By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College
The fight for Europe’s future is being waged in Athens and other Greek cities to resist financial demands that are the 21st century’s version of an outright military attack. The threat of bank overlordship is not the kind of economy-killing policy that affords opportunities for heroism in armed battle, to be sure. Destructive financial policies are more like an exercise in the banality of evil – in this case, the pro-creditor assumptions of the European Central Bank (ECB), EU and IMF (egged on by the U.S. Treasury).
As Vladimir Putin pointed out some years ago, the neoliberal reforms put in Boris Yeltsin’s hands by the Harvard Boys in the 1990s caused Russia to suffer lower birth rates, shortening life spans and emigration – the greatest loss in population growth since World War II. Capital flight is another consequence of financial austerity. The ECB’s proposed “solution” to Greece’s debt problem is thus self-defeating. It only buys time for the ECB to take on yet more Greek government debt, leaving all EU taxpayers to get the bill. It is to avoid this shift of bank losses onto taxpayers that Angela Merkel in Germany has insisted that private bondholders must absorb some of the loss resulting from their bad investments.
The bankers are trying to get a windfall by using the debt hammer to achieve what warfare did in times past. They are demanding privatization of public assets (on credit, with tax deductibility for interest so as to leave more cash flow to pay the bankers). This transfer of land, public utilities and interest as financial booty and tribute to creditor economies is what makes financial austerity like war in its effect.
Socrates said that ignorance must be the root of all evil, because no one deliberately sets out to be bad. But the economic “medicine” of driving debtors into poverty and forcing the selloff of their public domain has become socially accepted wisdom taught in today’s business schools. One would think that after fifty years of austerity programs and privatization selloffs to pay bad debts, the world has learned enough about causes and consequences. The banking profession chooses deliberately to be ignorant. “Good accepted practice” is bolstered by Nobel Economics Prizes to provide a cloak of plausible deniability when markets “unexpectedly” are hollowed out and new investment slows as a result of financially bleeding economies, medieval-style while wealth is siphoned up to the top of the economic pyramid.
My friend David Kelley likes to cite Molly Ivins’ quip: “It’s hard to convince people that you are killing them for their own good.” The EU’s attempt to do this didn’t succeed in Iceland. And like the Icelanders, the Greek protesters have had their fill of neoliberal learned ignorance that austerity, unemployment and shrinking markets are the path to prosperity, not deeper poverty. So we must ask what motivates central banks to promote tunnel-visioned managers who follow the orders and logic of a system that imposes needless suffering and waste – all to pursue the banal obsession that banks must not lose money?
One must conclude that the EU’s new central planners (isn’t that what Hayek said was the Road to Serfdom?) are acting as class warriors by demanding that all losses are to be suffered by economies imposing debt deflation and permitting creditors to grab assets – as if this won’t make the problem worse. This ECB hard line is backed by U.S. Treasury Secretary Geithner, evidently so that U.S. institutions not lose their bets on derivative plays they have written up.
This is a repeat of Mr. Geithner’s intervention to prevent Irish debt alleviation. The result is that we enter absurdist territory when the ECB and Treasury insist on “voluntary renegotiation” on the ground that some bank may have taken an AIG-type gamble in offering default insurance or bets that would make it lose so much money that yet another bailout would be necessary. It is as if financial gambling is economically necessary, not part of Las Vegas.
Why should this matter a drachma to the Greeks? It is an intra-European bank regulatory problem. Yet to sidestep it, the ECB is telling Greece to sell off its water and sewer rights, ports, islands and other infrastructure.
This veers on financial theater of the absurd. Of course some special interest always benefits from systemic absurdity, banal as it may be. Financial markets already have priced in the expectation that Greece will default in the end. It is only a question of when. Banks are using the time to take as much as they can and pass the losses onto the ECB, EU and IMF – “public” institutions that have more leverage than private creditors. So bankers become the sponsors of absurdity – and of the junk economics spouted so unthinkingly by the enforcers, cheerleaders for the banality of evil. It doesn’t really matter if their names are Trichet, Geithner or Papandreou. They are just kindred lumps on the vampire squid of creditor claims.
The Greek crowds demonstrating before Parliament in Syntagma Square are providing their counterpart to “Arab spring.” But what really can they do, short of violence – as long as the police and military side with the government that itself is siding with foreign creditors?
The most effective tactic is to demand a national referendum on whether to accept the ECB’s terms for austerity, tax increases, public spending cutbacks and selloffs. This is how Iceland’s President stopped his country’s Social Democratic leadership from committing the economy to ruinous (and legally unnecessary) payments to Gordon Brown’s Labour Party demands and those of the Dutch for the Icesave and even the Kaupthing bailouts.
The only legal basis for demanding payment of the EU’s bailout of French and German banks – and U.S. Treasury Secretary Tim Geithner’s demand that debts be sacrosanct, not the lives of citizens – is public acceptance and acquiescence in such policy. Otherwise the imposition of debt may be treated simply as an act of financial warfare.
National economies have the right to defend themselves against such aggression. The crowd’s leaders can insist that in the absence of a referendum, they intend to elect a political slate committed to outright debt annulment. Across the board, including the Greek banks as well as foreign banks, the IMF and EU central planners. International law prohibits nations from treating their own nationals differently from foreigners, so all debts in specified categories would have to be annulled to create a Clean Slate. (The German Monetary Reform of 1947 imposed by the Allied Powers was the most successful Clean Slate in modern times. Freeing the German economy from debt, it became the basis of that nation’s economic miracle.)
This is not the first such proposal for Greece. Toward the end of the 3rd century BC, Sparta’s kings Agis and Cleomenes urged a debt cancellation, as did Nabis after them. Plutarch tells the story, and also explains the tragic flaw of this policy. Absentee owners who had borrowed to buy real estate backed the debt cancellation, gaining an enormous windfall.
This would be much more the case today than in times past, now that the great bulk of debt is mortgage debt. Imagine what a debt cancellation would do for the Donald Trumps of the economy – having acquired property on credit with minimum equity investment of their own, suddenly owing nothing to the banks! The aim of financial-fiscal reform should be to free the economy from financial overhead that is technologically unnecessary. To avoid giving a free lunch to absentee owners, a debt cancellation would have to go hand in hand with an economic rent tax. The public sector would receive the land’s rental value as its fiscal base.
