THE US FEDERAL RESERVE - NOT ON THE SIDE OF SMALL BUSINESSES

The Federal Reserve creates and regulates the flow of money into the economy of the United States. We can use the word ‘regulate’ or the word ‘manipulate’. It’s a form of subsidy. When a lot of money flows, businesses take out loans and hire new employees. This can cause overproduction as well as inflation of the money supply. When the boom collapses, workers are laid off and unemployment soars. It’s the job of the Fed to achieve some kind of balance between boom and bust.
Some would question whether the boom/bust cycle is healthy, and ask, who benefits from it?
Everyone can gain during the boom cycle, but in the bust cycle, businesses are purchased and consolidated into fewer and fewer hands. So we can say that only the very wealthy benefit from the up and down nature of the economy.
So that should lead you to ask…who are the Federal Reserve and how is it placed in the context of this cycle? It’s not a government agency. It is composed of 12 private banks in the US. If I were very cynical, I would venture to guess that these 12 banks are not going to suffer during the bust cycle. Meanwhile, smaller high street banks are likely to be gobbled up by the bigger banks. Corporations have ‘rights’, but the smaller corporations are likely to be swallowed up too, by the bigger sharks in the sea. And labor gets misallocated.

Let’s look at this from the point of view of jobs and labor. What and who, actually creates jobs in the US? The biggest corporations are not job creators in the US, which is why President Obama is urging corporations to bring jobs back from overseas. Small businesses (under 500 employees) are the major job creators (65 percent of the jobs between 1993 and 2009, according to the US Small Business Administration.) But as I’ve explained above, these smaller businesses are the most likely to go under during a bust cycle. Additionally, the biggest corporations receive the most tax subsidies, while the smaller ones often endure tax increases and a reduction in loans.
An analyst wrote in December 2011:
“New federal data show that the number of small bank loans to business has fallen to the lowest point in more than a decade, cutting the flow of money to a sector that's usually a job-creation powerhouse.”

http://bottomline.msnbc.msn.com/_news/2011/12/15/9470807-bank-loans-to-small-business-fall-to-12-year-low

CONSENT AND LEGITIMACY

My POS 201 Introduction to Politics class (at Northern Arizona University) is in large part an enquiry into the legitimacy of government. The 18th century Enlightenment writer John Locke wrote that government is only legitimate and democratic if it is derived from the consent of the people. Government that is imposed on the people, without their consent, is unpopular and bound to fail. Government must be seen to adhere to popular norms, values and beliefs. Government actions must be seen as appropriate. Legitimacy is derived from the Latin word for law (lex), but does not necessarily mean that all governmental actions have to adhere to domestic and international law. This explains how pre-emptive wars (for example, the US occupation of Iraq in 2003) are largely accepted by the governed, despite being illegal under the laws of war (humanitarian law).

The government must be perceived as sharing the same values as the governed. This implies trust and confidence.

I ask students whether for example, the US government is based on the values of ‘the people’. Students are asked to research various groups that are excluded from high levels of power: the poor, women, ethnic groups etc. For example, 40 percent of the US Congress are millionaires. Can the haves truly reflect the interests of the have nots?

Noam Chomsky, a US political writer, deconstructs the notion of legitimacy in Western government. He examines the methods by which governments gain trust, and thus, legitimacy.

Building from Locke’s idea that government must be consented to freely, Chomsky developed the concept of “the manufacture of consent” (Manufacturing Consent: The Political Economy of the Mass Media 1988, by Edward S. Herman and Noam Chomsky).

As the title suggests, Chomsky and Herman posit that the mass media, because it is owned by ruling elites, distort information and create misinformation to benefit corporate power and the interests of the very wealthy. I think at some level, the public believes it is being manipulated, but feels powerless to stop it. This is evidenced by the fact that only half the population bother to vote, feeling there is little difference between Democrats and Republicans. But that is speculation. More research should be done to find out why and how governments in Western style democracies lose the confidence of the people, and what can be done to restore it.