Ed Herman Pt 3: We’ve been in a period in which the power of finance extends into politics more aggressively than it ever was, so it’s able to stymie any changes

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. We’re in Penn Valley, Pennsylvania, with Edward S. Herman.

Edward is an American economist and media analyst, specialty in corporate and regulatory issues as well as political economy. He’s a professor emeritus of finance at the Wharton School. He coauthored Manufacturing Consent with Noam Chomsky and The Politics of Genocide with David Peterson. Thanks for joining us.


JAY: If you go back to the beginning of the 20th century and throughout the 20th century and to today, there’s this growing force/power of this kind of finance sector, the internexus between the banks, the finance companies, and corporate America. Some people have characterized it as the parasitical sector, where areas of speculation—and more money actually gets made in speculation and derivatives than are made in investing in, you know, what’s called the traditional economy. And you get into the ’80s and up until now, where the power of this finance sector seems such that you can’t even pass the most modest reform, like simple position limits. You have an act, the Dodd–Frank Act, which is not so robust to begin with, but even what might be in it that would mitigate some of what’s—the excesses that are going on that are actually threatening capitalism itself. You can’t even pass real regulations to enforce any of that. So where is this leading us to?

HERMAN: I don’t know. We need some challenges from below. But the people below are really quite disorganized at the moment and they’re in disarray. We’ve been in a period in which the power of finance and the power of big business in general globalizing extends into politics more aggressively than it ever was, so it’s able to stymie any changes. And what it has been able to do is prevent a really serious reform, a serious set of reforms, and actually get bailed out. In spite of the fact that the financial sector was heavily responsible for the crisis, they get bailed out, and their victims are left sort of stranded. And they’re even allowed to merge. So you actually have had these too-big-to-fail banks actually getting bigger—and even more serious state of not being able to fail without bringing down the whole house. So the situation is actually maybe a little worse than it was before the 2008 collapse.

And in the ’30s, you had this collapse, but you then had a fairly serious reform effort. There was fairly serious reform. The SEC was put into existence, the public utility holding companies were somewhat—were dismantled, and you had more aggressive financial regulation altogether.

JAY: But why now? You can’t pass the most meager reform for the sake of maintaining capitalism. At least in the ’30s you had people who saw, in terms of the interests of the system, you’d better do something to mitigate this excesses. You can’t even pass simple stuff now.

HERMAN: I know. Well, the crisis were more—it was more severe then, directly severe. I mean, the numbers unemployed in the 1933-34 was relatively worse than now, and it was a shocker, and the exposures of the finagling and manipulation in the ’20s was more aggressively done. You had the Pecora Commission. And also I think the media were somewhat more democratic than they are now. And right now you’ve got more centralized economic power, more centralized media.

And the political parties, you have a kind of set of vicious circles. The right wing succeeded in getting a court that has worsened things with this Citizens United decision, making it possible to pump even more corporate money into the political—what already was really bad. So you have both parties, both parties now really dependent on big money.

And with the news, the way the media work, they’re not going to engage in any fundamental criticism. So it’s very hard to break through this. It’s a disease that feeds on itself.

JAY: One of the demands that we’re hearing, even from someone apparently—I think it was the Federal Bank of Dallas had a paper on this, but we’ve heard it in other places, to break up the big banks so you don’t have too-big-to-fail banks. And you hear a lot of this, like, take back America, like, let’s go back to some earlier stage of things. Can we go back to breaking up banks? Does that really make a difference? Or do we have to start envisioning something else in the future that people fight for?

HERMAN: Yeah, that’s a toughie. But that was an amazing paper, to see it come out of the Federal Reserve system, a paper that actually was calling for breaking up the banks. But I can’t see these banks being broken up. The government, the regulatory system, I don’t—it would be very—I think it would be a very difficult thing to get them broken up, just to—even the mechanics of it and the financial effects. But then, I don’t think there’s any political interest. The Occupiers in the various parks in the United States would be pleased to try it, but they don’t have the—not only not have the power, but implementing it would be very difficult. So I don’t think it’s going to happen.

I’m a democratic socialist. I think those banks ought to be nationalized. That’s what should have happened in 2008. The government, they actually paid the money, and it’s now subsidizing them with these low interest rates. A very good case can be made for nationalization, these banks, that—. It’s a little belated, because it should have happened when they were—essentially, failed. They were—they failed. They should have been taken over. The FDIC should have taken them over. They should—and they should have—they should be nationalized.

We would still face a very difficult situation. Who would run them and on what basis? And how would they relate to the underlying global corporate structure. It would be utterly chaotic. That’s part of why I’m a pessimist. But I certainly would—if I had the power, and especially back in 2008, I would definitely have tried to nationalize those banks and then move on from there.

