[A-List] My 2nd set of answers

Michael Hudson michael.hudson at earthlink.net
Wed Mar 25 17:47:17 MDT 2009

Here is my second set of answers to the Spanish labor union questions. I
gather from the first two that their orientation is Marxist.
    Michael Hudson

            These are the questions and thoughts for the meeting with LAB
1. Marx¹s surplus value theory. To what extent is it valid today?
Ans: It is as valid today as it was then, as an explanation of how employers
make money by marking up the price at which they sell products, over what
they pay for inputs ­ whose value in turn is ultimately resolvable to labor.
(Even in Marx¹s day, the best critics such as Bohm-Bawerk could come up only
with a schoolmarmish critique of his algebra, not the essence of his
            However, in Book III of Capital (and of Theories of Surplus
Value), Marx describes finance capital as growing autonomously from the
industrial economy, by purely mathematical laws. These laws of exponential
growth ­ doubling and redoubling of interest-bearing debt ­ eat into the
industrial economy. Under the conditions of Marx¹s day, this resulted in
financial crashes which brought the debt overhead back in line with the
economy¹s ability to pay. Today, the economy is sacrificed to the financial
            Obviously, ³pension-fund finance capitalism² does not invalidate
Marx¹s theory of surplus value. It simply adds a new form of exploitation of
labor ­ not by employing it to sell its products at a markup, but by docking
its savings and turning them over to money managers on a commission basis
(large enough to absorb all the income from these savings), ultimately to
wipe out by direct theft (Chicago School style as in Pinochet¹s Chile and in
the Employee Stock Ownership Plans [ESOPs] for the 50% of U.S. companies
that go bankrupt, Enron-style and Bear-Stearns style), or by replacing
defined-benefit plans with defined-contribution plans (where all workers
know is what goes in, not what goes out).
            But with regard to Marx¹s larger long-term perspective,
industrial capitalism is not evolving into socialism, but into a parasitic
and extractive finance capitalism. The greatest tragedy to befall industrial
capitalism is its failure to evolve into socialism. Instead, it is
retrogressing into the neo-feudalism of debt peonage.
2. Lenin¹s Imperialism theory. To what extent is it valid today?
Ans: Lenin focused on corporate finance capital, not on inter-governmental
capital. Nobody at the time could have anticipated the intransigent U.S.
position on Inter-Ally debts and the consequent pressure by its allies to
pay America by extracting reparations from Germany. But Lenin was correct in
pointing out that finance capital tended to concentrate among the most
advanced nations, for the same reason that in America Willy Sutton said he
robbed banks: That is where the money was.
            Lenin viewed governments as agents of the capitalist class.
Governments took on an independent life of their own, with dynamics of their
own ­ mainly the U.S. Government which dominated other governments. Lenin
thus had no way of anticipating the kind of unipolar world that we have
today. And he implied that if the world only had one pole, there would be no
force for imperialist conflict, not to speak of war, because there would be
no multipolar competition.
            Obviously, this does not explain today¹s Washington Consensus
and the abject subordination by foreign governments of their own national
interests to those of the United States. The assumption made by everyone in
Lenin¹s day was that governments would reflect their own national
self-interest (and indeed, that of their wealthiest families). The attempt
by China and other governments to achieve this today shows how difficult it
is to realize that assumption in practice. Lenin hardly could have imagined
the Yeltsin ³reforms² wrecking the Russian economy by following US-IMF
neoliberal asset stripping.
3. What is valid today in Keynes¹s theory on the role of saving and
investment in the productive system? To what extent is saving needed to fund
investment ­ and to what extent does investment require financial savings in
Ans: Keynes tended to imply that savings were lent out to finance
investment. This is not at all what happens. Most capital investment today
is made by corporate retained earnings, not by borrowing. Technically,
corporations ³save.² But they do not save in a financialized way. They plow
part of their earnings back into new capital investment (increasingly
abroad, to be sure, as corporate business is globalized and
            This transformation of corporate in-house saving into capital
investment is being interrupted to a rising degree by ³financialization² in
the form of corporate raids financed by high-interest ³junk² bonds.
