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Today’s world is at war on many fronts. The rules of international law and order put in place toward the end of World War II are being broken by U.S. foreign policy escalating its confrontation with countries that refrain from giving its companies control of their economic surpluses. Countries that do not give the United States control of their oil and financial sectors or privatize their key sectors are being isolated by the United States imposing trade sanctions and unilateral tariffs giving special advantages to U.S. producers in violation of free trade agreements with European, Asian and other countries.

This global fracture has an increasingly military cast. U.S. officials justify tariffs and import quotas illegal under WTO rules on “national security” grounds, claiming that the United States can do whatever it wants as the world’s “exceptional” nation. U.S. officials explain that this means that their nation is not obliged to adhere to international agreements or even to its own treaties and promises. This allegedly sovereign right to ignore on its international agreements was made explicit after Bill Clinton and his Secretary of State Madeline Albright broke the promise by President George Bush and Secretary of State James Baker that NATO would not expand eastward after 1991. (“You didn’t get it in writing,” was the U.S. response to the verbal agreements that were made.)

Likewise, the Trump administration repudiated the multilateral Iranian nuclear agreement signed by the Obama administration, and is escalating warfare with its proxy armies in the Near East. U.S. politicians are waging a New Cold War against Russia, China, Iran, and oil-exporting countries that the United States is seeking to isolate if cannot control their governments, central bank and foreign diplomacy.

The international framework that originally seemed equitable was pro-U.S. from the outset. In 1945 this was seen as a natural result of the fact that the U.S. economy was the least war-damaged and held by far most of the world’s monetary gold. Still, the postwar trade and financial framework was ostensibly set up on fair and equitable international principles. Other countries were expected to recover and grow, creating diplomatic, financial and trade parity with each other.

But the past decade has seen U.S. diplomacy become one-sided in turning the International Monetary Fund (IMF), World Bank, SWIFT bank-clearing system and world trade into an asymmetrically exploitative system. This unilateral U.S.-centered array of institutions is coming to be widely seen not only as unfair, but as blocking the progress of other countries whose growth and prosperity is seen by U.S. foreign policy as a threat to unilateral U.S. hegemony. What began as an ostensibly international order to promote peaceful prosperity has turned increasingly into an extension of U.S. nationalism, predatory rent-extraction and a more dangerous military confrontation.

Deterioration of international diplomacy into a more nakedly explicit pro-U.S. financial, trade and military aggression was implicit in the way in which economic diplomacy was shaped when the United Nations, IMF and World Bank were shaped mainly by U.S. economic strategists. Their economic belligerence is driving countries to withdraw from the global financial and trade order that has been turned into a New Cold War vehicle to impose unilateral U.S. hegemony. Nationalistic reactions are consolidating into new economic and political alliances from Europe to Asia.

We are still mired in the Oil War that escalated in 2003 with the invasion of Iraq, which quickly spread to Libya and Syria. American foreign policy has long been based largely on control of oil. This has led the United States to oppose the Paris accords to stem global warming. Its aim is to give U.S. officials the power to impose energy sanctions forcing other countries to “freeze in the dark” if they do not follow U.S. leadership.

To expand its oil monopoly, America is pressuring Europe to oppose the Nordstream II gas pipeline from Russia, claiming that this would make Germany and other countries dependent on Russia instead of on U.S. liquified natural gas (LNG). Likewise, American oil diplomacy has imposed unilateral sanctions against Iranian oil exports, until such time as a regime change opens up that country’s oil reserves to U.S., French, British and other allied oil majors.

U.S. control of dollarized money and credit is critical to this hegemony. As Congressman Brad Sherman of Los Angeles told a House Financial Services Committee hearing on May 9, 2019: “An awful lot of our international power comes from the fact that the U.S. dollar is the standard unit of international finance and transactions. Clearing through the New York Fed is critical for major oil and other transactions. It is the announced purpose of the supporters of cryptocurrency to take that power away from us, to put us in a position where the most significant sanctions we have against Iran, for example, would become irrelevant.”[1]

The U.S. aim is to keep the dollar as the transactions currency for world trade, savings, central bank reserves and international lending. This monopoly status enables the U.S. Treasury and State Department to disrupt the financial payments system and trade for countries with which the United States is at economic or outright military war.

Russian President Vladimir Putin quickly responded by describing how “the degeneration of the universalist globalization model [is] turning into a parody, a caricature of itself, where common international rules are replaced with the laws… of one country.”[2] That is the trajectory on which this deterioration of formerly open international trade and finance is now moving. It has been building up for a decade. On June 5, 2009, then-Russian President Dmitry Medvedev cited this same disruptive U.S. dynamic at work in the wake of the U.S. junk mortgage and bank fraud crisis.

Those whose job it was to forecast events … were not ready for the depth of the crisis and turned out to be too rigid, unwieldy and slow in their response. The international financial organisations – and I think we need to state this up front and not try to hide it – were not up to their responsibilities, as has been said quite unambiguously at a number of major international events such as the two recent G20 summits of the world’s largest economies.

Furthermore, we have had confirmation that our pre-crisis analysis of global economic trends and the global economic system were correct. The artificially maintained uni-polar system and preservation of monopolies in key global economic sectors are root causes of the crisis. One big centre of consumption, financed by a growing deficit, and thus growing debts, one formerly strong reserve currency, and one dominant system of assessing assets and risks – these are all factors that led to an overall drop in the quality of regulation and the economic justification of assessments made, including assessments of macroeconomic policy. As a result, there was no avoiding a global crisis.[3]

That crisis is what is now causing today’s break in global trade and payments.

Warfare on many fronts, with Dollarization being the main arena

Dissolution of the Soviet Union 1991 did not bring the disarmament that was widely expected. U.S. leadership celebrated the Soviet demise as signaling the end of foreign opposition to U.S.-sponsored neoliberalism and even as the End of History. NATO expanded to encircle Russia and sponsored “color revolutions” from Georgia to Ukraine, while carving up former Yugoslavia into small statelets. American diplomacy created a foreign legion of Wahabi fundamentalists from Afghanistan to Iran, Iraq, Syria and Libya in support of Saudi Arabian extremism and Israeli expansionism.

 
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Imperialism is getting something for nothing. It is a strategy to obtain other countries’ surplus without playing a productive role, but by creating an extractive rentier system. An imperialist power obliges other countries to pay tribute. Of course, America doesn’t come right out and tell other countries, “You have to pay us tribute,” like Roman emperors told the provinces they governed. U.S. diplomats simply insist that other countries invest their balance-of-payments inflows and official central-bank savings in US dollars, especially U.S. Treasury IOUs. This Treasury-bill standard turns the global monetary and financial system into a tributary system. That is what pays the costs of U.S. military spending, including its 800 military bases throughout the world.

