Nicholas von Hoffman

7 Lessons Saul Alinsky Would Give Progressives Today

Editor's Note: The author recently published Radical: A Portrait of Saul Alinsky.

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Who Can You Trust in America?

The news of Bernard Madoff's $50 billion fraud has hit the investor/401(k) class as nothing else -- not the fall of Lehman Brothers, not the death of Bear Stearns, nor the string of insolvency announcements of one household name after another. Madoff is the blow that did it.

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State Capitalism Comes to America

With George Bush's approval, Treasury Secretary Henry Paulson has tripped across a line of historic dimension. Two less likely agents of change we have seldom seen, but in executing the financial putsch on Fannie Mae and Freddie Mac, they have taken America to a new place.

Other nations have been there. In the early decades of the twentieth century Italy went there when Benito Mussolini initiated his version of state capitalism. He was followed in Germany by Adolf Hitler and national socialism. Both were able to bring about a significant increase in prosperity, however repugnant their other teachings and practices.

Though the particular arrangements may vary from one nation to another, under state capitalism government is the senior partner in the economy. That is a different arrangement from tax breaks, tax shelters, tax subsidies, tax-exempt bonds, low-interest loans, tariff protection or the kind of parasitical finagling that made George W. Bush rich. Under state capitalism, the economy is manipulated to meet government set goals. Under state capitalism, Washington rules.

Under the Freddie and Fannie takeovers, the government becomes the controlling stockholder and supplier of capital in two previously private organizations on whom the residential construction, real estate, building materials, home appliance, banking and furniture industries depend. An enormous segment of the American economy has been turned over to the government, with the enthusiastic approval of the industries concerned.

A line has been crossed, but not in accordance with any doctrine or set of economic beliefs or with a thought-out plan in mind. "The sweeping government intervention stemmed from a growing realization by Treasury and Federal Reserve officials that the two companies couldn't survive in their present forms, and that any collapse would be devastating to the economy," reports the Wall Street Journal, "The decision was hashed out over weeks of meetings. They included a conclave of Federal Reserve officials during their annual retreat at Jackson Hole, Wyoming; a mid-August polling of bond-market players by Morgan Stanley bankers advising Treasury; and a marathon session over the Labor Day weekend, fueled in part by Diet Coke and Coke Zero."

As with the other steps in the direction of state capitalism these past months, the decision was made in pit-of-the-stomach fear that the whole system was moving toward implosion. As to what comes next, the businessmen-turned-government-officials who pressed the button on this one have no idea. The administrators whom Paulson and James Lockhart, the head of Federal Housing Finance Agency, have installed as the heads of these two gigantic organizations will run them the best as they can, at as little cost to the taxpayers as they can.

The Clinton-Bush II administrations finished the work of destroying and/or emasculating the regulatory framework inherited from the 1930s New Deal and replaced it with nothing. Their deregulation was the economic equivalent of opening the doors to a maximum security penitentiary and letting the most dangerous criminals in captivity out to feast on the civilian society.

What a feast it was! And, oh, how we are paying for it.

Instead of rounding up the escaped felons from their Wall Street dens and re-imposing law and order, Paulson and Federal Reserve Chairman Ben Bernanke have been running to the scenes of the crimes committed by the escapees to attend to the wounded and cart off the dead. All fine and noble, but in their ill-considered attempts to help they are creating anarchy. The are making various state capitalist precedents which have no pattern or direction but will open us up to the depredations of every business lobby and special-interest group.

Soon Paulson and company are going to have to deal with a desperate automobile industry pleading for a $25 billion loan. Once upon a time the car companies were too big to fail. They are now so shrunken they are merely too important to fail. When they get their money, another chaotic step into state capitalism will have been taken.

France has operated under a form of state capitalism since before its revolution. It is carried out with a modicum of planning and self-discipline. When the French state invests in a company, it has a plausible rationale for what it is doing.

The United States has none. Without realizing it, we are ripping holes in our free-market system and filling them with a jumble of ineffectual expedients. The Freddie and Fannie takeover will not take care of our problems. It will not hold back the night.

