joi, 8 decembrie 2011
Rick Bookstaber http://rick.bookstaber.com/
“And that,” put in the Director sententiously, “that is the secret of happiness and virtue—liking what you’ve got to do. All conditioning aims at that: making people like their un-escapable social destiny.” – Huxley, Brave New World
Managing the 99 Percent
Whether or not it is put in sound-bite terms of “class warfare”, the “one percent” pitted against the “ninety-nine percent”, the fact of the matter is that the data showing a widening of income levels are undeniable, as are the push of a segment of the middle class to the near poor, the realization of lower social mobility, income levels that have broken the string of increasing standards of living from parents to children, and new doubts about education as a road to opportunity.
We are witnessing a simmering backlash in the face of the widening class distinction. It is wise to address the fundamental issues behind the backlash and consider approaches to deal with the problem, especially given that these conditions may be persistent and structural. Therefore, we have prepared a brief overview of approaches to the problem.
What to do
In the Feudal societies, class distinctions were determined by lineage, in the capitalist society by wealth, and more generally by the notion of a power elite that controls the key levers of society, be it in industry, government or the military. Whatever the source of the class distinctions, historically the ongoing concern of the dominating class has been to contain the pressures of alienation that can lead to the revolt of the masses.
What are the public relations strategies to control and manage this situation? We have considered a campaign based on the following messages to hoi polloi.
We are just like you. Hide wealth and then take a cue from the Mormon public relations campaign: washing the car, playing basketball, with the tag line “I'm a one percenter”. Some members of the Endowment are already primed for this approach, having explicitly told their highly compensated employees to cool it in terms of flaunting their wealth.
You are just like us: Create the perception of shared power and mobility, that hoi polloi influence the system and can change it if they want to. Point out that this is the connotation behind the term “hoi polloi” in ancient Greece. Maybe you haven't hit the daily double this time around, but you still have a shot. This approach already seems to be in play and working. Helped along by a long-running media campaign, many of the 99 percent who are unemployed as well as the growing number who are descending into the ranks of the nearly poor are ardent defenders of the wealthy and their historically low tax rates.
You are not like us, and you don't want to be like us. Make wealth appear unattractive. Money only causes problems, miserable lives; the upper class are a harmless bunch. England maintained class distinctions and the Crown where other countries were hit by revolution in part because the upper class wrapped itself in eccentricity and generally appeared harmless, if not even amusingly befuddled. However, although this worked for an aristocracy at leisure, it is not a good strategy to appear befuddled while running corporations.
You are not like us, but who is keeping track. This appears to be the most sustainable route for managing the situation, especially because technology is making it an ever more achievable strategy. Entertainment, keeping busy on the trivial. It worked for Rome, at least for a while. So it will be a constant theme in our proposal.
Too bad, just live with it. Given that, all else equal, people probably won't just live with it, eventually this requires the authoritarian, police state approach. As Dahl's Mr. Wormwood put it, : “I'm right and you're wrong, I'm big and you're small, and there's nothing you can do about it.”
Proposal for the Campaign
We propose a campaign based on these multiple fronts that will leverage existing channels:
Reality TV. We have had the vicarious exploits of spectator sports for a long while, and now have created vicarious lives through Reality TV. This not only serves as a distraction. Properly employed (such as with the “Real Wives” series) it supports a “You wouldn't want to be like us” message.
Computer games and virtual lives. Add to the vicarious lives of spectator sports and reality TV the opportunity for virtual lives through computer games; everyone is building their own virtual mansions and fighting their virtual wars, in combat with their own Eastasia. This provides both distraction and empowered “You are just like us” moments.
Social networks. Talk about keeping people distracted on trivia. And we can have people feel socially connected with us by being our friends by creating carefully managed Facebook accounts. We can hire a staff to maintain these Facebook pages in a way that the joint messages of “We aren't having a lot of fun” and “We are just like you” are both kept at the fore.
Those on Facebook already blur the real with the fantasy; many create alternative lives on Facebook just as they do in their virtual games, and it turns out that the Facebook fantasy helps get our messages across. The Facebook personae are not exactly “Just like us”, but are more like us than is the reality. The average Facebook self depicts someone more wealthy and happy than the actual person. So it is not quite cohorting with the one percent, but on the other hand there is rarely any evidence of the economic struggles that seem to occupy the pages of the New York Times.
Open media. Just as there can be the sense of power in various combat games, for the disenfranchised there can be the sense of power, a sense that “You are just like us”, through their access to blogging, twittering, and other channels of open media. These can be manipulated to give the impression that their voices are being heard, that they matter. In this regard, we recommend that a team be hired to comment on various posts – perhaps outsourced to India or Sri Lanka – in order to give the appearance that people are listening, that the trivia is substance.
And these are channels to burrow into so that the realities of the world and their place within it are obscured. Just as Facebook gives us the impression of a large community of friends and colleagues, Twitter allows the 99 percent to feel connected to the world at large, to believe that people out there somewhere hear their voices.
Viral hits buttress the “You are just like us, but just haven't hit your daily double yet” message. It doesn't matter that the viral hits have nothing more than fleeting entertainment value. The simple fact that a 99 percenter can draw the attention of millions is the exception that proves the rule.
Education-lite. Education poses a dilemma because it is essential to have a skilled workforce while at the same time preventing the side effect of heightened awareness of alienation. So the ideal educational system is one that provides the requisite work skills while inhibiting thought.
Adam Smith writes that such a path is possible, indeed that the working man “has no occasion to exert his understanding. . . . Of the great and extensive interests of his country he is altogether incapable of judging; His dexterity at his own particular trade seems, in this manner, to be acquired at the expense of his intellectual, social, and martial virtues". Smith proposed that the way out of this is for the government to provide public schooling for the working class. But what is a bane for Smith is a blessing for us: his working man is the man we want.
Those in the upper-class in his era did not share Smith's interest in universal education. Rather, they saw the world as we do: education diminishes deference and fuels disobedience. And this same sentiment is echoed a century and a half later by no more ardent a defender of capitalism than Schumpeter, who argues that education in the face of manual labor and underemployment sows discontent, and “discontent breeds resentment”. The solution to this is to give the impression of education while in fact providing little more than the essentials of vocational training. Focus on accounting, computer science and the like while eschewing the impractical liberal arts. Have college be party time, the soma, sex and endless recreation that Huxley envisioned for the populace at large. If the majority of the ninety-nine percent can be herded down this path, then "sex, drugs and rock and roll" serves its purpose.
