The Unseen Enemy

By Bill Lindo

Belize City, July 28^th 2021:  Most Belizeans, except those in the shipping sector have no clue as to the unseen enemy facing Belize and most of the world – hyper-inflation.

Hyper-inflation means out-of-control price increases or excessive increases of prices in an economy. Belize is currently facing a rapidly increasing rate of inflation, but not hyper-inflation, not yet. When the monthly rate of increase is above 25% we say it’s hyper-inflation. At the current rate, we can expect some level of hyper-inflation by the end of this year.

According to the Statistical Institute of Belize (SIB) the June 2021 rate of inflation was some 3%. The biggest increases were in diesel fuel with a 43.4% increase and some food items such as rice at 11.9% and pig-tails at 26.1%. But as time goes by, price increases are expected because of the global trends being observed.

And the biggest problem out there is shipping, especially from Asia.  The just-in-time concept of supply chains have wreaked havoc in global supply chain distribution. Normally a container takes one or at most two days to be loaded on a ship bound for Central America, North or South America, Europe and Africa from Asia.  Today it is four or more weeks lead time and the prices since December last year have increased by more than 2.47 times.  A 20 ft. (TEU) has gone from USD $4,500 to over USD $11,150.  As an example, take a shoe made in China (China manufactures 73% of all shoes made in the world). Let’s say that shoe retails at $250.00. In the past the freight cost was about $43. Now it is nearly $100. To keep his margin, the retailer must increase his price to $420.00.

Belizeans import some 70% of the goods that we consume. So, it means that higher prices will be the norm for the next few months. Steel is up over 36%, plywood is up some 72%, animal feed is up over 30%, and general food items over 20%. Semiconductor chips are in very short supply and prices are up over 56%. Today it’s very difficult to obtain new cars, trucks, tractors and combines due to the semiconductor shortage. And last week, rubber became the latest item in short supply, especially natural rubber, which must be used for speciality goods, such as aircrafts.

Today, especially the West is in what is called an “Inflate and Die Trap”.  The higher the rate of inflation goes, the bigger the shock to the economy needed to bring inflation under control. And this is not limited to just homeowners or the stock markets. The biggest borrower in the world is the United States government.  And the biggest lender in the world is the United States Federal Reserve (Fed or Central Bank). Thanks to Fed buying, a 10-year Treasury note – the building block of all federal debt is now trading at 1.25%.  But last month CPI (inflation rate) was 5.4%, which means that yield of 1.25% is negative by 4.15% or 415 basis points.  When bond buyers demand a real return (above inflation) the fun will be over as interest rates would quadruple and the stock markets of the advanced countries will collapse. Suddenly the new Biden stimulus (money-printing) would be history and those USA “toppers” that pay people above the minimum wage for not working would be history.

Do we remember the United States in 1980, when Paul Volker took prime interest rates to 20% to control inflation? Must we suffer to bring inflation under control?  Can there be an orderly exist from inflation?  The simple answer is yes. But it is not easy and it takes a lot of hard work and patience, which today is difficult because of our culture of instant gratification. 

For several years, I have been writing and speaking about a version of capitalism that most people are not aware of. In the American System, money and its supply is a public utility – for the common good and our posterity, thus inflation is kept under control as reckless money printing is subdued.  In the nineteen century it was known as the American System or School of Political Economy. In Belize it was known as the Mixed Economy of George C. Price.

Those who are interested in learning about the American School or American System of Economics should read the works of Alexander Hamilton; Mathew Carey and his son, Henry Charles Carey; E. Peshine Smith; Andrew Steward; William C. Jarvis; Friedrich List; Henry Clay; Horace Greeley; William Elder; Robert E. Thompson; Simon Newcomb; Simon Patten and John William Draper.

The eight major concepts of the American School are:

1. Exploiting nature rather than men
2. Tariff Protection of local agriculture and manufacturing as free trade have always benefit the strong at the expense of the weak.
3. High wages to workers, because as E. Peshine Smith, wrote: “In order to make labour-cheap, the labourer must be well-fed, well-clothed, well-lodged, well-instructed…”
4. Money creation is a public utility and should be under the control of elected representatives of the people, not controlled by private individuals for private gain and control.
5. The theory of Diminishing Returns is not valid to physical reality. Technology and innovation always causes new methods to enter production and thus profits and wages don’t diminish but instead leads to higher productivity and thus higher wages to workers.
6. A view of soil fertility and agricultural productivity as a product of capital investment. Ricardian rent and trade theory assumed that the addition of chemical fertilizers to stop the “mining” of the soil by plantation agriculture was of no consequence.  As a note of history, it was not the farming sector that supported the creation of a Department of Agriculture in America.  Rather, it was industrial protectionists who argued that the dominant form of market crop production being done in the United States – plantation export agriculture – was economically destructive. The new Department of Agriculture reached it high points under Abe Lincoln and Henry Carey, and again under Franklin D. Roosevelt and Henry A. Wallace.
7. Public infrastructure as a means to lower costs in an industrial society by introducing new methods of production, and the public support of research and development.
8. Government intervention in an economy. Government must put a bridle on corporate bodies, and must establish the pursuit of happiness as a natural right of citizens. In Belize this principle is enshrine in the PUP Constitution as a sacred duty of government to create full employment and completely end poverty.

In the late 19^th century, two countries, Germany and Japan turned to the United States for help in establishing the American System in their countries.  E. Peshine Smith went to Japan and Fredrick List went to Germany. By 1905 both countries had become major industrial world powers. In the 1950’s and 1960’s South Korea and Taiwan used the American System to develop their countries into major industrial countries.