This happens to have been the basic aim of 19th-century free market economists: tax land and nature – and natural monopolies – rather than taxing labor and capital goods. The aim was to keep for the public what nature and public infrastructure spending create. A century ago it was believed that monopolies such as the privatizers now set their eyes should be operated by the public sector; or, if left in public hands, their prices would be regulated to keep them in line with actual costs of production. Where private owners already have taken possession of land, mines or monopolies, the rental revenue from such ownership privileges would be fully taxed. This would include the financial privilege that banks enjoy in credit creation.
The way to lower costs is to lower “bad” taxes that add to the price of production, headed by taxes on labor and capital, sales taxes and value-added taxes. By contrast, rent taxes collect the economy’s “free lunch,” and thus leave less available to be pledged to banks to capitalize into debt service on higher loans. Shifting the Greek tax burden off labor onto property would reduce the supply price of labor, and also reduce the price of housing that is being bid up by bank credit.
A land tax shift was the primary reform proposal from the 18th and 19th century, from the Physiocrats and Adam Smith down through John Stuart Mill and America’s Progressive Era reformers. The aim was to free markets from the landed aristocracy’s hereditary rents stemming from the medieval Viking conquest. This would free economies from feudalism, bringing prices in line with socially necessary costs of production.
Every government has the right to levy taxes, as long as they do it uniformly to domestic property owners as well as to foreign owners. Short of re-nationalizing the land and infrastructure, fully taxing its economic rent (access payments for sites whose value is created by nature or by public improvements) would take back for the Greek authorities what creditors are trying to grab.
This classical threat of 19th century reformers is the response that the Greeks can make to the European Central Bank. They can remind the rest of the world that it was, after all, the ideal of free markets as expressed from Adam Smith through John Stuart Mill in England, and underlay U.S. public spending, regulatory agencies and tax policy during its period of take-off.
How strange (and sad) that Greece’s own ruling Socialist Party, whose leader heads the Second International, has rejected this centuries-old reform program. It is not Communism. It is not even inherently revolutionary, or at least was not at the time it was formulated. It is socialism of the reformist type that two centuries of classical political economy culminated in.
But it is the kind of free markets against which the ECB is fighting – backed by Treasury Secretary Geithner’s shrill exhortations from the United States. Mr. Obama says nothing leaving it all to Wall Street bureaucrats to set national economic policy. Is this evil? Or is it just passive and indifferent? Does it make much of a difference as far as the end result is concerned?
To sum up, the aims of foreign financial aggression are the same as military conquest: land and the public domain. But nations have the right to tax their rental yield over and above a return to capital investment. Contrary to EU demands for “internal devaluation” (wage cuts) as a means of lowering the price of Greek labor to make it more competitive, reducing living standards is not the way to go. That reduces labor productivity while eroding the internal market, leading to a deteriorating spiral of economic shrinkage.
The need for a popular referendum
Every government has the right and indeed the political obligation to protect its prosperity and livelihood so as to keep its population at home rather than drive them abroad or drive them into a position of financial dependency on rentiers. At the heart of economic democracy is the principle that no sovereign nation is committed to relinquish its public domain or its taxing, and hence its economic prosperity and future livelihood, to foreigners or for that matter to a domestic financial class. This is why Iceland voted “No” in the debt referendum. Its economy is recovering.
Ireland voted “Yes” and now faces a new Great Emigration to rival that which followed the potato famine of the mid-19th century. If Greece does not draw a line here, it will be a victory for financial and fiscal aggression imposing debt peonage.
Finance has become the 21st century’s preferred mode of warfare. It’s aim is to appropriate the land and public infrastructure for its own power elites. Achieving this end financially, by imposing debt peonage on subject populations, avoids the sacrifice of life by the aggressor power – but only as long as subject debtor countries accept their burden voluntarily. If there is no referendum, the national economy cannot be held liable to pay the debts owed even to “senior” creditors: the IMF and ECB. Assets that are privatized at foreign bank insistence can be renationalized. And just as nations under military attack can sue, so Greece can sue for the devastation caused by austerity – the lost employment, lost output, lost population, capital flight.
The Greek economy will not end up with the proceeds of any ECB “bailout.” The banks will get the money. They would like to turn around and lend it out afresh to the buyers of the land, monopolies and other properties that Greece is being told to privatize. The user fees they collect (no doubt raising charges in the process, to cover the interest and pay themselves the usual salary jumps on privatized property) will be paid out as interest. Is this not like military tribute?
Margret Thatcher used to say “There is no alternative” (TINA). But of course there is. Greece can simply opt out of this giveaway of assets and economic privilege to creditors.
What do Mr. Papandreou’s Socialist International colleagues have to say about current events in Greece? I suppose it is clear that the old Socialist International is dead, given the fact that Mr. Papandreou is its head, after all. What passes for socialism today is the diametric opposite of the reforms promoted under its name a century ago, in the era prior to World War I. Europe’s Social Democratic and Labour parties have led the way in privatization, financializing their economies under conditions that have blocked the growth in living standards. The result promises to be an international political realignment.
Economic austerity cannot secure creditor claims in the end
On Thursday afternoon the DJIA, having been down 230 points, leapt up at the close to lose “only” 60 points, on rumors that Greece had agreed to the IMF’s austerity plan. But what is “Greece”? Is it the cabinet alone? Certainly not yet the entire Parliament. Will there be a Parliamentary vote in opposition to the public interest, accepting austerity and privatization?
Only a referendum can commit the Greek government to repay new debts imposed under austerity. Only a referendum can prevent property that is privatized from being re-nationalized. Such a transfer is not legitimate under commonly accepted ideas of political and economic democracy. And in any event, a rent-tax can recapture for the Greek economy what the financial aggressors are trying to seize.
History is rife with instructive examples. Local oligarchies in the region invited Rome to attack Sparta, and it overthrew the kings and their successor Nabis (who may himself have been royal). The sequel is that Rome headed an oligarchic empire, using violence at home to murder democratic reformers such as the Gracchi brothers after 133 BC, plunging the republic into a century of civil war. The creditor interests ended up fully in control, and their own banal self-seeking plunged the Western half of the Roman Empire into an economic and social Dark Age.