Open personal information. While we strenuously object to any of the “Too bad, just live with it” Orwellian tactics (and therefore also stress that any discussion along these lines be by phone and not by e-mail), there happen to be technologies that allow the requisite monitoring. Indeed, hoi polloi already provide this information voluntarily, often to the public at large. Between tweets, blogs, and our Facebook friends, not to mention those who write comments where registration with real names and e-mails is required, we have a treasure trove of data for any future efforts to manage the situation more directly.
Managing the 99 Percent
Whether or not it is put in sound-bite terms of “class warfare”, the “one percent” pitted against the “ninety-nine percent”, the fact of the matter is that the data showing a widening of income levels are undeniable, as are the push of a segment of the middle class to the near poor, the realization of lower social mobility, income levels that have broken the string of increasing standards of living from parents to children, and new doubts about education as a road to opportunity.
We are witnessing a simmering backlash in the face of the widening class distinction. It is wise to address the fundamental issues behind the backlash and consider approaches to deal with the problem, especially given that these conditions may be persistent and structural. Therefore, we have prepared a brief overview of approaches to the problem.
What to do
In the Feudal societies, class distinctions were determined by lineage, in the capitalist society by wealth, and more generally by the notion of a power elite that controls the key levers of society, be it in industry, government or the military. Whatever the source of the class distinctions, historically the ongoing concern of the dominating class has been to contain the pressures of alienation that can lead to the revolt of the masses.
What are the public relations strategies to control and manage this situation? We have considered a campaign based on the following messages to hoi polloi.
We are just like you. Hide wealth and then take a cue from the Mormon public relations campaign: washing the car, playing basketball, with the tag line “I'm a one percenter”. Some members of the Endowment are already primed for this approach, having explicitly told their highly compensated employees to cool it in terms of flaunting their wealth.
You are just like us: Create the perception of shared power and mobility, that hoi polloi influence the system and can change it if they want to. Point out that this is the connotation behind the term “hoi polloi” in ancient Greece. Maybe you haven't hit the daily double this time around, but you still have a shot. This approach already seems to be in play and working. Helped along by a long-running media campaign, many of the 99 percent who are unemployed as well as the growing number who are descending into the ranks of the nearly poor are ardent defenders of the wealthy and their historically low tax rates.
You are not like us, and you don't want to be like us. Make wealth appear unattractive. Money only causes problems, miserable lives; the upper class are a harmless bunch. England maintained class distinctions and the Crown where other countries were hit by revolution in part because the upper class wrapped itself in eccentricity and generally appeared harmless, if not even amusingly befuddled. However, although this worked for an aristocracy at leisure, it is not a good strategy to appear befuddled while running corporations.
You are not like us, but who is keeping track. This appears to be the most sustainable route for managing the situation, especially because technology is making it an ever more achievable strategy. Entertainment, keeping busy on the trivial. It worked for Rome, at least for a while. So it will be a constant theme in our proposal.
Too bad, just live with it. Given that, all else equal, people probably won't just live with it, eventually this requires the authoritarian, police state approach. As Dahl's Mr. Wormwood put it, : “I'm right and you're wrong, I'm big and you're small, and there's nothing you can do about it.”
Proposal for the Campaign
We propose a campaign based on these multiple fronts that will leverage existing channels:
Reality TV. We have had the vicarious exploits of spectator sports for a long while, and now have created vicarious lives through Reality TV. This not only serves as a distraction. Properly employed (such as with the “Real Wives” series) it supports a “You wouldn't want to be like us” message.
Computer games and virtual lives. Add to the vicarious lives of spectator sports and reality TV the opportunity for virtual lives through computer games; everyone is building their own virtual mansions and fighting their virtual wars, in combat with their own Eastasia. This provides both distraction and empowered “You are just like us” moments.
Social networks. Talk about keeping people distracted on trivia. And we can have people feel socially connected with us by being our friends by creating carefully managed Facebook accounts. We can hire a staff to maintain these Facebook pages in a way that the joint messages of “We aren't having a lot of fun” and “We are just like you” are both kept at the fore.
Those on Facebook already blur the real with the fantasy; many create alternative lives on Facebook just as they do in their virtual games, and it turns out that the Facebook fantasy helps get our messages across. The Facebook personae are not exactly “Just like us”, but are more like us than is the reality. The average Facebook self depicts someone more wealthy and happy than the actual person. So it is not quite cohorting with the one percent, but on the other hand there is rarely any evidence of the economic struggles that seem to occupy the pages of the New York Times.
Open media. Just as there can be the sense of power in various combat games, for the disenfranchised there can be the sense of power, a sense that “You are just like us”, through their access to blogging, twittering, and other channels of open media. These can be manipulated to give the impression that their voices are being heard, that they matter. In this regard, we recommend that a team be hired to comment on various posts – perhaps outsourced to India or Sri Lanka – in order to give the appearance that people are listening, that the trivia is substance.
And these are channels to burrow into so that the realities of the world and their place within it are obscured. Just as Facebook gives us the impression of a large community of friends and colleagues, Twitter allows the 99 percent to feel connected to the world at large, to believe that people out there somewhere hear their voices.
Viral hits buttress the “You are just like us, but just haven't hit your daily double yet” message. It doesn't matter that the viral hits have nothing more than fleeting entertainment value. The simple fact that a 99 percenter can draw the attention of millions is the exception that proves the rule.
Education-lite. Education poses a dilemma because it is essential to have a skilled workforce while at the same time preventing the side effect of heightened awareness of alienation. So the ideal educational system is one that provides the requisite work skills while inhibiting thought.
Adam Smith writes that such a path is possible, indeed that the working man “has no occasion to exert his understanding. . . . Of the great and extensive interests of his country he is altogether incapable of judging; His dexterity at his own particular trade seems, in this manner, to be acquired at the expense of his intellectual, social, and martial virtues". Smith proposed that the way out of this is for the government to provide public schooling for the working class. But what is a bane for Smith is a blessing for us: his working man is the man we want.