JAY: So where do you think we’re at in terms of the global economic crisis? You know, we’re hearing in the elections the unemployment is going down a bit in the United States. How does the outlook, for you, look?

HERMAN: The outlook does not look good. The economy is in really very poor shape. It’s improved a little bit the last year. But almost all the gains of that improvement had gone to the upper 10 percent, and especially the upper 1 percent of income, so it keeps feeding on the power. If you look at and read—the newspapers tell us that the markets are very good for expensive real estate in New York and for fancy cars and yachts and things like that—the upper 1 percent or 5 percent are doing very well. But that enhances their political power.

And I think that maybe the most important fact of the economics of the last 20 years is the increasing inequality of income and wealth distribution. From 2000 to the present, lower 90 percent, average income has actually fallen. So you’ve got increasing inequality. Now, what does that mean? It means more centralized power. But it means more people down below are unhappy and suffering.

So they—what I’m waiting for is for the revolutionary outrage on the—not just from me, but for all those vast numbers who are getting screwed. But, again, the pessimist in me tells me the trouble is they don’t seem to see who the hell is doing it. They do resent the big banks, but they’ve been channeled to resent the government, as if it’s just government, you know, and the big debt, the great debt.

In fact, the growth of the debt has come about because of the increasing inequality. It’s been a mechanism, I mean, the huge Bush tax cuts, and the increase in the size of the military budget and the military-industrial complex, and tax losses through tax subsidies. So a good chunk of it, the debt increase, is a function of what I would call class warfare. It’s also an instrument of class warfare, this whole business of the debt and the threat of the debt, because what the power structure is using it for is to justify cutting expenditures more. And you look at this, these proposals of—the Republican proposals just passed involve more tax cuts for the upper income brackets and very large expenditure cuts over time for ordinary citizens. The military, of course, is protected.

JAY: But if you keep sucking money out of the majority of people’s pockets into fewer and fewer hands—and it seems to be becoming more and more unfettered, that process—doesn’t that lead to crash? Like, eventually, you know, the lack of purchasing power has got to just paralyze things.

HERMAN: Yeah, there could—and, in fact, it’s true in Europe, too. I mean, you’ve got this unbelievable—not only this false economics about the [incompr.] debt increase in the threat of the debt increase, but you have this incredible turnabout of official economic thought in Europe and the United States that you need therefore to shrink budgets to deal with the situation, where you’ve got significant unemployment and threaten more unemployment. So you have austerity.

And in Europe it’s absolutely crazy. It’s as if John Maynard Keynes had never lived, and the Keynesian revolution, which brought with it simple truths—we lived on those simple truths. Even the military Keynesianism was based—involved Keynesian thought. I mean, we had—the economy was bolstered for years by government expenditures through the approved machinery, namely buying guns. Yeah.

JAY: Yeah, it’s okay, stimulus from the government’s okay if you’re buying aircraft carriers.

HERMAN: Yeah, or if you cut taxes. It’s an ominous picture. You would think that with this increasing inequality, where it feeds on itself because of the greater power of the top 1 percent, you’d think [incompr.] to be an economic crisis there wouldn’t be enough demand. And that’s what people like Paul Krugman keep saying, too.

JAY: So what should people do? What should they fight for?

HERMAN: I think they should fight for getting in politicians that are going to tax the people who ought to be taxed, and regulate intensively, break up the big banks, socialize the big banks, but then also, if I had—could do it, decentralize the system even more. I mean, the media are concentrating steadily. I think this is horrifying. And so protecting the neutrality of the internet and actually breaking up some of these big media conglomerates, I think that would be a really good thing. Of course, also strengthening and making honest public radio and television. As it is, they’re pathetic. The right wing has cowed them and made them not really independent.

I would do a lot, give them funds for a long period [incompr.] have to reverse our treatment of public radio and television. But there had been plans in the past about creating a big fund, maybe taxing the networks, who get airspace free. They should be heavily taxed. These are worth a lot of money. They’re getting a free loan. They should be taxed heavily, and those funds should be put in to fund an independent media on some basis. There are lots of discussions of that. But I think that would be really a very good thing. Our media system is really bad. It’s really tied-in. That’s why it’s been very difficult to get this done. But if I was the dictator, it would be done.

JAY: Well, I guess I’m not for dictatorship. But on this particular point? Thanks for joining us. Thank you for joining us on The Real News Network. And speaking of funding independent media, there’s a donate button over here, because if you don’t do that, we can’t do this.


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