Let’s hope the outcome is better this time around. There will indeed be fighting, but more in the financial and fiscal sphere than the overtly military one. The fight ultimately can be won only by understanding the corrosive dynamics of the “magic of compound interest” and the social need to subordinate creditor interests to those of the overall “real” economy. But to achieve this, economic theory itself needs to be brought out of its current post-classical “neoliberal” banality.
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The people of Greece, like the people of all nations, owe nothing.
On the contrary, the “creditor” elites are actually infinite debtors to the people. When we contemplate all they’ve stolen in the form of bubble rents, gambling rents, the systematic assault on our jobs and social amenities (which we paid for), intentionally crashing our economy, government-forced robbery in the form of the bailouts, and now the austerity assault, when we put it all together we see how their monetary debt to us is infinite. They owe us restitution of every cent they have, and then trillions beyond that. And that’s in addition to the moral debt to justice their bodies owe.
What do Mr. Papandreou’s Socialist International colleagues have to say about current events in Greece? I suppose it is clear that the old Socialist International is dead, given the fact that Mr. Papandreou is its head, after all. What passes for socialism today is the diametric opposite of the reforms promoted under its name a century ago, in the era prior to World War I. Europe’s Social Democratic and Labour parties have led the way in privatization, financializing their economies under conditions that have blocked the growth in living standards.
Today, far more than back in the 1920s, the mainstream “socialists” deserve the name social fascists. The same applies to the liberal leadership, equally complicit in these crimes against humanity.
But what is “Greece”? Is it the cabinet alone? Certainly not yet the entire Parliament. Will there be a Parliamentary vote in opposition to the public interest, accepting austerity and privatization?
The cabinet and parliament aren’t Greece at all. They’re predatory foreigners, alien criminals. The same applies to all legislatures by now. Does there exist even one which is the slightest bit accountable and responsible? These governments are all illegitimate.
Only a referendum can commit the Greek government to repay new debts imposed under austerity. Only a referendum can prevent property that is privatized from being re-nationalized. Such a transfer is not legitimate under commonly accepted ideas of political and economic democracy.
If a referendum would be an effective tactic, then more power to it. But that’s not in fact the measure of legitimacy, since it would still be taking place under the auspices of a self-evidently illegitimate government. Not to mention how votes are commonly stolen nowadays.
The fact is that not even a referendum could legitimize austerity or privatization. As Rousseau said, a sovereign people cannot vote to liquidate its sovereignty. All it can do is vote to liquidate itself as a people, which is what such a referendum result would mean. That would be the suicide of a nation.
If the Greek people exist, they won’t allow this assault upon them to proceed. If they cave in to it, that means the nation no longer exists, and we truly are back in the state of nature the criminals want to impose.
And in any event, a rent-tax can recapture for the Greek economy what the financial aggressors are trying to seize.
Common sense. And so easily doable, if reformism were possible at all, and if representative government had any legitimacy.
So what must we conclude, given the fact that common sense, simple reason, and simple decency are completely outlawed and are ruthlessly excluded even from discussion, let alone serious consideration?
It’s clear what that means regarding the possibility of reform, and the legitimacy of the system.
What most analyst are failing to consider is that 2011 has been the year of public demonstration, government overthrows, and a true showing of democracty by the people.
In Egypt, Libya, and throughout the suppressed citizens have taken to the streets to control their own destiny. The public demonstrations have been well attended and organized through the use of cell phones and the internet. This too will happen in Greece.
The sale of the Greek Utility company has already created worker strikes and talks of utility holders not paying their bills in unison.
Currently, the austerity measure vote on Thursday is leading by only 3 votes. When the public domonstrates look for the opposition to gain enough votes to refuse the TROIKA’s hand to help. Papandreou has already stated he has no plan B.
Excellent summary. Yes, the Greek should declare bankruptcy before selling all public property for peanuts. Declaring bankruptcy after realizing the sales didn’t bring enough in defeats the purpose. The question rarely asked is who would buy all this land, buildings etc. in a fire sale? It seems many foreigners are afraid to bid much for something immovable in a country spiraling out of control. Does this only leave domestic clans with influence to divide the goodies?
Ah, at last a proposal put forward by Michael Hudson that I can wholeheartedly agree with – site value taxation. I think such a tax would go a long way towards stabilising the UK property market as discussed in yesterday’s post, and could take some of the load off enterprise-deterring labour and corporate taxes. Unfortunately, for the same cultural moral hazard reason I raised there, I fear it would be a tough sale politically in the UK. And I applaud Michael Hudson, as a self-confessed foreign owner of central London property, for advocating government’s political obligation to avoid relinquishing its nation’s prosperity to foreigners.
Amazing how much prose one can write without getting to the simple point of the Greek problem.
Obviously they have too much debt, obviously they have to default. Then what? The next step is going to be to set a national budget. This is going to have to say how much is going to be spent on government services, what tax rates are going to be, all the usual stuff.
So, what do you want to be in it? And in particular, what Public Sector Borrowing Requirement (as the UK used to put it) do you want to see? And what exactly do you want to spend it on.
The problem Greece has is that its people are currently rioting for the right to spend more than they have. Its a tough one to win, and after you’ve won it, its even tougher to exercise.
hoodadey?
bwaaaak
Yay, single tax! Keep the idea alive, one day it will set us free. For anyone who’s skeptical of it or needs to know more, Mason Gaffney has many excellent essays on his website, including modern examples. Yes, a real economist. The single tax is a more progressive tax than any labour tax, which are at best sham-progressive.
Its interesting that China is talking to the IMF and saying that China doesn’t want to see a eurozone debt restructuring.
It occurs to me that China could play a role and win thanks from Europe without it costing too much money. If china trickle fed money into equities , particularly European banks, then bought a large part of European peripheral debt and did a private restructuring (writing some off and extending the maturity of some), it could then trickle feed equities back to the market as they bounce back on the news. They might make a loss but nowhere near the size of the loss in a full on restructuring and in a way they recoup some of the money from private investors. Unfortunately I don’t think China has the stomach for it and would struggle to prevent markets spotting it and playing them.
