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Noam Chomsky delivers speech at the University of Maryland Friday, January 27, 2012

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NOAM CHOMSKY, LINGUIST AND U.S. GOVERNMENT CRITIC: To clarify the title a little, I’ll adopt the imagery of the Occupy movements, the imagery that’s become familiar, current, in the last few months: them is the 1 percent and us is the 99 percent. Of course, this is only imagery. It’s not to be taken literally. The leading factor in the astonishing inequality to which he Occupy movement has finally drawn attention actually lies in a fraction of 1 percent of the population, maybe 0.1 percent. It’s mostly hedge fund managers, CEOs of financial corporations, and the like.

This is a product of radical changes in the economy since the 1970s. It initiated a process in which an out-of-control financial sector is eating out the modern market economy from the inside, just as the larva of the spider wasp eats out the host in which it has been laid. Actually, those words are not mine—I couldn’t get away with it. I’m quoting Martin Wolf of The Financial Times, probably the most respected economic correspondent in the world—and, suitably, conservative.

A related and parallel process has been the deindustrialization of America. That’s a sharp reversal of centuries of history. It’s been a bonanza for the 1 percent and pretty much of a disaster for the rest. The process is called “failure by design” by the Economic Policy Institute. They’re the major monitors of the state of working America. And not, of course, a failure for the designers—as they make clear, the designers have been making out like bandits. Rather, a failure for the rest, including future generations, on whom a huge burden is being imposed, one that may be impossible to meet. And again, by design. It’s not a law of nature, law of economics, anything else. Planned process.

The Occupy imagery, it refers to aspirations and commitments. So take, for example, Martin Luther King. His anniversary was commemorated, celebrated a couple of weeks ago. King was a leading figure of the 1 percent. That’s independent of whatever his personal assets might have been when he was assassinated. And we should recall that he was assassinated while he was supporting a strike of public sector workers, a group that’s now targeted for destruction in the current phase of the class war, the vicious class war that’s intensified in the last 30 years or so.

He was hoping, at the time, to carry his dream forward by leading a march of the poor to Washington. The march actually took place, starting from the motel where he was assassinated in Memphis, passing through regions where the civil rights struggle had been waged, and finally reaching Washington, where the marchers were dismissed with scorn by Congress and driven out of the city by the police, who for good measure were ordered to destroy their encampment in Resurrection City in the middle of the night. It’s revealing, the contempt of Northern liberalism for King, once he went beyond condemning racist Alabama sheriffs to confronting more fundamental problems of American society in the North as well, the terrible plight of the poor and aggression abroad—at the time, that was the atrocious U.S. war Indochina.

Martin Luther King’s actual dream—and not the one we hear orations about on Martin Luther King Day—the actual one was left in tatters, an unfulfilled legacy, matters worth contemplating as King is solemnly commemorated.

One vivid illustration of the difference between the crises of the 1 percent and the 99 percent is the fate of the congressional legislation that was passed to deal with the catastrophic financial crisis that was created by the 1 percent and their associates in the political and professional worlds. The government reaction was reviewed by the special inspector general of the Bush-Obama bailout programs, Neil Barofsky. He pointed out that the legislation that authorized the bailout was two-sided. It was the financial institutions that were responsible for the collapse. They were to be saved by the taxpayer. And the victims of their misdeeds were to be very partially compensated by measures to give some protection to home values and to secure homeownership. Well, only one part of the bargain was kept, and it didn’t take a genius to predict which part. The financial institutions were rewarded lavishly for causing the crisis. The TARP bailouts were the least of it.

Meanwhile, the rest of the program floundered. To quote Barofsky, foreclosures continued to mount, with 8 million to 13 million filings forecast over the program’s lifetime, while the biggest banks are 20 percent larger than they were before the crisis and control a larger part of our economy than ever. Furthermore, he went on, they reasonably assume that the government will rescue them again if necessary. Indeed, the credit rating agencies incorporate future government bailouts into their assessments of the largest banks, exaggerating market distortions that provide them with an unfair advantage over smaller institutions, which continue to struggle—and, of course, over the 99 percent. In short, he concludes, Obama’s programs were a giveaway to Wall Street executives and a blow in the solar plexus to their defenseless victims, and very likely a stepping stone towards the next and probably worst financial crisis, as business lobbying chips away systematically at the Dodd-Frank regulation bill.

Well, these crises have been a regular occurrence since the Reagan years, though there weren’t any before. Before that, the New Deal regulatory apparatus remained in place. That was also the greatest growth period in American economic history, often called Golden Age by economists. It was also a period of egalitarian growth. The lowest fifth of the population did about as well as the top fifth. It was also the period in which the modern high-tech economy was founded, very largely in the dynamic state sector of the economy, and not something you read about when you see the encomiums to Steve Jobs and Bill Gates and the others who made use of the contribution of the public to commercialize the work that had been done.