Those in the upper-class in his era did not share Smith's interest in universal education. Rather, they saw the world as we do: education diminishes deference and fuels disobedience. And this same sentiment is echoed a century and a half later by no more ardent a defender of capitalism than Schumpeter, who argues that education in the face of manual labor and underemployment sows discontent, and “discontent breeds resentment”. The solution to this is to give the impression of education while in fact providing little more than the essentials of vocational training. Focus on accounting, computer science and the like while eschewing the impractical liberal arts. Have college be party time, the soma, sex and endless recreation that Huxley envisioned for the populace at large. If the majority of the ninety-nine percent can be herded down this path, then "sex, drugs and rock and roll" serves its purpose.
Open personal information. While we strenuously object to any of the “Too bad, just live with it” Orwellian tactics (and therefore also stress that any discussion along these lines be by phone and not by e-mail), there happen to be technologies that allow the requisite monitoring. Indeed, hoi polloi already provide this information voluntarily, often to the public at large. Between tweets, blogs, and our Facebook friends, not to mention those who write comments where registration with real names and e-mails is required, we have a treasure trove of data for any future efforts to manage the situation more directly.
miercuri, 7 decembrie 2011
New Economic Perspectives: Debt and Democracy: Has the Link been Broken?
New Economic Perspectives: Debt and Democracy: Has the Link been Broken?: By Michael Hudson A longer version of the article will appear in the Frankfurter Algemeine Zeitung on December 5th, 2011 Book V of Arist...
The resulting conflict is pitting financial interests against national self-determination. The idea of an independent central bank being “the hallmark of democracy” is a euphemism for relinquishing the most important policy decision – the ability to create money and credit – to the financial sector. Rather than leaving the policy choice to popular referendums, the rescue of banks organized by the EU and ECB now represents the largest category of rising national debt. The private bank debts taken onto government balance sheets in Ireland and Greece have been turned into taxpayer obligations. The same is true for America’s $13 trillion added since September 2008 (including $5.3 trillion in Fannie Mae and Freddie Mac bad mortgages taken onto the government’s balance sheet, and $2 trillion of Federal Reserve “cash-for-trash” swaps).
This is being dictated by financial proxies euphemized as technocrats. Designated by creditor lobbyists, their role is to calculate just how much unemployment and depression is needed to squeeze out a surplus to pay creditors for debts now on the books. What makes this calculation self-defeating is the fact that economic shrinkage – debt deflation – makes the debt burden even more unpayable.
Neither banks nor public authorities (or mainstream academics, for that matter) calculated the economy’s realistic ability to pay – that is, to pay without shrinking the economy. Through their media and think tanks, they have convinced populations that the way to get rich most rapidly is to borrow money to buy real estate, stocks and bonds rising in price – being inflated by bank credit – and to reverse the past century’s progressive taxation of wealth.
To put matters bluntly, the result has been junk economics. Its aim is to disable public checks and balances, shifting planning power into the hands of high finance on the claim that this is more efficient than public regulation. Government planning and taxation is accused of being “the road to serfdom,” as if “free markets” controlled by bankers given leeway to act recklessly is not planned by special interests in ways that are oligarchic, not democratic. Governments are told to pay bailout debts taken on not to defend countries in military warfare as in times past, but to benefit the wealthiest layer of the population by shifting its losses onto taxpayers.
The failure to take the wishes of voters into consideration leaves the resulting national debts on shaky ground politically and even legally. Debts imposed by fiat, by governments or foreign financial agencies in the face of strong popular opposition may be as tenuous as those of the Habsburgs and other despots in past epochs. Lacking popular validation, they may die with the regime that contracted them. New governments may act democratically to subordinate the banking and financial sector to serve the economy, not the other way around.
At the very least, they may seek to pay by re-introducing progressive taxation of wealth and income, shifting the fiscal burden onto rentier wealth and property. Re-regulation of banking and providing a public option for credit and banking services would renew the social democratic program that seemed well underway a century ago.
Iceland and Argentina are most recent examples, but one may look back to the moratorium on Inter-Ally arms debts and German reparations in 1931.A basic mathematical as well as political principle is at work: Debts that can’t be paid, won’t be.
The resulting conflict is pitting financial interests against national self-determination. The idea of an independent central bank being “the hallmark of democracy” is a euphemism for relinquishing the most important policy decision – the ability to create money and credit – to the financial sector. Rather than leaving the policy choice to popular referendums, the rescue of banks organized by the EU and ECB now represents the largest category of rising national debt. The private bank debts taken onto government balance sheets in Ireland and Greece have been turned into taxpayer obligations. The same is true for America’s $13 trillion added since September 2008 (including $5.3 trillion in Fannie Mae and Freddie Mac bad mortgages taken onto the government’s balance sheet, and $2 trillion of Federal Reserve “cash-for-trash” swaps).
This is being dictated by financial proxies euphemized as technocrats. Designated by creditor lobbyists, their role is to calculate just how much unemployment and depression is needed to squeeze out a surplus to pay creditors for debts now on the books. What makes this calculation self-defeating is the fact that economic shrinkage – debt deflation – makes the debt burden even more unpayable.
Neither banks nor public authorities (or mainstream academics, for that matter) calculated the economy’s realistic ability to pay – that is, to pay without shrinking the economy. Through their media and think tanks, they have convinced populations that the way to get rich most rapidly is to borrow money to buy real estate, stocks and bonds rising in price – being inflated by bank credit – and to reverse the past century’s progressive taxation of wealth.
To put matters bluntly, the result has been junk economics. Its aim is to disable public checks and balances, shifting planning power into the hands of high finance on the claim that this is more efficient than public regulation. Government planning and taxation is accused of being “the road to serfdom,” as if “free markets” controlled by bankers given leeway to act recklessly is not planned by special interests in ways that are oligarchic, not democratic. Governments are told to pay bailout debts taken on not to defend countries in military warfare as in times past, but to benefit the wealthiest layer of the population by shifting its losses onto taxpayers.
