By STANDARD SHAEFER
(Interview with Michael Hudson, author of Super Imperialism, Pluto Press, 2003)
Now that even the LA Times has begun to show a modicum of willingness to discuss US foreign policy in terms of a potential imperialism, it has become clear that those on the right have avoided this debate so far only by sticking to the strictest, most out-dated notion of empire. The left, however, for too long has been satisfied with talking about cultural imperialism and corporate exploitation, both of which are serious problems. Recently, however, the left has often clumsily explained the economic motives for the war in terms of big oil, sheer greed and more ephemerally as a desire to weaken the euro. This is all likely, but it also reveals the degree to which the left’s understanding of finance is outdated. This is not their fault, however. Not only do university economics departments remain dominated by the ersatz laissez faire notions of the Chicago School, but so are US Government, the World Bank, the IMF, the WTO and the European central banks. The result has been the censorship of those few economists willing to point out that the US is very much the center of imperialism, unwilling to engage in the “free trade” or laissez faire that it promotes abroad.
Only recently, when World Bank head and Nobel Prize winner Joseph Stiglitz resigned in order to speak out against the sister institution of the IMF did this get serious attention. But Stiglitz remains defensive of the World Bank itself and continues to believe its goals despite no evidence that anything good has come from it, overlooking its complicity in promoting structural adjustments that have proved ecologically destructive and entirely in the American financial interests. The real expose was published over thirty years earlier despite an active campaign to keep the story out of the press, out of the university and out of the government.
Shortly after the US was forced off the gold standard, a young economist by the name of Michael Hudson received a grant to study the effect of the demonetarization of gold. His report was made not only to the US government, but also to Wall Street firms such as his former employers, the Chase Manhattan Bank and Arthur Andersen. The problem was that despite his phrasing the situation in the most critical terms, his report revealed that the US was on inadvertently on the verge of the greatest boondoggle of all times.
Hudson himself describes resistance to his message in a new preface to the recently reprinted ground-breaking book Super Imperialism: The Origin and Fundamentals of US World Dominance. Hudson’s is an infuriating story, only partially available in this volume, involving at least two incidents where university board members and economic professors threatened to resign if his books on trade policy were published. The US Treasury Department even went so far as to alter the way it reports statistic on the balance of payments impact of the u.s. government to prevent further study into how the US government actually made money on its “aid” programs. More important, prof. Hudson explains how the US managed to use its debtor status to exploit the world.
By going off the gold standard at precise moment that it did, the United States obliged the world’s central banks to finance the U.S. balance-of-payments deficit by using their surplus dollars to buy U.S. Treasury bonds, whose volume quickly exceeded America’s ability or intention to pay. All the dollars that end up in European, Asian, and Eastern central banks as result of American’s excessive import-imbalance, have no place to go but the U.S. Treasury. Because of the restrictions placed on the central banks_ there is no place else for this money to go_these countries were forced to buy US treasuries or else accept the worthlessness of the dollars received through trade.
Like most people, I understood economic imperialism as an open game. Any corporation could invest in another country and extract profits, but apparently this is only one level. ‘Super’ imperialism occurs and can only occur between the U. S. government and the foreign central banks. To understand this further, I decided to speak to Michael Hudson directly.
Standard Schaefer: How aware was the Nixon administration of the balance of payments issue? Did they realize that it would actually increase US economic dominance?
Michael Hudson: The Nixon people didn’t realize. I got an $80,000 grant from the Hudson Institute to explain it to them. The Nixon people said, “Oh gee. That’s great”. Then they turned my analysis of imperialism into a “How To” book. I had written it as a “How Not To” book, but the nation doing the exploitation was more interested in learning how the system worked than were the countries being exploited. I started to consult for Canada, Mexico and other countries. Canada had been accommodating toward the World Bank and IMF, but when they realized the extent to which these organizations were rigged to further the balance of payments problem, they felt exploited.
SS: Do you believe the neo-conservatives advising Bush at the moment are more aware of “benefits” of this balance of payments issue, what you call the US treasury standard?
MH: They know it’s a rip off, yes. And they absolutely want it to continue. Being Chicago School monetarists, they think that America’s financial free ride should be built into the world economy as if it were perfectly natural for the rest of the world to adjust its economies to help the U.S. economy. But among sovereign regional blocs this kind of subservience can only be transitory.
SS: What is the role of militarism at this stage? Can perpetual war be seen as a sort of imperial Works Progress Administration that jumpstarts the domestic economy? At what point does the cycle collapse and can it do so internally_or as you’ve suggested, does it only stop when Asia, Europe, and the East finally refuse to buy US treasuries?
MH: The US Treasury-bill standard finances the military, but doesn’t need imperial war to succeed. So far it’s being accepted voluntarily, as other countries have not yet figured out how to extricate themselves from a system that is bleeding them more and more.
