The Rush to Ruin: 2013 Updated Edition

By Raymond O. Kechely

A must read for anyone concerned with the future of America. the highly acclaimed 1977 edition is updated to explain the damages done to our country by an over reaching federal government. Includes the reasons for continuous inflation, the dangerous public debt, declining incomes, and what needs to be done to reverse the decline. Original edition was recommended reading by influential leaders and common citizens.

• Language: English
• Publisher: Raymond O. Kechely
• Release date: Nov 10, 2013
• ISBN: 9780985860752

Book preview

Introduction to 2013 Edition

The first edition of The Rush to Ruin was published in 1977 and was well received by its many readers, including leading political and business people and many ordinary private individuals. Most comments I received were encouraging and led me to understand that my opinions were not at all out of the mainstream but were, in fact, shared by more people than I had imagined possible.

More recently, I have been encouraged to re-publish the book by people who see the parallels between our country’s situation in 1976-77 and today, 2013. In fact, not much has changed except the size of the numbers: trillions have replaced billions and billions have replaced millions. For example, inflation as measured by the consumer price index for all items has nearly tripled since 1976. Our Gross Domestic Product[*] grew from $1.824 TRILLION in 1976 to $15.547 TRILLION in fiscal year 2012, an increase of 752%. Total annual government spending at all levels of government in 1976 was about $620 BILLION: by 2012 it had risen to $5.973 TRILLION, over nine and one-half times the 1976 level. The U.S. population increased from 217 million to 314 million, a 45% increase between 1976 and 2012. So the numbers are larger, but, as we will see in the Postscript, the problems are pretty much the same today as they were three and one-half decades ago.

One criticism of the 1977 edition was the absence of footnotes to document the sources for the book. My reference (in Author’s Notes in Conclusion) to news sources in general and some other published resources were not sufficient for some who commented on the book. Fair enough. In the Postscript for this updated edition, I have included specific references to support the text.

The pages that follow through Author’s Notes in Conclusion represent the 1977 book without any changes from the original text. The Postscript to 2013 and Appendix are, of course, added for this edition.

[*] Gross Domestic Product (G.D.P.) is the measure of the economy’s annual output of goods and services. It replaced the Gross National Product (G.N.P.) as the measure commonly used when the book was first published. The difference is the manner in which foreign trade is accounted for.

The Natural Gas Shortage of Winter, 1977

Tens of millions of Americans suffered through the most severe winter in recorded history in the Northeast United States in early 1977. Their suffering was greatly compounded, because our nation’s fuel supplies were insufficient to meet their urgent need for heat and power.

Hundreds of thousands of incomes were interrupted, as shortages of heat and power forced the closing of businesses. Elsewhere in the country others were laid off, because of the interruption in the flow of parts and supplies from eastern vendors.

Natural gas was diverted from western states to areas in the East, creating shortages in the West. But in many western states we were also experiencing an unusually cold winter.

Throughout the country homes and offices were cold. The shortage of natural gas was serious. It was costing us jobs. It was creating human hardships and suffering.

We watched the politicians declare one disaster area after another. We heard them blame the severity of the winter, and they reminded us of their earlier warnings that America was running critically short of natural gas.

There were rumors that natural gas producers were intentionally creating the shortage in order to force prices up and increase their profits.

The winter of 1977 was severe. And there was the predicted shortage of available natural gas, just as we had been told there would be.

But the politicians did not tell us that there is, in fact, no shortage of fuel reserves in the United States. There never has been. The truth is we have an abundance of fuel in this country, including natural gas.

The problem is that these fuels are still in the ground, untapped, because federal government energy policy has discouraged their production.

In the case of natural gas, federal government regulation dates back to 1938, when Congress enacted the Natural Gas Act. The national legislators recognized that natural gas was a highly desirable fuel. It burns clean, so has little effect on the environment. It is a highly efficient fuel. There are vast reserves of natural gas within the United States.

Such a utopian fuel could not be left to the hands of private producers and the free marketplace to control. That was the decision of the politicians, which was codified into the Natural Gas Act.