I’m Bonnie Faulkner. Today on Guns and Butter, Dr. Michael Hudson. Today’s show: De-Dollarizing the American Financial Empire. Dr. Hudson is a financial economist and historian. He is President of the Institute for the Study of Long-Term Economic Trend, a Wall Street Financial Analyst and Distinguished Research Professor of Economics at the University of Missouri, Kansas City. His most recent books include, And Forgive Them Their Debts … Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year; Killing the Host: How Financial Parasites and Debt Destroy the Global Economy; and J Is for Junk Economics: A Guide to Reality in an Age of Deception. We return again today to a discussion of Dr. Hudson’s seminal 1972 book, Super Imperialism: The Economic Strategy of American Empire, a critique of how the United States exploited foreign economies through the IMF and World Bank. We discuss how the United States has dominated the world economically both as the world’s largest creditor, and then later as the world’s largest debtor, and take a look at the coming demise of dollar domination.

Bonnie Faulkner: Michael Hudson, welcome back.

Michael Hudson: It’s good to be back, Bonnie.

Bonnie Faulkner: Why is President Trump insisting that the Federal Reserve lower interest rates? I thought they were already extremely low. And if they did go lower, what effect would this have?

Michael Hudson: Interest rates are historically low, and they have been kept low in order to try to keep providing cheap money for speculators to buy stocks and bonds to make arbitrage gains. Speculators can borrow at a low rate of interest to buy a stock yielding dividends (and also making capital gains) at a higher rate of return, or by buying a bond such as corporate junk bonds that pay higher interest rates, and keep the difference. In short, low interest rates are a form of financial engineering.

Trump wants interest rates to be low in order to inflate the housing market and the stock market even more, as if that is an index of the real economy, not just the financial sector that is wrapped around the economy of production and consumption. Beyond this domestic concern, Trump imagines that if you keep interest rates lower than those of Europe, the dollar’s exchange rate will decline. He thinks that this will make U.S. exports more competitive with foreign products.

Trump is criticizing the Federal Reserve for not keeping interest rates even lower than those of Europe. He he thinks that if interest rates are low, there will be an outflow of capital from this country to buy foreign stocks and bonds that pay a higher interest rate. This financial outflow will lower the dollar’s exchange rate. He believes that this will increase the chance of rebuilding America’s manufacturing exports.

This is the great neoliberal miscalculation. It also is the basis for IMF models.

How low interest rates lower the dollar’s exchange rate, raising import prices

Trump’s guiding idea is that lowering the dollar’s value will lower the cost of labor to employers. That’s what happens when a currency is devalued. Depreciation doesn’t lower costs that have a common worldwide price. There’s a common price for oil in the world, a common price of raw materials, and pretty much a common price for capital and credit. So the main thing that’s devalued when you push a currency down is the price of labor and its working conditions.

Workers are squeezed when a currency’s exchange rate falls, because they have to pay more for goods they import. If the dollar goes down against the Chinese yen or European currency, Chinese imports are going to cost more in dollars. So will European imports. That is the logic behind “beggar my neighbor” devaluations.

How much more foreign imports will cost depends on how far the dollar goes down. But even if it plunges by 50 percent, even if the dollar were to become a junk currency like the Argentinian or other Latin American currencies, that cannot really increase American manufacturing exports, because not much American labor works in factories anymore. Workers drive cabs and work in the service industry or for medical insurance companies. Even if you give American workers in manufacturing companies all their clothing and food for nothing, they still can’t compete with foreign countries, because their housing costs are so high, their medical insurance is so high and their taxes are so high that they’re priced out of world markets. So it won’t help much if the dollar goes down by 1 percent, 10 percent or even 20 percent. If you don’t have factories going and if you don’t have a transportation system, a power supply, and if our public utilities and infrastructure are being run down, there’s nothing that currency manipulation can do to enable America to quickly rebuild its manufacturing export industries.

American parent companies have already moved their factories abroad. They have given up on America. As long as Trump or his successors refrain from changing that system – as long as he gives tax advantages for companies to move abroad – there’s nothing he can do that will restore industry here. But he’s picked up International Monetary Fund’s junk economics, the neoliberal patter talk that it’s given to Latin America pretending that if a country just lowers its exchange rate more, it will be able to lower its wages and living standards, paying labor less in hard-currency terms until at some point, when its poverty and austerity get deep enough, it will become more competitive.

That hasn’t worked for fifty years in Latin America. It hasn’t worked for other countries either, and it never worked in the United States. The 19th-century American School of Political Economy developed the Economy of High Wages doctrine. (I review this in my book on America’s Protectionist Takeoff: 1815-1914.) They recognized that if you pay labor more, it’s more productive, it can afford a better education and it works better. That’s why high-wage labor can undersell low-wage “pauper” labor. Trump is therefore a century behind the times in picking up the IMF austerity idea that you can just devalue the currency and reduce labor’s wages and living standards in international terms to make the economy more profitable and somehow “work your way out of debt.”

 
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“The purpose of a military conquest is to take control of foreign economies, to take control of their land and impose tribute. The genius of the World Bank was to recognize that it’s not necessary to occupy a country in order to impose tribute, or to take over its industry, agriculture and land. Instead of bullets, it uses financial maneuvering. As long as other countries play an artificial economic game that U.S. diplomacy can control, finance is able to achieve today what used to require bombing and loss of life by soldiers.”

I’m Bonnie Faulkner. Today on Guns and Butter: Dr. Michael Hudson. Today’s show: The IMF and World Bank: Partners In Backwardness. Dr. Hudson is a financial economist and historian. He is President of the Institute for the Study of Long-Term Economic Trend, a Wall Street Financial Analyst, and Distinguished Research Professor of Economics at the University of Missouri, Kansas City. His most recent books include “… and Forgive them Their Debts: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year”; Killing the Host: How Financial Parasites and Debt Destroy the Global Economy, and J Is for Junk Economics: A Guide to Reality in an Age of Deception. He is also author of Trade, Development and Foreign Debt, among many other books. We return today to a discussion of Dr. Hudson’s seminal 1972 book, Super Imperialism: The Economic Strategy of American Empire, a critique of how the United States exploited foreign economies through the IMF and World Bank, with a special emphasis on food imperialism.

Bonnie Faulkner: Michael Hudson, welcome back.

Michael Hudson: It’s good to be back, Bonnie.

Bonnie Faulkner: In your seminal work form 1972, Super-Imperialism: The Economic Strategy of American Empire, you write: “The development lending of the World Bank has been dysfunctional from the outset.” When was the World Bank set up and by whom?

Michael Hudson: It was set up basically by the United States in 1944, along with its sister institution, the International Monetary Fund (IMF). Their purpose was to create an international order like a funnel to make other countries economically dependent on the United States. To make sure that no other country or group of countries – even all the rest of the world – could not dictate U.S. policy. American diplomats insisted on the ability to veto any action by the World Bank or IMF. The aim of this veto power was to make sure that any policy was, in Donald Trump’s words, to put America first. “We’ve got to win and they’ve got to lose.”

The World Bank was set up from the outset as a branch of the military, of the Defense Department. John J. McCloy (Assistant Secretary of War, 1941-45), was the first full-time president. He later became Chairman of Chase Manhattan Bank (1953-60). McNamara was Secretary of Defense (1961-68), Paul Wolfowitz was Deputy and Under Secretary of Defense (1989-2005), and Robert Zoellick was Deputy Secretary of State. So I think you can look at the World Bank as the soft shoe of American diplomacy.