            Keynes was not careful to define saving. He saw it either as
hoarding or as being invested in presumably industrial capital. He did not
see saving invested almost exclusively in debt, largely because in the 1930s
debts were shrinking or being wiped out. He thus did not see the extent that
saving would take the form of debt repayment.
            Nor did Keynes anticipate that savings rates for the economy as
a whole would plunge rather than rise as economies became ³richer.² Most
importantly, he did not see that savings would become concentrated in the
hands of the wealthiest 10% of the population (indeed, the richest 1%, and
even more steeply concentrated in the richest 0.1%).
            Claiming that ³external² savings by the wealthy are necessary to
fund new tangible capital investment and hence employment, the financial
class lobbies for tax breaks on wealth. But it uses the income that is freed
for unproductive lending, not productive lending. This dimension of
saving/investment was not pursued by Keynes, writing as he did in the 1930s.
4. A ³free market² ­ free for whom? How was it understood by the classical
economists as compared to today¹s neo-liberals?
Ans: The classical economists wanted to ³free² markets from unnecessary
expenses for the vestiges of European feudalism. Much of what socialists and
other reformers criticized in capitalism was in fact its feudal heritage.
The idea was to bring market prices in line with cost value ­ the socially
necessary costs of production.
            The classical distinctions between productive and unproductive
labor, investment and credit have been dropped. (The change occurred in the
late 19th century, largely in reaction against Karl Marx and Henry George
pushing classical economics to its logical conclusion.)
            Today¹s neoliberals view a ³free market² as one without
government regulation to prevent them from loading down the economy with
debt and seeking to make money by extracting economic rent rather than
making profits by investing in capital and hiring labor to produce goods and
services. Despite the fact that the most successful economies in history,
ever since Sumer and Babylonia in the ancient Near East, were ³mixed
economies,² neoliberals define a free-market as one without government
regulation, planning or taxation. They define all income as ³earned² and
hence any way of making money as ³productive² ­ that is, productive of a
business gain. 
            By contrast, all 19th-century economic writers expected
governments to play the role of forward planner, regulating the economy and
its markets so as to minimize unnecessary costs of production and in
particular to phase out the post-feudal rentier classes ­ landlords (and
smaller property owners who bought out property that had been privatized on
a hereditary basis) and bankers. The idea was to tax the rent and interest
that had been flowing to these sectors and use the proceeds to invest in
economic infrastructure to facilitate economic growth ­ public
transportation, education, medicine, research, power production and
distribution, and in time broadcasting and basic research.
            The neoliberal aim is to privatize these public assets and
create a ³tollbooth economy² by using key access points as pressure points
to extract economic rent and financial returns.
5. To what extent is the labour theory of value overshadowed in today¹s
pricing by economic rent ­ groundrent for real estate, monopoly rent for
industrial companies, and financial rent in the form of credit-creating
rights of banks and related financial-sector privileges (viz. Marx, Adam
Smith, etc.)? What are the theoretical principles for an appropriate fiscal
Ans: Cost-value has shrunk as an element of price, and hence of national
income. To understand what this means, one must look at the reasons why U.S.
industrial labor has priced its products out of world markets. American
families now pay between 32 to 40% of their income for housing, and another
15% or so for debt service. Even if they were to go without food and
clothing (the typical proxies for labor¹s subsistence ³real² wage), they
would be too high-priced to hire. The economy is building in a rising debt
burden that enters into pricing, without being a necessary direct cost of
            Within the industrial sector itself, companies have been
³financialized,² that is, turned from industrial producers into vehicles to
produce financial returns. The aim of ³making money² always was the case, to
be sure. But during the upsweep of the Industrial Revolution, the idea was
to make money by earning profits by investing in plant, equipment and a
supply of raw materials and inventory to employ labor t produce goods and
services to sell at a markup (profit). Today, firms are run to ³make money²
by using their revenue and even borrowing new credit to buy up their own
stock, and even to pay dividends. The idea of ³wealth creation² thus has
become de-industrialized.
