George H. Blackford, Ph.D.

 Economist at Large

 Email: george(at)


It ain't what you don't know that gets you into trouble.

It’s what you know for sure that just ain't so.
Attributed to Mark Twain (among others)



Economic Papers
Political Essays


Excerpt from:

Where Did All The Money Go?

Summary and Conclusion


This book is available in Kindle and paperback format at for a nominal contribution to this website.



The changes in tax, regulatory, and international policies that have taken place over the past forty years have led to a situation in which, given the state of mass-production technology in our economy, the existing distribution of income and current account surpluses do not provide the mass markets needed to achieve full employment in the absence of an increase in debt relative to income. Since it would appear that we have reached a point at which a further increase in non-federal debt relative to income is unsustainable, the only way the full employment of our resources can be achieved is through:

1.     continually increasing our current account surplus (reducing our current account deficit) to compensate for the effects of the increased concentration of income on our domestic mass markets,

2.     continually increasing federal debt relative to income to offset the effects of the increased concentration of income, or

3.     reducing the concentration of income.

The only alternative is to allow our domestic mass markets to shrink and, thereby, reduce our ability to utilize and benefit from mass-production technologies as our resources are transferred out of the mass-production industries that serve the bulk of the population and into those that serve the wealthy few.

As we saw in Chapter 2, running a continually increasing current account surplus has the effect of increasing the debts of foreigners relative to their incomes. Given the size of our economy, continually increasing the debts of foreigners relative to their incomes is akin to continually increasing domestic non-federal debt relative to our income. Neither is sustainable in the long run. The transfer burden from debtor to creditor must eventually overwhelm the system in either of these situations and lead to a financial crisis that causes the system to collapse.[44]  It is no accident that the current economic crisis began at home while we were running a substantial current account deficit in the face of a speculative bubble in our domestic economy, and that this crisis has hit the hardest in those countries that were in a similar situation. (Kapner Dent Stiglitz)

As for increasing federal debt relative to income, this poses less of a problem since the federal government can always simply print the money needed to service its debt and there is no threat of default on federal debt. Just the same, doing so on a continual basis is not a long-run solution to our employment problem. A continually increasing federal debt relative to GDP must eventually overwhelm the federal budget as interest payments on the national debt grow. This will make it more and more difficult to fund essential government programs such as Social Security, Medicare, and national defense.[45] And even though the federal government has the legal right to print money it is fairly certain that doing so on a continual basis in order to meet its financial obligations will eventually destabilize the system. [46]

But the most important objection to attempting to solve our employment problem by increasing the federal debt relative to income is that it increases the transfer burden on taxpayers as increasing interest payments are transferred from taxpayers to government bondholders. Since government bondholders tend to be among the wealthiest members of our society, increasing the federal debt relative to GDP is likely to have the effect of increasing the concentration of income at the top of the income distribution and, as a result, is likely to make the fundamental problem we face worse. (Piketty)

The only way to avoid the kinds of financial crises we experience in 1929 and 2008 is by producing for domestic mass markets without a continually increasing debt relative to income while maintaining a reasonably balanced current account. This, in turn, requires a distribution of income capable of providing the domestic mass markets needed to purchase the full employment output that can be produced (given the state of our mass-production technologies) without the necessity of a continually increasing debt relative to income and with a reasonably balanced current account. [47] The tax, expenditure, and regulatory proposals outlined above are designed to address this problem.

The tax proposals outlined above will not solve all of our economic and social problems, but they will at least give us a tax structure that is viable and will help to stabilize the economic system. If they are combined with a dramatic increase in government expenditures to rebuild and expand our physical infrastructure, reregulate our collective bargaining and financial institutions, rebuild our other regulatory agencies, bolster our social insurance systems, enhance the educational opportunities available to our children, and restructure student and mortgage debt in a way that reduces the concentration of income, current account deficit, and non-federal debt relative to GDP, there is every reason to believe it will not only increase our physical infrastructure, social capital, the rate of economic growth, and the growth in productivity as it helps to solve our employment problem, it will also stabilize the federal debt relative to GDP, just as this debt was stabilized in the 1930s and following World War II.  And it is worth emphasizing again that this cannot be achieved without increasing taxes. (Amy Musgrave Lindert Kleinbard Sachs)

It is the incongruous belief that we can have good government—and all of the essential services and benefits that only good government can provide—without collecting the taxes needed to pay for these services and benefits that led us to where we are today. The only way we can have these services and benefits is by strengthening the institutions that provide them, and the only way we can strengthen those institutions is by raising the taxes needed to provide the government services and benefits that people deserve and then demand that our elected officials provide these services and benefits: quality public education; effective public health programs; an effective and efficient personal healthcare system; safe streets and neighborhoods; a clean and safe environment; safe food, drugs, and other consumer products; safe working conditions; fair and just legal and criminal justice systems; efficient streets, roads, highways, and other forms of public transportation; an effective national defense; a viable social insurance system; and a financial system that facilitates a stable, growing economy that is not plagued by cycles of booms and busts that drive our country and people deeper and deeper into debt and lead to economic catastrophes brought on by epidemics of fraud, recklessness, and irresponsible behavior on the part of those in charge of our financial institutions.