 

Bonnie Faulkner: What is the difference between the World Bank and the International Monetary Fund, the IMF? Is there a difference?

Michael Hudson: Yes, there is. The World Bank was supposed to make loans for what they call international development. “Development” was their euphemism for dependency on U.S. exports and finance. This dependency entailed agricultural backwardness – opposing land reform, family farming to produce domestic food crops, and also monetary backwardness in basing their monetary system on the dollar.

The World Bank was supposed to provide infrastructure loans that other countries would go into debt to pay American engineering firms, to build up their export sectors and their plantation sectors by public investment roads and port development for imports and exports. Essentially, the Bank financed long- investments in the foreign trade sector, in a way that was a natural continuation of European colonialism.

In 1941, for example, C. L. R. James wrote an article on “Imperialism in Africa” pointing out the fiasco of European railroad investment in Africa: “Railways must serve flourishing industrial areas, or densely populated agricult5ural regions, or they must open up new land along which a thriving population develops and provides the railways with traffic. Except in the mining regions of South Africa, all these conditions are absent. Yet railways were needed, for the benefit of European investors and heavy industry.” That is why, James explained “only governments can afford to operate them,” while being burdened with heavy interest obligations.[1] What was “developed” was Africa’s mining and plantation export sector, not its domestic economies. The World Bank followed this pattern of “development” lending without apology.

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The IMF was in charge of short-term foreign currency loans. Its aim was to prevent countries from imposing capital controls to protect their balance of payments. Many countries had a dual exchange rate: one for trade in goods and services, the other rate for capital movements. The function of the IMF and World Bank was essentially to make other countries borrow in dollars, not in their own currencies, and to make sure that if they could not pay their dollar-denominated debts, they had to impose austerity on the domestic economy – while subsidizing their import and export sectors and protecting foreign investors, creditors and client oligarchies from loss.

The IMF developed a junk-economics model pretending that any country can pay any amount of debt to the creditors if it just impoverishes its labor enough. So when countries were unable to pay their debt service, the IMF tells them to raise their interest rates to bring on a depression – austerity – and break up the labor unions. That is euphemized as “rationalizing labor markets.” The rationalizing is essentially to disable labor unions and the public sector. The aim – and effect – is to prevent countries from essentially following the line of development that had made the United States rich – by public subsidy and protection of domestic agriculture, public subsidy and protection of industry and an active government sector promoting a New Deal democracy. The IMF was essentially promoting and forcing other countries to balance their trade deficits by letting American and other investors buy control of their commanding heights, mainly their infrastructure monopolies, and to subsidize their capital flight.

 

BONNIE FAULKNER: Now, Michael, when you began speaking about the IMF and monetary controls, you mentioned that there were two exchange rates of currency in countries. What were you referring to?

MICHAEL HUDSON: When I went to work on Wall Street in the ‘60s, I was balance-of-payments economist for Chase Manhattan, and we used the IMF’s monthly International Financial Statistics every month. At the top of each country’s statistics would be the exchange-rate figures. Many countries had two rates: one for goods and services, which was set normally by the market, and then a different exchange rate that was managed for capital movements. That was because countries were trying to prevent capital flight. They didn’t want their wealthy classes or foreign investors to make a run on their own currency – an ever-present threat in Latin America.

 
• Category: Economics • Tags: IMF, Imperialism, World Bank 
The G20 Meeting in Japan
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President Trump has threatened China’s President Xi that if they don’t meet and talk at the upcoming G20 meetings in Japan, June 29-30, the United States will not soften its tariff war and economic sanctions against Chinese exports and technology.

Some meeting between Chinese and U.S. leaders will indeed take place, but it cannot be anything like a real negotiation. Such meetings normally are planned in advance, by specialized officials working together to prepare an agreement to be announced by their heads of state. No such preparation has taken place, or can take place. Mr. Trump doesn’t delegate authority.

He opens negotiations with a threat. That costs nothing, and you never know (or at least, he never knows) whether he can get a freebee. His threat is that the U.S. can hurt its adversary unless that country agrees to abide by America’s wish-list. But in this case the list is so unrealistic that the media are embarrassed to talk about it. The US is making impossible demands for economic surrender – that no country could accept. What appears on the surface to be only a trade war is really a full-fledged Cold War 2.0.

America’s wish list: other countries’ neoliberal subservience

At stake is whether China will agree to do what Russia did in the 1990s: put a Yeltsin-like puppet of neoliberal planners in place to shift control of its economy from its government to the U.S. financial sector and its planners. So the fight really is over what kind of planning China and the rest of the world should have: by governments to raise prosperity, or by the financial sector to extract revenue and impose austerity.

U.S. diplomacy aims to make other countries dependent on its agricultural exports, its oil (or oil in countries that U.S. majors and allies control), information and military technology. This trade dependency will enable U.S. strategists to impose sanctions that would deprive economies of basic food, energy, communications and replacement parts if they resist U.S. demands.

The objective is to gain financial control of global resources and make trade “partners” pay interest, licensing fees and high prices for products in which the United States enjoys monopoly pricing “rights” for intellectual property. A trade war thus aims to make other countries dependent on U.S.-controlled food, oil, banking and finance, or high-technology goods whose disruption will cause austerity and suffering until the trade “partner” surrenders.

China’s willingness to give Trump a “win”

Threats are cheap, but Mr. Trump can’t really follow through without turning farmers, Wall Street and the stock market, Walmart and much of the IT sector against him at election time if his tariffs on China increase the cost of living and doing business. His diplomatic threat is really that the US will cut its own economic throat, imposing sanctions on its own importers and investors if China does not acquiesce.

It is easy to see what China’s answer will be. It will stand aside and let the US self-destruct. Its negotiators are quite happy to “offer” whatever China has planned to do anyway, and let Trump brag that this is a “concession” he has won.

China has a great sweetener that I think President Xi Jinping should offer: It can nominate Donald Trump for the Nobel Peace Prize. We know that he wants what his predecessor Barack Obama got. And doesn’t he deserve it more? After all, he is helping to bring Eurasia together, driving China and Russia into an alliance with neighboring counties, reaching out to Europe.

Trump may be too narcissistic to realize the irony here. Catalyzing Asian and European trade independence, financial independence, food independence and IT independence from the threat of U.S. sanctions will leave the U.S. isolated in the emerging multilateralism.

America’s wish for a neoliberal Chinese Yeltsin (and another Russian Yeltsin for that matter)

A good diplomat does not make demands to which the only answer can be “No.” There is no way that China will dismantle its mixed economy and turn it over to U.S. and other global investors. It is no secret that the United States achieved world industrial supremacy in the late 19th and early 20th century by heavy public-sector subsidy of education, roads, communication and other basic infrastructure. Today’s privatized, financialized and “Thatcherized” economies are high-cost and inefficient.