As for what the Greek people want or would vote for, then I think it is obvious that the Greek government probably along with the German government has lost its legitamacy. While all politicians these days seem like marginally altruistic salesman rather than engineers of change, what can we expect. Substance has gone missing from politics.
China has a lot of US$ that it can use, through shell companies and institutions, to affect the future of the EU.
Diversification, control of assets, and improving cash flows is an objective that is not foreign to China.
I’m sure that China is not happy that it has so many of its eggs in the US market.
Getting involved deeper in the EU will prolong the shell game longer than expected and give China more control.
Keep your eye on the bouncing Chinese ball. The game is not over until China says so.
jal
Ms Smith
Thank you for the Michael Hudson, a voice of kind reason in a mean, mean world.
+1
+2
+3
This is the most clear eyed read on this situation I’ve seen anywhere. Whatever happens Micheal Hudson has made an accurate record of what is happening.
Be strong, Greeks!
minus several million
I don’t consider myself any sort of friend to bankers and Eurocrats, but judging by this effort, Hudson is a major league dispenser of pompous verbiage. He may be a professor of Economics, but I didn’t see any econmic insight here. (Maybe there was some, later on, but I confess my attention wandered by then.)
Cheers for your input, but the fact that you have a short attention span and reading comprehension problems does not make Dr Hudson’s writing any less fantastic.
When Mr. Papandreou’s “Socialist” government survived the vote of confidence earlier in the week, the stage was set for the Greek TRILEMMA playing out before our eyes. For it is Papandreou’s government [STATE] that will attempt to impose AUSTERITY on its own people [NATION], delivering them into the hands of the IMF/ECB/EU [ECONOMIC INTEGRATION/GLOBALIZATION].
A national referendum by the Greek people [national sovereignty] is the very last thing both the Papandreou government and the IMF/ECB/EU want. One Iceland is enough! Yet whatever the outcome, the much bigger consequence of this debt crisis is the revelation that the opposition [whatever the leftist nomenclature] is little more than the other side of the same ruling coin. Democrat, Social Democrat, Labour, PASOK, etc are only an opposition faction WITHIN the ruling class.
The limitations of representative. bourgeois democracy will not be so easily masked or papered over as austerity rolls across Europe and the United States. This phenomenon is not confined to a single nation-state but those at the CENTER of the global economy. It points up the growing disjunction between/decoupling of the STATE and/from the NATION as a consequence of economic integration/globalization. The STATE has become a structured investment vehicle[SIV] for capitalist accumulation regardless of which political faction/party “governs” the nation. [Marxists will contend that this has always been the case… and as time wears on they appear to have the better argument.]
That bourgeois democracy and the NATION-STATE are increasingly undermined by continued economic integration will likely make this more than a debt crisis as two primary political institutions of the WEST are sacrificed to the MARKET. This is likely to metastasize into a permanent political crisis with the outcome uncertain – at least for now. And nothing roils markets like uncertainty of which there will be plenty so long as this political crisis remains unresolved.
That the state, the nation, and the market in the West have “developed” out of feudalism in a mutually reinforcing web of relationships over the past five or six hundred years is seemingly coming to an end with the market requiring the subordination of the nation to the state with the latter subordinate to the unfettered logic of capitalist accumulation. How this institutional crisis evolves/devolves in the wake of the debt crisis is the trillion dollar question in need of an answer.
“How this institutional crisis evolves/devolves in the wake of the debt crisis is the trillion dollar question in need of an answer.”
No, the simple questions we need to answer are, what do you want to raise from taxes, and how much do you want to spend?
Oh, and what on?
This is fiscal policy,its not group therapy or a James novel.
Only a technocrat would envision this as merely a question of fiscal policy. Kind of like the final solution… merely a question of making the logistical/organizational changes requisite to assembling the cattle cars and getting them to their final destination on time. It’s simply a question of transportation policy, right, with group therapy and an ochestra playing soothing music as the ashes of austerity quietly waft into the air?
By restricting it to “fiscal policy” however the question of raising taxes is deftly avoided or sidestepped with the quip ‘and how much you want to raise.’
How about if we simply altered fiscal policy with a debt tax imposed on the wealthy to be assessed at 90% of total income [interest, capital gains, and income] until the national debt of each country in fiscal crisis is paid off? Surely in the spirit of shared sacrifice and national well-being the wealthy would approve, right? After all, we’re in this all together, rich and poor alike.
Somehow though LRT, I suspect this version of fiscal policy would not be to your liking. So we’ll accept your interpretation of the debt crisis as merely a question of fiscal policy – for now.
But mind you, your interpretation reminds me of Louis XVI, who is reputed to have asked one of his ministers after the fall of the Bastille [July 14, 1789] if it was a revolt. His minister replied: Non, mon sire, c’est une revolution! Oblivious to the rapidity with which events were unfolding, Louis went to the guillotine for his last haircut.
Its one version of a fiscal policy. How effective it would be, there is room for argument. But the great merit of a proposal like that is it makes the argument concrete. The proposal is to impose and collect taxes of a defined sort, and use the proceeds in a defined way.
Now we can start having a sensible discussion about how it would work out, whether this or that method is best. If we keep ranting about irrelevant topics, including I now see feudalism and the role of the medieval church…. Well, its not going to be a lot of help to anyone in Greece!
I think actually default followed by a less extremely progressive tax might work better. There was a time in the UK when they had marginal tax rates that high, its worth looking at the data from then. I don’t think it worked as well as the more moderate marginal rates that there had been earlier.
Mickey Marzick in Akron, Ohio said:
The STATE has become a structured investment vehicle[SIV] for capitalist accumulation regardless of which political faction/party “governs” the nation. [Marxists will contend that this has always been the case… and as time wears on they appear to have the better argument.]
The Marxist theory offers an extremely pessimistic outlook, and one which I believe some of the European governments, which have achieved the greatest level of democratic socialism, offer a pretty good counterfactual to.
I think the theory espoused by Amitai Etzioni in The Moral Dimension: Toward a New Economics is more realistic, and certainly more hopeful:
The economic literature is replete with references to distortions the government causes in the market. Comparable attention should be paid to manipulation of the government by participants in the market…
[….]