Who Orchestrated the Fall of Bear Stearns?

This is one scandal the National Enquirer has not reported. No babies with mystery fathers, no former vice presidential candidates cowering in a hotel basement to escape the paparazzi.

This scandal, relegated to the business pages if covered at all, is un-juicy compared to l'affaire Edwards, with a wife betrayed, children humiliated, hypocrisy exposed -- it is a small wonder, after the ethical hemming and hawing, that the big-time publishers and broadcasters jumped in to take part in the fun.

Yet, entertainment value aside, the Edwards scandal directly affected almost nobody but the Edwards family and a few disillusioned followers. The Bear Stearns conspiracy scandal affected and continues to affect tens of thousands of people in all sorts of ways.

As the story lacked prurient interest, it was left to to unearth persuasive information that the Wall Street firm was seemingly brought down by a conspiracy that netted its participants a profit of upwards of $250 million on an investment of $1.7 million in a week or so. Nice work, if you can get it.

The putative conspirators, whose name or names have not been made public, pulled off their heist with ease. They bought a bunch of what Wall Street calls "puts." A put is a piece of paper guaranteeing its owner the right to sell 100 shares of stock at a stated price within a specified period of time. In the case of this bank job, the period of time was as little as five days.

With Bear Stearns stock selling at over $60 a share, somebody bought the right to sell almost 6 million shares at $30 a share. To make money on these puts, the price of Bear Stearns stock would have to lose more than half its value fast. In fact, in the days immediately after the unknown person or persons bought all those puts, Bears Stearns stock dropped like a duck shot out of the sky, to a price of $10 a share or less. The persons behind the scheme then bought Bear Stearns shares at $10 or less and exercised the puts, thereby selling them for $30 and pocketing the difference.

How could someone know that in a matter of days the fifth-largest trading house on Wall Street would see the value of its stock drop to next to nothing?

"Even if I were the most bearish man on earth, I can't imagine buying puts 50 percent below the price with just over a week to expiration," says Thomas Haugh, general partner of Chicago-based options trading firm PTI Securities & Futures LP, cited by Gary Matsumoto of Bloomberg. "It's not even on the page of rational behavior, unless you know something."

Then with the price of stock still above $50, somebody bought puts giving them the right to sell the stock at five dollars a share -- which is about what you would expect to be the price of the shares of a company in bankruptcy. Matsumoto quotes one broker as saying, "When you buy $5 strikes [puts] when the stock is trading over $50, you either have to be manipulating, or you have to have insider information." Another broker quoted in his report remarked, "Nobody in their right mind would buy that put unless you knew what was going down."

The timing of the purchase of the puts screams out that a well-placed person inside Bear Stearns was telling someone on the outside of the firm's increasing confusion and division. At a crucial moment when rumors were rife on Wall Street that Bear Stearns customers would not be able to withdraw their money, the stock market was hit by a large number of orders to sell Bear Stearns stock. That augmented the force of the rumors of insolvency already working to depress the price, even as panicky customers fell over one another getting their money out. There are too many disastrous coincidences here to be explained just by bad luck.

The name of the bearer of this bad luck remains hidden. A spokeswoman for the Chicago Board of Options Exchange, where the puts were bought, has refused to tell Bloomberg the name.

We know the name of the mother of the baby John Edwards did or did not sire, but we are in the dark as to who may have authored the scheme that cost thousands of people their jobs and their savings and that gave the financial markets a major kick down the mountain, a fall that will continue to take millions of us with them.

How Wall Street Wrecked Your Retirement

Our disfunctional financial system hit a new low last week when Citigroup, the hopeless wreck of Wall Street, announced it had lost $2.5 billion in the past three months -- a cheer went up, and so did the Dow. Only $2.5 billion; people were afraid the losses would be much higher. Happy days are here again.

There are no happy days for the millions of Americans who have been trying to put away some money for their retirement in tax-sheltered entities like IRAs, Roth Accounts and 401(k)s. For them, the market's downward slope has been harrowing and frightening. When will the steady erosion of their savings end? And when it does, what will be left of their future financial security?