Yet U.S. officials persist in their dream of promoting some neoliberal Chinese leader or “free market” party to wreak the damage that Yeltsin and his American advisors wrought on Russia. The U.S. idea of a “win-win” agreement is one in which China will be “permitted” to grow as long as it agrees to become a U.S. financial and trade satellite, not an independent competitor.

Trump’s trade tantrum is that other countries are simply following the same economic strategy that once made America great, but which neoliberals have destroyed here and in much of Europe. U.S. negotiators are unwilling to acknowledge that the United States has lost its competitive industrial advantage and become a high-cost rentier economy. Its GDP is “empty,” consisting mainly of the Finance, Insurance and Real Estate (FIRE) rents, profits and capital gains while the nation’s infrastructure decays and its labor is reduced to a prat-time “gig” economy. Under these conditions the effect of trade threats can only be to speed up the drive by other countries to become economically self-reliant.

 
A Four-Part Interview With Michael Hudson About His Forthcoming Book The Collapse of Antiquity
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Yves here. Classicist John Siman and Michael Hudson got to know each other at NC meetup last year, which led to the series of conversations that is codified in this series. Here, Hudson describes in antiquity, how oligarchs in Greece and Rome ended the practice of debt jubilees and became rentiers.

Note: Michael Hudson published … and forgive them their debts: Lending, Foreclosure, and Redemption From Bronze Age Finance to the Jubilee Year in November of last year. It is the first volume in what will be a trilogy on the long history of the tyranny of debt. I have interviewed him extensively as he writes the second volume, The Collapse of Antiquity.

John Siman: Michael, in the first volume of your history of debt — “

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and forgive them their debts, dealing with the Bronze Age Near East, Judaism and early Christianity — you showed how over thousands of years, going back to the invention of interest-bearing loans in Mesopotamia in the third millennium BC, many kings from a variety of Mesopotamian civilizations proclaimed Clean Slate debt cancellations on a more or less regular basis. And you showed that these royal proclamations of debt amnesty rescued the lower classes from debt bondage, maintaining a workable economic balance over many centuries. Because these kings were so powerful — and, let’s say, enlightened — they were able to prevent the social and economic polarization that is inevitable when there is no check on an oligarchic creditor class extracting exponentially increasing interest from debtors.

But now, as you write the second volume, your theme gets turned upside down. You are showing how the Greeks and the Romans learned about interest-bearing debt from their contacts with Middle Eastern civilizations, but tragically failed to institute programs of Clean Slate debt amnesty. Their failure has been a kind of albatross around the neck of Western economies ever since.

So I’d like to start this conversation in the late 500s BC, because we can see at that time the beginnings of both the Athenian democracy and the Roman Republic, plus of two more important civilizations. First was the Athens of Cleisthenes, who had led the overthrow the “tyrant” Hippias and became the father of Athenian democracy. Second, there was the Roman Republic of Lucius Junius Brutus, who overthrew the last of Rome’s legendary kings, the “tyrant” Tarquinius Superbus.Third was the Persian civilization of Cyrus the Great. He was a “divine king,” in many ways in the ancient tradition of Hammurabi. Fourth were the post-exilic Jews of Ezra and Nehemiah, who returned to Jerusalem, rebuilt the Temple and redacted the Bible. They were the inventors of the Jubilee years of Clean Slate debt forgiveness, even though they depicted the teaching as coming from Moses.

So, beginning with the late 500s BC, to what extent was the notion of Clean Slate debt amnesty remembered, and to what extent was it rejected?

Michael Hudson: Every kind of reform, from Mesopotamia to Greece, was put forth as if it simply restored the way things were in the beginning. There was no concept of linear progress in Antiquity. They thought that there was only one way to do things, so any reform must be the way the world was meant to be in the very beginning. All reformers would say that in the beginning everybody must have been equal. Their reform was aimed at restoring this state of affairs.

That’s why, when Plutarch and even the Spartan kings in the third century BC talked about canceling debts and promoting equality, they said that they were simply restoring the original system that Lycurgus had created. But there was no sign that Lycurgus had really done these things. It was made up. Lycurgus was a legendary figure. So was Moses in the Jewish tradition. When the Bible was redacted and put together after the return from Babylon, they put debt cancellation and land redistribution —the Jubilee Year — right in the center of Mosaic Law. So it seemed that this was not an innovation, but what Moses said in the beginning. They created a Moses figure much like the Greeks created a Lycurgus figure. They said that this is how things were meant to be. This is how it was in the beginning — and it just happened to be their own program.

This was a projection backwards: a retrojection. Felix Jacoby wrote that Athenian history was that way, basically party pamphleteering projecting their ideal program back to Solon or to whomever one might choose as a good guy to model. Writers would then say that this original good guy supported the program that they were proposing in their epoch. This was the ancient analogy to “Constitutional Originalism” in the United States as a frame for right-wing policies.

JS: So, ever since the 500s BC, the surefire way to critique the status quo has been to say you are trying to go back to the Garden of Eden or to some other pristine Saturnian Golden Age.

MH: Yes, you want to say that the unfair world around you isn’t what was meant, so this couldn’t have been the original plan, because the past had to be a successful takeoff. So the program that reformers always turned out to be what the Founding Fathers meant.

JS: That’s veryinspirational!

MH: The key is to appear as a conservative, not a radical. You accuse the existing status quo as being the beneficiaries of the radicals who have distorted the original Fair Plan that you’re trying to restore.

JS: So in the 500s BC we have Cyrus — and his inscription on the Cyrus Cylinder — boasting that he freed the Babylonians from their tax debt and bonds, and we have the post-exilic Jews proclaiming d’ror [דְּרֹ֛ור] in Leviticus 25, proclaiming “liberty throughout the land.” We also have the reforms of Cleisthenes in Athens, isonomia[ἰσονομία, literally, equality under the law], a genuine attempt at democracy. But let’s start with Rome. What do you want to say about the nova libertas, the “new liberty” proclaimed in Rome after the last king was expelled and the Republic was founded? Didn’t Brutus and his wellborn friends boast that they were the institutors of true liberty?

MH: Liberty for them was the liberty to destroy that of the population at large. Instead of cancelling debts and restoring land tenure to the population, the oligarchy created the Senate that protected the right of creditors to enslave labor and seize public as well as private lands (just as had occurred in Athens before Solon). Instead of restoring a status quo ante of free cultivators — free of debt and tax obligations, as Sumerian amargi and Babylonian misharumand andurarum meant — the Roman oligarchy accused anyone of supporting debtor rights and opposing its land grabs of “seeking kingship.” Such men were murdered, century after century.

Rome was turned into an oligarchy, an autocracy of the senatorial families. Their “liberty” was an early example of Orwellian Doublethink. It was to destroy everybody else’s liberty so they could grab whatever they could, enslave the debtors and create the polarized society that Rome became.

JS: OK, but this program worked. The Republic grew and grew and conquered everyone else for century after century. Then the Principate became the supreme power in the Western world for several more centuries.