Well, at that time, the banks were banks. They did pretty much what a bank is supposed to do in a state capitalist society. They took unused capital, like, say, your bank accounts, and they transferred them to what was supposed to be some constructive use, like somebody wants to buy a home, or send their kids to college, or start a business, or whatever it may be. That was the golden age.

When deregulation began and the postwar system, so-called Bretton Woods system, was dismantled—that was a system of regulated capital and regulated currencies. When that was dismantled in the 1970s, it led to an extraordinary increase in global capital flow. Banks weren’t banks anymore. They became financial casinos, increasingly opaque instruments, all kinds of incentives to underestimate risk, because, as Barovsky pointed out, the nanny state is counted on to step in when things go sour. Credit rating agencies, as he wrote, already take that for granted.

Well, it wasn’t very hard to predict what was going to happen. There were a few international economists who actually did, very few. One of them was David Felix. He repeatedly warned—I’m quoting him—that the increasing frequency of financial crises during the period of financial liberalization could terminate in an uncontrollable one, a return to the Great Depression or quite close to that. He was joined by a few others, among them John Eatwell and Lance Taylor, well-known British and American economists. They published in the ’90s an important book called Global Finance at Risk. They discussed the institutional roots of the underestimation of risk and they proposed means to deal with it.

At root, the problems result from very well known inefficiencies of markets, inherent inefficiencies of markets, which you learn about in your first semester of economics. One of these is that transactions in a market system don’t take into account the effects on others who are not parties to the transaction. So, for example, if you sell me a car and we’re paying attention, we’ll work it out so that we both make out pretty well, alright. But we simply don’t take into account the effect of that purchase on somebody else, that guy over there. And the effects can be—the effects are real. There’s more pollution, there’s more traffic congestion, there are more accidents. And when you multiply these over the population, they become substantial. In fact, these externalities, as they’re called—you don’t pay attention to them, they’re a footnote—they can be huge.

That’s particularly true in the case of financial institutions. So their vocation is to take risks. And if they’re well managed, they are supposed to ensure that the potential losses to themselves will be covered—that is, to themselves. Under capitalist rules, market rules, it’s not their business to consider the risk to others. That’s even apart from the nanny state rushing in when things get in trouble, which of course expands the underestimation of risks.

But even apart from that, just inherent in a market system is that risk is underpriced, because what’s called systemic risk, that is, the rest of the system at large, is not priced into decisions. So if Goldman Sachs makes a risky transaction, investment of some kind, or loan or whatever, it presumably, if well managed, covers the risk to itself, even putting aside the fact that the nanny state is there to help it out when things go wrong. But it doesn’t take into account the risk that if its, say, loan goes bad, the whole system will collapse, which is pretty close to what happened. It insured itself with AIG. AIG tanked. If the government hadn’t bailed out AIG, the biggest insurance company, Goldman Sachs would be bankrupt and other consequences like it would’ve happened, as would happen in a capitalist society without the nanny state. But the risk is always there and exaggerated, underestimated, just by virtue of the nature of markets. Well, that naturally leads to repeated crises. But all such annoying thoughts were put to the side during the period of what’s called neoliberal globalization. That kind of settled into dogma from the Reagan-Thatcher years.

Also dismissed were occasional warnings to beware of what Nobel laureate Joseph Stiglitz 15 years ago called the religion that markets know best. They don’t. There are inherent risks that are just part of them. They can be very severe, and often are. That’s the least of it. But to devout believers who came to dominate the profession, such heresies as regulating financial markets must be dismissed, in fact, dismissed with ridicule. In fact, they consistently were.

The extremism of the religion was revealed quite graphically just a couple days ago. The Fed, the Federal Reserve, regularly releases transcripts after five years, and it released transcripts of internal discussions in 2006. Those are very interesting reading. That was just when the housing bubble was reaching its incredible peak—unnoticed because markets know best. So the fact that in the last few years housing prices had been shooting way out of sight, breaking a trendline of a century without any basis in any economic fundamentals, that had to be right because markets know best. That’s what the religion dictates.

Economist Dean Baker, who’s one of the very few who foresaw the catastrophe—he could do the arithmetic, which is apparently a rare talent—he comments that there is no one in the eight Fed meetings reported who suggests that the economy faces any serious turbulence ahead. There is not even discussion that a mild recession could be in sight. There was a concern in the meetings. The concern was inflation, of which there wasn’t even a remote sign. But that’s what worries financial institutions.

Shortly after the Fed meetings, the huge bubble burst, destroyed trillions of dollars of paper wealth, on which much of the public relied, having been deluded into believing that it was safe. For the more deprived parts of the population, like African-Americans, it virtually eliminated net worth. It’s astonishing when you look at the figures.

Well, during these—if you read the transcripts, the president of the New York Fed, the one who’s primarily in charge of monitoring Wall Street, he captured the general mood among the elite of the profession, economics profession, when he hailed Fed Chairman Alan Greenspan, who at this time was revered as Saint Alan, on the eve of the worst crash since the Great Depression, Timothy Geithner (that’s who it is), who went on to become—was appointed Obama’s chief economic manager, he told Greenspan, I’d like the record to show that I think you’re pretty terrific. And thinking in terms of probabilities, I think the risk that we decide in the future that you’re even better than we think is higher than the alternative. So you’re up in the pantheon.