The failure to take the wishes of voters into consideration leaves the resulting national debts on shaky ground politically and even legally. Debts imposed by fiat, by governments or foreign financial agencies in the face of strong popular opposition may be as tenuous as those of the Habsburgs and other despots in past epochs. Lacking popular validation, they may die with the regime that contracted them. New governments may act democratically to subordinate the banking and financial sector to serve the economy, not the other way around.
At the very least, they may seek to pay by re-introducing progressive taxation of wealth and income, shifting the fiscal burden onto rentier wealth and property. Re-regulation of banking and providing a public option for credit and banking services would renew the social democratic program that seemed well underway a century ago.
Iceland and Argentina are most recent examples, but one may look back to the moratorium on Inter-Ally arms debts and German reparations in 1931.A basic mathematical as well as political principle is at work: Debts that can’t be paid, won’t be.
luni, 4 iulie 2011
Traim de cativa ani un dezastru economic si ecologic, si tot ce se poate vedea inainte e doar adancirea acestui dezastru.
Nu doar in Romania. In intraga lume.
Si in acest colaps generalizat cei de la putere peste tot in lume vor lucrurile sa se intoarca unde erau in 2007. De ce?
Nu numai ca nu se poate asta dar ar fi o prostie imensa.
De ce n-am incerca o alta reteta, un alt fel de societate.
1) Eliminam tot ce e adapost fiscal (off-shore).
2) Reformam pe cei mai puternici dar si cei mai rai cetateni ai europei de azi (sau ai sua, ai canadei, ai rusiei, ai braziliei...) - marile corporatii, marile multinationale.
3) Reformam sistemul bancar si financiar.
Adica pe cei care au generat criza si acum profita.
Poate ca ideea insasi de PROFIT poate fi eliminata si sa ramai totusi intr-un sistem capitalist?
Nu doar in Romania. In intraga lume.
Si in acest colaps generalizat cei de la putere peste tot in lume vor lucrurile sa se intoarca unde erau in 2007. De ce?
Nu numai ca nu se poate asta dar ar fi o prostie imensa.
De ce n-am incerca o alta reteta, un alt fel de societate.
1) Eliminam tot ce e adapost fiscal (off-shore).
2) Reformam pe cei mai puternici dar si cei mai rai cetateni ai europei de azi (sau ai sua, ai canadei, ai rusiei, ai braziliei...) - marile corporatii, marile multinationale.
3) Reformam sistemul bancar si financiar.
Adica pe cei care au generat criza si acum profita.
Poate ca ideea insasi de PROFIT poate fi eliminata si sa ramai totusi intr-un sistem capitalist?
Sambata pe 2 iulie, Amy goodman a moderat o conversatie a lui Julian Assange, editorul-sef de la Wikileaks cu filozoful sloven Slavoj Zizek
http://www.democracynow.org/
Amy Goodman Hosts Discussion With WikiLeaks Editor-In-Chief Julian Assange and Slovenian Philosopher Slavoj Žižek
Within the past year, WikiLeaks has released three of the most significant leaks of classified information in history: the Iraq War Logs, the Guantánamo Bay files and Cablegate.
Extraordinarul interviu/discutie/conversatie dintre Assange si Zizek moderata de Amy Goodman poate fi vazuta pe:
http://www.democracynow.org/
Amy Goodman Hosts Discussion With WikiLeaks Editor-In-Chief Julian Assange and Slovenian Philosopher Slavoj Žižek
Within the past year, WikiLeaks has released three of the most significant leaks of classified information in history: the Iraq War Logs, the Guantánamo Bay files and Cablegate.
Extraordinarul interviu/discutie/conversatie dintre Assange si Zizek moderata de Amy Goodman poate fi vazuta pe:
http://www.democracynow.org/
miercuri, 1 iunie 2011
The Breakup of the Euro? by Michael Hudson
Posted on May 30, 2011 by dandelionsalad
Dandelion Salad
By Michael Hudson
Global Research
May 30, 2011
Is Iceland’s rejection of financial bullying a model for Greece and Ireland?
Last month Iceland voted against submitting to British and Dutch demands that it compensate their national bank insurance agencies for bailing out their own domestic Icesave depositors. This was the second vote against settlement (by a ratio of 3:2), and Icelandic support for membership in the Eurozone has fallen to just 30 percent. The feeling is that European politics are being run for the benefit of bankers, not the social democracy that Iceland imagined was the guiding philosophy – as indeed it was when the European Economic Community (Common Market) was formed in 1957.
By permitting Britain and the Netherlands to blackball Iceland to pay for the mistakes of Gordon Brown and his Dutch counterparts, Europe has made Icelandic membership conditional upon imposing financial austerity and poverty on the population – all to pay money that legally it does not owe. The problem is to find an honest court willing to enforce Europe’s own banking laws placing responsibility where it legally lies.
The reason why the EU has fought so hard to make Iceland’s government take responsibility for Icesave debts is what creditors call “contagion.” Ireland and Greece are faced with much larger debts. Europe’s creditor “troika” – the European Central Bank (ECB), European Commission and the IMF – view debt write-downs and progressive taxation to protect their domestic economies as a communicable disease.
Like Greece, Ireland asked for debt relief so that its government would not be forced to slash spending in the face of deepening recession. “The Irish press reported that EU officials ‘hit the roof’ when Irish negotiators talked of broader burden-sharing. The European Central Bank is afraid that any such move would cause instant contagion through the debt markets of southern Europe,” wrote one journalist, warning that the cost of taking reckless public debt onto the national balance sheet threatened to bankrupt the economy.[1] Europe – in effect, German and Dutch banks – refused to let the government scale back the debts it had taken on (except to smaller and less politically influential depositors). “The comments came just as the EU authorities were ruling out investor ‘haircuts’ in Ireland, making this a condition for the country’s €85bn (£72bn) loan package. Dublin has imposed 80 percent haircuts on the junior debt of Anglo Irish Bank but has not extended this to senior debt, viewed as sacrosanct.”
At issue from Europe’s vantage point – at least that of its bankers – is a broad principle: Governments should run their economies on behalf of banks and bondholders. They should bail out at least the senior creditors of banks that fail (that is, the big institutional investors and gamblers) and pay these debts and public debts by selling off enterprises, shifting the tax burden onto labor. To balance their budgets they are to cut back spending programs, lower public employment and wages, and charge more for public services, from medical care to education.
