Michael Hudson: Austerity and recession used to lower wages


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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington. And in Washington, what people are calling the not-so-super committee is deadlocked over how to cut $1.2 trillion from the deficit beginning in 2013 over that following decade is what they were supposed to have accomplished. Now joining us talk about the work of this supercommittee and just why they’re trying to do all of this anyway is Michael Hudson. Michael is a distinguished economics professor at the University of Missouri-Kansas City. He’s also the author of the book Super Imperialism: The Economic Strategy of American Empire. Thanks for joining us again, Michael.

MICHAEL HUDSON, PROF. ECONOMICS, UMKC: Thank you very much, Paul.

JAY: So, first of all, let’s step back again here, because all the news coverage about the supercommittee all kind of presupposes that it’s a good thing to be cutting $1.2 trillion out of the deficit, and this was all needed because the US was going to have their bond rating lowered and all of this. Standard & Poor’s helped trigger this. Just remind us the context of why this is happening, and then give us your take about it.

HUDSON: Mr. Obama has appointed neoliberal advisers. The deal that he made when he was elected was that he would get Wall Street’s campaign financing in exchange for appointing Larry Summers and Tim Geithner and other Wall Street people. And the financial sector all over the world is opening a class war against labor from the United States to here. Mr. Obama’s intention is to reduce wages here by between 20 and 30 percent, and that requires a recession–or, actually, it requires much more than a recession; let’s just say depression. So about three months ago, Mr. Obama negotiated with the Republicans to adopt the Republican program of cutting back government spending in order to shrink demand, lower employment. His objective is to create more unemployment, in the belief that if you cut back employment, wages are going to go down, and if wages go down, that will create higher profits. That’s sort of a bizarre belief, and he’s willing to bring on a recession in order to serve the neoliberal philosophy. Remember, this is the president who, when he went into the Senate, chose Joe Lieberman to be his mentor and adviser, and Joe Lieberman showed him how to essentially maintain his constituency of voters while at the same time raising money from the real constituency, which are his campaign contributors. So Obama made an agreement three months ago with the Republicans to cut government spending by–$1.3 trillion you mentioned. The problem is: how is he going to represent himself as the agent of change? This wasn’t exactly the kind of change that he’d been–his supporters had expected. So he said, okay, we’re going to appoint a supercommittee that guarantee in advance nobody’s going to agree, but before we go through that charade, we’re going to agree on what the outcome will be, the cuts, but you have to give me three months so I can go to my electorate and say, boys, we’ve got to raise wages, we’ve got to inflate the economy, we’ve got to talk all about jobs. Please, I want the committee that I’ve appointed. Please reach an agreement instead of not agreeing and ending up with the settlement that I negotiated with them all the time. So what’s happened is exactly what he negotiated three months ago. Everything’s on schedule. But Mr. Obama’s been able to come out and try to blame all of this on Congress as if somehow it’s Congress’s fault rather than his fault for appointing the supercommittee to begin with, and it’s his fault for negotiating exactly what the fallback position is.

JAY: And the point here is, when it came time to raise the deficit ceiling, there were–President Obama had other choices. Is that–that’s what you’re saying.

HUDSON: Sure. He could have just ignored it. Of course he had choices. He had choices at the time he came into office. Remember, he could have done just about everything. The whole country was behind him to change things. They voted for him because he said he was for change, and the change they wanted was away from the Bush-Cheney scenario. And instead what you have with Obama is Bush-Cheney on steroids. He’s escalated Cheney’s military neocon program all over the world, especially in North Africa, the Arab countries, and now threatening Iran, and domestically he’s put the class war back in business. So he could have said, look, Congress, if you don’t–if he would have been an honest guy and meant what he said about change, he would have said, look, I’m going to–I’m not going to bail out Citibank, I’m not going to bail out Wall Street; I going to use the government money to spur employment and economic growth, not giveaways; and if you congressmen oppose me, then I’m going to go to the country and I’m going to let them know that you’re opposing growth. He could have brought them all along. That’s what a strong president is supposed to–.

JAY: Right. Now–but that being said, all the conditions for a recession were there when President Obama came to office. And you’ve had [incompr.] 30 years of stagnant wages. So it’s not like you can just say he created the recession. I guess what you’re saying is that he could have done a heck of a lot more about it and continued those kinds of Bush-type economic policies.

HUDSON: Of course he didn’t create the recession, but people expect the president to pull the economy out of recession by stepping up government spending. That’s what’s been done for the last 70 years. And instead of increasing government spending to pull the economy out of recession or depression that it’s going into, what he’s doing is cutting spending back, making it even worse. Now, it cannot be a coincidence that this is exactly what the European Central Bank and the European financial interests are doing, too. You’re having an identical program followed by Europe and by the United States, a highly anti labor program, anti government spending, moving deeper and deeper into austerity. And what Obama and Europe is doing is imposing an austerity program on the economy right as it’s shrinking even more. So the result is that austerity is going to lead to more debt defaults, more foreclosures, and we’re into a kind of escalating depression that is essentially wiping out the middle-class wealth but letting wealth flow to the top. This is really benefiting the top 1 percent of the economic pyramid.

JAY: I guess an example of what you’re talking about, too, is what–in the restructuring of General Motors, new employees are going to start at half the wages that they had previously. And we’re seeing this two-tier type of contract right across the country–Wisconsin, Mercury Marine, Harley Davidson, all two-tier contracts, with new employees essentially having wages cut by half. So I guess this is part of what you’re talking about.