It is only by way of collective action through a democratically elected government that we can “establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity. Private enterprise, guided by the profit motive cannot perform these functions within society. The only institution within society that can perform these functions is a democratically elected government. That’s what democratically elected government is for, but if we want our democratically elected government to perform these functions we have to pay the cost, and the way we pay the cost is through paying taxes. In the end, it comes down to this: Are we going to increase taxes and, thereby, enhance our government’s ability to perform the essential functions that only government can perform, or are we going to continue to follow the lower taxes, less government, and deregulation mantra of free-market ideologues and make it impossible for our government to perform these functions. (Amy Musgrave Lindert Kleinbard)

If we do not approach our non-federal debt and unemployment problems by increasing taxes and government expenditures in a way that makes it possible to deleverage the system while reducing the concentration of income and allowing our infrastructure and social capital to grow, our economic situation can only get worse. Mass-production technologies depend upon mass markets to provide the sales needed to justify investment in these technologies.  Where are the mass markets required to justify investment in these technologies supposed to come from in the absence of a mass distribution of income to support those markets? If what were formally mass markets in the developed world are converted into concentrated markets, and if—in the absence of an expansion of government—full employment is supposed to be obtained in the long run, where are the investment opportunities going to come from if not from building Mc Mansions and other monuments to serve the needs of the wealthy few? If the demand for Mc Mansions and other monuments is insufficient to provide full employment and the government must step in to fill the gap, where is the government expansion going to come from: expanding social services and infrastructure or from expanding law enforcement and national defense? Those who argue for lower taxes, less government, and deregulation are fighting to prevent the expansion of social services and infrastructure and are very much in favor of law enforcement and national defense. Continuing to follow their lead does not bode well for the future.

If we continue to follow their lead our employment problem will persist in the absence of an increasing debt relative to income, and our ability to produce will be diminished as resources are transferred out of those industries that serve the bulk of our population (those that produce for domestic mass markets) and into those that serve the wealthy few as we travel down a road that leads toward our becoming a nation of servants, groundskeepers, security guards, police officers, soldiers, and builders of pyramids as the magnificence of our cemeteries grow to rival those of Europe along with other monuments to the wealthy few.[48] In the meantime, our transportation, water and waste treatment facilities, education, regulatory, legal, and other governmental systems will continue to deteriorate, and the standard of living of the vast majority of our population will continue to stagnate or fall as the divisiveness within our society increases.

Lower taxes, less government, and deregulation caused the economic problems we face today, and more of the same is not going to solve these problems. If we are to solve these problems we must strengthen our democratic government, not weaken it. We must increase taxes, not lower them, and we must increase government expenditures as we rebuild the regulatory systems that have been dismantled since the 1970s and rebuild the physical infrastructure and social capital we have allowed to deteriorate. If we do not do these things and, instead, continue to follow the failed ideological mantra of lower taxes, less government, and deregulation we are most certainly going to end up right back where we started in the 1930s. And if the political leaders throughout the world continue to follow this failed ideological mantra and refuse to come to grips with the root cause of the worldwide economic catastrophe we face today—namely, the concentration of income at the top of the income distribution—we are likely to end up where we ended up in the 1940s. (Shirer Bullock Thames Piketty)

This book is available in Kindle and paperback format at for a nominal contribution to this website.


horizontal rule


Where Did All The Money Go?

How Lower Taxes, Less Government, and Deregulation Redistribute Income and Create Economic Instability



horizontal rule


horizontal rule

[44] The 14 banks that took control of LTCM were: Chase Manhattan Corporation; Goldman Sachs; Merrill Lynch; J.P. Morgan; Morgan Stanley Dean Witter; Salomon Smith Barney; Credit Suisse First Boston Company; Barclays; Deutsche Bank; UBS; Bankers Trust Corporation; Société Generale; Paribas; and Lehman Brothers. (GAO)

[45] This is the story of LTCM as told by Roger Lowenstein in When Genius Failed as elaborated, where noted, by Rosenfeld and the President’s Working Group’s and General Accounting Office’s reports on this incident.

[47] There can be no doubt that, PWG report or no PWG report, if the founders of LTCM had the option of starting up another LTCM and doing it all over again they would start up another LTCM and do it all over again. Not only would they do it all over again, they did. On October 22, 2009 the Financial Times reported that John Meriwether had embarked on his third hedge fund (JM Advisors Management) after his second fund (JWM Partners which he began less than two years after the LTCM debacle) went bust in the 2008 financial crisis. And the world is full of John Meriwethers.

[48] See G. William Domhoff’s The Myth of Liberal Ascendancy: Corporate Dominance from the Great Depression to the Great Recession (2014) for a cogent analysis of the way in which the decision-making power structure in the United States leads to these kinds of results.


HTML hit counter -