This austerity program (“financial rescue”) has come to a head just one year after Greece was advanced $155 billion bailout package in May 2010. Displeased at how slowly the nation has moved to carve up its economy, the ECB has told Greece to start privatizing up to $70 billion by 2015. The sell-offs are to be headed by prime tourist real estate and the remaining government stakes in the national gambling monopoly OPAP, the Postbank, the Athens and Thessaloniki ports, the Thessaloniki Water and Sewer Company and the telephone monopoly. Jean-Claude Juncker, Luxembourg’s Prime Minister and chairman of the Eurozone’s group of finance ministers, warned that only if Greece agreed to start selling off assets (“consolidating its budget”) would the EU agree to stretch out loan maturities for Greek debt and “save” it from default.[2]
The problem is that privatization and regressive tax shifts raise the cost of living and doing business. This makes economies less competitive, and hence even less able to pay debts that are accruing interest, leading toward a larger ultimate default.
The textbook financial response of turning the economy into a set of tollbooths to sell off is predatory. Third World countries demonstrated its destructive consequences from the 1970s onward under IMF austerity planning. Europe is now repeating the same shrinkage.
Financial power is to achieve what military conquest had done in times past. Pretending to make subject economies more “competitive,” the aim is more short-run: to squeeze out enough payments so that bondholders (and indeed, voters) will not be obliged to confront the reality that many debts are unpayable except at the price of making the economy too debt-ridden, too regressively tax-ridden and too burdened with rising privatized infrastructure charges to be competitive. Spending cutbacks and a regressive tax shift dry up capital investment and productivity the long run. Such economies are run like companies taken over by debt-leveraged raiders on credit, who downsize and outsource their labor force so as to squeeze out enough revenue to pay their own creditors – who take what they can and run. The tactic attack of this financial attack is no longer overt military force as in days of yore, but something less costly because its victims submit more voluntarily.
But the intended victims of predatory finance are fighting back. And instead of the attacker losing their armies and manpower, it is their balance sheets that are threatened – and hence their own webs of solvency. When Greek labor unions (especially in the public enterprises being privatized), the ruling Socialist Party and leading minority parties rejected such sacrifices, Eurozone officials demanded that financial planning be placed above party politics, and demanded “cross-party agreement on any overhaul of the bail-out.” Greece should respond to its wave of labor strikes and popular protest by suspending party politics and economic democracy. “The government and the opposition should declare jointly that they commit to the reform agreements with the EU,” Mr. Juncker explained to Der Spiegel.
Criticizing Prime Minister George Papandreou’s delay at even to start selling state assets, European financial leaders proposed a national privatization agency to act as an intermediary to transfer revenue from these assets to foreign creditors and retire public debt – and to pledge its public assets as collateral to be forfeited in case of default in payments to government bondholders. Suggesting that the government “set up an agency to privatize state assets” along the lines of the German Treuhandanstalt that sold off East German enterprises in the 1990s,” Mr. Juncker thought that “Greece could gain more from privatizations than the €50 billion ($71 billion) it has estimated.”[3]
European bankers had their eye on the sale as much as $400 billion of Greek assets – enough to pay off all the government debt. Failing payment, the ECB threatened not to accept Greek government bonds as collateral. This would prevent Greek banks from doing business, wrecking its financial system and paralyzing the economy. This threat was supposed to make privatization “democratically” approved – followed by breaking union power and lowering wages (“internal devaluation”). “Jan Kees de Jager, Dutch finance minister, has proposed that any more loans to Greece should come with collateral arrangements, in which European state lenders would take over Greek assets in the event of a sovereign default.”[4]
The problem is that ultimate default is inevitable, given the debt corner into which governments have recklessly deregulated the banks and cut property taxes and progressive income taxes. Default will become pressing whenever the ECB may choose to pull the plug.
The ECB makes governments unable to finance their spending by central banks of their own
Introduction of the euro in 1999 explicitly prevented the ECB or any national central bank from financing government deficits. This means that no nation has a central bank able to do what those of Britain and the United States were created to do: monetize credit to domestic banks. The public sector has been made dependent on commercial banks and bondholders. This is a bonanza for them, rolling back three centuries of attempts to create a mixed economy financially and industrially, by privatizing the credit creation monopoly as well as capital investment in public infrastructure monopolies now being pushed onto the sales block for bidders – on credit, with the winner being the one who promises to pay out the most interest to bankers to absorb the access fees (“economic rent”) that can be extracted.
Politics is being financialized while economies are being privatized. The financial strategy was to remove economic planning from democratically elected representatives, centralizing it in the hands of financial managers. What Benito Mussolini called “corporatism” in the 1920s (to give it its polite name) is now being achieved by Europe’s large banks and financial institutions – ironically (but I suppose inevitably) under the euphemism of “free market economics.”
Language is adopting itself to reflect the economic and political transformation (surrender?) now underway. Central bank “independence” was euphemized as the “hallmark of democracy,” not the victory of financial oligarchy. The task of rhetoric is to divert attention from the fact that the financial sector aims not to “free” markets, but to place control in the hands of financial managers – whose logic is to subject economies to austerity and even depression, sell off public land and enterprises, suffer emigration and reduce living standards in the face of a sharply increasing concentration of wealth at the top of the economic pyramid. The idea is to slash government employment, lowering public-sector salaries to lead private sector wages downward, while cutting back social services.
The internal contradiction (as Marxists would say) is that the existing mass of interest-bearing debt must grow, as it receives interest – which is re-invested to earn yet more interest. This is the “magic” or “miracle” of compound interest. The problem is that paying interest diverts revenue away from the circular flow between production and consumption. Say’s Law says that payments by producers (to employees and to producers of capital goods) must be spent, in the aggregate, on buying the products that labor and tangible capital produces. Otherwise there is a market glut and business shrinks – with the financial sector’s network of debt claims bearing the brunt.