To date they haven’t tried very hard to create an alternative, but now the system could backfire, as Bush’s aggressive diplomacy is prompting Europe, Russia and China to stand up for their own self-interest. And that’s what they need to do. They didn’t stand up for their self-interest when the World Bank and IMF were formed, but now they have to do so.
People are now beginning to raise the question of whether countries really need their central banks, which are essentially lobbyists for the Washington Consensus, as are the World Bank and the IMF. They follow the Chicago School in lobbying for high rates and a large cushion of unemployed so as to maximize financial power relative to labor and the products it produces. Financial exploitation now exceeds the old-fashioned exploitation of labor by actually employing it, albeit for low wages.
Central banks are staffed by Chicago School monetarists, and are allowed to take only a 3% deficit whereas in the US it is limitless. Europe and Asia should abandon the false start with their central banks and should rely on their Treasuries, which are Keynesian or could be Keynesian. The national Treasuries should set up a credit system with bonds and IOUs based on euros and other currencies.
SS: Okay, but isn’t it most likely that the whole thing ends in a crisis, one more devastating to the US than the “Asian Flu”? What would this crisis look like?
MH: There will be a crisis when Europe, Asia and Latin America finally break away. The U.S. has said it can’t pay back its dollar debts and doesn’t intend to. As an alternative, it has proposed “funding the US dollar overhang” into the world monetary system. Other countries would get IMF credit equal to their dollar holdings, but these holdings no longer would be US Treasury obligations. The US would wipe its debt to foreign central banks off the hook. This would mean that it would have got all the balance-of-payments deficits for the past 32 years for free, with no quid pro quo.
The US has been proposing this for 30 years whenever Europe raises the issue of payment for its dollar holdings. American diplomats have said that they won’t allow central banks to use their dollars to buy US corporations, for instance. When OPEC countries proposed this after 1973, the US Treasury reportedly informed them that this would be considered an act of war. As for Europe, it never has pushed its own self-interest in the World Bank or the IMF.
SS: How does is this related to the economic bubble?
MH: Since Europe and Asia have financed most of the US Treasury’s budget deficits in recent decades, Americans haven’t had to do this. As a result, their bond market has been freed from government bond issues, so US investors have been able to put their money into the stock market and real estate, for better or worse. As these markets rose during the 1980s and ’90s, they attracted foreign private-sector dollars into the US market. This helped finance the bubble.
Meanwhile, America’s federal budget deficits can go on without limit, precisely because of the balance of payment deficit. The larger the payments deficit, the more dollars end up in the hands of foreign central banks, to be recycled into the purchase of US Treasury securities. This means that the US government’s deficit – including the military spending in Iraq, by the way – is financed by foreign governments. This will continue despite the fact the debt already has grown greater than the ability to pay, until these countries finally break away from the system.
As for the bubble economy, pensions and Social Security will go first. The US can’t afford to bail them out and still plan the giveaways to the wealthiest 10 percent of the population who are the net creditors to the bottom 90 percent. Pension obligations were expected to absorb only 5 or 10 percent of production costs, but now they are absorbing nearly all the reported profits, and threaten to eat into the money available to repay the banks and bondholders. The big investors want to be paid, and this means taking money that was earmarked for employees.
The only question is whether the US government will bail out the individual wealthy investors. The working motto in such cases is that big fish always eat little fish. Breughel had a great etching on this topic.
The states and the municipalities will go next. They are among the little fish. Bush’s tax cuts have slashed their tax receipts. Cutting taxes for New York City and most other localities is causing layoffs and widening unemployment, just the opposite from what Bush’s economists claim to be the case. Today’s mode of supply side economics will lead to shrinking markets, shrinking employment and intensify the financial squeeze on California and other states, as well as cities throughout the country.
SS: Are there people in Washington who recognize this inter-relation?
MH: There are people in Washington that see this. But they tend not to speak up, because most economists or others who see what’s happening – and write about it or otherwise draw attention to it – are fired or blacklisted for not being team players. There’s a kind of censorship that happens if you’re not a Chicago monetarist. When the University of Toronto accepted one my books for publication and the economics department there heard about it, there were threats that faculty members would resign if they published my book and that the editor of the University of Toronto press would be fired if he went ahead with it.
SS: You’re kidding.
MH: No. The Chicago School’s monetarists are intolerant and censorial. About the only alternative is the University of Missouri at Kansas City which has a heterodox economics department that teaches an alternative to monetarism. That’s where I have my current professorship.
SS: They’re not Marxists?
MH: Marxists are not so much concerned with finance these days. You have to work for some of the large financial institutions to get a working knowledge of the balance of payments deficit and the flow of funds. Their principles are counter-intuitive. Even when one reads and understands the words that describe them, it’s necessary to wire up the brain to think in terms of how international financial markets actually operate.