In the neoclassical paradigm there is no room for the concept of power. Says Stigler (1968, P. 181): “The essence of perfect competition is…the utter dispersion of power.” He adds that power is “annihilated…just as a gallon of water is effectively annihilated if it is spread over a thousand acres.”
[….]
The strategies and means typically studied tend to be intra-economic: they are employed by economic actors using economic means to economic ends.
[….]
In contrast, we shall see that the government provides a commonly used and highly effective way of capturing and holding on to market shares, of curbing entry of competitors, and an avenue for collusion…
To the extent that the use of the government by powerful economic actors is ignored, the [neoclassical] analysis also disregards one of the most effective ways of gaining so-called excessive profits, not by setting prices above marginal costs, but by charging market prices and using the government to acquire one or more input factors at costs substantially below those that competitors must pay. These include gaining capital at below the market interest rates…and exemptions from laws or regulations such as those concerning the minimum wage or immigration, outright subsidies;…purchase of government assets at fire-sale prices…
[….]
In short, economic actors can, by the use of political means, achieve various effects often attributed to concentration of economic power.
The theorem just stated is in opposition to the Marxist notion that political power merely or largely reflects economic power. While it is true that if an actor commands economic power it might be converted into interventionist power, economic power is not a prerequisite for interventionist power, and interventionist power is often the source of economic power. While many actors command both kinds of power, there is no necessary correlation between the two. (All emphasis above is Etzioni’s)
Down,
I would be the last to deny the importance of human agency in making for change or equating economic power with its political counterpart on a simplistic one-to-one basis. I may use Marxist terminology from time to time in the course of my analysis but my Marxism is my own.
As time wears on, however, it is increasingly obvious that the period from 1932-1976 [uninterrupted Social Democratic government in Sweden] MAY be an anomaly in the long winding road of capitalism in which the Social Democracies of Scandinavia and Northern Europe flourished. As austerity rolls from the periphery to the center, and from country to country within it, this race to the bottom will make it increasingly difficult for these social democracies to fund their welfare states. Economic integration predicated on austerity will erode the very purchasing power their export economies depend upon. Norway may find a reprieve because of its sovereign wealth fund generated from oil, but the Social Democrats of both Germany and elsewhere have not refrained from austerity when required, even if much less onerous in our eyes. It would be interesting to see how the inhabitants of these countries themselves view the “austerity” measures implemented by their respective governments – Social Democratic or not. What may seem relatively mild to us on this side of the Atlantic given the much smaller scope of the welfare state in the US may seem much more draconian in their eyes. I don’t know.
It all depends on how successful this war of all against all will be in eroding the Social Democratic cultures so firmly rooted in the civil society of each country over time. Moreover, to the extent that this culture may have been dependent on ever expanding economic growth, that may impose constraints on its continuation. Both will ulitmately determine if 1932-1976 was an anomaly or not.
I have always viewed the “Swedish Model” with a certain bit of awe, having studied it assiduously in my younger days, particularly when the Swedish labor movement [LO] was at its height. But offshoring and manufacturing employment then came to Sweden in the 1970s as well with predictable results. And let’s not forget, Sweden and its social democratic counterparts are CAPITALIST economies in every cents of the word… Many a Pole, Estonian, Latvian, and Lithuanian do not view the Swedes or Germans with such fawning eyes.
Cuidado!
Michael Hudson said:
• A land tax shift was the primary reform proposal from the 18th and 19th century, from the Physiocrats and Adam Smith down through John Stuart Mill and America’s Progressive Era reformers. The aim was to free markets from the landed aristocracy’s hereditary rents stemming from the medieval Viking conquest. This would free economies from feudalism, bringing prices in line with socially necessary costs of production.
• What passes for socialism today is the diametric opposite of the reforms promoted under its name a century ago, in the era prior to World War I. Europe’s Social Democratic and Labour parties have led the way in privatization, financializing their economies under conditions that have blocked the growth in living standards. The result promises to be an international political realignment.
This is what I find to be most intriguing—-the corruption or vitiation of ideologies so that they no longer serve their original lofty goals.
Western Civilization has had three dominant ideologies (and associated economic systems): Christianity (Feudalism), Liberalism (Capitalism) and Marxism (socialism). All three were highly idealistic and optimistic at the outset, bursting with high hopes of achieving greater tranquility and social and economic justice. All three, or at least some perverse transmogrification of the original, ended up becoming the ideologies of either criminal or pathological ruling classes.
Can this destructive cycle be broken?
Carroll Quigley looks at the cycle through the lens of history. David Sloan Wilson looks at it through the lens of biological and cultural evolution. Andrew M. Lobaczewski looks at it through the lens of human psychology.
Wilson and Lobaczewski are optimistic that the cycle can be broken. Quigley, on the other hand, seemed to offer little hope of breaking the cycle.
History is a peculiar business as what we find there is always prejudged in some way by what we are looking for. Like the wars it describes, it can almost always be said the be the result of confirmation bias.
Maybe we are a doomed species, but it has looked that way for thousands of years. Maybe there is not another transformational breakthrough to be made, but maybe there is.
Dr. Michael Hudson here:
“Finance has become the 21st century’s preferred mode of warfare.”
“The bankers are trying to get a windfall by using the debt hammer to achieve what warfare did in times past.”
“National economies have the right to defend themselves against such aggression.”
This observation is at work for all bankers, for all countries and for all peoples, for all times.
The major difference between the U.S. and Greece is that Greece has given up its monetary sovereignty to the EU bankers and we retain ours. Greece is forced to default in order to restore its sovereignty.
Beyond that, anyone who doesn’t see the parallels between what Greece is fighting for – sovereignty over its prosperity – and the present debt-induced struggle in this country must have blinders on.
Yes, they are giving up land, essential public infrastructure and budgetary freedom.
But here in America, we fight over the debt-limit in a paralyzing struggle aimed at removing our rights to maintain social security, medicare, and the delivery of education and other public services one worker at a time, all the while incapable of maintaining our public infrastructure needed to maintain our own prosperity.
The fight with the international debt industrialists takes on many forms, and we need to recognize it for what it is rather than pretending that this was all some terrible and misguided national economic exuberance.