The financial system intrudes into this circular flow. Income spent to pay creditors is not spent on goods and services; it is re-invested in new loans, or on stocks and bonds (assets in the form of financial and property claims on the economy), or increasingly on “gambling” (the “casino capitalism” of derivatives, the international carry trade (that is, exchange-rate and interest-rate arbitrage) and other financial claims that are independent of the production-and-consumption economy. So as financial assets accrue interest – bolstered by new credit creation on computer keyboards by commercial banks and central banks – the financial rake-off from the “real” economy increases.
The idea of paying debts regardless of social cost is backed by mathematical models as complex as those used by physicists designing atomic reactors. But they have a basic flaw simple enough for a grade-school math student to understand: They assume that economies can pay debts growing exponentially at a higher rate than production or exports are growing. Only by ignoring the ability to pay – by creating an economic surplus over break-even levels – can one believe that debt leveraging can produce enough financial “balance sheet” gains to pay banks, pension funds and other financial institutions that recycle their interest into new loans. Financial engineering is expected to usher in a postindustrial society that make money from money (or rather, from credit) via rising asset prices for real estate, stocks and bonds.
It all seems much easier than earning profit from tangible investment to produce and market goods and services, because banks can fuel asset-price inflation simply by creating credit electronically on their computer keyboards. Until 2008 many families throughout the world saw the price of their home rise by more than they earned in an entire year. This cuts out the troublesome M-C-M’ cycle (using capital to produce commodities to sell at a profit), by M-M’ (buying real estate or assets already in place, or stocks and bonds already issued, and waiting for the central bank to inflate their prices by lowering interest rates and untaxing wealth so that high income investors can increase their demand for property and financial securities).
The problem is that credit is debt, and debt must be paid – with interest. And when an economy pays interest, less revenue is left over to spend on goods and services. So markets shrink, sales decline, profits fall, and there is less cash flow to pay interest and dividends. Unemployment spreads, rents fall, mortgage-holders default, and real estate is thrown onto the market at falling prices.
When asset prices crash, these debts remain in place. As the Bubble Economy turns into a nightmare, politicians are taking private (and often fraudulent) bank losses onto the public balance sheet. This is dividing European politics and even threatening to break up the Eurozone.
Breakup of the Eurozone?
Third World countries from the 1960s through 1990s were told to devalue in order to reduce labor’s purchasing power and hence imports of food, fuel and other consumer goods. But Eurozone members are locked into the euro. This leaves only the option of “internal devaluation” – lowering wage rates as an alternative to scaling back payments to creditors atop Europe’s economic pyramid.
Latvia is cited as the model success story. Its government slashed employment and public sector wages fell by 30 percent in 2009-10. Private-sector wages followed the decline. This was applauded as a “success story” and “accepting reality.” So now, the government has put forth a “balanced budget amendment,” to go with its flat tax on labor (some 59 percent, with only a 1 percent tax on real estate). Former U.S. neoliberal presidential candidate Steve Forbes would find it an economic paradise.
“Saving the euro” is a euphemism for governments saving the financial class – and with it a debt dynamic that is nearing its end regardless of what they do. The aim is for euro-debts to Germany, the Netherlands, France and financial institutions (now joined by vulture funds) are to preserve their value. (No haircuts for them). The price is to be paid by labor and industry.
Government authority is to lose most of all. Just as the public domain is to be carved up and sold to pay creditors, economic policy is being taken out of the hands of democratically elected representatives and placed in the hands of the ECB, European Commission and IMF.
Spain’s unemployment rate of 20%, much as in the Baltics, with nearly twice as high an unemployment rate among recent school graduates. But as William Nassau Senior is reported to have said when told that a million Irishmen had died in the potato famine: “It is not enough!”
Can anything be enough – anything that works for more than the short run? What “helping Greece remain solvent” means in practice is to help it avoid taxing wealth (the rich aren’t paying) and help it roll back wages while obliging labor to pay more in taxes while the government (i.e. “taxpayers,” a.k.a. workers) sells off public land and enterprises to bail out foreign banks and bondholders while slashing its social spending, industrial subsidies and public infrastructure investment.
One Greek friend in my age bracket has said that his private pension (from a computing company) was slashed by the government. When his son went to collect his unemployment check, it was cut in half, on the ground that his parents allegedly had the money to support them. The price of the house they bought a few years ago has plunged. They tell me that they are no more eager to remain part of the Eurozone than the Icelandic voters showed themselves last month.
The strikes continue. Anger is rising. When incoming IMF head Christine Lagarde was French trade minister, she suggested that: “France had to revamp its labor code. Labor unions and fellow ministers balke3d, and Ms. Lagarde backtracked, saying she had expressed a personal opinion.”[5] This opinion is about to become official policy – from the IMF that was acting as “good cop” to the ECB’s “bad cop.”
I suppose that all that really is needed is for people to understand just what dynamics are at work that make these attempts to pay in vain. The creditors know that the game is up. All they can do is take as much as they can, as long as they can, pay themselves bonuses that are “free” from recapture by public prosecutors, and run to their offshore banking centers.
*This article is an excerpt from Prof. Hudson’s work in progress, “Debts that Can’t be Paid, Won’t Be,” to be published later this year.imf ecb
Dandelion Salad
By Michael Hudson
Global Research
May 30, 2011
Is Iceland’s rejection of financial bullying a model for Greece and Ireland?
Last month Iceland voted against submitting to British and Dutch demands that it compensate their national bank insurance agencies for bailing out their own domestic Icesave depositors. This was the second vote against settlement (by a ratio of 3:2), and Icelandic support for membership in the Eurozone has fallen to just 30 percent. The feeling is that European politics are being run for the benefit of bankers, not the social democracy that Iceland imagined was the guiding philosophy – as indeed it was when the European Economic Community (Common Market) was formed in 1957.
By permitting Britain and the Netherlands to blackball Iceland to pay for the mistakes of Gordon Brown and his Dutch counterparts, Europe has made Icelandic membership conditional upon imposing financial austerity and poverty on the population – all to pay money that legally it does not owe. The problem is to find an honest court willing to enforce Europe’s own banking laws placing responsibility where it legally lies.
The reason why the EU has fought so hard to make Iceland’s government take responsibility for Icesave debts is what creditors call “contagion.” Ireland and Greece are faced with much larger debts. Europe’s creditor “troika” – the European Central Bank (ECB), European Commission and the IMF – view debt write-downs and progressive taxation to protect their domestic economies as a communicable disease.