 
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Putin’s approval rating is high, but it has declined over the past year. The decline is mainly related to domestic policy. Apparently, the public perceives recent Kremlin economic policy as a continuation of the disastrous policies that Washington imposed on Russia in the 1990s when Russia was loaded up with foreign debt while state assets were privatized and plundered by oligarchs sponsored by the West who “cashed out” by selling the assets to foreigners.

The approval rating of Putin and the government dropped in response to the recent increases in the retirement age and value added tax. The former raised concerns about pension security and reminded Russians of the collapse of Soviet pensions. The latter reduced consumer disposable income and lowered consumer demand and the economic growth rate. These policies represent austerity imposed on the domestic population instead of on foreign creditors and reflect the neoliberal view that austerity leads to prosperity.

Russia is experiencing capital outflows due to the Russian private sector’s repayment of loans to Western creditors. Russia has experienced over $25 billion a year of capital outflows since the early 1990s, accumulating to over a trillion dollars. This money could have been invested in Russia itself to raise the productivity and living standards of its citizens. The outflow puts the ruble under pressure, and the interest payments draw money out of the country away from Russian uses. If it were not for these outflows, the value of the ruble and Russian wages would be higher.

The US sanctions give Russians every reason not to repay their foreign loans; yet Russians continue to enable their own exploitation by foreigners, as neoliberal economists have told them that there is no alternative.

Russia’s economic problems are due to the looting of the country during the Yeltsin years, to the imposition of neoliberal economics by the Americans, and to financialization as a result of the privatizations.

Russia’s stock market became the darling of the West in the mid-1990s as underpriced mining, oil and infrastructure were sold for a fraction of their value to foreigners, thus transferring Russian income streams abroad instead of leaving the income to be invested in Russia. In effect, Russians were told that the way for their country to get rich was to let kleptocrats, oligarchs, and their U.S. and British stock brokers make hundreds of billions of dollars by privatizing Russia’s public domain.

Washington took advantage of the gullible and trusting Yeltsin government to do as much political and economic damage as possible to Russia. The country was torn apart. Historic parts of Russia such as Ukraine were split off into separate countries. Washington even insisted that Crimea, long a part of Russia and the country’s warm water port, was retained by Ukraine when the Soviet Union was dismembered.

People’s savings (called the “overhang”) were wiped out with hyperinflation. Privatization was not accompanied by new investment. The economy was not industrialized, but financialized. The proceeds from privatization were deposited by the Russian government in private banks where the money was used to privatize more Russian assets. The banking system thus served to finance the transfer of ownership, not to fund new investment, and the proceeds were transferred abroad. Russia was turned into a financial colony in which proconsuls created wealth at the top.

Today privatization continues in the de facto privatization of public assets, such as charging fees for use of federal highways. As the Russian economic profession has been brainwashed by the Americans, the country is devoid of economic leadership.

We have pointed out on more than one occasion that it is nonsensical for Russia to in-debt itself by borrowing abroad in order to finance investments. The Russians were sold a bill of goods that the central bank cannot issue rubles unless the rubles are backed by dollars. This advice served to prevent Russia from using its own central bank to fund public infrastructure and private investment projects by issuing rubles. In other words, Russia might as well not have a central bank.

Apparently, Russian economists do not understand that Russia does not spend borrowed foreign currencies inside Russia. If Russia takes a foreign loan, the borrowed money goes into central bank reserves. The central bank then issues the ruble equivalent to be spent on the project, and the cost of the project goes up by the pointless interest paid to the foreign lender.

As far as we can tell, the Institute of Economics of the Russian Academy of Sciences is so brainwashed by neoliberal economics that their minds are closed to correct policies. The failure of Russian economic leadership imposes far more costs on the Russian economy than do Washington’s sanctions.

Intellectual leadership is weak with many in the intellectual class favoring integration with the West rather than with the East. To be part of the West has been an important goal since Peter the First and Catherine the Great, and the Russian Atlanticist Integrationists cannot let go of the ancient goal. This goal no longer makes sense. Not only does it imply Russian vassalage, but also Europe is no longer the center of power. The East is rising, and China is the center and will be until the Chinese destroy themselves by copying the Western neoliberal policy of financializing the economy.

Although Putin is a leader and has a sense of Russian purpose, many officials use their office not in service to Russia but in service to their own wealth, much of which is held abroad. Corruption and embezzlement seem to be the purpose of many office holders. Scandals abound among members of government and reflect badly on Putin and Medvedev.

 
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Introduction: There is a great deal of controversy about the true shape of the Venezuelan economy and whether Hugo Chavez’ and Nicholas Maduro’s reform and policies were crucial for the people of Venezuela or whether they were completely misguided and precipitated the current crises. Anybody and everybody seems to have very strong held views about this. But I don’t simply because I lack the expertise to have any such opinions. So I decided to ask one of the most respected independent economists out there, Michael Hudson, for whom I have immense respect and whose analyses (including those he co-authored with Paul Craig Roberts) seem to be the most credible and honest ones you can find. In fact, Paul Craig Roberts considers Hudson the “best economist in the world“!

I am deeply grateful to Michael for his replies which, I hope, will contribute to a honest and objective understanding of what really is taking place in Venezuela.

The Saker

The Saker: Could you summarize the state of Venezuela’s economy when Chavez came to power?

Michael Hudson: Venezuela was an oil monoculture. Its export revenue was spent largely on importing food and other necessities that it could have produced at home. Its trade was largely with the United States. So despite its oil wealth, it ran up foreign debt.

From the outset, U.S. oil companies have feared that Venezuela might someday use its oil revenues to benefit its overall population instead of letting the U.S. oil industry and its local comprador aristocracy siphon off its wealth. So the oil industry – backed by U.S. diplomacy – held Venezuela hostage in two ways.

First of all, oil refineries were not built in Venezuela, but in Trinidad and in the southern U.S. Gulf Coast states. This enabled U.S. oil companies – or the U.S. Government – to leave Venezuela without a means of “going it alone” and pursuing an independent policy with its oil, as it needed to have this oil refined. It doesn’t help to have oil reserves if you are unable to get this oil refined so as to be usable.

Second, Venezuela’s central bankers were persuaded to pledge their oil reserves and all assets of the state oil sector (including Citgo) as collateral for its foreign debt. This meant that if Venezuela defaulted (or was forced into default by U.S. banks refusing to make timely payment on its foreign debt), bondholders and U.S. oil majors would be in a legal position to take possession of Venezuelan oil assets.

These pro-U.S. policies made Venezuela a typically polarized Latin American oligarchy. Despite being nominally rich in oil revenue, its wealth was concentrated in the hands of a pro-U.S. oligarchy that let its domestic development be steered by the World Bank and IMF. The indigenous population, especially its rural racial minority as well as the urban underclass, was excluded from sharing in the country’s oil wealth. The oligarchy’s arrogant refusal to share the wealth, or even to make Venezuela self-sufficient in essentials, made the election of Hugo Chavez a natural outcome.

The Saker: Could you outline the various reforms and changes introduced by Hugo Chavez? What did he do right, and what did he do wrong?