Greenspan himself had not only boasted over the achievements of what economists called the Great Moderation over which he was presiding, but he even explained how the magical tricks were performed. He was quite frank about it. During the Clinton years, he informed Congress that one of the ways in which he was achieving these fabulous results was to instill growing worker insecurity. And that’s a good thing, he says, because it reduces efforts by working people to try to gain compensation and benefits to mitigate the harsh effects of the Great Moderation. And that’s obviously healthy for the economy. The religion decrees that those gains should go to the 1 percent—of course, for the benefit of all by some kind of miracle that never takes place.

After the great crash, 2007, such fundamental market efficiencies—which, as I say, you’re taught about in the first term of economics—they finally did reach the attention of leading economists. One of the leading financial economists wrote that there is growing recognition that our financial system is running a doomsday cycle. Whenever it fails, we rely on lax money and fiscal policies to bail it out. The response teaches the financial sector to take large gambles to get paid handsomely. And don’t worry about the costs; they will be paid by taxpayers through bailouts and lost jobs. And the financial system is resurrected to gamble again.

Notice that that’s recognizing a kind of a superficial cause of the problem. The deeper cause inherent in market inefficiencies—in this case, at least—went unmentioned, though others mentioned it. So the system is a doom loop was the words of the official of the Bank of England who’s responsible for financial stability. And, in fact, so it remains, getting worse.

Well, as I mentioned, the failure by design traces back to the 1970s when there was a substantial redirection of the U.S. economy towards financialization and offshoring of production, deindustrialization. Both of these were upheld in part by the falling rate of profit in domestic manufacturing, but also by diversification of the global economy. By 1970 the global economy was becoming what’s called tripolar.

You have to recall that after the Second World War, the peak of U.S. power, the U.S. was the one economic center, had half the world’s wealth. The other industrial countries had been severely harmed or devastated by the war. The U.S. gained enormously from the war. Industrial production practically quadrupled. And that was the peak of power.

The famous American decline that’s talked about these days, actually it started right away, declined very quickly. The decline is kind of interesting if you think about it. The first step in American decline has a name. It’s called the loss of China. It happened in 1949. And then there’s huge debate over who’s responsible for the loss of China, a major issue in American domestic policy since that time. It’s interesting that the phrase itself is never questioned. You can only lose something that you own. And it’s just taken for granted. Of course we own the world. How can anyone question that? So if some part of the world moves towards independence, we’ve lost it. And then the problem is, you know, who’s responsible for the loss? In fact, part of the postwar planning, very explicit, was that the U.S. should control the entire Far East, as well as most of the rest.

So that’s the beginning of American decline. It keeps going. I won’t run through it. But by 1970, it had reached the point that, instead of controlling half the world’s wealth, it had declined to 25 percent, which is still colossal, but not 50 percent. And the United States by then was—it’s about what it is now, incidentally. The United States was one of three major economic centers. There was a major center in North America, U.S.-based North America; another one in German-based Europe, roughly comparable; and a third in East Asia, which was already becoming the most dynamic industrial system in the world. Then it was Japan-based. As soon as—that was to be joined by the industrial powerhouses in Japan’s former colonies, Taiwan and South Korea, soon later joined by China, which is becoming its assembly plant.

That’s actually an important fact to bear in mind when you hear about China’s rapid growth, which is indeed spectacular. But the growth is largely as an assembly plant for the industrial countries on its periphery and for multinational corporations, say, like Apple, where they make your iPod, and Foxconn. That’s where the high technology comes from, the parts and components, the fancy software, and so on. China itself mostly assembles them.

That means, incidentally, that the trade deficit with China that you hear about all the time is severely miscalculated, which has been pointed out. In fact, if you calculate the trade deficit by what’s called value-added, how much value is actually added at each step of the manufacturing process, then the trade deficit with China reduces by about 25 percent, and it goes up by the same figure, approximately, with the peripheral industrial countries. And, of course, U.S. manufacturers gain from it as well, not the population.

There’s a recent study by the Sloan foundation that goes into this and gives some illustrations. One illustration is an iPod. They say if there’s an iPod assembled and exported from China, it costs, they estimated, $150 to produce, and China adds $4 dollars to that. The rest is coming from the outside.

Well, under these conditions, namely, you know, decline in the rate of profit of manufacturing, diversification of the economy, opportunities for production abroad, and so on, under those conditions, financial manipulations and overseas operations became much more profitable for the designers of the economy, who designed a failure, as the EPI points out. What that did is it set off a vicious cycle of greater concentration of wealth, increasingly in the financial sector, which just exploded. That concentration of wealth leads almost automatically to concentration of political power. That in turn leads to legislation, which carries the cycle forward. So things like fiscal measures, you know, changing tax burdens and so on, deregulation, rules of corporate governance that give more power to the chief executive, and a lot more.