Like Greece, Ireland asked for debt relief so that its government would not be forced to slash spending in the face of deepening recession. “The Irish press reported that EU officials ‘hit the roof’ when Irish negotiators talked of broader burden-sharing. The European Central Bank is afraid that any such move would cause instant contagion through the debt markets of southern Europe,” wrote one journalist, warning that the cost of taking reckless public debt onto the national balance sheet threatened to bankrupt the economy.[1] Europe – in effect, German and Dutch banks – refused to let the government scale back the debts it had taken on (except to smaller and less politically influential depositors). “The comments came just as the EU authorities were ruling out investor ‘haircuts’ in Ireland, making this a condition for the country’s €85bn (£72bn) loan package. Dublin has imposed 80 percent haircuts on the junior debt of Anglo Irish Bank but has not extended this to senior debt, viewed as sacrosanct.”
At issue from Europe’s vantage point – at least that of its bankers – is a broad principle: Governments should run their economies on behalf of banks and bondholders. They should bail out at least the senior creditors of banks that fail (that is, the big institutional investors and gamblers) and pay these debts and public debts by selling off enterprises, shifting the tax burden onto labor. To balance their budgets they are to cut back spending programs, lower public employment and wages, and charge more for public services, from medical care to education.
This austerity program (“financial rescue”) has come to a head just one year after Greece was advanced $155 billion bailout package in May 2010. Displeased at how slowly the nation has moved to carve up its economy, the ECB has told Greece to start privatizing up to $70 billion by 2015. The sell-offs are to be headed by prime tourist real estate and the remaining government stakes in the national gambling monopoly OPAP, the Postbank, the Athens and Thessaloniki ports, the Thessaloniki Water and Sewer Company and the telephone monopoly. Jean-Claude Juncker, Luxembourg’s Prime Minister and chairman of the Eurozone’s group of finance ministers, warned that only if Greece agreed to start selling off assets (“consolidating its budget”) would the EU agree to stretch out loan maturities for Greek debt and “save” it from default.[2]
The problem is that privatization and regressive tax shifts raise the cost of living and doing business. This makes economies less competitive, and hence even less able to pay debts that are accruing interest, leading toward a larger ultimate default.
The textbook financial response of turning the economy into a set of tollbooths to sell off is predatory. Third World countries demonstrated its destructive consequences from the 1970s onward under IMF austerity planning. Europe is now repeating the same shrinkage.
Financial power is to achieve what military conquest had done in times past. Pretending to make subject economies more “competitive,” the aim is more short-run: to squeeze out enough payments so that bondholders (and indeed, voters) will not be obliged to confront the reality that many debts are unpayable except at the price of making the economy too debt-ridden, too regressively tax-ridden and too burdened with rising privatized infrastructure charges to be competitive. Spending cutbacks and a regressive tax shift dry up capital investment and productivity the long run. Such economies are run like companies taken over by debt-leveraged raiders on credit, who downsize and outsource their labor force so as to squeeze out enough revenue to pay their own creditors – who take what they can and run. The tactic attack of this financial attack is no longer overt military force as in days of yore, but something less costly because its victims submit more voluntarily.
But the intended victims of predatory finance are fighting back. And instead of the attacker losing their armies and manpower, it is their balance sheets that are threatened – and hence their own webs of solvency. When Greek labor unions (especially in the public enterprises being privatized), the ruling Socialist Party and leading minority parties rejected such sacrifices, Eurozone officials demanded that financial planning be placed above party politics, and demanded “cross-party agreement on any overhaul of the bail-out.” Greece should respond to its wave of labor strikes and popular protest by suspending party politics and economic democracy. “The government and the opposition should declare jointly that they commit to the reform agreements with the EU,” Mr. Juncker explained to Der Spiegel.
Criticizing Prime Minister George Papandreou’s delay at even to start selling state assets, European financial leaders proposed a national privatization agency to act as an intermediary to transfer revenue from these assets to foreign creditors and retire public debt – and to pledge its public assets as collateral to be forfeited in case of default in payments to government bondholders. Suggesting that the government “set up an agency to privatize state assets” along the lines of the German Treuhandanstalt that sold off East German enterprises in the 1990s,” Mr. Juncker thought that “Greece could gain more from privatizations than the €50 billion ($71 billion) it has estimated.”[3]
European bankers had their eye on the sale as much as $400 billion of Greek assets – enough to pay off all the government debt. Failing payment, the ECB threatened not to accept Greek government bonds as collateral. This would prevent Greek banks from doing business, wrecking its financial system and paralyzing the economy. This threat was supposed to make privatization “democratically” approved – followed by breaking union power and lowering wages (“internal devaluation”). “Jan Kees de Jager, Dutch finance minister, has proposed that any more loans to Greece should come with collateral arrangements, in which European state lenders would take over Greek assets in the event of a sovereign default.”[4]
The problem is that ultimate default is inevitable, given the debt corner into which governments have recklessly deregulated the banks and cut property taxes and progressive income taxes. Default will become pressing whenever the ECB may choose to pull the plug.
The ECB makes governments unable to finance their spending by central banks of their own
Introduction of the euro in 1999 explicitly prevented the ECB or any national central bank from financing government deficits. This means that no nation has a central bank able to do what those of Britain and the United States were created to do: monetize credit to domestic banks. The public sector has been made dependent on commercial banks and bondholders. This is a bonanza for them, rolling back three centuries of attempts to create a mixed economy financially and industrially, by privatizing the credit creation monopoly as well as capital investment in public infrastructure monopolies now being pushed onto the sales block for bidders – on credit, with the winner being the one who promises to pay out the most interest to bankers to absorb the access fees (“economic rent”) that can be extracted.
Politics is being financialized while economies are being privatized. The financial strategy was to remove economic planning from democratically elected representatives, centralizing it in the hands of financial managers. What Benito Mussolini called “corporatism” in the 1920s (to give it its polite name) is now being achieved by Europe’s large banks and financial institutions – ironically (but I suppose inevitably) under the euphemism of “free market economics.”
