This is the first episode of our new “Alternative Voices” interview series, where we talk to people who give us a different perspective on all manner of topics.
Our first guest is Professor Michael Hudson, a research professor of economics at the University of Missouri in Kansas City and the author of two books “The Bubble And Beyond” and “Super Imperialism: The Economic Strategy Of American Empire”. He talks to Greg about austerity in Ireland, how US economic policy has affected Ireland, Europe and the rest of the world as well as how the various political parties in Ireland have mishandled the economic crisis.
Without further ado the first episode, along with the transcript and a link to download the episode from soundcloud, is below.
Transcript:
Greg McInerney: This is Greg here from the MeltingPress.com.
This the first installment of our “Alternative Voices” series where we talk to people who give us different perspectives on everything from economics, to politics, to culture.
Today we’re joined by Professor Michael Hudson. He’s a research professor of economics at the University of Missouri in Kansas City. He’s also the author of “The Bubble and Beyond” which is his latest book, and “Super Imperialism: The Economic Strategy of American Empire” which I’ve read myself and is a brilliant read, you should go out and check that out.
Professor Hudson, thanks so much for joining us today.
Professor Hudson: Good to be here.
G: Thank you.
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: The fact that 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 it’s corrupt bankers; something that other countries wouldn’t have done, and the problem is that even when you Irish do as you should have done and voted out the party in power, the party coming in has exactly the same policy as the former one. It’s very much like the United States where we voted out Republican George Bush, and then got an even more Republican democrat – Barack Obama.
So the problem is that there is no body of theory or policy in Ireland to show that there’s an alternative to this unemployment.
There’s a belief, a Thatcheroid belief that is there is no alternative, and of course there is an alternative! You shouldn’t have paid, and you should not have to pay the European Central Bank, or the I.M.F. or the other parties that misinformed you. 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. Ireland, is committing suicide.
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 behaviour’s the poster-child. That’s pretty universal. The low corporate tax was simply an attempt to make Ireland in to a another Hong Kong, an international banking center by having corporations park their cash
there.
Now, this would have worked if you did what Hong Kong did. Hong Kong used this money to finance a huge real estate investment, a huge capital investment, and made money on it.
Ireland attracted all this foreign capital by giving a tax break and what did it do with it? It turned it over to the crooks! And let the crooks steal it all, and the crooks stole it by offering very high rates of return to money managers, to take a risk and then it 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 tax payers pay!” And so the Irish people said “We don’t want to hurt the rich, 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 maybe to Ireland, which was the housing bubble that took place over the last maybe 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 at all. It has to do with the absence of a land tax on real estate. If the land value was taxed then you would not have had all of this free rental income and the prospect for capital gain that was paid over. I mean this was what Henry George wrote about the Irish land question, back in 1880. 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 all the rental income to banks, that then essentially lent it to crooks, or stole it.
G: And as you said the land value tax, which is very interesting policy, which was proposed to the new government, Fine Gael, the government that came in afterwards, 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 and the property bubble in London is completely 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 Cleptocrats 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. And outside of London of course there’s a real probably because the rest of the economy is being pushed in to a depression by deciding that Britain doesn’t need manufacturing. It was obviously a mistake to have the industrial revolution there, and all it needs is bankers, and as long as they can steal money from the 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 in to it. They completely sold the ridiculously flawed neoclassical models. Can you talk about 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, killing 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’re a graduate and you get your page stay and you want to go into teaching. you have to get promoted by a published and refereed journal. But, the referees are all Chicago boys or Harvard boys (the neoliberals.) They are totalitarians. What the free market boys realise is that you cannot have a free market without having utter totalitarian control. And that’s what they’ve achieved.
When the free marketers talk about a free market, what they mean is totalitarian control, and there is no alternative.
So, in the United States they’ve dropped the history of economic thought from the academic curriculum, and they’ve even dropped economic history from the curriculum. So you’re not going to get any longer what you got, at least 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 of 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 explaining much about that, and 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: Ha! If you’ve read the newspapers recently the US has just gone in to the Ukraine and has assassination squads murdering the Ukrainian 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 of the money to them. You probably need another 60% of your population to emigrate before you realise there may be an alternative.
G: Indeed. What’s really interesting I think about europe at the moment, is you’ve talked about flaws in the free market, but the eurozone, the way they’ve set up the central bank system, and tax harmonisation; 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 labourers to poverty.
That’s not failure that victory if you’re a banker and a financeur 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!
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, other countries – that actually believe the neoliberal line because that’s the only economics that they’ve ever been exposed too. And the neoliberals realise the way to make sure that there is no alternative is to make sure that people don’t know that there is an alternative. So, what you have is Junk history, teaching Junk economics and people think that the world’s 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: Ok, lets compare how the US handled its bank bailout after 2008, and how Europe did.
