From Michael Hudson
Thanks to Todd Walton
G: Professor, we’re based here in Ireland which is a country, as we both know, currently in economic ruin at the moment. Unemployment is at 14%, graduate unemployment is probably double that. Where did it all go wrong for Ireland?
Prof. H: Your unemployment is intentional policy by the Irish leadership, of both parties. None of this unemployment is necessary. It doesn’t have to be this way. The government was suckered in to paying the debts for its corrupt bankers.
The problem is that even when you Irish did – as you should have done – and voted out the party in power, the incoming party has the same policy as the former one. It’s much like the United States, where we voted out Republican George Bush, and then got an even more Republican Democrat – Barack Obama. They all promise change, and then follow the financial sector’s directions.
So the underlying problem is that there is no body of theory or policy in Ireland to show that there is an alternative to this unemployment. There’s a belief, a Thatcherite belief that There Is No Alternative, and of course there is an alternative! You shouldn’t have paid uninsured bank depositors and bondholders, and you should not have to pay the European Central Bank, the I.M.F. or the other parties that misinformed you by telling your leaders that the cost of government bailouts would be easily managed, not a lost decade and economic disaster.
You should establish as a basic legal principle of international law that no country should be obliged to pay foreign debts at the price of driving out 10 – 20% of its population, at the price of austerity, and at the price of committing economic suicide.
Nation states are not supposed to commit suicide. But that is what Ireland is doing.
G: Right, and Ireland really has been the poster-child of neo-liberal economic theory in Europe, for probably a few decades now. Could you speak a bit to that? About the policy of low corporation tax attracting multinationals.
Prof. H: Poster-child? I always thought Latvia was the poster-child.
G: Haha! There’s a few.
Prof. H: Look, criminal behavior’s the real common denominator. That’s pretty universal. The low corporate tax was simply an attempt to make Ireland into another Hong Kong, an international banking center by having corporations park their cash there.
This might have worked better if you did what Hong Kong did. It used this money to finance a huge capital investment in real estate, and made money on it. Ireland attracted foreign capital by giving a tax break, and by offering very high rates of return for “hot money” to money managers (mainly from London) to put their money in a few ambitious banks.
But what did Ireland do with this inflow of money? It turned it over to crooks! And let them steal it. Then, what really caused the problem, was that instead of letting the speculators, uninsured depositors and bondholders take the loss – that risk was why they were paid such high rates of return with such low taxes – Ireland’s politicians let the I.M.F. and European central bank come in and say “Well, they took a risk, but don’t make them pay for it. Make the taxpayers absorb the loss!”
The Irish people agreed to do this. “We would rather be poor than make the rich lose the money, because the rich are our job producers.” Unfortunately they’re your job producers in America, in Germany, and the other countries that you’re emigrating to.
G: Right, and just tracking back a bit to a point you made, we also had another problem specific to Ireland: the housing bubble that took place over the last twenty years or so. Is that something that is necessary or is it a result of the low corporation, neoliberal policies that you have to inflate asset prices like this to, compensate for income?
Prof. H: The housing bubble has nothing to do with the corporation tax. It has to do with the absence of a land tax on real estate. If the land value were taxed, you would not have had all of this free rental income and the prospect for capital gain. This is what Henry George wrote about in The Irish Land Question back in 1881. Great book, just read Henry George and The Land Question and you’ll get everything you need to know about why Ireland should have had the tax base on the land instead of turning over the rental income to banks – which then lent it to crooks, who stole it.
G: As you said the land value tax, which is a very interesting policy, was proposed to the new government, Fine Gael that came in afterwards. But instead of implementing a land value tax, they just implemented a flat property tax, which is regressive, and has in no way made any difference. As a result we see another property bubble may be developing at the moment, just like we see occurring in the UK.