Meanwhile, what remained of functioning democracy, rapidly declining, was shredded further as the cost of elections skyrocketed. That drives the political parties deeper—even deeper than before—they were always there, but even deeper than before into corporate pockets. That’s where the money is. The Republicans did it so enthusiastically that they scarcely even resemble a traditional political party anymore, which is part of the reason for the near lunacy of the Republican debates. We can talk about that.

If you abandon any pretense of being a political party, you have to mobilize voters somehow, and you can’t do it on the basis of your policies. You know, you can’t go to the voting publics and say, hey, our only policy is to enrich the superrich and impoverish you. So you have to organize other constituencies. They’re groups that are always there, you know, but they weren’t really mobilized as a political force in earlier years.

That includes religious—I could use the word extremist, meaning by world standards, but they’re not extremist by U.S. standards. The country’s kind of off the spectrum in religious extremism and has been for a long time—in fact, since the colonists. But they weren’t organized as a political force very much. And now they are. That’s a big voting constituency. Nativists who are consumed with hate and fear, they’re always there, but now they’re organized. Small businessmen who feel that the world’s turning against them, they don’t like the big corporations, they don’t like the government, they don’t like anybody, they can be organized, and other sectors like that.

I kind of hate to say it, but those of you who know something about modern history will recognize that this is somewhat similar to the constituencies that big industrialists mobilized in Germany in the late Weimar Republic, which was the Nazi Party. And they thought they could control them, but it turned out they couldn’t. But—a lot of dissimilarities, but some unpleasant similarities, too.

Anyhow, when you mobilize those constituencies and that’s who you have to talk to, then the debates and—the so-called debates, you know, the catechism and so on, is going to be like what you see on television. It’s kind of amazing the world. There’s nothing like it in any parliamentary system. But it’s almost inevitable once a political party abandons any pretense of being a political party and just is completely in service to a tiny sector, a fraction of the 1 percent.

Well, that’s the vicious cycle. The Democrats who—actually, the Democrats today are what used to be called moderate Republicans. Moderate Republicans, it’s sometimes said that they’re gone. They’re not gone. They’re centrist Democrats, or even center-left Democrats. They’re not far behind, although that’s part of the vicious cycle.

Well, actually, a lot of what’s going on is in accord with a maxim of Adam Smith’s that should actually be known better. Back in Wealth of Nations (1776), he wrote that—of course, he was interested in England. He wrote that in England the principal architects of government policy are the people who own the economy—in his day, the merchants and manufacturers of England. They set policy and they design it so as to ensure that their own interests are very well attended to, however grievous the effect on others, including the people of England, but in particular those overseas, like those in India who were suffering what he called the savage injustice of Europeans, the British in that case, as he knew.

Well, that’s a pretty good principle of politics. It held well in 1770s. It’s slightly different today. It’s not merchants and manufacturers; it’s financial institutions and multinational corporations. But the general maxim holds pretty well. You can make it more complex and sophisticated, but as a kind of a simple first approximation, it’s not bad, and very dramatic today.

Well, it’s also worth remembering that the founders of classical economics—that’s Adam Smith and David Ricardo—they could predict what’s been happening today, and in fact they did. They warned about what they recognized would be a nightmare of what’s now called neoliberal globalization, what the 99 percent have been enduring here, and much harsher, and long familiar in poorer countries.

So, for example, Adam Smith discussed what would happen if in England the merchants and manufacturers decided to basically abandon England to invest abroad and import from abroad. He pointed out that they might do very well under those circumstances but it would be very harsh for England. However, he argued that this is not going to happen, because of a phenomenon that’s sometimes called home bias—the merchants and manufacturers would prefer to do business at home, to invest at home and get their commodity products from home. And he said, because of this, as if by an invisible hand, England will be saved from the ravages of what we call neoliberal globalization. That phrase, “invisible hand”, is a pretty hard one to miss. It’s the only occurrence, the one occurrence of the phrase in his classic Wealth of Nations. So if you look it up in the index, that’s the passage it’ll take you to. It’s basically a critique of neoliberal globalization and a description of what’s happening now.

He was not alone. The next great political economist, David Ricardo, classical economist, he recognized the same thing. He recognized that his famous law of comparative advantage would collapse if, you know, his England-Portugal model, if the British investors and merchants did everything in Portugal, they’d do fine, but England would collapse. And he said it wouldn’t happen. He hoped it wouldn’t happen. He was a little more sentimental about it than Adam Smith. He hoped it wouldn’t happen. He hoped that because of home bias—I’ll quote him—most men of property would be satisfied with a low rate of profits in their own country rather than seek a more advantageous employment for their wealth in foreign nations, feelings that I should be sorry to see weakened, he said.