In the US they didn’t raise taxes, they didn’t borrow from foreigners, the federal reserve created four trillion dollars of credit electronically, just on its keyboard. 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 euro 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. They won’t’ monetize debt. There’s no real central bank to create the money to give to the crooks. So, instead of creating the money to give to the crooks, in the anglo-american way, they actually make the taxpayers pay, to pay the crooks. This is completely unnecessary. You can just create funny money and give the crooks everything they want and you don’t have to tax the people and wreck the economy also.
But in Europe, the idea, the aim, is to wreck the economy.
The aim is to say instead of the central bank financing government spending only commercial banks can do this at interest, so there is a huge transfer of interest to the commercial banks and then when the governments can’t pay they go to stage two and stage two is where the governments have to pay by selling off the public demesne, the land, the natural resources, the forests, the ports, the electrical systems, the natural monopolies and the infrastructure, the roads and the bridges, and the economy is turned into a toll booth economy and so you’re going very rapidly back to feudalism and that is where Ireland is going, it’s going 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 the business school people, all expected the destiny of industrialism capitalism to be to bring finance out of the medieval period into the modern period and to make banks serve the industrial system that’s what the Saint Simonians were in France, the idealists of the 19th century who developed the whole idea of investment banking its what the Reichsbank and the large German banks did, its what Japan did after WW2 simply because they didn’t have any other money except the ability to create their own credit through industrial banking.
And instead nobody expected that finance capitalism would dominate and ultimately stifle industrial capitalism and that’s exactly what’s being happening.
And the fact that nobody, all of the futurists even the socialists and the left wingers were optimists about capitalism. They all thought it was going to evolve naturally into socialism under gradual increasing government role in the economy to provide infrastructure to provide monopolies and banking and instead you have governments being carved up and thats what neoliberalism is, its really neofeudalism, its a dismantling of democracy. It’s a dismantling of democracy in favour of a financial oligarchy so that you can rule by appointing pro consuls 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 and if your curriculum and your college and your religion and the popular press doesn’t even talk about the enlightenment and about the history of thought then you’re not going to realise what’s happening is a rolling back of the last 500 years.
G: And its really made democracy completely redundant for the most part people aren’t going to be able to vote themselves out of this surely, aren’t 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 of your parties really are all in agreement that you have to pay the crooks and you have to sacrifice your economy to paying these debts and as long as there is no alternative party like there is in Greece with the Syriza party or in Latvia with the Harmony Centre then there is not going to be any alternative except 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? What would you do?
Prof. H: As long as the eurozone has no central bank its 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. Unless there’s real political integration, which i don’t see. Then All the Eurozone is now is not the peaceful socialist/social democratic view that it was 50 years ago, it is an anti-labour pro-financial view of class war. And there is no way that you can remain in that kind of a Europe. And 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, are working really hard to emphasise the unifying nature of Europe and everything, but what they don’t realise is that they are creating the same conditions post WW1 that led to WW2. We all know what happens when capitalism fails, and its 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 what Donald Rumsfeld the secretary of defence referred contemptuously to Old Europe. That’s what its looked at. Europe, it’s shrinking, it’s population is leaving, it doesn’t matter. Its leader are so totally American puppets that they can be completely ignored. It has no role to play in the US except to be very much like Japan or an appendage.
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, members of the socialist international, which the Greek 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, that are very Pro-American and you can just 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 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 the central banks monetary reserves. So the world’s monetary reserves rest on loans to finance the American military surrounding of the rest of the world. People don’t understand the balance of payments and how the financial system works. And they don’t look at what are these central bank reserves used for. When they hold 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: That’s right, the internet, fortunately is an alternative. There are wonderful sites like Naked Capitalism and Counter Punch, my favourite sites. You get such a biased view, this weeks The Nation magazine has an article by Stephen Cohen and the disinformation about Russia all of the anti-Russian propaganda that you get from the NY Times and the Washington Post and 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. None of us are funded by an organisation that is putting together an alternative national income account, bank accounts 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, we know you’re probably very busy. 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 needed 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 and the only way this could be done is by a broad popular movement.
And it’s almost like what in America used to be called the 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 the 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. and 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 gonna dismantle this thing, if people don’t even know it exists.
Prof. H: there is the feeling that people can get rich by going into debt and that debt leveraging is how to get rich., And that works if you can borrow a billion dollars and swamp a market and become a monopoly, 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 and so I guess in Ireland they have to look at the whole of Irish history and the history of other countries like the Ottoman empire in the late 19th century, the ruin of Egypt, the ruin of Persia, that was talked about regularly in the 19th century. All this has happened before. It’s not new at all. And all they have to do is look at history and say do we 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 as well I suggest you read them. Prof. Hudson thanks so much for taking the time out today.
PH: Good to be with you.