The only solution is to take away the power of the financialists to create the nation’s money using their debt warfare.
Congressman Dennis Kucinich’s bill does exactly that.
http://www.monetary.org/hr6550bill.pdf
Either the people fight the debt war by eliminating its root cause, or we acquiesce to the superiority of the debt instrument over the well-being of all peoples.
Like Dr. Hudson said, again:
“National economies have the right to defend themselves against such aggression.”
The Money System Common.
“National economies have the right to defend themselves against such aggression”
What exactly do they have the right to do? This is a very narrowly defined policy focus. You can pay or you can default. So I think you mean, they have the right to default. Don’t know if its a right, but whatever, it will happen.
The rest is just empty verbiage. What they then have neither the right nor the ability to do, is spend more than they have.
joebhed’s admonition “to take away the power of the financialists to create the nation’s money using their debt warfare” is “just empty verbiage”?
LRT, you’re letting your neoliberal fantasies get the best of you again. Even though they may indeed be the current reality, that doesn’t mean they will always be the reality.
Don’t know if its a right, but whatever, it will happen. LRT
You still don’t understand that sovereign governments have no need to borrow except to manage reserves in the private banking system which it has no business doing in the first place.
As for the national debt, no less a libertarian than Murray N. Rothbard said it was illegitimate and should be repudiated.
Maybe so. I just think Greece is in the situation of can’t pay won’t pay. The rights and wrongs of countries selling bonds… not really all that relevant to their current predicament. They cannot raise enough to pay off the debt so they will have to default on it.
The interesting question from a public policy point of view is what the consequences are, and what they do next.
Relating feudalism to Christianity is sort of like relating apples to oranges. Feudalism was first and foremost a series of makeshift responses to the collapse of political authority and legal order in ninth century Europe. It took a couple of centuries for the informal arrangements that constituted the feudal “system” to harden into an established social structure.
Besides, if there was one European institution whose identity was actually threatened by feudalism it was the Church. Church properties were tempting targets for nobles looking to appropriate land for distribution as fiefs to their vassals. Church offices and incomes were also attractive sources of patronage. The whole reform movement within the Western Church that began in the early tenth century was in large part a campaign to free the Church from noble proprietorship–the basis of feudalism.
Enough of this. Time for breakfast.
Sufferin’ Succotash said: “…if there was one European institution whose identity was actually threatened by feudalism it was the Church.”
Church leaders, kings and feudal lords undoubtedly had their internecine turf battles, but they all descended from the same gene pools. So to say the Church leaders, as a class, were threatened by the secular leaders, as a class, is tantamount to saying the Democrats are threatened by the Republicans.
As Daniel Yankelovich wrote in Coming to Public Judgment: “To the Enlightenment thinkers of the Old World, the enemy was entrenched inherited privilege embodied in the church and in most branches of European royalty in collusion with each other.”
In A World Lit Only by Fire William Manchester gives a brief history of how this collusion evolved, along with the degeneration of European leadership from a democratic meritocracy to a hereditary aristocracy, beginning with the fall of the Roman Empire:
Because the first medieval rulers had been barbarians, most of what followed derived from their customs. Chieftains like Ermanaric, Alaric, Atilla, and Clovis rose as successful battlefield leaders whose fighting skills promised still more triumphs to come. Each had been chosen by his warriors, who, after raising him on their shields, had carried him to a pagan temple or a sacred stone and acclaimed him there…. Lesser tribesmen were grateful to him for the spoils of victory, though his claim on their allegiance also had supernatural roots.
His retinue always included pagan priests—-sometimes he himself was one—-and he was believed to be either favored by the gods or descended from them. When Christian missionaries converted a chieftain, his men obediently followed him to the baptismal font. Christian priests then enthroned his successors. A bishop’s investiture of a Frankish chief was recorded in the fifth century, and by 754, when Pope Stephen II consecrated the new king of the Franks—-Pepin the Short, Charlemagne’s father—-impressive ceremonies and symbols had been designed. The liturgy drew Old Testament precedents from Solomon and Saul; Pepin was crowned and solemnly armed with a royal scepter. The Holy Father exacted promises from him that he would defend the Church, the poor, the weak, and the defenseless; he then proclaimed him anointed of the Lord.
Hereditary monarchy, like hereditary nobility, was largely a medieval innovation. It is true that some barbarian lieutenants had held office by decent rather than deed. But the chieftains had been chose for merit, and early kings wore crown only ad vitam aut culpam—-for life or until removed for fault. Because the papacy opposed primogeniture, secular leaders tried to maintain the fiction that sovereigns were elected—-during the Capetian dynasty court etiquette required that all references to the king of France mention that he had been chosen by his subjects, when in fact son succeeded father in unbroken descent for 329 years—-but by the end of the Middle Ages, this pretense had been abandoned. In England, France, and Spain the succession rights of royal princes had become absolute. After 1356 only Holy Roman emperors were elected (by seven carefully designated electors), and then only because the Vatican was in a position to insist on it, the office being within the Christian community, or ecclesia. Even so, beginning in 1437 the Habsburg family had a stranglehold on the imperial title.
The conspicuous sacerdotal role in the crowing of kings, who then claimed that they ruled by divine right, was characteristic of Christianity’s domination of medieval Europe. Proclamations from the Holy See—-called bulls because of the bulla, a leaden seal which made them official—-were recognized in royal courts. So were cannon (ecclesiastical) law and the rulings of the curia, the Church’s central bureaucracy in Rome. Strong sovereigns continued to seek freedom from the Vatican, with varying success; in the twelfth century, the quarrels between England’s Henry II and the archbishop of Canterbury ended with the archbishop’s murder, and the Holy Roman emperor Frederick Barbarossa (“Redbeard”), battling to establish German predominance in western Europe, was in open conflict with a series of popes.
“to say the Church leaders, as a class, were threatened by the secular leaders, as a class, is tantamount to saying the Democrats are threatened by the Republicans.”
That’s true, but that’s not what I meant, which was that the medieval Church’s identity as an institution entrusted with the care of souls was under threat in the ninth century.