Well, that’s what happened, dramatically, in the past generation. That leads to the process of eating out the market economy like the larva of a wasp, to quote Martin Wolf again, and destruction of the manufacturing base of the economy at home, with all that that entails, and it’s quite serious. Well, the 1 percent can survive on finance and profits from production, survive very well, at least temporarily. Production under absolutely hideous conditions at monstrosities like Foxconn, Taiwanese-owned corporation where they produce your iPods and other Apple products and others. But the 99 percent can’t survive on this. And there are other effects, longer-term effects. One of them is loss of the technological edge. That’s another debt we’re imposing on future generations. There’s a—to take one rather striking illustration, there is a rapidly growing market for solar panels, growing very fast. It’s now been largely taken over by China.

The U.S. secretary of energy, physicist Steven Chu, he warned recently to Congress that the United States is falling behind in advanced manufacturing, and he took as exhibit A solar panel manufacturing. He toured one of the main Chinese factories, and he reported—it’s a high-tech automated factory—it’s not succeeding because of cheap labor. Rather, because of sensible planning, the government creating opportunities for infrastructure for suppliers, and so on, a kind of a synergy’s developed; also for Apple products, as was discussed recently in The New York Times.

So he said it started, the factory started with very low-tech manufacturing. But there is a general phenomenon which is well known to industrial engineers: manufacturing capacity provides the basis and stimulus for design innovation and rising to higher levels of sophistication in production design and invention. A lot of it comes from the factory floor, just trying things out, seeing what works, getting new ideas, and so on. And in fact it’s gotten to the point, Chu points out, where the Chinese have now developed a type of solar cell with world record efficiencies. So China’s forging ahead in this essential market, and it might in others too, as the 99 percent here languish—again, by design.

Now, I mentioned that China to this day is still primarily an assembly plant, but it’s going to move up the technology ladder in ways like this, and we’re helping out—and helping others out—to gain a technological edge, which we’ll lose. Industrial countries, too. Germany’s doing quite well, for example.

Well, a good illustration of the design is President Obama’s economic team. When he came into office, it was in the midst of this terrible collapse. So the first thing he had to do was appoint an economic team. And it was very interesting to see how he appointed. He avoided everyone who had criticized the decisions and the procedures that were leading to the crisis—included Nobel laureates. They were out, period. The ones who came in were the ones who designed the crisis—Robert Rubin’s boys, basically. And that was noticed. The business press noticed it. So Bloomberg news, one of the main business journals, they actually did a review of Obama’s economic team one by one, talked about their records, and their conclusion was that most of these guys shouldn’t be on an economic team; they should be getting subpoenas. Well, that’s correct.

There was in fact one exception, representing the liberal left, called for some kind of regulation. That was Paul Volcker. Just to place him in the spectrum, he was Reagan’s Treasury secretary. But by, you know, the last couple of years, that puts him somewhere on the left.

He—anyway, he didn’t last very long. He was thrown out. He was replaced. Obama replaced him by Jeffrey Immelt. He’s the CEO of General Electric. That’s the nation’s largest corporation. And the business world was quite pleased. They were glad to get rid of Volcker, radical leftist, and they trusted Immelt. So London Financial Times pointed out that Mr. Immelt’s appointment was applauded by the U.S. Chamber of Commerce, the main big business lobby, which has been among the president’s harsher critics, and funded—notice, funded many Republicans who ran against Democrats in November’s elections. This was right after the 2010 election. So the last barrier to unimpeded business rule is out of the way. We can all be happy in the 1 percent.

Well, you take a look at GE—. This appointment, incidentally, was heralded as to create jobs. Okay, that’s Jeffrey Immelt’s mission. More than half of GE’s workforce is abroad. More than half of its revenues come from overseas operations; also very substantially from—not from production, but from financial
manipulations. It is now doing some hiring, but at much lower salaries. The workforce has been so beaten down by class war, by unemployment, designed unemployment, that they don’t object; they’re glad to have any work at all. This practice that GE is now illustrating of two-tier contracts—you know, old contracts for the unionized workforce that you can’t get rid of yet but are trying to get rid of them, but much lower pay and much worse benefits for all new workers—that two-tiered contract system, it goes back to the Reagan years. It’s a core part of the bitter and very self-conscious class war of the past generation.

Well, the Immelt appointment, as I said, was proclaimed by the White House to be for job growth, but it had very little to do with that. More accurately, it’s what’s called follow the money. More than a century ago, the great political financier Mark Hanna said that three things are important in politics: money, money, and I’ve forgotten the third one. That’s far more true today than it was a century ago, especially after the changes of—radical changes of the past 30 years.

Well, the consequent and perfectly predictable decline of—and, in fact, intended decline of democracy is evident every day on the front pages. So right now, for example, in Washington, the great issue of the day is the deficit. For the general public, the great issue of the day is jobs. And on strictly economic grounds, the public is right. There are very few serious economists who question this.