            Meanwhile, the industrial giants of the 20th century ­ General
Motors and General Electric, for instance ­ have turned themselves largely
into financial companies (GMAC, the General Motors Acceptance Corp., and GE
Credit ­ whose problems are now dragging down the parent industrial
            The problem with the financial worldview is that it is
inherently short-term, as 19th-century critics rightly accused. Even worse,
finance seeks to ³secure² its extraction of interest by lending against
assets already in place, rather than investing equity capital to create new
means of production. The result is a debt overhead whose carrying charges
intrude further and further into the economy to ³crowd out² corporate
revenue available for new tangible investment, especially for long-term
projects such as research and development.
            Declining competitiveness of U.S. industry has been met by the
financial lobby demanding even lower net take-home pay and living standards
for U.S. labor, not reduction in the rentier overhead of real estate rent,
monopoly rent, interest and ³forced saving² in the form of
paycheck-withholding for ³Social Security² and ³Medicare² taxes that the
Treasury uses as a source of income enabling it to cut taxes on the higher
wealth brackets. 
            The situation has now grown so serious, that General Motors has
asked the government to nationalize health insurance so as to minimize the
soaring health-care costs that are rising much faster than incomes and hence
adding to the factors pricing U.S. labor out of world markets. The knee-jerk
fight against ³socialized medicine² that U.S. corporations waged after World
War II has proved to be a policy disaster that has undercut their
competitiveness in world markets. And the American Medical Association,
whose right-wing leaders also fought ³socialized medicine,² have seen
doctors put on rations and turned into piecework peons for the health-care
companies. Doctors now need to hire full-time insurance assistants just to
handle their payments ­ and then to wait an entire year or so to get paid!
            The failure to ³socialize² medicine has become one of America¹s
major ³free market² failures, along with the failure to tax land and other
rent-yielding assets and the attempt to financialize pensions by pre-saving
rather than on a pay-as-you-go basis. Each decision, taken ostensibly to
³defend capitalism,² has undercut its ability to survive, at least to
survive in the form of industrial capitalism.
            The implication for fiscal policy is (1) to tax the ³free lunch²
of economic rent, not labor and industry, and (2) for government to treat
health care, natural monopolies, the credit system (especially credit-card
payment systems) and banking as basic public infrastructure spending to be
financed out of user-fees or provided at a subsidized rate in order to lower
the economy¹s overall cost structure.
6. Does the financial crisis of the neoliberal system have its roots in the
speculative investment of the profits accumulated by the rentiers, or is it
just the tip of the iceberg of a deeper problem of the capitalist system in
general based on the concentration and accumulation of capital to avoid
falling trend in the rate of profit? Or, is it planned and a crisis induced
by Wall Street? 
Ans: The crisis certainly was not ³planned² by Wall Street, but it is the
inevitable result of the policies for which it has lobbied: deregulation of
the financial sector, un-taxing of the FIRE sector (in particular capital
gains and permitting interest to be treated as a tax-deductible expense
rather than as a business choice, so that companies can pay out much more in
the form of debt service to banks and bondholders than they can pay as
dividends to stockholders). Also important is the free ability to create
credit without balance-of-payments constraint since the U.S. economy stopped
dollar-convertibility into gold in 1971. The crisis also resulted from
financializing the economy ­ by paying Social Security and pensions by
saving in advance, rather than on a pay-as-you-go basis. These policies all
had the effect of encouraging ³wealth creation² by short-term speculation
rather than by long-term capital formation.
            But of course, even without the financial overlayering,
industrial capitalism had problems stemming from the conflict of interest
between employers and wage-labor. These problems have been overshadowed by
the enormous overgrowth of finance capitalism, which dries up industrial
capital as well as labor¹s living standards. So finance capitalism is more
than just ³the tip of the iceberg.² It is a phenomenon in itself ­ one that
predates capitalism, and has revived to overshadow it and drag it down.
            The ³falling rate of profit² is not itself the problem. To Marx,
this merely meant a rising rate of depreciation (capital recapture of the
principal, not a return on investment) as economies became more capital
intensive. As matters have turned out, economies are not becoming more
capital intensive ­ and the great intrusion into industrial profit has not
been depreciation, but interest charges as corporate industry and real
estate have become more debt-leveraged.
