Michael Hudson: Deficit Hawks Want a One Two Punch Against the Economy
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay, coming to you today from New York City. Now joining us is Michael Hudson. He’s a distinguished research professor at University of Missouri – Kansas City. He’s also the author of many books, including Super Imperialism: The Economic Strategy of American Empire, and Trade, Development, and Foreign Debt: A History of Theories of Polarization Versus Convergence in the World Economy. That’s a mouthful. Thanks for joining us.
PROF. MICHAEL HUDSON, UNIVERSITY OF MISSOURI – KANSAS CITY: Thank you.
JAY: So President Obama’s deficit commission has reported. The press, the media, and most of the political punditry all seem far more worried about government debt than depression. Why?
HUDSON: Because they’re essentially appointed by the banking interest. When the government runs into debt, it has to borrow off the banks. They want to scale down government debt in order to scale down government taxes. So it’s part of a one-two punch against the economy, basically. To the deficit commission, a depression is the solution to the problem, not a problem. That’s what they’re trying to bring about, because you need a depression if you’re going to lower wages by 20 percent.
JAY: And why do they want to do that?
HUDSON: Because they have the illusion that if you pay labor less, somehow you’re going to make the economy more competitive, and the economy can earn its way out of debts–meaning their employers, the banks and the companies–and make more profits and pay more bonuses and stock options, and somehow their constituency, Wall Street and the corporate economy, will become richer if they can only impoverish the economy. So essentially you can think of it as between a parasite and the host economy. A smart parasite in nature actually is in a symbiosis with the host and tries to steer to new food. It wants the host to find new food, doesn’t want it to get bigger; the parasite wants itself to get bigger. But to do that, it has to take over the host’s brain and make the brain think that the parasite, in this case the host, is the industrial economy, the real economy, production and consumption. The parasite is basically the financial sector. That’s the deficit commission. That’s the largest financier of the Obama administration. Obama appointed Wall Street lobbyists for the deficit commission, and basically their mind is a one-track mind: reduce labor’s wages. So what we have here is a dumb parasite, not a parasite. That’s the problem that’s facing the American economy today. The problem is that the parasite’s not only taken over the brain of the economy, which was supposed to be the government, but it’s taken over its own brain in the process. And it actually imagines that corporations can make larger profits and the industrial–the financial system can survive if they just bring on a depression. In fact, it’ll be the exact opposite.
JAY: Well, back up a step, because if you go into the recent crisis, the lack of the amount of consumer debt as a result of lack of real wages and real demand is–I’ve always understood is one of the underlying reasons for the crisis. You create this bubble, but it’s based on artificial debt. So if you take out even more consuming power by driving down wages, you take out even more consuming power by cutting unemployment insurance, you take out even more consuming power by various new kinds of taxes they’re even talking about in terms of consumer taxes, so don’t they actually exacerbate the problem, exacerbate the crisis? You’re saying they want to.
HUDSON: From their point of view, let’s look at how Wall Street and the large corporations view of the economy. They look at two cost functions. One is the cost of doing business–the cost of hiring labor and producing goods. But the other cost is that of taxes. The object is to reduce their taxes by shifting the tax burden off finance, off industry, onto labor. And the function of the deficit commission is to change the tax system, to get rid of the taxes that fall on capital, and to make the taxes fall only on labor. That’s going to at least free them from the government so that they can use all of the government’s credit-creating power to bail themselves out. So the second thing they want to do after cutting taxes is to cut social spending so that as much of the government spending power as possible is available to bail out the inevitable collapse when it comes financially and to give subsidies to companies. So the idea is basically to reverse the progressive era’s whole economic philosophy, and this involves impoverishing the economy in the process. But you have a mindset very much like you had in England for centuries that somehow thinks, if you can only hurt labor, you’ll be helping capital. That’s why England lost its industrial position. It’s a wrong mindset. It doesn’t work. But that’s how they feel, because that’s their mentality.
JAY: Well, in terms of their mentality, is it simply apres moi, le deluge? Like, we’ll make some short-term dough, and we’ll worry about the long-term later? Or do they actually believe somehow this creates something long-term?
HUDSON: The financial sector has always lived in the long term. Already a century ago you had financial books decrying the fact that banks and large lenders were hit and run: they would try to put investors into stocks, and then they’d leave them there and take their–take what they could. Right now they realize that the game is over. All they can do is try to play for a little more time, as long as they can, pay themselves bonuses, pay themselves stock options. And most of the money that the government was creating in the form of quantitative easing recently, it’s–all the $600 billion is reported to have gone abroad. So it’s going to the BRIC countries–Brazil, Russia, India, China–Third World countries, Malaysia.
JAY: Where they can make money on the interest spread.
HUDSON: Partly that, but they’re buying foreign stocks, they’re buying foreign assets, they’re buying foreign real estate, mineral rights. They’re buying everything they can. The rats are jumping ship.
JAY: Okay. Now, you said because they realize the game is over. Why is the game over? And which game?
HUDSON: For the time being, the ability to pay debts. They realize that a debt that can’t be paid won’t be. The economy is so deeply in debt–one-third of American real estate has mortgages in excess of its market price. So the Federal Reserve has come right out and said what we need is a reinflation. We need to restore the bubble economy. We need to push housing prices back up so that labor has to go into a lifetime of debt in order to afford access to housing. Now, you say quite correctly–but this is going to prevent labor from buying the goods and services. That’s Say’s law. But Alan Greenspan explained this very clearly a decade ago. He said there’s something wonderful about debt: it’s cured the labor problem. The workers are now one paycheck away from homelessness. If they go on strike or if they’re fired because they complain about working conditions, all of a sudden their interest rate goes up on their credit card, all of a sudden they miss their mortgage payment, they’re losing their home. Alan Greenspan said debt is what has created stability of wages in this country, meaning steadily falling wages. In America, despite the amazing rise in productivity we’ve had in the last 30 years, real wages have actually gone down. All of the increase in productivity has been taken by the finance, insurance, and real estate sector, called the FIRE sector, almost all of it by the financial sector. So all of this growth has been siphoned off, not taking the form of rising living standards, but taking the form of debt service, mainly interest and fees. The fees are as large as interest for the credit card companies. So it’s all siphoned off financially. So instead of having industrial capitalism a century ago, we have a finance capitalism that actually is stifling industrial capitalism here. So what Alan Greenspan and others call the post-industrial economy is really neo-feudalism. It’s a financialized economy where all of the surplus goes to the banks. And if you’re a banker and somebody comes in and wants to take out a loan, you say, how much do you make? How much do you spend on food? You realize that most people, most workers in America have to spend 20 percent of their income just on basic goods and services–food, clothing, transportation to get to work. Everything over that, they think that’s all available to be paid to the banks. The idea of a banker is for the entire economic surplus to be paid in the form of a financial surplus.
JAY: Well this clearly doesn’t seem to be sustainable on any long-term way. So where does this lead five, ten years from now? ‘Cause we’re not likely to see any significant changes from this Washington politics.
HUDSON: Well, if you study biology, you know that there are more species of parasites than there are of hosts–of course it’s not sustainable. But to a parasite, you don’t have to be sustainable, because you’re a parasite. That’s your mindset. And you want to take what you can, and at a certain point you devour the host and skip to new hosts. That’s what they’re doing: they’re going to shrink the American economy, and they’re going to move to Asia or to other countries, which is why you have the economic split between the BRIC countries’ currencies that are going up and the dollar and the euro that are going down.
JAY: Thanks for joining us.
JAY: Thank you for joining us on The Real News Network.
End of Transcript
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