So—in fact, the reasons are explained in the most prestigious places, including the business press. I’ll quote again Martin Wolf, the London Financial Times correspondent, who’s maybe the most respected economic correspondent in the world. He writes that the U.S. fiscal position is not an urgent issue. The U.S. is now able to borrow on easy terms. The astonishing feature of the federal fiscal position is that revenues are forecast to be a mere 14.4 percent of gross domestic product in 2011, far below their postwar average of close to 8 percent. Individual income tax is forecast to be barely 6 percent of GDP in 2011. This non-American cannot understand what the fuss is about. In 1988, at the end of Ronald Reagan’s term, receipts were three times that high, over 18 percent of GDP. Tax revenue has to rise substantially if the deficit is to close. And, of course, that means rise substantially on the sectors of the population where it’s been sharply reduced—the rich, especially the super rich in the corporate sector.

Well, it is astonishing, but it’s not hard to understand. It’s the demand of the financial institutions and the super rich, and in a rapidly declining democracy, that’s what counts. Those are the voices that are heard. And as an instrument of class war, the policies that the public strongly opposes make perfectly good sense.

Actually, much the same is true these days in continental Europe. Their two leading economists, financial press, even the International Monetary Fund, point out that the policies of the European Central Bank, which are much more reactionary than the Fed, their policies imposing austerity during recession are almost certain to undermine growth, and even to undermine debt repayment, which is exactly what’s been happening. The IMF, International Monetary Fund, recently did a survey of several hundred cases of applying austerity during recession, and they showed that uniformly it undermines growth, and even undermines debt repayment, which is not too surprising. What’s needed is economic stimulus, and Europe has plenty of resources for that.

So on economic grounds it doesn’t make any sense. But on grounds of class warfare, it’s kind of sensible. It’s a way to undermine hated social programs, to weaken labor, and to entrench corporate control even more than before. So the programs that the public strenuously opposes are quite rational. It’s more failure by design.

Well, even if you keep to the secondary issue of the deficit, the radical decline of democracy I’m speaking of here stares us in the face. So the public has views on how to deal with the deficit—large majorities. Raise taxes on the rich, even if not anywhere near the level of the great growth periods, but raise them. And safeguard the benefit systems—Medicare, Social Security. Actually, even Tea Party adherents insist on that. The financial institutions demand the opposite, so, therefore, it’s the opposite that’s on the agenda.

For Republicans, it’s part of the catechism that you have to solemnly intone lockstep, rather in the style of the old Communist Party: you’ve just got to repeat it. And the Democrats, again, are not all that far behind, though a couple of steps behind.

Well, there is something that’s undiscussable that is a very obvious, well-known way to eliminate the deficit totally, and in fact to create a surplus, and that is to reform the scandalous health-care system. And not by some utopian means. Just to make it like other industrial countries. You know, that’s kind of not outer space.

So the U.S. health system, which is unique in a number of ways, one is that it’s privatized and unregulated, hence extremely inefficient—layer after layer of bureaucracy, tons of administrative costs, profit-making, advertising, all sorts of things which take funds away from treatment of people, and of course all kind of measures. After all, these are profit-making institutions. They’re there to make profit, not to cure people, so they try to do it. And they tried to do it by all sorts of ways to defer or prevent treatment if they can get away with it. That’s kind of automatic. And it’s about twice the per capita costs, even more, of comparable countries. That does not translate into health benefits. In fact, the U.S. comes out sort of at the low end of industrial societies in health outcomes. But that’s a huge cost. And, in fact, if we did institute a health care system like other countries, the deficit would be wiped out, and in fact there’d be a surplus. But that’s not part of the debate over the deficit. It’s not discussed in the media. The financial institutions don’t want it. End of story.

There actually is a far more ominous component of the failure by design. Now, that’s not just for the 99 percent, but for their children and their grandchildren, and those are the 1 percent too. And that’s environmental catastrophe. There have been a number of major emissions reports in the last couple of weeks, one from the International Energy Association, which is a pretty conservative body. It was founded by Henry Kissinger. They came out with their regular report indicating that emissions, you know, greenhouse emissions, were far beyond what had been anticipated, and their chief economist warned that we may have about five years before the window closes, as he put it. We’ll reach the point in global warning which is irreversible—assumed to be irreversible; from then on it just explodes. And these are what are called nonlinear processes, you know, can explode pretty fast. So we’ve got five years. The emissions are getting worse than ever.

Right before that, a couple of weeks before that, the U.S. energy monitors, Energy Department, produced its estimates, which—similar—said—it’s for 2010, the last figures. It said it was the greatest rise ever, and it was worse than the worst-case scenario of the IPCC, you know, the international monitors, the scientists group that monitors emissions. They have a spectrum of more optimistic, less—more pessimistic estimates, and this was worse than the worst of them.

I should say that where I am at MIT, that didn’t come as any surprise. There is a climate change study group at MIT, and they’ve been saying for years, and publishing the fact that their own models suggest that the IPCC consensuses, and even its worst case, is far too optimistic. Well, that’s what the latest emissions report shows.