Michael Hudson: Chavez sought to restore a mixed economy to Venezuela, using its government revenue – mainly from oil, of course – to develop infrastructure and domestic spending on health care, education, employment to raise living standards and productivity for his electoral constituency.

What he was unable to do was to clean up the embezzlement and built-in rake-off of income from the oil sector. And he was unable to stem the capital flight of the oligarchy, taking its wealth and moving it abroad – while running away themselves.

This was not “wrong”. It merely takes a long time to change an economy’s disruption – while the U.S. is using sanctions and “dirty tricks” to stop that process.

The Saker: What are, in your opinion, the causes of the current economic crisis in Venezuela – is it primarily due to mistakes by Chavez and Maduro or is the main cause US sabotage, subversion and sanctions?

Michael Hudson: There is no way that Chavez and Maduro could have pursued a pro-Venezuelan policy aimed at achieving economic independence without inciting fury, subversion and sanctions from the United States. American foreign policy remains as focused on oil as it was when it invaded Iraq under Dick Cheney’s regime. U.S. policy is to treat Venezuela as an extension of the U.S. economy, running a trade surplus in oil to spend in the United States or transfer its savings to U.S. banks.

By imposing sanctions that prevent Venezuela from gaining access to its U.S. bank deposits and the assets of its state-owned Citco, the United States is making it impossible for Venezuela to pay its foreign debt. This is forcing it into default, which U.S. diplomats hope to use as an excuse to foreclose on Venezuela’s oil resources and seize its foreign assets much as Paul Singer hedge fund sought to do with Argentina’s foreign assets.

Just as U.S. policy under Kissinger was to make Chile’s “economy scream,” so the U.S. is following the same path against Venezuela. It is using that country as a “demonstration effect” to warn other countries not to act in their self-interest in any way that prevents their economic surplus from being siphoned off by U.S. investors.

The Saker: What in your opinion should Maduro do next (assuming he stays in power and the USA does not overthrow him) to rescue the Venezuelan economy?

Michael Hudson: I cannot think of anything that President Maduro can do that he is not doing. At best, he can seek foreign support – and demonstrate to the world the need for an alternative international financial and economic system.

He already has begun to do this by trying to withdraw Venezuela’s gold from the Bank of England and Federal Reserve. This is turning into “asymmetrical warfare,” threatening to de-sanctify the dollar standard in international finance. The refusal of England and the United States to grant an elected government control of its foreign assets demonstrates to the entire world that U.S. diplomats and courts alone can and will control foreign countries as an extension of U.S. nationalism.

The price of the U.S. economic attack on Venezuela is thus to fracture the global monetary system. Maduro’s defensive move is showing other countries the need to protect themselves from becoming “another Venezuela” by finding a new safe haven and paying agent for their gold, foreign exchange reserves and foreign debt financing, away from the dollar, sterling and euro areas.

 
• Category: Economics, Foreign Policy • Tags: Dollar, Gold, Neoliberalism, Oil, Venezuela 
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The end of America’s unchallenged global economic dominance has arrived sooner than expected, thanks to the very same Neocons who gave the world the Iraq, Syria and the dirty wars in Latin America. Just as the Vietnam War drove the United States off gold by 1971, its sponsorship and funding of violent regime change wars against Venezuela and Syria – and threatening other countries with sanctions if they do not join this crusade – is driving European and other nations to create their alternative financial institutions.

This break has been building for quite some time, and was bound to occur. But who would have thought that Donald Trump would become the catalytic agent? No left-wing party, no socialist, anarchist or foreign nationalist leader anywhere in the world could have achieved what he is doing to break up the American Empire. The Deep State is reacting with shock at how this right-wing real estate grifter has been able to drive other countries to defend themselves by dismantling the U.S.-centered world order. To rub it in, he is using Bush and Reagan-era Neocon arsonists, John Bolton and now Elliott Abrams, to fan the flames in Venezuela. It is almost like a black political comedy. The world of international diplomacy is being turned inside-out. A world where there is no longer even a pretense that we might adhere to international norms, let alone laws or treaties.

The Neocons who Trump has appointed are accomplishing what seemed unthinkable not long ago: Driving China and Russia together – the great nightm1are of Henry Kissinger and Zbigniew Brzezinski. They also are driving Germany and other European countries into the Eurasian orbit, the “Heartland” nightmare of Halford Mackinder a century ago.

The root cause is clear: After the crescendo of pretenses and deceptions over Iraq, Libya and Syria, along with our absolution of the lawless regime of Saudi Arabia, foreign political leaders are coming to recognize what world-wide public opinion polls reported even before the Iraq/Iran-Contra boys turned their attention to the world’s largest oil reserves in Venezuela: The United States is now the greatest threat to peace on the planet.

Calling the U.S. coup being sponsored in Venezuela a defense of democracy reveals the Doublethink underlying U.S. foreign policy. It defines “democracy” to mean supporting U.S. foreign policy, pursuing neoliberal privatization of public infrastructure, dismantling government regulation and following the direction of U.S.-dominated global institutions, from the IMF and World Bank to NATO. For decades, the resulting foreign wars, domestic austerity programs and military interventions have brought more violence, not democracy.

In the Devil’s Dictionary that U.S. diplomats are taught to use as their “Elements of Style” guidelines for Doublethink, a “democratic” country is one that follows U.S. leadership and opens its economy to U.S. investment, and IMF- and World Bank-sponsored privatization. The Ukraine is deemed democratic, along with Saudi Arabia, Israel and other countries that act as U.S. financial and military protectorates and are willing to treat America’s enemies are theirs too.

A point had to come where this policy collided with the self-interest of other nations, finally breaking through the public relations rhetoric of empire. Other countries are proceeding to de-dollarize and replace what U.S. diplomacy calls “internationalism” (meaning U.S. nationalism imposed on the rest of the world) with their own national self-interest.

This trajectory could be seen 50 years ago (I described it in Super Imperialism [1972] and Global Fracture [1978].) It had to happen. But nobody thought that the end would come in quite the way that is happening. History has turned into comedy, or at least irony as its dialectical path unfolds.

For the past half-century, U.S. strategists, the State Department and National Endowment for Democracy (NED) worried that opposition to U.S. financial imperialism would come from left-wing parties. It therefore spent enormous resources manipulating parties that called themselves socialist (Tony Blair’s British Labour Party, France’s Socialist Party, Germany’s Social Democrats, etc.) to adopt neoliberal policies that were the diametric opposite to what social democracy meant a century ago. But U.S. political planners and Great Wurlitzer organists neglected the right wing, imagining that it would instinctively support U.S. thuggishness.

The reality is that right-wing parties want to get elected, and a populist nationalism is today’s road to election victory in Europe and other countries just as it was for Donald Trump in 2016.

Trump’s agenda may really be to break up the American Empire, using the old Uncle Sucker isolationist rhetoric of half a century ago. He certainly is going for the Empire’s most vital organs. But it he a witting anti-American agent? He might as well be – but it would be a false mental leap to use “cui bono” to assume that he is a witting agent.