So, since 1938, the Federal Power Commission has controlled the quantities and prices for natural gas supplies moving between the states.

To encourage individuals and businesses to use natural gas, the federal government decided that natural gas prices must be kept low in relation to other fuels.

Early in the game, things went fairly well. Once an annoying, unwanted by-product of oil operations, deposits of natural gas were relatively cheap to tap. Producers could make money at low market prices.

As time went on, millions of homes, schools, and businesses came to rely on natural gas. But, after awhile, the early cheap natural gas began to disappear. Producers now had to search it out. They had to explore for new deposits and dig special wells for its production.

Natural gas became expensive to find and more costly to bring to market. But the national politicians would not let prices rise in proportion to the increased risk and expense involved.

The inevitable result is that producers are not drilling wells to tap the nation’s plentiful supply of natural gas. And they won’t, until federal politicians let the price rise sufficiently to make it worthwhile.

Now the politicians in Washington are talking about relaxing the price controls on natural gas.

That will result in higher natural gas prices, as producers are allowed to raise their prices sufficiently to make production worthwhile. If prices are allowed to rise high enough, it should have the effect of alleviating the shortage in the future.

But it was the political control of natural gas in the first place that encouraged millions of homes to rely on natural gas for cooking and heating. It was government policy that encouraged industry to invest billions of dollars to use low priced natural gas instead of other fuels. Now, because federal government regulation created the shortages and would not allow prices to adjust naturally over the years, all of a sudden those who came to rely on natural gas for heat and power face stiff price increases.

By pricing natural gas so cheaply in relation to other forms of energy, government regulation has discouraged development of alternative sources of fuel and power, which might otherwise be able to compete favorably with natural gas today.

In short, the federal government created critical shortages in the marketplace for a precious commodity. That shortage produced untold hardships and income losses for millions of Americans and has led to a sudden sharp increase in price for households and businesses. At the same time, government mismanagement has left us far behind in our development of other sources of badly needed energy.

And, that’s just the beginning.

THE RUSH TO RUIN

PART I

The great masses of people…will more easily fall victims to a great lie than to a small one.

Adolf Hitler

1. The Lie

Almost daily, some economist or national politician rises to reassure us that government today is no more powerful than it was in past decades. Invariably, his case is supported by a very carefully selected statistic or two.

Never, however, are all of the pertinent statistics laid out at one time, in one place, in an understandable form for the American people to see and judge.

If they were, the lie would be exposed at once.

The most commonly used measure of our nation’s economic activity is our Gross National Product (G.N.P.). It is the measure of our economy’s total output of goods and services each year. With minor adjustments, the G.N.P. also becomes the measure of personal, corporate, and other miscellaneous income in the U.S. economy.

Well over 80% of G.N.P. is non-corporate personal income. It is mostly wages and salaries, and it includes small business and non-corporate farm earnings. After taxes, corporate profits represent less than 5% of the G.N.P. So, when we discuss the G.N.P., we are talking about the income of average American wage and salary earners, small businessmen, and farmers.

At the turn of this century, government spending at all levels (federal, state, and local) amounted to approximately 10% of the G.N.P., about two-thirds of which was spent at state and local levels.

By 1930, total government spending at all levels had increased with inflation and expanding economic activity. But, it still represented only about 10% of our nation’s G.N.P., and federal spending was still only about one-third of the total.

During the first three decades of this century, our nation’s annual income increased six-fold. This growth far outstripped population increases and inflation. Most Americans enjoyed a substantial improvement in their standards of living, and total government influence in the economy remained unchanged.

The depression of the 1930s produced a federal government effort to alleviate the widespread hardships created by our economic collapse of that time.

However, despite the scope of the effort, total government spending throughout the depression of the 1930s never reached as high as 20% of our G.N.P.

Then, during the years 1942 through 1945, the World War II military effort pushed total government spending to ranges between 40% and 49% of the G.N.P.

Immediately following World War II, however, government spending dropped sharply. Between 1946 and 1950, spending at all levels of government fluctuated between 18% and 23% of the G.N.P. By 1950, government spending represented about 21% of our G.N.P., and it seemed government was withdrawing its influence from the economy.