Prof. H: In the UK it’s mainly in London. The real estate bubble in London is different. That’s flight capital going into London property. I’m told that 80% of central London property is owned without a mortgage, so the London property price gain is not being fueled on credit. It’s not debt leveraged at all. Most of the buyers, the Russian kleptocrats and the Hong Kong or Chinese entrepreneurs are paying all cash for their apartments. So you can’t compare Ireland’s rising land prices to Britain’s rising land prices.
Outside of London the economy is being pushed in to a depression by deciding that Britain doesn’t need manufacturing. All it seems to need is bankers. As long as they can steal money from Irishmen, who needs to manufacture anything?
G: We all know that you’re an independent economist, you offer a different point of view, but one thing that was really striking during the Celtic Tiger here was that the entire profession of economists completely bought into the ridiculously flawed neoclassical models. Can you talk about how the profession of economists played their role in building all this up?
Prof. H: They’re indoctrinated. There are two ways the Chicago School of economics pushed neoliberal theories. In Chile, they went down under the Pinochet regime and closed every economics department in the country that didn’t teach their Chicago School theories. They assassinated labor leaders, they assassinated economists and professors, and had a continent wide terrorism campaign, Operation Condor, which killed tens of thousands of intellectuals. They didn’t have to do that in Ireland or America.
In American they gained control of the main refereed economic journals. And that means that in the United States – and probably Ireland and Europe too – when you graduate with your PhD and want to go into teaching, you have to get promoted by being published in arefereed journal. But the referees are Chicago boys or Harvard neoliberals. They are ideological totalitarians. The free market boys realize that you cannot have a free market without having utter totalitarian control. That’s what they’ve achieved.
The aim of totalitarian control is to make sure that there is no alternative. So by the time I graduated from NYU, I was told – by a professor who worked for the CIA – that it was not worth while studying the history of economic thought, because if economic theories were good, they would have succeeded by Survival of the Fittest. If they weren’t taught, it’s because they were outdated and obsolete. So, in the United States they’ve dropped the history of economic thought from the academic curriculum. They’ve even dropped economic history. So you’re not going to learn what was taught when I was in school 50 years ago: the history of rent theory, price and value theory.
The whole edifice of analysing the distinction between earned and unearned income, economic rent and profit – all this has been stripped away from the curriculum and does not appear in the economic journals. So, what you really have in academic economics is junk economics. I think you’ve had Steve Keen on your show and he’s written a book, Debunking Economics, explaining much about that. I’ve written on similar lines on international trade theory.
G: Yeah, it’s interesting that you mention Latin American Michael. In the last twenty years or so we’ve seen a huge backlash to the, as you said, extremely violent neoliberal projects implemented there. Do you this it’s possible that through similar grass-roots movements here in Europe that something similar could take place.
Prof. H: If you’ve read the newspapers recently the US has just gone in to the Ukraine and has assassination squads murdering Ukrainian judges and leaders that do not want to push Ukraine along the neoliberal pro-European, as opposed to Russian practices. So, yeah, they only kill when they actually have to, and when people actually listen to them.
I don’t think anybody is listening to them in Ireland and I don’t hear any discussion there, so I don’t think there’s any need for violence there, because there’s a herd instinct there as you say, with Stockholm syndrome. You’ve adopted the view of your oppressors, as if somehow they’ll be nice to you, if you’ll only give more money to them. You may need another 60% of your population to emigrate before you realize there may be an alternative.
G: Indeed. What’s really interesting I think about Europe at the moment is what you’ve talked about: flaws in the free market. The eurozone, the way they’ve set up the central bank system and tax harmonization – surely it was destined to fail from the minute they thought of it?
Prof. H: Haha! Of course it was! So it was not a failure at all. It succeeded! The success is impoverishing the working class. The eurozone is an anti-labour, essentially, class war zone, and the banks are winning the class war. Why do you call it a failure? It’s reduced wages by 30% It’s caused mass unemployment, it’s stripped away pensions, it’s reduced laborers to poverty.