Congress reacted to this. They reacted by enacting [snip] the problem. And can’t do that, so therefore we can’t inquire into it. It’s kind of similar to the National Rifle Association, which for decades has prevented any legislation which would lead to an inquiry—no action, just an inquiry into whether there’s a relation between guns and homicides. I mean, it’s clear what they’re going to find out. But you can’t inquire into it. It’s too dangerous.

Well, meanwhile, Congress, the Republican Congress, is busy. It’s dismantling environmental measures that are on the books, the ones introduced by Richard Nixon, who was in many ways the last liberal president. Eisenhower would look like some kind of flaming radical today. So it’s all the more evidence about how both the doctrinal and policy spectrum has shifted to the right.

On climate, there are international polls taken by the Pew Foundation, and it turns out that across the world a large majority of the population is very much concerned about the environmental catastrophe. Even in the United States there’s considerable concern, although the United States is much lower than other countries, much less concerned, less belief that it’s real, which is why every Republican candidate can say and indeed must say it doesn’t exist or it’s not a problem and get away with it.

In the United States, this figure has been going down for the last couple of years, concern for climate, you know, the problems of climate. And it’s certainly correlated with a massive corporate propaganda campaign, which was openly announced, and nothing secret about it. You could read in The New York Times that after the success of the insurance companies in beating back health reform and turning the Obama program into a kind of a gift to them—which indeed it was—after their success, the Chamber of Commerce, American Petroleum Institute, and others announced that they’re going to use the same methods to try to undermine the concern over global warming. And it’s been a big campaign. It’s apparently had a substantial effect. And that’s all a direct consequence of the shift of power towards unaccountable private tyrannies and the religion—and it is a religion—that there must be no public interference in their pursuit of short-term profit and power.

Well, it’s easy and convenient to make fun of the Republican congressman who explained that there can’t be any environmental problems, because God promised Noah that there would never be another flood. That’s easy. We can laugh about it. It’s less easy, less convenient, and far more significant to pay attention to the secular religious extremism that’s all around us, right in our circles, our own enlightened circles, the kind that I mentioned. And this indeed goes well beyond what I’ve already mentioned, and it involves crises that are far graver than the failure by design in the rich countries, from which the 99 percent are suffering.

Among these many crises—and there are plenty of them—there’s one that ought to be of prime concern for us, and that is just on moral grounds, the ones—the crises affecting the victims of our crimes. Well, these range too widely to talk about, but I’ll just end by bringing up one quite striking case, which happens to teach us a good deal about ourselves if we choose to learn from it. As you know, anniversaries of important events are often commemorated, sometimes quite solemnly, like Pearl Harbor Day, but there are some that are forgotten, and they have lessons, too. So I’ll mention one.

We are now reaching the 50th anniversary of the date when President John F. Kennedy launched a direct U.S. invasion of South Vietnam. Just 50 years ago he shifted U.S. policy from support of a brutal client regime that had killed tens of thousands of people and elicited resistance they couldn’t subdue; he shifted policy from support for them to a direct U.S. attack that included bombing by U.S. aircraft, use of napalm, a program of chemical warfare, programs that ultimately drove millions of people, villagers, into urban slums or what amounted to concentration camps, in which the story was they would be protected from the indigenous guerrillas, who in fact the administration knew they were willingly supporting.

Well, I’ll quote official sources from 50 years ago. President Kennedy authorized use of U.S. forces in a sharply increased effort to avoid a further deterioration of the situation in South Vietnam, including increased airlift to the government of Vietnam—that’s the U.S. client regime, which until virtually the end declared itself to be the government of all of Vietnam—this increased airlift included helicopters, light aviation, transport aircraft, equipment, and U.S. personnel, for aerial reconnaissance, instruction in and execution of air-ground support, special intelligence, aircraft personnel, and chemical defoliants, to kill Vietcong food crops and defoliate selected border and jungle areas. Spraying equipment was installed on the H-34 helicopters and is ready to be used against food crops. This is 1961. Early ’62, the defoliants included Agent Orange. That’s laden with dioxin, which was known to be—by the manufacturers, at least, was known to be one of the most lethal carcinogens that’s—anyone knows about, and it exacted a pretty terrifying toll on the invading armies, and of course far worse horrors for the civilian population. Still does. You find aborted hideously malformed fetuses in Saigon hospitals several generations down the line. And notice that all of this is attack on South Vietnam.

The short-term effects were reported by the most highly respected Indochina specialist, military historian Bernard Fall—who was no dove, incidentally, but he was one of the few who cared about the people of the tormented countries. So in early 1965 he estimated that about 66,000 had been killed between 1957 and 1961 under the U.S.-imposed terror state, and another 90,000 between 1961, when policy was shifted, and April 1965, during the early stages of the Kennedy-Johnson aggression, virtually all of them South Vietnamese, and mostly victims of the U.S. client regime, or as he put it, the crushing weight of American armor, napalm, jet bombers, and, finally, vomiting gases.