And today, the Chinese are using the American System to turn China from one of the poorest nations into the second largest industrial nation-state in just 40 years. The irony is that both the Republic of China (Taiwan) and the People’s Republic of China (PRC) celebrate Dr Sun Yat-sen as their modern founder. It was mostly the ideas of Sun Yat-sen that both followed to turn themselves into industrial power-houses. Sun Yat-sen was educated in USA’s Hawaii by Samuel Damon and others who supported the Henry Carey School of economics. Sun Yat-sen’s major work “Three Principles of the People” is explicit in its support of the American System.

The Chinese will usually say they are communist, but that’s not entirely true. No real communist would allow capitalism and the many billionaires now present in China. In fact, reading President Xi Jinping works, he says that today’s China is governed by a socialist system with Chinese characteristics. If one studies China’s economy, one would come to the conclusion that the eight principles outlined above are exactly the principles followed by the Chinese government. The major difference is that the American System writers were all supporters of full democracy. China has democracy at the local level, but at the province and national levels, only one political party is allowed – the Communist Party of China.

The current PUP government in its manifesto, Plan Belize committed to reintroduce George Price’s Mixed Economy to not only defeat inflation but to create full employment and completely end poverty in Belize.

Plan Belize promises Belizeans that this PUP government will build 10,000 + houses, give over 60,000 lots and farm lands to first-time land owners, and create more than 50,000 new permanent jobs at high wages ($5/hour to $ 10.50/hour) in order to defeat poverty. Over 62% of our citizens now live in poverty. That is not acceptable for George Price’s PUP and should not be acceptable to any Belizean.  This must end. Further, the process of ending this unforgivable situation is going to deal a heavy blow to inflation, especially imported inflation.  Two, perhaps three birds will be killed with one stone.

Plan Belize details exactly how the above interrelated commitments will be met.  It includes,  

• 2,000 new manufacturing jobs for Belize City, including jobs for youths.  

• 2,000 new manufacturing jobs must be created in the district towns. A total of 5,000 manufacturing jobs for the nation-state each year after the general elections.
• 1,000 military service jobs per year, National Security requires silence on details.
• 1,000 service sector jobs country-wide especially in education, health and research.
• 2,000 Infrastructure jobs constructing canals, roads, buildings, country wide.
• 2,000 new family farms in all districts of Belize.

The late Leroy Taegar always said – “The land is the bank”. Remember, Dr. Taegar was educated in the United States of America with a classical education before he went to specialize as a medical doctor in Trinidad and Tobago.  April 4^th 1769, one of the main founders of the United States of America, Ben Franklin wrote: “There seems to be but three ways for a nation to acquire wealth. The first is by war, as the Romans did, in plundering their conquered neighbors. This is robbery. The second by commerce, which to be profitable requires cheating. For example, if we give and receive an equal amount of goods and services through trade, there is no profit other than that obtained in our own production cycle. The third by agriculture is the only honest way, wherein man receives a real increase of the seeds thrown into the ground, in a kind of continual miracle wrought by the hand of God in his favor, as a reward for his innocent life, and virtuous industry.” – The Writings of Benjamin Franklin, Vol. V, Haskell House Publishers Ltd, New York 1970.

Let’s examine Ben Franklin’s writing by using corn as an example. A farmer puts some twenty (20) pounds of corn seeds in the ground and after three months that farmer gets back not his twenty (20) pounds, but three thousand (3,000) pounds of corn. Where did the extra two thousand nine hundred and eighty (2,980) pounds of corn came from? This increase of 149 times came from agriculture through which we plant the seeds and create new wealth as if by a miracle.  But what is the miracle?  It’s the utilization of human labor that took unimproved land and creating real wealth by using one’s brains – by imitating the Word became Flesh (Jesus the Christ). Manufacturing is a continuation of agriculture. In fact, 80% or raw materials for manufacturing comes from agriculture.

On March 6^th 1995 this writer, wrote in his book – ABC’s of Economics, “The sole source of wealth is the rise in the productivity of human labour effected through technological progress.” Make no mistake, money is not wealth. Business principles are not economic principles – and economic principles ultimately govern over business principles, especially, par exchange. Businessmen make a psychological mistake and believe that profits are predatory, instead of necessary for the welfare of the nation-state, for the whole.

Thus we end up with an attack by businessmen on the concept of parity – the necessity of parity between agriculture, manufacturing and the services, and the banker’s love affair with debt, which always ends up in bankruptcy. Lenders create money out of thin air so that borrowers can produce at the expense of the entire community. No money is created to make distribution possible. Thus even Winston Churchill was forced to write that the economists with all their fancy theories could not solve the demand or consumption problem — Amid These Storms, by Winston Churchill, London (1932). This business of creating new money from thin air for one sector of the economy always results in the depression of economies. Today, the massive stimulus being seen globally has resulted in the 1% getting 70% of all new money creation, and the 99% getting the remaining 30%. Plan Belize will fix this problem.

But establishing farms, processing the products of the farms and ranches, and mining the earth takes time. Crops need time to grow. Machines and factories must be built and this too takes time.  And as they say, “while the grass is growing, the cow will starve”. Political opponents of the PUP will make “hay” while infrastructure is growing, and mining and training of workers are taking place.  The politicians must explain the process and the necessity of patience: the tree that is planted today provides the shade we need for tomorrow.  Transforming the Belizean economy will take time but will ultimately enable us to defeat both enemies seen and unseen.  Remember, man is created in the image of his Creator!