Many of the millions suffering through these worrisome months didn't buy a house they could not afford, didn't speculate on their homes, didn't let greedy impulses lead them to the edge of foreclosure or bankruptcy. Nevertheless, the excesses of their neighbors and the criminal folly of American finance is destroying their plans for retirement. It is dragging down much of the value of their homes, on which they have never missed a payment, homes on which they were counting on selling at retirement to help finance their last years in comfort.

For years, the privatization propagandists have been telling people that when the time comes, Social Security will not be there for them. Now many are learning that it's their private savings that may not be there. They are discovering they have been forced into a system in which other people have, in effect, been allowed to gamble with their retirement savings and have lost it.

The way the private, you're-on-your-own retirement system was supposed to work had individuals, during their younger, working years, investing in stock through tax-sheltered accounts. Almost nobody who is not breaking the law can choose among individual stocks and make money, so future retirees have been encouraged to buy mutual funds run by professional managers, who are supposed to be able to pick the winners.

Most of them aren't much better at doing that than are their customers, but in a rising market, a chicken pecking at stock tables can pick winners. In boom times, it doesn't matter that the future retiree must choose among thousands of mutual funds, many of which carry ruinously high fees. The damage to people's savings goes unnoticed until the market begins to go down.

Even as the market falls, future retirees are told not to panic, to keep their money where it is, because in the long run the value of their accounts will go up and they will have many a happy sunset year traveling the globe and showering their grandchildren with presents.

As the retirement date comes near, they are advised to begin selling stocks and buying fixed-income securities -- as bonds are sometimes called -- because these pay the interest they earn on a fixed schedule, providing a regular income.

For this to work, stock prices must be high when the holdings are sold and the bonds purchased must pay high rates of interest. But what happens when the stock market is in a nosedive and interest rates are half of the inflation rate, as is the case right now? Panic and worry, no golden years of travel, no presents for the grandchildren. The energy that was to be expended on leisure activities is spent instead trying to figure out how to make ends meet.

The bright spot is Social Security. That check does come with the regularity of the calendar, whether the market is up or down, whether interest rates be high or low and if, as is the case now, the Greenspan-Bush inflation is destroying family budgets. Social Security adjusts for the rising prices.

But Social Security is too narrow a ledge to stand on through the years between retirement and death. It was designed as the base on which other retirement savings were to be built.

Those savings -- the house and the tax-sheltered retirement accounts -- are shriveling up and blowing away. The persons for whom Americans' savings have been a reliable source of income are the brokers, the lawyers, the account administrators, the whole tribe of Wall Street fee farmers. They get other people's retirement money regardless of the direction the market may be moving in.

You can't call it a broken system because it was a bad one from the start. It is failing, just as its critics said it would. And what lies ahead for those whose retirement savings are gone may be a very unpleasant old age.

Time to Face the Hard Realities of a Global Energy Crisis

Airlines are cutting back on water for plane toilets to save weight and fuel. They had better come up with a better business plan than that. And in the face of the burgeoning oil price crisis, America had better come up with a plan as well.

Single-issue fixes -- like John McCain's plan to grant consumers a summertime gas-tax holiday, or Obama's proposal for a windfall profits tax on oil companies -- just won't do it. America needs a comprehensive plan to deal with post-peak oil, and that is going to involve some serious long-term thinking. To get the thought process going, here's a list of ideas -- some good, some not so good -- about how to address political, technological and social dimensions of the planet's most pressing issue.


The United States rationed energy during World War II, and though there was the inevitable black market, it worked. People will hate it, but the only fair way for rich and poor to have equal access to a dwindling resource is to give each citizen an equal allotment. Does any political leader have the courage to suggest this? Does the American public have the fortitude to participate?

The Manhattan Project

Politicians should stop talking about a Manhattan Project for energy. It took 2½ years to design and build the atomic bomb. It will take much longer to invent, perfect and deploy solutions to our energy problem.

Instead of a giant, government-financed Manhattan Project, money would be better spent on a number of different research efforts. These should not be decided on by lawmakers from states desirous of selling corn or coal. The projects and priorities should be made by disinterested committees of the National Academy of Science, not the barons of political pork.