Carroll Quigley, in The Evolution of Civilizations, claims it wasn’t actually feudalism (970-1270) that was “circumvented” by “commercial capitalism” (1420-1650), but feudalism’s “institutionalized” transmogrification, “municipal mercantilism” (1270-1440).
I’m not sure about Quigley’s periodization, but then I’m not sure of any historian’s periodization.
I’ve never read Quigley [:-(]but there’s a sense in which he’s right. Once money began to play a bigger role in the European economy(after 1000?)then nobles began discovering the advantages of allowing the serfs to make money so they could then hand it over to the Powers That Be in the form of dues, rents, and tithes. But in order to make money the serfs couldn’t really be serfs any longer and the places where they did business had to be juridically privileged. Welcome to the market towns, which grew into commercial and industrial centers (Antwerp and Florence, to name two examples at random). So to start with it the “municipal mercantilism” was just another form of feudal rent-collection.
The thing is, it didn’t continue that way. Those greedy ex-serfs who were morphing into nascent bourgeois wanted to hog the surplus for themselves. How to do that? Get self-government, autonomy, home rule, independence. Run popes, emperors, kings and nobles out of town, or force them to grant privileges so extensive that allegiance to them becomes purely nominal.
Is there a lesson in all this? Maybe that rentiers, no matter how ruthless and rapacious, need to use some people to collect the rent and the collectors need their cut. Inevitably, they’ll want a bigger cut and in the end they won’t ask for it–they’ll just take it.
“As Vladimir Putin pointed out some years ago, the neoliberal reforms put in Boris Yeltsin’s hands by the Harvard Boys in the 1990s caused Russia to suffer lower birth rates, shortening life spans and emigration”
Lmao, where do you find these writers? I guess if you could only admire the Soviet utopia from afar in the 20th century, you could be forgiven for misunderstanding the stampede out of the country in 1990s.
No doubt the studies showing the emigration to the corrupt neoliberal Western democracies rather than the few remaining pure People’s Democracies is just CIA propaganda.
They left after the fall of communism for a variety of reasons including
*widespread pollution once Yeltsin took power
*no food after privatization
*local mafias threatening everyone’s life
While the Soviet system had problems as grave as those in contemporary America with corruption and all that, it was nothing like after Larry Summers threw a wrench in the economy. Get ready to experience the Larry Summers economy for yourselves!
Excellent reply!
We’ll know the political/economic system is back on track (if that’s ever to happen)… when people like Michael Hudson are running Treasury and holding other related positions.
Of course that requires some level of pragmatism and common sense to gain at least a wee bit of a chance within badly broken political systems in much of Europe and (obviously) the U.S.
But more than is realized those qualities rest upon accountability!
Quite literally, in this case that simply means that a citizenry no longer ABLE to call the institutions with which they must contend to ACCOUNT… can no longer be considered in charge of its own governance and destiny.
I don’t believe the current interplay of systems underlying political decision provides that opportunity… and I believe a rising number are coming to realize just how serious that really is.
There are not easy answers. But there are tools that can help. Representative government requires an engaged citizenry able to meaningfully and frequently input feedback on a granular basis. This helps ensure accountability… and while a bit frightening at first since we all have a fear of the irrational mob… ultimately (I’d like to argue…) such a capability for engagement leads to more pragmatic governance and a wiser electorate.
P.S. (pssst… while there are good people in both parties… the duopoly establishments don’t really want citizens barging into things much or paying much attention at all… so they give us bread and circuses)
This is how I see it:
(1) Basically, the European governments lend Greece money so that Greece can pay the banks;
(2) In return for these loans, Greece agrees to adopt plans that will supposedly assure the creditors of getting paid.
But its completely a farce. The so-called austerity plans are more likely to destroy the economy of Greece than to ensure that in the long term, the creditors get paid.
Rather than just telling the banks to go to hell, the appropriate austerity plan would permit Greece to limit imports by imposing a 15% tariff on imported goods and services including services by international bankers. This would provide incentives for Greek firms to manufacture their own goods and to reduce their imports. The funds from that tariff could then be set aside to pay back the loans.
This approach would enable Greece to recover and allow the bankers to obtain at least a portion of their loans. This approach helps solve the balance of payments problem which is a major reason why Greece is in debt. The EU/IMF approach does not accomplish that goal and will therefore fail.
This too is an interesting proposal. I am not sure the consequences would be quite as nice as thought – autarky is not attractive to live under. Its quite nice to visit, though. Think Spain under Franco.
But its a real concrete proposal.
You can’t put on a tariff without raising prices for the Greek public. I don’t dispute that. The solution will not be painless.
Fundamentally, the problem is that accounts have to be settled currently for the system to work. It’s not going to work having nations accumulate massive debts year after year ro nations accumalting massive surpluses year after year.
The borrowing of money from other countries to finance trade deficits has been ruinous.
I appreciate the reference to the banality of evil, but I think its application is not to a general mediocrity of ideas and intellect but to mediocrity of the individual agents of evil. Great crimes are not committed solely by great criminals. They need the willing participation of many “ordinary” people.
I put ordinary in quotation marks because in the present context it does not refer to ordinary Americans as such but rather the lower levels, the rank-and-file with you will, of our elites. They don’t wear black hats, kick orphans, or wear SS uniforms (as with Eichmann with whom the term orginated). Indeed they work hard and feel they deserve whatever benefits they receive for their work.
The essence of the banality of evil today, at least for me, is that these low and middle cadres of the elite let a narrow careerism blind them to the great evils they and their work make possible.
This is very different from the mediocrity of policy at the ECB, EU, Treasury, and IMF. The insight which the banality of evil represents is not about those who make policy but rather those who execute it.
Please somebody, just nationalize the Federal Reserve system and admit to all the fraud causing the hyper-collapse. Clean-slate conscience at least. If I read it correctly the US would still have a sovereign defense recourse to impose a rent tax on all rental yield associated with any sort of creditor land/asset grabs. And then after a year or two of this high rent yield taxation the creditors would realize they weren’t making a profit as planned and soon thereafter they themselves would default because they were prevented from fall-back on some “central bank.” So first things first: pass legislation or hard regulation to prevent big banks and other corporations from using central banks to backstop their credit default swap deals. Actually, I’d prefer to see Greece do an Iceland.