After all, if no U.S. contractor, supplier, labor union or bank will deal with him, would Vladimir Putin, China or Iran be any more naïve? Perhaps the problem had to erupt as a result of the inner dynamics of U.S.-sponsored globalism becoming impossible to impose when the result is financial austerity, waves of population flight from U.S.-sponsored wars, and most of all, U.S. refusal to adhere to the rules and international laws that it itself sponsored seventy years ago in the wake of World War II.

Dismantling international law and its courts

Any international system of control requires the rule of law. It may be a morally lawless exercise of ruthless power imposing predatory exploitation, but it is still The Law. And it needs courts to apply it (backed by police power to enforce it and punish violators).

Here’s the first legal contradiction in U.S. global diplomacy: The United States always has resisted letting any other country have any voice in U.S. domestic policies, law-making or diplomacy. That is what makes America “the exceptional nation.” But for seventy years its diplomats have pretended that its superior judgment promoted a peaceful world (as the Roman Empire claimed to be), which let other countries share in prosperity and rising living standards.

At the United Nations, U.S. diplomats insisted on veto power. At the World Bank and IMF they also made sure that their equity share was large enough to give them veto power over any loan or other policy. Without such power, the United States would not join any international organization. Yet at the same time, it depicted its nationalism as protecting globalization and internationalism. It was all a euphemism for what really was unilateral U.S. decision-making.

Inevitably, U.S. nationalism had to break up the mirage of One World internationalism, and with it any thought of an international court. Without veto power over the judges, the U.S. never accepted the authority of any court, in particular the United Nations’ International Court in The Hague. Recently that court undertook an investigation into U.S. war crimes in Afghanistan, from its torture policies to bombing of civilian targets such as hospitals, weddings and infrastructure. “That investigation ultimately found ‘a reasonable basis to believe that war crimes and crimes against humanity.’”[1]

Donald Trump’s National Security Adviser John Bolton erupted in fury, warning in September that: “The United States will use any means necessary to protect our citizens and those of our allies from unjust prosecution by this illegitimate court,” adding that the UN International Court must not be so bold as to investigate “Israel or other U.S. allies.”

 
How the Bronze Age saved itself from debt serfdom
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There has been an explosion of discussion about whether to cancel student debts. Critics of the idea point out that wealthy people would be the main gainers, posing moral hazard. The debate has has quickly slipped into a discussion of modern economies and whether it was moral to cancel the debts of people who are in arrears, when some people have struggled to keep current on their payments.”

Bankers and bondholders love this argument, because it says, “Don’t cancel debts. Make everyone pay, or someone will get a free ride.”

Suppose Solon would have thought this in Athens in 594 BC. No banning of debt bondage. No Greek takeoff. More oligarchy Draco-style.

Suppose Hammurabi, the Sumerians and other Near Eastern rulers would have thought this. Most of the population would have fallen into bondage and remained there instead of being liberated and had their self-support land restored. The Dark Age would have come two thousand years earlier.

My book “And forgive them their debts”: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year (available on Amazon) is about the origins of economic organization ad enterprise in the Bronze Age, and how it shaped the Bible. It’s not about modern economies. But the problem is – as the reviewer mentioned – that the Bronze Age and early Western civilization was shaped so differently from what we think of as logical and normal, that one almost has to rewire one’s brain to see how differently the archaic view of economic survival and enterprise was.

Credit economies existed long before money and coinage. These economies were agricultural. Grain was the main means of payment – but it was only paid once a year, at harvest time. You can imagine how awkward it would be to carry around grain in your pocket and measure it out every time you had a beer.

We know how Sumerians and Babylonians paid for their beer (which they drank through straws, and which was cleaner than the local water). The ale-woman marked it up on the tab she kept. The tab had to be paid at harvest time, on the threshing floor, when the grain was nice and fresh. The ale-woman then paid the palace or temple for its advance of wholesale beer for her to retail during the year.

If the crops failed, or if there was a flood or drought, or a military battle, the cultivators couldn’t pay. So what was the ruler to do? If he said, “You owe the tax collector, and can’t pay. Now you have to become his slave and let him foreclose on your land.”

Suddenly, you would have had a slave society. The cultivators couldn’t serve in the army, and couldn’t perform their corvée duties to build local infrastructure.

To avoid this, the ruler simply cancelled the debts (most of which were owed ultimately to the palace and its collectors). The cultivators didn’t have to pay the ale-women. And the ale women didn’t have to pay the palace.

All this was spelled out in the Clean Slate proclamations by rulers of Hammurabi’s dynasty in Babylonia (2000-1600 BC), and neighboring Near Eastern realms. They recognized that there was a cycle of buildup of debt, reaching an unpayably high overhead, followed by a cancellation to restore the status quo ante in balance.

This concept is very hard for Westerners to understand. Yet it was at the center of the Old and New Testaments, in the form of the Jubilee Year – taken out of the hands of kings and placed at the center of Judaic religion. My book documents how this occurred.

When debts were cancelled in Babylonia and other Bronze Age Near Eastern realms, it would have been against their way of thinking to complain that some debtors were benefiting from being freed from debts that other people had paid. In the first place, all cultivators became debtors during the growing season, with payments for everything from agricultural inputs to beer at the local ale-house to be paid on the threshing floor at harvest time. So annulling such debts benefited the population at large.

With regard to individuals who had borrowed out of need, it was recognized that if some could not keep up, it was because they were poor or unable to do so. Mutual aid became the principle of helping people who were sick, widows who lost their husbands or other factors that obliged them to run up debts. Not to have helped such people would have deprived the community of their productive labor.

Conspicuously absent from ancient moral values is the modern “moral hazard” theory to play solvent individuals against debtors. The point of reference was what would happen if people were not forgiven their debts. How would this have affected the community as a whole?

The answer is that debtors unable to pay would have fallen into bondage to their creditor, working on his land, and ultimately have lost their own land. They therefore would not be available to work on their own land to grow crops to pay taxes and other obligations to the palace, or to provide corvée labor on public works, or serve in the military. Clean Slate proclamations were part of the community’s self-preservation.

At the same time, the moral opprobrium was felt toward creditors. They were blamed for impoverishing society at large by their selfishness. The Greeks called his hubris, money-love and wealth addiction. And rulers saw an independent creditor class turning its wealth into large landholdings of creating a rival power to the palace. In addition to cancelling debts owed to the palace, rulers thus restored widespread independence from large wealthy families whose economic interest lay in resisting royal Clean Slates. Large fortunes thus seem to have disappeared in Larsa and Babylonia around the 18th and 17th centuries BC. They didn’t have any President Obama to defend them from the “mob with pitchforks.” Hammurabi said that he was serving Shamash, the sun-god of justice. And Nanshe was a prototype for Greek Nemesis, punishing hubris and abusive wealth, protecting the poor and needy (already in 3rd-millennium Sumer).