Environmental NIMBYism

Until science and technology come up with a workable solution to surviving in a post-carbon era, we have to accept some imperfect solutions. Seaside aesthetes in Nantucket and elsewhere who don't like the looks of wind farms on the horizon will have to withdraw their objections. So will people who unequivocally oppose nuclear power, desalinization plants, biofuel or any number of other options in an era of scarce resources.

Environmental NIMBYism has reached the point of self-destructive self-indulgence. Can Americans agree to overcome our selfish objections to new ideas in the interest of resolving our energy dilemma?

Don't Take the Train

Except for a very few special situations, high-speed trains are not going to significantly ease our transportation woes. First, they're energy hogs -- anything that moves at 300 mph will burn fuel inefficiently. Further, those high-speed trains running around Japan and France are the products of strong central government and planning ahead -- years ahead -- something Americans take pride in not doing. Given the lawsuits that inevitably would be filed by residents in affected neighborhoods, a high-speed train could not be built in the United States in less than 50 years.

Subways and light rail vehicles (trolleys) won't work, either. Subways, which are titanically costly to build, cannot be justified except in those few densely populated areas where they can be expected to carry a couple of hundred thousand people an hour. Light rail is less expensive, but still not cheap. And once installed, no rail system's routes can be changed, and are thus unresponsive to population shifts.

Take the Bus

All hail the humble bus. The roads it runs on have already been built. Buses come in every size, configuration and degree of comfort, from bare-bones school bus to limo-luxury. Buses are flexible: Their routes can easily be changed. As new fuels and technologies are perfected, they can provide targeted solutions to a community's changing transportation needs. Buses and shuttles like those already serving airports in many cities are ideal for commuting and useful for shopping, soccer-momming, trips to the doctor and other purposes, thanks to GPS and technology that can deploy them at the least cost, smallest delay and most convenience for their passengers.

Stop the Roller Coaster

Rein in the oil futures market. The panic causing abrupt ups and downs of oil prices may be diminished by new regulations requiring players to put up more dough to get into the game. The country ought not to live in fear of tossing its breakfast every morning when it hears the business news.

Tax Oil

This tax would apply when the price of oil drops below a stipulated number. The tax would be slowly increased over 20 or 25 years to prevent us from falling back into our gas-piggish ways when and if oil gets cheap again. An oil tax is the best means of guaranteeing low-mpg cars and low-energy houses located for short-distance commutes.

This kind of tax will be opposed as a restraint on freedom, unfair to minorities and unjust to majorities. But it's the right thing to do.

Bloated OPEC States Pick Through Scraps of American Economy

Every day a new thrill and every day a new spill in the not-so-little world of real estate, subprime mortgages, hedge funds and supposedly unshakable financial institutions. Who got gored today? Who will be bleeding tomorrow? Who will get saved? How? When? And who got hurt when who got saved? It's a good story, but you might want to run for cover while reading it.

Since having announced that it has lost billions in the subprime mortgage business, Citigroup has sold a chunk of its stock to the Arabs. In this case Abu Dhabi came running with $7.5 billion to invest in an institution that seems to be reeling from losses of around $11 billion. But in fact we do not know what the situation is inside Citigroup, and there is reason to fear that the people running Citigroup don't either.

There has been discussion about whether the Abu Dhabi input was a good deal or a desperate lunge for safety by Citigroup, which has fired CEO Charles Prince for doing an outstandingly lousy job. The Investment Authority will receive equity units that pay an 11 percent annual yield--a high price for Citigroup, whose customary dividend yield is 7.3 percent. Citigroup must have had great and hurtful needs for this money, to pay so much.

Some are less worried about what Citigroup is having to put out to save itself than about creeping foreign ownership of American companies in general. The Abu Dhabi purchase was made by that country's sovereign wealth fund, not by an individual sheik or princeling. A sovereign wealth fund is a bunch of money set aside by a government that is so far in the black that it has extra money to invest. The United States--does one need to say?--has not such moneys.