HUDSON: Well, that’s what seems to have been intended from the very beginning. None of this could have been a secret. And what is locking it all in is the state and local deficit. If the federal government cuts back spending, this is going to hit the states and localities very hard, and most of these are under much budget balance amendments, and they’re going to have to cut back public employment. So the brunt of the slowdown in the American economy is going to be felt at the public sector level of state and local government. And that is the main target of the neoliberals in this country, because they think that local public sector unionized employment has to be broken. Most of the unions in America are in the public sector unions. So by pushing on a recession, you not only lower wages in the private sector, but essentially you force the states and localities to break up the public sector unions, which, again, as you point out in Wisconsin, is exactly what the game plan is.

JAY: Now, if I were defending President Obama, I guess what I would say is: isn’t he and his administration dealing with the real politics of the country, meaning that the other side, who wants this austerity plan–and this is sort of giving some benefit of the doubt to the Obama administration, that they wanted more stimulus but weren’t able to pass it–but, still, their argument would be, there’s so much money on the other side that if you actually look at public opinion polls and such, that at least half the country is for these kinds of cuts, and that they’re trying to grapple with that as they head into a new election? I mean, how do you answer that argument?

HUDSON: Well, first of all, before 2010, the Democrats, Obama’s party, was in control of Congress, and they could have done–they could have passed the budget already back then before the public got disgusted with him and voted in the Republicans thinking there’s got to be a better choice. So the first two years, that excuse wouldn’t matter. The second two years, Mr. Obama’s done nothing to get the big money out of politics, specifically in the Citizens United case. There’s been no attempt to say, wait a minute, the Supreme Court justices we appointed that approved Citizens United, they were lying in their statements before the Senate. They can be removed.

JAY: Lying in what way?

HUDSON: Well, they said that they were nonpartisan. They said that they were not radical. These guys are radical. Their intention is to overturn the Constitution as it’s been understood for the last 200 years or so. They are essentially advocates of the right wing, the Roberts Court and the people that have been appointed that are the majority now in the Court. The–you can do what Roosevelt did, you can say, look, either you guys are going to resign, or I’m going to expand the Court and appoint new justices. There were all sorts of tactics that have been supplied. Or you can pass an amendment getting the big money out of politics. The fact is, Mr. Obama is the single major beneficiary of Wall Street money in politics, because the money’s going to him. So the last thing he wants to do, really, is to get the big money out of politics. He’s going with the flow, not fighting the flow.

JAY: So the supercommittee is–it looks like they’re not going to come to any agreement. And then supposedly there’s going to be this trigger that kicks in in 2013, you know, with 50 percent cuts to the–on the military security side, 50 percent on the social programs side. What do you make of this? Do you think you we’ll ever see the light of day where there actually are such cuts on the military side?

HUDSON: No. I think that you’ll notice that [incompr.] after the new election. I think the new incoming government and Congress are going to say, wait a minute, given the fact that I think Mr. Obama’s going to do what presidents often do to win a second term, they’re going to escalate military things abroad. There’s going to be an October surprise, probably, in 2012, and the October surprise is going to be another American military escalation that usually mobilizes voters in favor of the existing president, saying you’ve got to rally behind the state, and that’s going to bring in a kind of militarized Congress. And whoever is president–probably Obama again–is going to say, wait a minute, you can’t let the military down now just as we’re involved in a huge new conflict in the near East and Africa, and even in Latin America. He’s escalating absolutely everywhere all over the world. And that makes it very unlikely that they’ll cut the military budget. So all of the cut is going to be in the domestic social budget at home and in revenue-sharing with the states. That’s what I would expect to happen.

JAY: So what do you think people should do?

HUDSON: I don’t know what they can do. They can realize they’ve been fooled. They can say what the Irish do: fool me once, shame on you; fool me twice, shame on me. I think most people–you’re talking about why the whole Occupy Wall Street movement has gained momentum. It’s a discouragement with the political process as much as with the economic process. I don’t see what can be done without either a third-party, and I don’t see that coming out right now. I think that there’s a feeling of powerlessness through the whole US economy and the fact that the economy and politics have been hijacked by Wall Street. All they can do is diagnose the problem and come out with a cure that is systemic. In other words, they say, look, you can’t–the situation with is so bad, you can’t just change a few parts of it technically; you’ve got to change the whole system. And it’s going to take perhaps a constitutional amendment or set of amendments. It’s going to take a change in the tax system to restore progressive taxation. It’s a really, really big change. And this is a change that’s going to take a generation to fight for. It can’t be fixed in a single election. It can’t be fixed in a single year. The rot is going too high. And Wall Street and the upper 1 percent feel strong enough now that they say, okay, we can open the war against you. As Warren Buffett said, there is a class war, and we’re winning it. And they’re saying now is the time that we can really lock it in. All that the American people can do is not to make the victory of the 1 percent irreversible, but plan about how to reverse the victory that they’re achieving under Obama now and that they expect to achieve when he brings on an even deeper depression in the year to come.

JAY: Well, maybe people can look back at what’s happening in Cairo as we speak, because there’s thousands of people back in the square demanding this military regime is Mubarak without Mubarak and they want them gone. But thanks very much for joining us, Michael.

HUDSON: Thank you very much, Paul.

JAY: And thank you for joining us on The Real News Network.

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