democracy.

The Fed became the bagman for the market movement. While the Fed focuses on price stability and the economy it made protecting financial markets tantamount. So when stocks crashed in 1987 the Fed came to the rescue and bailed out the stock market; a policy it continues. Stock valuations surged—measures such as the PE ratio of stocks has on average been higher since 1987.[6] The rich, through no action of their own, got richer.

To understand this take the Price Earnings Ratio (PE) of a stock. If a stock is earning a $1 per share and has a PE of 10 its price would be $10 (10 X $1). If the PE goes to 15 its price would increase to $15 (15 X $1) Basically the Fed had the effect of levitating stock prices. Meanwhile, the Fed ignored the surge in Fringe Banking—Payday Loans, Rent-to-own…–and the poor suffered.

Rising financial asset valuations were a boon for the rich to fund think tanks, ballot initiatives, payoff politicians and more.

It can be difficult to accept that the Fed has become the power source for our country, but one need only look to how money has corrupted and taken control of politics and just about everything else. This is why I protested by the Fed in the early 2000’s.

Looking at unions as a surrogate for labor, union density in the 1950’s and 1960’s hovered around 30%.[7] In the forty years between 1983 and 2022 union membership halved from 20.1% to 10.1% of workers.[8]

When unions had their peak influence on the economy several felt they were abusing their power, pointing to actions such as featherbedding. In 1963 featherbedding cost railroad carriers $592 million compared to industry earnings of $681 million.

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