Language is adopting itself to reflect the economic and political transformation (surrender?) now underway. Central bank “independence” was euphemized as the “hallmark of democracy,” not the victory of financial oligarchy. The task of rhetoric is to divert attention from the fact that the financial sector aims not to “free” markets, but to place control in the hands of financial managers – whose logic is to subject economies to austerity and even depression, sell off public land and enterprises, suffer emigration and reduce living standards in the face of a sharply increasing concentration of wealth at the top of the economic pyramid. The idea is to slash government employment, lowering public-sector salaries to lead private sector wages downward, while cutting back social services.
The internal contradiction (as Marxists would say) is that the existing mass of interest-bearing debt must grow, as it receives interest – which is re-invested to earn yet more interest. This is the “magic” or “miracle” of compound interest. The problem is that paying interest diverts revenue away from the circular flow between production and consumption. Say’s Law says that payments by producers (to employees and to producers of capital goods) must be spent, in the aggregate, on buying the products that labor and tangible capital produces. Otherwise there is a market glut and business shrinks – with the financial sector’s network of debt claims bearing the brunt.
The financial system intrudes into this circular flow. Income spent to pay creditors is not spent on goods and services; it is re-invested in new loans, or on stocks and bonds (assets in the form of financial and property claims on the economy), or increasingly on “gambling” (the “casino capitalism” of derivatives, the international carry trade (that is, exchange-rate and interest-rate arbitrage) and other financial claims that are independent of the production-and-consumption economy. So as financial assets accrue interest – bolstered by new credit creation on computer keyboards by commercial banks and central banks – the financial rake-off from the “real” economy increases.
The idea of paying debts regardless of social cost is backed by mathematical models as complex as those used by physicists designing atomic reactors. But they have a basic flaw simple enough for a grade-school math student to understand: They assume that economies can pay debts growing exponentially at a higher rate than production or exports are growing. Only by ignoring the ability to pay – by creating an economic surplus over break-even levels – can one believe that debt leveraging can produce enough financial “balance sheet” gains to pay banks, pension funds and other financial institutions that recycle their interest into new loans. Financial engineering is expected to usher in a postindustrial society that make money from money (or rather, from credit) via rising asset prices for real estate, stocks and bonds.
It all seems much easier than earning profit from tangible investment to produce and market goods and services, because banks can fuel asset-price inflation simply by creating credit electronically on their computer keyboards. Until 2008 many families throughout the world saw the price of their home rise by more than they earned in an entire year. This cuts out the troublesome M-C-M’ cycle (using capital to produce commodities to sell at a profit), by M-M’ (buying real estate or assets already in place, or stocks and bonds already issued, and waiting for the central bank to inflate their prices by lowering interest rates and untaxing wealth so that high income investors can increase their demand for property and financial securities).
The problem is that credit is debt, and debt must be paid – with interest. And when an economy pays interest, less revenue is left over to spend on goods and services. So markets shrink, sales decline, profits fall, and there is less cash flow to pay interest and dividends. Unemployment spreads, rents fall, mortgage-holders default, and real estate is thrown onto the market at falling prices.
When asset prices crash, these debts remain in place. As the Bubble Economy turns into a nightmare, politicians are taking private (and often fraudulent) bank losses onto the public balance sheet. This is dividing European politics and even threatening to break up the Eurozone.
Breakup of the Eurozone?
Third World countries from the 1960s through 1990s were told to devalue in order to reduce labor’s purchasing power and hence imports of food, fuel and other consumer goods. But Eurozone members are locked into the euro. This leaves only the option of “internal devaluation” – lowering wage rates as an alternative to scaling back payments to creditors atop Europe’s economic pyramid.
Latvia is cited as the model success story. Its government slashed employment and public sector wages fell by 30 percent in 2009-10. Private-sector wages followed the decline. This was applauded as a “success story” and “accepting reality.” So now, the government has put forth a “balanced budget amendment,” to go with its flat tax on labor (some 59 percent, with only a 1 percent tax on real estate). Former U.S. neoliberal presidential candidate Steve Forbes would find it an economic paradise.
“Saving the euro” is a euphemism for governments saving the financial class – and with it a debt dynamic that is nearing its end regardless of what they do. The aim is for euro-debts to Germany, the Netherlands, France and financial institutions (now joined by vulture funds) are to preserve their value. (No haircuts for them). The price is to be paid by labor and industry.
Government authority is to lose most of all. Just as the public domain is to be carved up and sold to pay creditors, economic policy is being taken out of the hands of democratically elected representatives and placed in the hands of the ECB, European Commission and IMF.
Spain’s unemployment rate of 20%, much as in the Baltics, with nearly twice as high an unemployment rate among recent school graduates. But as William Nassau Senior is reported to have said when told that a million Irishmen had died in the potato famine: “It is not enough!”
Can anything be enough – anything that works for more than the short run? What “helping Greece remain solvent” means in practice is to help it avoid taxing wealth (the rich aren’t paying) and help it roll back wages while obliging labor to pay more in taxes while the government (i.e. “taxpayers,” a.k.a. workers) sells off public land and enterprises to bail out foreign banks and bondholders while slashing its social spending, industrial subsidies and public infrastructure investment.
One Greek friend in my age bracket has said that his private pension (from a computing company) was slashed by the government. When his son went to collect his unemployment check, it was cut in half, on the ground that his parents allegedly had the money to support them. The price of the house they bought a few years ago has plunged. They tell me that they are no more eager to remain part of the Eurozone than the Icelandic voters showed themselves last month.
The strikes continue. Anger is rising. When incoming IMF head Christine Lagarde was French trade minister, she suggested that: “France had to revamp its labor code. Labor unions and fellow ministers balke3d, and Ms. Lagarde backtracked, saying she had expressed a personal opinion.”[5] This opinion is about to become official policy – from the IMF that was acting as “good cop” to the ECB’s “bad cop.”
I suppose that all that really is needed is for people to understand just what dynamics are at work that make these attempts to pay in vain. The creditors know that the game is up. All they can do is take as much as they can, as long as they can, pay themselves bonuses that are “free” from recapture by public prosecutors, and run to their offshore banking centers.
*This article is an excerpt from Prof. Hudson’s work in progress, “Debts that Can’t be Paid, Won’t Be,” to be published later this year.imf ecb
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