Well, the decisions of 50 years ago were largely kept from the American people, though pieces dribbled out, and so are the shocking consequences that persist. The first study of the continuing impact of chemical warfare on South Vietnamese—destruction of food crops and so on—the first study of that just appeared by Fred Wilcox a couple of months ago. I doubt very much it’ll even be reviewed. Well, despite the silence, information did trickle through to give at least some sense of what was happening.

But efforts at justification were pretty slim because nobody really cared, hardly more than President Kennedy’s impassioned address to the UN General Assembly, where he warned that we are opposed around the world by a monolithic and ruthless conspiracy that relies primarily on covert means for extending its sphere of influence. And if the conspiracy achieves its ends in Laos and Vietnam, the gates will be opened wide—conspiracies in the Kremlin. There weren’t any Russians anywhere near sight, but they were the monolithic and ruthless conspiracy that was doing all these things.

About the same time, he warned that, as he put it, the complacent, the self-indulgent, the soft societies are about to be swept away with the debris of history, and only the strong can possibly survive. That was his lament after the failure of the invasion of Cuba, the Bay of Pigs invasion, warning that we’ve got to do something about it. Well, it’s hardly necessary to spell out the actual basis for these grim pronouncements, since so few people are even paying attention to what was actually being done. And the invasion itself passed with hardly more than a yawn.

Well, that was 1961. Years later, by 1967, opposition to the crimes did reach a substantial scale, but by that time, hundreds of thousands of U.S. troops and tens of thousands of virtual mercenaries were rampaging through the country, heavily populated areas were subjected to saturation bombing, and by then the invasion had spread to the rest of Indochina. And the consequences had become so horrendous that Bernard Fall, again, forecast that Vietnam as a cultural and historic entity is threatened with extinction as the countryside literally dies under the blows of the largest military machine ever unleashed on an area of this size. And he was again referring to South Vietnam, which was always the main target up to that point.

The war went on for another eight horrendous years, and mainstream opinion was divided between those who describe the war as a noble cause that could have been won with more dedication, and at the opposite extreme, the critics, to whom it was a mistake that proved too costly, kind of like the German general staff after Stalingrad. That’s the Liberals. By 1977, President Carter aroused almost no notice when he explained that we owe Vietnam no debt because the destruction was mutual. Practically no comment.

Well, still to come after Bernard Fall’s grim warning was the bombing of the remote peasant society of Northern Laos, bombing with such intensity that the victims lived in caves for years to try to survive a bombing that had almost nothing to do with the Vietnam War, had mostly to do with the fact that there were a lot of bombers around with nothing much to do.

Shortly after that came the bombing of rural Cambodia at the incredible level of all Allied air operations in the entire Pacific theater during World War II, including two atom bombs. That’s rural Cambodia. All of this was under Henry Kissinger’s orders “anything that flies on anything that moves”. Now, that’s a call for genocide of a kind that’s very hard to find in the archival record. It was kind of known but disregarded.

These were what are called “secret wars”, in that—meaning reporting of what was available, even what was available, was very scanty. And the facts are still barely known to the general public, or even educated elites, people who can recite by heart every real or alleged crime of official enemies. These are all matters that merit reflection, not about, you know, the Republican base, but about ourselves and our communities, those we live in. And they also merit action.

And there is finally some action. The Occupy movements are the first large-scale popular response to the growing crisis of the past generation. Maybe they can go beyond what they’ve done. I hope so. They have achieved a great deal. And if they can overcome the inevitable repression already underway, and if they can find ways to expand into the general community and to deepen the insight that they’re trying to provide, that could prove to be a development of historical significance. And whether that’ll happen is essentially up to us to determine, just as it’s up to us to determine whether, say, Martin Luther King’s dream is to remain in tattered ruins or can in fact be realized. Thanks.


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Noam Chomsky has written and lectured widely on linguistics, philosophy, intellectual history, contemporary issues, international affairs and U.S. foreign policy. His works include: Aspects of the Theory of Syntax; Cartesian Linguistics; Sound Pattern of English (with Morris Halle); Language and Mind; American Power and the New Mandarins; At War with Asia; For Reasons of State; Peace in the Middle East?; Reflections on Language; The Political Economy of Human Rights, Vol. I and II (with E.S. Herman); Rules and Representations; Lectures on Government and Binding; Towards a New Cold War; Radical Priorities; Fateful Triangle; Knowledge of Language; Turning the Tide; Pirates and Emperors; On Power and Ideology; Language and Problems of Knowledge; The Culture of Terrorism; Manufacturing Consent (with E.S. Herman); Necessary Illusions; Deterring Democracy; Year 501; Rethinking Camelot: JFK, the Vietnam War and US Political Culture; Letters from Lexington; World Orders, Old and New; The Minimalist Program; Powers and Prospects; The Common Good; Profit Over People; The New Military Humanism; New Horizons in the Study of Language and Mind; Rogue States; A New Generation Draws the Line; 9-11; and Understanding Power. His most recent book is called Gaza in Crisis: Reflections on Israel's War Against the Palestinians published in November of 2010.