However, such was not to be the case.

The following chart shows the relentless growth of government influence in our economy since 1950, by comparing total government spending at all levels with our G.N.P.

In today’s inflated dollars, the G.N.P. has risen to above the $1.7 TRILLION level. Of that amount, some $650 BILLION is being spent for us by politicians and bureaucrats.

The implication that the power and influence of government in our economy today is not significantly greater than it always has been is clearly a lie.

2. The Seeds of Destruction

For most of us, the ravages of the depression of the 1930s are unimaginable.

What we know of the hardships and suffering of the American people during that period most of us have learned from history books and through tales handed down by those who endured those difficult times.

The fact is that our economy collapsed during the outset of the 1930s.

With the collapse came confusion, uncertainty, and a frantic groping for solutions to immediate problems, as well as a search for the kinds of long-term economic reforms which could insure that such a catastrophe would never again threaten our very existence as a free nation.

This was a period when socialistic and communist philosophies threatened to permanently destroy our free economy and our democratic form of government. And that such thoughts could gain wide acceptance was understandable, when one considers the magnitude of the economic difficulties of the time.

For instance, one out of every four American workers was unemployed during the depth of the depression. Unemployment insurance was unknown at the time of the collapse. To be unemployed meant one had no means to support himself or his family, except for what he could scrounge or beg or steal. Even for those who found work, it was often at wages which were low and frequently at jobs which were menial.

Our nation’s output of goods and services dropped 25% between 1929 and 1931. It plummeted another 30% in the two years after that. By 1933, the G.N.P. had fallen nearly 50% from its pre-depression high in 1929.

It was in this chaotic environment that liberal economists were successful in blaming the severity of the depression on basic faults within our free enterprise system.

And ambitious politicians of the day were quick to grab onto the emerging liberal economic theories, for within these theories they recognized the opportunity to seize great power.

That our free enterprise system needed reform was evident. Few will argue that unabated free enterprise was largely responsible for the economic collapse of the 1930s. Especially damaging were unsound credit practices and unrestrained speculation in the private sector.

It is also true that, even though most individuals were better off financially in 1929 than they or their counterparts were in 1900, there was a growing dissatisfaction with the share of our nation’s increasing income and wealth that was filtering down to the working classes. Too many Americans were still unable to build even modest reserves to shelter themselves against periods of unemployment, let alone to live on during retirement.

Government was largely pro-business, and its power was openly used to suppress the labor movement. Attempts by workers to group together in order to gain a larger share of the nation’s income were frequently met with violent suppression by police and company hired guards operating under the protection of government.

There can be little doubt our free enterprises system needed restraints, if it was to create an equitable distribution of the wealth it was able to generate.

But that free enterprise can be blamed for the length and severity of the depression is highly debatable.

By 1930, the economic downturn was evident. However, the incumbent administration was unsuccessful in its efforts to get Congress to take action early at the federal government level, to attempt to blunt the effects of the rapidly deteriorating economy.

Not until there was a change in the presidency in 1933 were potentially beneficial programs enacted.

By then there had been too much delay between the time the downturn became apparent and action was taken to support incomes and stimulate spending in the private sector.

The result was an economic depression that lasted a full decade.

From a $100 BILLION economy in 1929, it would be 1940 before economic activity again reached that level.

Throughout the depression, politicians of the day were not at all reluctant to point to the business and investment communities. It was there they laid the blame for our nation’s economic woes.

New laws were passed to impose restrictions on the private sector that had never existed before.

Banking was regulated, to attempt to prevent a recurrence of the abuses that contributed to the depression. The Securities and Exchange Commission came into being for the purpose of attempting to protect investors against the obvious abuses that had existed in the speculative environment of a previously unrestrained Wall Street.

Various income support programs were introduced. Social Security, unemployment insurance, disability insurance concepts were spawned.

Tough pro-labor laws were enacted, with union rights augmented by legislation designed to improve working conditions and protect workers’ rights.

Public works projects were undertaken to put people to work. Utilities were built, waterways were improved, and parks were created.