That’s not failure. It’s a victory if you’re a banker and a financier and the “1%”. This is the victory of the “1%” against the “99%”. That’s like saying that WW2 was a failure because the Germans didn’t win! But if you’re the Allies, you won. And this is how America rebuilt Europe.
G: You’re absolutely correct. Can you explain to the listeners Michael, we all know how visible the financial lobby is in the United States. I mean it’s completely transparent that the politicians there are bought, but in Europe it’s seen slightly more obfuscated. How does the lobbying work in Europe?
Prof. H: Largely through the educational system. I’ve met people in Latvia, Iceland and other countries who honestly believe the neoliberal line, because that’s the only economics they’ve been exposed to. The neoliberals realize that the way to make sure that There Is No Alternative is to make sure that people don’t know that there is one. What you have is Junk history, teaching Junk economics so that people think that the world has always been this way, and that there isn’t any other way of doing things. Of course, that’s crazy – but that’s what’s happening!
G: Can you tell us how specifically, the euro, the single currency, has restricted country’s ability to dig their way out of crisis.
Prof. H: Let’s compare how the US handled its bank bailout after 2008, and how Europe did.
In the US they didn’t raise taxes, and they didn’t borrow from foreigners. The Federal Reserve simply created four trillion dollars of credit electronically. That’s what a central bank is supposed to do. It’s supposed to create the money to monetize and finance government spending deficits.
The eurozone forbids this in two ways, and this is what the German court ruled in Karlsruhe last week. The European constitution prevents the European Central Bank from lending to governments. It won’t’ monetize debt that results from deficit spending – although it will create money to pay bondholders and speculators. It’s there to enrich the 1%, not the 99% – and even worse, it thinks that the main way to enrich the 1% is by impoverishing the 99%. That is why it is so dysfunctional and downright evil.
So, instead of creating the money that Europe’s central bank gives to the crooks – in the Anglo-American way – it actually make the taxpayers pay the crooks. This is completely unnecessary. You could just create money and give the crooks everything they want, without having to make things worse by taxing labor and industry to wreck the economy. But the eurozone aims deliberately to wreck the economy, in order to scale back wages. It thinks that whatever is taken from labor can be grabbed by the financial sector. There’s no concept of symbiosis, and that without a domestic market the debts ultimately will have to go bad.
The eurozone refuses to let a central bank finance government spending. Only commercial banks and bondholders can do this – and they charge interest. Crippling the central bank thus creates a huge transfer of interest to the commercial banks. Then, when the governments can’t pay, they go to Stage Two. That is where the governments have to pay by selling off the public domain: the land and natural resources, the forests, ports, electrical systems, natural monopolies basic infrastructure, roads and bridges. The economy is turned into a tollbooth economy. So you’re going back to feudalism. Ireland is back to the 14th century, quickly.
G: What I think is really interesting as well is that we’ve seen a separation in capitalism. There is the traditional capitalism of the worker and the factory owner, but now what we’ve seen is the rise of a financial class, which is even harmful to the traditional capitalists themselves.
Prof. H: That’s right. Instead of industrial capitalism, if you look at writers from the 19th century, everybody from Marx to business school professors expected the destiny of industrial capitalism to be to bring finance out of the medieval period into the modern period. The idea was to make banks serve the industrial system. That’s what the Saint Simonians advocated in France. They were the idealists of the 19th century. They developed the idea of investment banking that the Reichsbank and the large German banks did most effectively. It’s what Japan did after WW2, simply because they didn’t have any other source of money except by their ability to create their own credit through industrial banking.
Nobody expected that finance capitalism would dominate and ultimately stifle industrial capitalism. But that’s what’s happening.
All the futurists, even socialists, were optimists about capitalism. They thought it was going to evolve naturally into socialism, with an increasing government role in the economy to provide infrastructure, including banking. Instead, you have governments being carved up. That’s what neoliberalism is. It’s really neofeudalism. It’s a dismantling of democracy in favor of a financial oligarchy, to rule by appointing proconsuls and technocrats such as you have in Italy under Monti or in Greece under Papademos. You have a rolling back of history, and of the Enlightenment. If your college curriculum, your religion and the popular press doesn’t even talk about the enlightenment and about the history of economic thought, you’re not going to realize that what’s happening is a rolling back of the last 500 years.