The context for today’s debt overhead is one in which most debts are owed to private-sector banks, bondholders and other creditors. Also, not everyone is in debt – and society is rich enough to afford imposing a loss of status and self-reliance on large classes of debtors. Still, there is a logic in forgiving debts owed by the needy (but not by the wealthy).

Creditors argue, for instance, that if you forgive debts for a class of debtors – say, student loans – that there will be some “free riders.” Students freed from debt will benefit, while students who were able to carry and pay off their debts had to “meet their obligations.” It is further argued that if student debts are forgiven (or “junk mortgage” loans written down to fair real estate valuations), people will expect to have bad loans written off. This is called a “moral hazard,” as if debt writedowns are a hazard to the economy, and hence, immoral.

This is a typical example of Orwellian doublespeak engineered by public relations factotums for bondholders and banks. The real hazard to every economy is the tendency for debts to grow beyond the ability of debtors to pay. If large numbers of students remain liable to pay student loans without having obtained well enough jobs to pay, this will prevent them from being able to qualify for mortgage to buy a home and start a family. Many students today are obliged to keep living with their parents, and are unable to marry. The result is deepening economic austerity as a result of the debt overhead.

Meanwhile, defaults on student loans to for-profit colleges are projected as rising toward 40%. Is it worth it to say that to prevent giving these impecunious students a “free lunch,” it is worth keeping a large swath of the population poor and unmarried?

 
• Category: Economics • Tags: Consumer Debt, Debt 
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The aim of classical economics was to tax unearned income, not wages and profits. The tax burden was to fall on the landlord class first and foremost, then on monopolists and bankers. The result was to be a circular flow in which taxes would be paid mainly out of rent and other unearned income. The government would spend this revenue on infrastructure, schools and other productive investment to help make the economy more competitive. Socialism was seen as a program to create a more efficient capitalist economy along these lines.

I’m Bonnie Faulkner. Today on Guns and Butter, Dr. Michael Hudson. Today’s show: The Vocabulary of Economic Deception. Dr. Hudson is a financial economist and historian. He is President of the Institute for the Study of Long-Term Economic Trends, a Wall Street financial analyst and distinguished Research Professor of Economics at the University of Missouri, Kansas City. His 1972 book Super-Imperialism: The Economic Strategy of American Empire is a critique of how the United States exploited foreign economies through the IMF and World Bank. His latest books are, Killing the Host: How Financial Parasites and Debt Destroy the Global Economy and J Is for Junk Economics – A Guide to Reality in an Age of Deception. Today we discuss J is for Junk Economics, an A to Z guide that describes how the world economy really works, and who the winners and losers really are. We cover contemporary terms that are misleading or poorly understood, as well as many important concepts that have been abandoned – many on purpose – from the long history of political economy.

BONNIE FAULKNER: Dr. Michael Hudson, welcome to Guns and Butter again.

MICHAEL HUDSON: It’s good to be back, Bonnie.

BONNIE FAULKNER: You write that your recent book, J Is for Junk Economics, a dictionary and accompanying essays,was drafted more than a decade ago for a book to have been entitled The Fictitious Economy. You tried several times without success to find a publisher. Why wouldn’t publishers at the time take on your book?

MICHAEL HUDSON: Most publishers like to commission books that are like the last one that sold well. Ten years ago, people wanted to read about how the economy was doing just fine. I was called Dr. Doom, which did very well for me in the 1970s when I was talking about the economy running into debt. But they wanted upbeat books. If I were to talk about how the economy is polarizing and getting poorer, they wanted me to explain how readers could make a million dollars off people getting more strapped as the economy polarizes. I didn’t want to write a book about how to get rich by riding the neoliberal wave dismantling of the economy. I wanted to create an alternative.

If I wanted to ride the wave of getting rich by taking on more debt, I would have stayed on Wall Street. I wanted to explain how the way in which the economy seemed to be getting richer was actually impoverishing it. We are in a new Gilded Age masked by a vocabulary used by the media via television and papers like The New York Times that are euphemizing what was happening.

A euphemism is a rhetorical trick to make a bad phenomenon look good. If a landlord gets rich by gentrifying a neighborhood by exploiting tenants and forcing them out, that’s called wealth creation if property values and rents rise. If you can distract people to celebrate wealth and splendor at the top of the economic pyramid, people will be less focused on how the economy is functioning for the bottom 99%.

BONNIE FAULKNER: Can you describe the format of J Is for Junk Economics – A Guide to Reality in an Age of Deception as an A-to-Z dictionary with additional essays? It seems to me that this format makes a good reference book that can be picked up and read at any point.

MICHAEL HUDSON: That’s what I intended. I wrote it as a companion volume to my outline of economic theory, Killing the Host, which was about how the financial sector has taken over the economy in a parasitic way. I saw the vocabulary problem and also how to solve it: If people have a clear set of economic concepts, basically those of classical economics – value, price and rent – the words almost automatically organize themselves into a worldview. A realistic vocabulary and understanding of what words mean will enable its users to put them together to form an inter-connected system.

I wanted to show how junk economics uses euphemisms and what Orwell called Doublethink to confuse people about how the economy works. I also wanted to show that what’s called think tanks are really lobbying institutions to do the same thing that advertisers for toothpaste companies and consumer product companies do: They try to portray their product – in this case, neoliberal economics, dismantling protection of the environment, dismantling consumer protection and stopping of prosecution of financial fraud – as “wealth creation” instead of impoverishment and austerity for the economy at large. So basically, my book reviews the economic vocabulary and language people use to perceive reality.

When I was in college sixty years ago, they were still teaching the linguistic ideas of Benjamin Lee Whorf. His idea was that language affects how people perceive reality. Different cultures and linguistic groups have different modes of expression. I found that if I was going to a concert and speaking German, I would be saying something substantially different than if I were speaking English.

Viewing the economic vocabulary as propaganda, I saw that we can understand how the words you hear as largely propaganda words. They’ve changed the meaning to the opposite of what the classical economists meant. But if you untangle the reversal of meaning and juxtapose a more functional vocabulary you can better understand what’s actually happening.

BONNIE FAULKNER: You write that “the terms rentier and usury that played so central a role in past centuries now sound anachronistic and have been replaced with more positive Orwellian doublethink,” which is what you’ve begun to explain. In fact, your book J is for Junk – A Guide to Reality in an Age of Deception is all about the depredation of vocabulary to hide reality, particularly the state of the economy. Just as history is written by the victors, you point out that economic vocabulary is defined by today’s victors, the rentier financial class. How is this deception accomplished?

 
• Category: Economics • Tags: Neoliberalism, Wall Street 
Michael Hudson
About Michael Hudson

Michael Hudson is President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of The Bubble and Beyond (2012), Super-Imperialism: The Economic Strategy of American Empire (1968 & 2003), Trade, Development and Foreign Debt (1992 & 2009) and of The Myth of Aid (1971).

ISLET engages in research regarding domestic and international finance, national income and balance-sheet accounting with regard to real estate, and the economic history of the ancient Near East.

Michael acts as an economic advisor to governments worldwide including Iceland, Latvia and China on finance and tax law.