In the past nations with excess cash often used it to buy US government bonds because they were safe and steady and the interest rate on them was pretty good. Today the rate on them is deemed highly sucky, and the value of the dollar is getting smaller almost by the hour. So governments are going out and investing in private US companies--which, like Citigroup, may pay handsome dividends and appreciate in value.

The Abu Dhabi sovereign-wealth-fund investment in Citigroup has some people worried about a foreign takeover of this quintessential Wall Street institution. The Abu Dhabians are welcome to it. Citigroup is so big, so floppy, so just everything profoundly fouled up, that it appears nobody knows how to run it. Good for you, Abu Dhabi, if you can make it work.

Sovereign wealth funds are nothing to sneeze at. About twenty countries have them, and it is guessed that they are worth somewhere between $2 trillion and $3 trillion, which is big money any way you count it. A lot of that money comes from debts piled up by American consumers. This does not stop other Americans from throwing a fit when a wealth fund tries--and fails--to buy into an American corporation like Unocal, as the Chinese did last year. The company was deemed too strategic, too important to let the Chinese capitalist-communists become significant stockholders of it.

There is a limit to how well we can protect ourselves from sovereign-wealth-fund investment--unless we want to go back to making our own toys and clothes and furniture (to say nothing of producing our own oil supply). Beggars cannot be choosers, and thanks to Mr. Clinton and Mr. Bush, we have done our best to beggar ourselves over these past twenty years.

There are also those who fear that foreigners will use their American investments to cause an economic panic, which would melt down our entire financial system, taking all our 401(k)s with it. They might be able to do something like that by dumping vast amounts of American stocks and bonds on the market at the same time. Of course, they would be destroying the value of their own investments, too. That would be the economic equivalent of a suicide bomber, but rich people do not generally kill themselves, least of all when there is no money in it for them.

If there be any economic suiciding to be feared, it is our doing another job on ourselves.

Why Does Milk Cost More Than Gas?

The other day milk was selling in a New England supermarket at $4.79 a gallon. Down the street, regular gasoline was going for about $3.04 a gallon.

One of the factors driving up the cost of milk is the ethanol stampede. Ethanol, as we all have been taught to believe by now, will bring us "energy independence" and lessen global warming with no change in the way we live -- unless we happen to be a small child in a household with a limited budget.

Children from low-income families are either going to have to accustom themselves to drinking gasoline or learn to sing "No Milk Today."

American ethanol is made from corn, and the more corn we use to feed our cars, the more expensive is the corn left over for our livestock. Ergo, "No Milk Today."

If ethanol we must have, we could import it from Brazil, where they can make it cheaper from sugar cane than Americans can make it from corn. But Brazilian ethanol, thanks to the agribusiness lobby and a 54-cent-per-gallon import tariff, is kept out of the country.

Politicians of both parties, mad for winning elections in corn-growing Iowa, do not mention the cheaper Brazilian stuff. Their silence on lesser-cost alternative ethanol sources may help them please Midwestern agribusiness interests and just about nobody else.

But nobody else seems to know that, although it is not for lack of available information. The ethanol fraud has been exposed on mainstream TV on programs like ABC's 20/20.

If ethanol is a failure as a practical short-term gasoline substitute, it is a political success. It will be years before ethanol has even a minor beneficial effect, which matters not to American politicians intent on slow-poking on climate warming, pollution and our ever-constricting energy sources. Kid the voters into thinking something is being done when it is not.

The energy bill gradually making its way through Congress contains a section upping the fuel-economy standards on gasoline-powered vehicles to take full effect when? In the year 2020. As of now cars in Europe and Japan get many more miles to the gallon than cars in America.

The last time the government imposed fuel-efficiency standards on cars was thirty-two years ago. In the intervening generation, car makers have learned to make more energy-efficient engines, but their technical progress has been defeated by making ever-larger automobiles. The Wall Street Journal reports that "models that started out as subcompacts have grown to become more like midsize models. Honda Motor Co.'s Civic CRX, a mid-1980s two-seater of 20 years ago, was 12 feet long and weighed about 1,700 pounds. Today's Civic sedan is nearly three feet longer and weighs about 900 pounds more. Even the smaller Honda Fit, considered almost impossibly small today, is larger than the mid-1980s Civic CRX."