During this period, the federal government made deep penetrations into many areas previously considered out of bounds to government intrusion. We found government becoming involved in regulating business and commerce, and we discovered politicians and economists openly using the power of government to attempt to manage the economic activity of our country.

It was in the shambles of the economic collapse of the 1930s that the seeds of government regulation and management of the private sector were deeply implanted. And it was from these seeds that the government bureaucracies we know today have grown.

3. A Clever Deception

How often are we led to believe that centralized government planning and control are essential to our long-term economic growth and prosperity?

Too often, I fear.

As justification for government’s massive intrusion into our lives, we are often told that only federal government economic management can save us from the perils of another disastrous depression. Free enterprise, we are told, produced previous depressions, and government management can prevent them in the future.

Few will argue that unrestrained free enterprises does not produce severe abuses. As with anything of man’s making which is allowed freedom from restraints of any kind, free enterprise, too, can become perverted and inevitably destroy itself.

Yet the fact remains that it was free enterprise in this country that built the most powerful economy on the face of the earth and once afforded Americans the highest standard of living in the world.

It would seem our best interests would be served by taking and using the favorable aspects of a free enterprise system and curbing its excesses. That its excesses can be curbed, while its favorable aspects are retained, is not at all an unreasonable expectation. In fact, we have many laws which, when enforced, can serve that purpose quite well.

For example, antitrust legislation was successful in breaking up the big monopolies that existed in major industries decades prior to the depression of the 1930s. These laws are still on the books and can be used to protect a free marketplace from monopolistic practices.

Even much of the legislation enacted during the 1930s was intended to stimulate free enterprise, or at least to curb its excesses. Legislation to reinforce workers’ rights, for instance, was designed to bring a balance in the free economy between labor and industry. Laws regulating the money markets represented an attempt to prevent the kind of wild speculation and unsound credit practices that disrupt the orderly flow of capital to meet consumer needs in the free marketplace. Social insurance programs, such as Social Security and unemployment insurance, were intended to sustain minimum levels of economic activity, even during economic declines, again to prevent severe distortions that would seriously disrupt the free marketplace.

So it is possible to curb the abuses produced by an unrestrained free enterprise system, without losing the benefits such an economic system can create for the masses. But we haven’t even given that concept a chance to work. Instead, we have allowed politicians to extend the law and their resulting power far beyond the purpose of protecting a free economy from abuse. And, in the relentless zeal over the past two decades to force our absolute submission to the power of a politically dominated economic system, they have all but destroyed the favorable aspects of free enterprise, by substituting their own abuse for that which we feared from the private sector.

The argument that political management of our economy can ever produce a standard of living for most Americans which is higher than that which individual free enterprise can produce is absurd. Especially so, when the politicians’ efforts to manage our economy during the 1930s are considered in light of what their efforts produced.

After bottoming out in 1933, the economy was starting into a recovery by 1934, long before the effects of newly enacted programs could take significant hold.

The economy then made slow but steady progress upward into 1937. But, by 1938, we were again into another economic decline, despite the presence by then of new federal programs intended to produce real economic expansion.

The fact is our economic plight in 1939 was as great as it had been in 1930. Real unemployment was high, diluted only by large government public works projects put into effect to employ as many people as possible.

Little was done by the federal government to encourage investment in industries for the production of consumer goods and services, which are the backbone of a prosperous domestic economy. That is a failing politicians were prone to then, are prone to now, and will always be prone to, because politicians can’t think beyond the next election. They can’t plan for the long-term.

Their failing in the 1930s resulted in a decade of economic stagnation, broken only by the stimulant of preparing for and then fighting World War II.

The massive war effort of the 1940s put our people back to work.

Virtually everyone was employed throughout the war years. But little in the way of consumer goods and services were available to purchase. Rationing and price controls kept prices from skyrocketing, although by war’s end the black market had become a major threat to government’s ability to hold prices in check any longer.

During the war, individual savings built up to substantial levels and business prospered, despite high war time taxes. Individuals could not spend all of the money they were earning, and, by the time the war