G: It’s really made democracy completely redundant. For the most part, people aren’t going to be able to vote themselves out of this surely, are they not?
Prof. H: Well, in America you are able to vote. You can vote yes, yes please, and yes thank you. The question is, what are they going to vote about? In Ireland, both your parties are in agreement that you have to pay the crooks and you have to sacrifice your economy to pay these debts as a dead hand crushing your economy. As long as there is no alternative party like there is in Greece with its left-wing Syriza party, or in Latvia with the Harmony Centre, there is not going to be any alternative, except perhaps to learn Chinese and emigrate.
G: If an alternative did come along, Prof. Hudson, what would be your sketch of their plan of an economic policy? Would you leave the euro? Would you create a new currency?
Prof. H: As long as the eurozone has no central bank, it’s not really integration. The only way you can have the United States of Europe is to have a common tax policy and a common monetary policy. You remember what the American Revolution was about: ‘No taxation without representation’. Right now that’s not the case in Europe. Unless there’s real political integration, which I don’t see, then all the Eurozone is now is not the peaceful socialist/social democratic idea that it was 50 years ago. It is an anti-labour, pro-financial class war. There is no way that you can remain in that kind of Europe. There doesn’t seem to be a discussion that there is another kind of Europe, the kind of Europe that was meant in the 1940s and ‘50s.
G: The European political classes are interesting. They are working really hard to emphasize the unifying nature of Europe, but what they don’t realize is that they are creating the same conditions post WW1 that led to WW2. We all know what happens when capitalism fails, and it’s not pretty.
Prof. H: Well that’s what’s happening and the right wing parties all over Europe and you see the United States promoting the neo fascist parties in the Ukraine, the Baltics, and periphery of the former Soviet Union.
G: What is the United States’ view on Europe, we’ve seen, there was a time -
Prof. H: That Europe is a dead zone. They’re ignoring Europe. Remember when Donald Rumsfeld the Secretary of Defense, referred contemptuously to “Old Europe.” That’s how it’s viewed. Europe is shrinking, its population is leaving, so it doesn’t matter. Its leaders are American puppets that they can be ignored. It has no role to play in the world except to be like Japan, an appendage of NATO and US military encirclement of Eurasia.
G: Do you think that the US has actively contributed to the decline of Europe just as maybe it did with Japan and other rivals?
Prof. H: I was told 30 years ago that almost all of the transportation payments for members of the Socialist International – of which the Greek neoliberal prime minister Andreas Papandreou was the head of for many years – were paid for by the CIA. Now we’re finally seeing the maneuvering that has put the kind of European leaders in charge, from Germany to England. They are very pro-American. You can see from the cables that were leaked last week about how the United States is maneuvering to make pro-US puppets in the Ukraine, like they maneuvered in Russia to have Yeltsin put in.
G: Do you think the levels of inequality will surpass the US. Which we know is one of the most unequal societies in the western world.
Prof. H: It’s a race to the bottom. Hard to tell. It’ll be a tight race.
G: You’ve written extensively about the US and it’s funny, the US might be the first Empire that’s really never been called as much by the people living there. How has the US managed to obfuscate the fact that it’s the biggest global superpower to most of its citizens?
Prof. H: People don’t understand the balance of payments and the nature of the monetary system. They don’t understand that the dollar standard, internationally, means essentially that America’s balance-of-payments deficit – which is almost entirely military for many decades – is the basis of foreign central bank monetary reserves. So the world’s monetary reserves consist of loans to finance the American military surrounding of the rest of the world. People don’t look at what these central bank reserves end up being used for. When they hold US Treasury bills, what is the deficit resulting from? What is the balance of payments and the budget deficit resulting from? This kind of analysis, simply is not widely publicised there.