The recent investigations and prosecutions of New York Attorney General Eliot Spitzer have shown that the largest financial institutions have operated much like criminal enterprises, from Citibank/Travellers and Merrill-Lynch on down. They’ve come under indictment, but when the problem is so widespread they’ve decided that the only reasonable response is to begin enforcing a new set of rules, and let bygones be bygones. The bygones in this case have netted them billions of dollars, which they will be allowed to keep. The small investors who’ve been cheated will not get much after attorney’s fees are paid.
All this seems to be the result of repealing the Glass-Steagall Act. It was forecast to occur just in the way it has, but the political campaign contributions by the large financial institutions won the day, backed up by the Junk Economics being turned out by the Chicago Boys.
The reason why Harvey Pitt was forced out as the head of the . was that his inaction led to the state prosecutors as the only people willing to take the lead in dealing with insider dealing, fixed markets, crony capitalism and similar corruption. The best writer to expose this type of operation is Tom Naylor, who wrote Wages of Crime and Hot Money.
But reformers are up against Chicago School economists who have been endorsed because their anti-government theories are so self-serving to economic groups that don’t want to be regulated at all. The important thing is that “free enterprise” has only been able to be imposed at gunpoint. In fact, as Milton Friedman himself observed, only a socialist government can impose his kind of economics, without sunk costs, with “pure” markets. To work properly, everyone who doesn’t believe in free enterprise has to be isolated, which means in practice that free enterprise only works in a police state.
Take the case of Arnold Harberger, the University of Chicago professor who was brought down to Chile right after the military junta overthrew its elected president. The first thing that the Chicago Boys did upon overthrowing the government was to close every economics department in the country, except for the Catholic University where the Chicago Boys had a stranglehold of true believers. In the late 1980s, a decade later when Harvard brought Harberger over with the thought of installing him as head of the HIID (Harvard Institute for International Development), the students rioted, accusing Harberger (who is married to a Chilean) of sitting in his hotel room with a list of academic economists opposing the Chicago Boys and their free enterprise evangelism fingering the ones who should be murdered. Harberger denied that he ever fingered anyone to get killed, but what is known is that there followed a wave of arrests, killings and disappearances. The Chicago Boys held up Pinochet’s Chile as a model – one to be emulated, not shunned. Yet their first wave of privatizations collapsed in a wave of corruption, and their privatization of social security became a new way of exploiting labor, via forced savings that were channeled into the stock market. Insiders gained and the middle class, which had been stronger in Chile than in any other Latin American country, lost out.
The moral is that free enterprise economics only works when you have authoritarian control to suppress opposition seeking to place economic relations in a broader social context.
The point I want to make is that the economists who call themselves free enterprise actually are defenders of the financial industry and the sacrifice of economies to pay their debts, regardless of how wastefully these have been entered into. Their idea of the market means that the “market” should adjust itself to debt claims growing exponentially, in excess of the economy’s ability to pay. The consequence is a transfer of property. This is how privatization should be seen. To the Chicago Boys, it is all part of the adjustment process.
SS: Am I correct in thinking that the US Treasury-bill standard you describe in Super Imperialism and the sequel Global Fracture victimizes the taxpayers IN the EU, Japan, etc., more than older forms of imperialism? Is what makes this imperialism “super” the fact that it exploits not just workers in poor countries, but all workers everywhere?
MH: That’s true, but my point is somewhat different. The older theories of imperialism saw private corporations running the system to profit, so that profits by global companies were the measure of how much imperialism was occurring. My point is that the largest form of exploitation, quantitatively speaking, now occurs among governments. Another word for Super Imperialism would be Inter-Governmental imperialism. The United States exploits the rest of the world above all via foreign central banks accumulating dollars.
As for your other points, imperialism always has exploited mainly the rich countries, for the same reason that Willy Sutton is said to have robbed banks: That’s where the money is. The richest nations are the ones with the most economic surplus to appropriate. That is done not via the repatriation of profits, but by the Treasury-bill standard and the free ride that it gives the United States.
Michael Hudson is the Distinguished Professor of Economics at the University of Missouri (Kansas City) and has published widely on U.S. financial dominance. He also consults with various foreign governments regarding the need to set up an alternative center of finance to the U.S. Treasury. He first attracted my attention during the recent war with Iraq when he was on KPFK in Los Angeles explaining how this system has forced other governments, in effect, to pay for our wars since Vietnam.
Whether or not there are more U.S. military adventures in the Middle East, it seems crucial to expose to the world not only the lives lost, not only the private profits being made, but also how the U.S. Government has managed to fund these wars at everyone else’s expense. At the moment, it seems these wars only send more dollars abroad_both in IMF, World Bank loans, but also in U.S. humanitarian “aid” and military personnel expenditures. Thus, the dollar surplus abroad only creates more demand for U.S. Treasuries and more foreign dependence on the continuing existence of the U.S. Empire.