It is incredible what people can write based on ideology, ignorance of or contempt for data, and complete lack of understanding. Wow!
Ummmh. To whom do you refer? And just what value does your comment provide?
“The theorum just stated is in opposition to the Marxist notion that political power merely or largely reflects economic power.”
Down South
As this crisis deepens(i.e.cultural disintegration accelerating) it becomes imperative that all political persuasions begin a careful examination of their most cherished assumptions.
The liberal/left community must now carefully examine and critique the assumption that: it is only concentrated corporate power that has led to the corruption of the state.
The conservative/libertarian right community must now carefully examine and critique the assumption that: it is only concentrated state power that has led to the corruption of the market.
We now need theorists who can read and learn from both Monthly Review and The Independent Review instead of seeing its respective writers and readers as the incarnation of evil.
For example, Thomas Ferguson, in his brilliant historical analysis of major investor blocs and their influence on the ideology and policies of both major political parties might might now turn his attention to the historical development of the U.S. into a powerfully centralized nation-state, a process, that in itself, may have initiated a type of cultural disintegration every bit as powerful as what he has attributed to capitalism and powerful private investors.
If Big State, Big Market and Big Bank have each, in their own unique ways, contributed to our present cultural disintegration then the emerging political division in our post-democratic society is between the state/corporate apparatus and their respective intellectual hacks, who are fully committed to a greater centralization of power–and the rest of us who prefer to endorse more participatory forms of democracy and various types local and regional autonomy.
”
emigration – the greatest loss in population growth since World War II. Capital flight is another consequence of financial austerity. The ECB’s proposed “solution” to Greece’s debt problem is
”
~~Michael Hudson~
I like lower birth rates. I like population shrinkage. I like capital flight towards underdeveloped areas that could put it to better use. I like Ike.
Should we add without multiplying as Chinese are now doing? Multiply without planning for our poor children’s future as Other Obvious Areas are now doing? Multiply and replenish the Earth with air pollution, water pollution, disease pollution, starvation, and death? Who knows? Each of you get only one chance at a totally free guess. Before you flip the coin, think of your great great grand-children’s needs!
Grazia
!
Yves:
Taking your two Greek posts together, seems to be a case where everybody is ripping off not the country, but ultimately the Eurozone It is the little child holding its parents hands and then lifts its feet of the ground.
It is not only the tax cheating game, but the Olympics, the
Pasak’s habit of cutting unemployment by inflated the public payroll etc. It is a situation where everybody gamed the system. It reminded me of Maxwell Anderson’s “On both your Houses”
In that way Life often happens, Greece gives the US an chance to see who we are. For we are also a Nation where everybody has gamed the system, Where Grover Norquist and Barrack Obama are equally blind. We will truly end up a Greek tragedy.
What is not clear to the world, veiled by the mass media, is that after the June 29 events in Athens, an unofficial and underground parliamentary coup has been established in Greece. Apart from this, with the recent passing of higly unpatriotic and unconstitutional laws by, “socialist” government is leading to a de facto loss of the country’s national sovereign to the “creditors”, ie. EU, ECB and the banking cartel. Even Mr. Jean Claude Juncker, (Luxemburg PM, President of the Eurogroup and prominent Bildenburger) has acknowledged this fact: that Greece has been subjected to “a mass reduction of its national sovereign”.
On June 29th, during the latest voting (presented to the world as “austerity measures”, but in reality being a treacherous sellout of this country, a coup d’etat and a waiver of national sovereignty), the government has ordered a ultraviolent combined baton/flashbang/chemical warfare attack against the demonstrators and the people of this country, using incredible and phenomenal amounts of CS gas and causing hundreds of serious injuries from police violence and suffocation. This violent indiscriminate attack was targeting everybody: the peaceful protestors in Syntagma Square, tourists and members of Special Olympics Teams sitting in cafes further away, mothers with children in the general area, even the elderly. It was even targeting store owners in the area, with police attacking them inside their own stores with batons and flashbangs. All this terror campaign is documented on videos, easily found on the internet. Can you spell “SS”, “Nazional Sozialismus” and “kristallnacht”?
At the same time, some Members of the Parliament denounce their own unpatriotic voting, by stating on air that they were “threatened to vote in support of these laws”. The threats were made by phone calls on their cell phones, from local and European numbers. If we were living in a democratic lawful state, the voting itself should have been annulled, as a result of duress. But this is not the case.
The strange thing is that no one in the government, the justice system or the parliament itself, and I mean nobody, is remotely interested in this! No district attorney has been investigating these allegations, no E.Y.P. secret service or Police is doing anything to investigate these allegations by MoP’s revealing a serious breach of national security adn a clear and present danger to democracy! Nothing, no one is even talking about it! Omerta is covering all!
Mr Hudson, we cannot compare to Iceland anymore and we don’t have the same choices the Islanders had. For they managed to escape the iron grip of the international banking cartel, we didn’t. The bankers became sneakier and more dangerous. There is no referendum anywhere in our bleak future, only the dismantling of our country. The people has been striped of their constitutional power and the constitution itself is been put aside, in the most treacherous way, by the people sworn to protect it.
The Greek people are systematically been attacked by a ruthless propaganda machine and a constant threat of extreme police violence, which aim to submit their will to the whims of the “creditors”, ie the banks and their cronies. There are even open plans and efforts to attack a particular political party of the Left (SIRIZA), represented in the Parliament with elected MoP’s and openly opposing this sellout, by deeming it somehow to be “outlaw” and a “terrorist organization”.
It is fanny, if you watch the local news, you will feel that the so called “creditors”, ie the economic elite, now hold a much higher status and enjoy more rights, than the citizens of this country. All the efforts are done to bail them out, in the expense of the Greek taxpayers. This is evidence enough that the country is now under a direct EU/ECB/banker occupation.
This is not only the end of the parliamentary democracy, but the end of the state of Greece, the first casualty of the Global Economic War waged by the cosmopolitan economic elite against whole societies and humanity itself.
As a result, a referendum is now not only out of the question, but irrelevant, for the joint EU/ECB/banker economic dictatorship and their local cronies have led Greece to change its status from a country, to a controlled protectorate. Ireland is next… And the Portugal… The world is at war.