G: What we’ve also seen is the corporatisation of the media in the United States. I spent the last two or three years studying there, and it really is amazing the levels of disinformation that are passed off as news. And of course, news is massive corporations and is completely controlled by the same people we’re talking about.
Prof. H: The internet, fortunately is an alternative. Naked Capitalism and CounterPunch are my favorite sites. You get such a biased view in the mainstream. This week’s Nation magazine has an article by Stephen Cohen on the disinformation about Russia – all the anti-Russian propaganda that you get from the NY Times and the Washington Post. The seemingly objective press that really isn’t objective at all.
G: It’s shifted so far right that people in your profession, someone like Paul Krugman, who would have been considered a fairly moderate voice maybe 30 years ago, maybe even a centre right republican voice. They won’t even implement his very cosily liberal economic policies.
Prof. H: Well there is a type of Keynesianism, but its only Keynesianism for the “1%”.
G: Is there anyone you see, there’s obviously yourself, maybe people like Richard Wolff and David Harvey. Who else in the economic profession do you think is speaking the truth?
Prof. H: The ones you mentioned certainly, I had dinner with David Harvey the other night. Steve Keen, Dirk Bezemer in Holland, Yanis Varoufakis writing about Greece, and Michael Perelman here in the US. None of us are funded by an organization that is putting together an alternative national income account, banking or financial accounts. And we can’t spend our life as key punch operators. We thought there would be a self interest among debtors to back our analysis just like Keynes’ analysis was backed in the 1920s. But there aren’t any. There seems to be such a dispirited, depressive feeling among debtors there is very little we can do besides talk to people like you and other sites and write our books.
G: Just before we let you go, Professor Hudson, what’s the future do you think for Europe next five or ten years? Will it collapse or continue on at the expense of its citizens?
Prof. H: It’ll be a slow crash. It’ll be shrinking and shrinking and shrinking. It would only crash if people saw there would be an alternative. If there was (an alternative), the banking system would threaten to shut down and cause a crisis and close ATM machines and stop credit cards. They would cause a crisis to say, “You need us.” That’s what the governments have let happen, for the banking and financial system get a stranglehold on them. There is no question that Europe has to be willing to buck this counter revolution or counter-Enlightenment. You could say that the only way this could be done is by a broad popular movement.
It’s almost like what in America used to be called a Great Awakening, great moral waves of new understandings that you had in the progressive era of the 1890s and then again in the 1930s. It doesn’t seem to have gotten to that point. The Europeans are so dispirited.
There is a basic motto among oppressors: You don’t know when people will begin to fight back until they actually do. So they are just tightening the screws and tightening the screws. Latvia was a cruel experiment to see how far you could reduce living standards. There doesn’t seem to be a limit.
G: I think maybe part of the problem is that as we discussed earlier the separation between financial capitalism and industrial capitalism. In previous revolutions and movements its been easy to identify workers injustice, not being paid and their owners taking too much profit. but the shadow banking sector is just so invisible to the everyday worker. How are we going to dismantle this thing, if people don’t even know it exists.
Prof. H: There is a feeling that people can get rich by going into debt, and that debt leveraging is how to get rich. That works if you can borrow a billion dollars to swamp the market and become a monopoly, and to buy politicians and the courts. But if you have less than a billion dollars, borrowing money and debt leveraging doesn’t help you get rich. It just leads you into debt peonage. So the Irish should look at the whole of Irish history and that of other regions such as the Ottoman empire in the late 19th century and see the ruin of Egypt, the ruin of Persia. These were talked about regularly in the 19th century. All this has happened before. It’s not new. All they have to do is look at history and ask whether they want to go that route, or is there an alternative?
G: Brilliant That was Michael Hudson. Please check out his work on his website on michael-hudson.com. He has two brilliant books out, and I suggest you read them. Prof. Hudson thanks so much for taking the time out today.
PH: Good to be with you.