The world is many years away from inventing and deploying oil substitutes. The present American policy of doing nothing until that day comes is short-sighted, idiotic and, ultimately, costly. Instead of making windy speeches about our "oil addiction," our politicians should be at work making sure we use less of the stuff now.

Two measures of immediate effect could be put in place now. The first is to reduce speed limits on roads built with federal dollars. The second is a tax on the horsepower and weight of new cars. This should be an annual tax, not a one-time levy so that only the very rich will find that they can afford to drive overweight gas guzzlers.

Why should the rich get to guzzle gas when the rest of us cannot? Because, as someone once said, the rich are different. But we can also place a ruinous tax on their private airplanes. That ought to make the rest of us feel better even as, at long last, we take effective measures to deal with climate and energy.

The Worst President of Them All

A question that seems to be on everybody's mind these days turns out to be: Is George Bush the worst President in American history?

But how do you judge? Is he the most morally disgusting? The worst mangler of the English language? Ever since the atom bomb was dropped, we've had a whole string of bozos who cannot pronounce the word "nuclear." How much should that count against them?

Is John Tyler, our tenth President, a candidate for worst President? Some people who have never heard of this guy have heard of the campaign slogan "Tippecanoe and Tyler Too." Well, Tippecanoe (William Henry Harrison) lasted about a month in office before he died of a cold contracted while making his inaugural address, and the rest is non-history. Tyler is best remembered, if he is remembered at all, as the President whose entire Cabinet, save one, quit on him. Please do not confuse him with Zachary Taylor, the twelfth President, easily Tyler's equal in forgettability.

Is the most forgettable also the worst? Men like Millard Fillmore, Franklin Pierce and Benjamin Harrison (Tippecanoe's grandson) were more politically brain-dead than really bad. But not so with James Buchanan, No. 15, who was President from 1857 to 1861. Aside from being a dull, unimaginative, dray horse of a politician, he was the President whose cowardice in handling the South and slavery ended the remotest possibility that the United States would be spared the horrors of the Civil War.

The consequences of Buchanan's political poltroonery were long-lasting and dire, as contrasted with those of Warren Harding. Harding (No. 29) has won many Worst President contests because he had three or four truly stinky crooks in his administration to go along with an otherwise outstanding Cabinet. He was a slob with a drinking problem, and he was also afflicted with Bill Clinton's zipper disease. Since booze was illegal when he was President (1921-23), getting smashed in the White House made him a not-so-great role model -- not that much of the country was paying attention since all the other adults in America were doing the same thing at the local speakeasy.

There is a great story about Harding in the closet making boom-boom with his girlfriend, and of his wife being restrained by the Secret Service guys from rushing in and exposing the President in the flagrantest of delictos. But worst President? Not so much.

Others proposed for the worst list include Herbert Hoover, James Madison, Ulysses Grant and Richard Nixon.

Hoover, Democratic propaganda to the contrary, did not cause the Great Depression nor was he indifferent to his people's sufferings. A brilliant, decent man, he was absolutely the unluckiest President.

Madison, the fourth President, justly called the Father of the Constitution, fits anyone's description of a great man, but he loused up the presidency by going to war against England in 1812 with no Army and not much more of a Navy. His foreign policies were so hated in New England that the young federal republic he had done so much to start almost blew apart. Worse was to come. Madison could do nothing when the Brits occupied Washington, DC, and burned down the White House. But in the long run the consequences of his mistakes were minor, so he cannot have the "worst prexy" horse collar put around his neck.

Grant was too noble a man to be the worst anything. He had some crooks in his administration, but, like Harding, he had nothing to do with their corruption. On the plus side, he was the last President until Lyndon Johnson who would go to bat for black people.

As for Nixon, it's still too early to tell. Too many people still living hate him or love him. The decision on that strange, baggy-faced man belongs to Gen X and beyond.

Which brings us to Bush II. It's also too early to tell, but if first signs mean anything, he has got a lot to answer for. We know he is responsible for the death of a lot of people who never hurt him or us. We wonder if he has so disturbed the entire Middle East quadrant of the globe that years and years may pass while the people there and the people here suffer for what he has done. Will we get habeas corpus back? Will the thumb screw become standard operating procedure, or will it be returned to the Middle Ages whence George Bush found it?

One of the criteria for being worst is how much lasting damage the President did. Buchanan, for instance, did more than words can convey. With Bush II the reckoning is yet to be made.

Iraq Is Killing the Dollar

Ask George Washington what he thinks about fighting a war on credit. Back in his day, Congress printed money to pay for the Revolutionary War but neglected to tax anybody to back up this funny money of theirs. The bills were called continentals and in due course they lost all their value, hence the once-popular expression, "not worth a continental."

When your money is not worth a continental that means you are suffering from inflation big time. It happened 230 years ago in our War of Independence from the British. We are seeing it beginning to happen now in our war with, well, whoever it is we are fighting. We may not know the names, the whereabouts or the precise whys of the Iraq War but the costs are approaching a trillion dollars.

The Continental Congress was controlled by rich people and rich people do not like to pay taxes. Not then and not now, when we have another Congress controlled by rich people. Different war, same stupidity.

For a long time after the financially disastrous mistakes of the 1776 period, American politicians at least tried to wage pay-as-you-go wars. The Lincoln Administration introduced the first federal income tax in an attempt to pay for the Civil War. It was not enough and thus the greenback, as the paper dollar was called then, rapidly lost buying power (inflation). Gold coins, of course, did not and it was not until a decade or so after the Civil War that the government succeeded in hardening up the greenback and putting it on a par with the gold coin dollar. The hardening was done, however, at great pain to the nation's farmers and factory workers, but ain't that usually the way?

In World Wars I and II enormous efforts were made to pay the costs as the wars were being fought. It was during the Second World War that taxes were first deducted from paychecks. Taxes were hiked very high, particularly on the rich. Perhaps the assumption was that, since they had so much more materially at stake than the other 98 percent of the population and had that much more interest in seeing that the United States won the war, they ought to pay more. A victorious enemy would be confiscating rich people's property, not family farms or factory workers' houses.

Even so, a relentless drive was put on to get everyone to help pay for the conflict. On the home front ceaseless campaigns were conducted to get people to buy US government "War Bonds." Children were encouraged to buy "War Savings Stamps."

Nevertheless, even with so many billions in purchasing power drained out of the economy via taxes and savings, prices still moved up. Inflation stalked the land but not as injuriously as it might have if the country had not been on a pay-as-you-go basis.

At first the Vietnam War was carried out without much deficit spending. When President Lyndon Johnson left office in 1969, he passed on to his successor, Richard Nixon, a more or less balanced budget. Nixon, however, could not or would not hold the line and triggered a war-born inflation that got so bad he tried to impose price controls on the country.

Controls are a poor substitute for prudent financial management. They could not hold back inflation but they contributed to the sense of waste, disorganization and social chaos, which are the handmaids of inflation. It took more than a decade of recession, lower wages and confusion before the ship was righted again.

Now comes Iraq and an Administration which either through miscalculation or doctrinaire bull-headedness has ignored what every minister of finance from every developed country has known for 150 years.

Instead of paying for the war, George W. Bush and his Administration are laboring under the crackpot notion that the Lord will provide. Well, the Lord -- or the mechanics of business and finance -- is providing and what is being provided are dangerous dollops of inflation.

It would be worse if it weren't for foreign lenders picking up the debts the United States has run up pursuing the terrorist ghost riders. As the buying power of the dollar weakens, fewer of those obliging foreigners will lend us money. They don't want to be paid back with dollars that, ravaged by inflation, are worth less.

The government will have to pay higher interest rates to attract borrowers. There cannot be an adult left in America who hasn't learned what inflation does to one's personal finance.

But not everybody's personal finance. People with lots of money have ways of protecting themselves against the damage inflation does. People without do not. And that may be the basis of the old saying: "rich man's war, poor man's fight."


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