            All this leaves out environmental degradation. Finance capital
not only strips industrial profit and wage income over and above subsistence
levels, it stands in direct conflict to spending on environmental
preservation. It tactic is to transfer as much cost of pollution off itself
as possible, seizing whatever is available as debt service ­ which itself
may best be thought of as debt pollution.
            Regarding depreciation, some 80% reflects the over-depreciation
of buildings in the United States. Rules differ in Europe and Asia from
country to country, but in the United States each time a property is sold,
the new owner can start depreciating the building again, in toto ­ based on
the new (usually higher) purchase price. The result of this rule, along with
the tax deductibility of mortgage interest, has freed commercial real estate
from income-tax liability for the entire second half of the 20th century in
the United States.
            The result of tax favoritism to the FIRE sector has been to
divert credit and savings away from financing new capital formation, to
buying and selling assets already in place on credit, in hopes of obtaining
³capital gains,² mainly on inflated land prices, stock and bond prices.
            Ultimately, the problem is the financial sector¹s fight against
government regulation. Industry relied largely on government ­ for
protective tariffs, for direct subsidies, for the creation of basic economic
infrastructure (canals, roads, harbors, railroads and air transport), for
the purchase of industrial products (especially armaments), and even for
forward planning to coordinate industrial development, export promotion,
research and development costs. But finance capital seeks to replace the
government as economic planner. In achieving victory, it replaces long-term
planning with short-term hit-and-run asset stripping.
            This is plot or a plan as such. It is merely a coming together
of like-minded shortsighted self-interest, and a knee-jerk hatred of labor
in order to carve out special privileges (rent-yielding tollbooths) for
7. Industrial capitalism versus finance capitalism. Fiscal policy in favour
of the working class and industry sector against the parasite FIRE.
Ans: Finance capitalism certainly has added new modes of exploiting labor to
that of traditional industrial capitalism. When I went to Russia in 1994 to
address the Duma, I said that I had good news and bad news. The good news
was that Americans and other Westerners did not want to come to exploit
their labor by extracting surplus value. The bad news was that Western
investors weren¹t interested in employing labor at all. They simply wanted
Russia¹s raw-materials resources and real estate ­ which they would gladly
buy out, understanding that the proceeds immediately would be translated
into capital flight (of about $25 billion annually for the next decade, as
matters turned out).
            Finance capitalism is much like British colonialism: It merely
scratches the surface, and involves enormous wasted opportunities. It thus
involves a heavy ³opportunity cost² (the value of lost opportunities). I
suppose that the failure of socialism to press industrial capitalism to a
higher level is a similar lost opportunity. But finance capitalism is in
many respects a retrogression to the feudal epoch of parasitic rentier
extraction of income.
            The classical economists had a simple solution: tax land rent,
monopoly rent and financial privilege, and concentrate money creation in the
government¹s hands, ³leasing out² bank operations by extending
government-created credit as a basic public utility. Instead, neoliberal
policy has untaxed the FIRE sector rentiers ­ and shifted the fiscal burden
onto labor and industry. Since 1980 it has replaced progressive taxation
with regressive taxation, and given tax preference to speculative ³capital²
gains that make a travesty of the term ³capital.²
8. Price inflation, deflation, unemployment, food crisis, how are they
Ans: Asset-price inflation is debt-financed, and therefore requires a rising
payment of interest to carry the exponentially growing debt burden. Higher
carrying charges for debt divert income from being spent on goods and
services. This is the essence of debt deflation.
9. Bubble economy. Types of bubbles. Characteristics of the current
financial bubble. 
Ans: All bubbles are financial, and all are debt-financed. But some sectors
may receive more credit than others ­ hence, the dot.com bubble of the
1990s, and the real estate bubble of 2002-07.
            All bubbles in history have been sponsored mainly by
governments, above all to dispose of their public debt. In the United
States, Alan Greenspan at the Federal Reserve sought to inflate the stock
market in the hope that this would trick labor into voting to privatize
Social Security and Medicare, thus removing these entitlements from the
public budget. But the dot.com bubble burst before Mr. Bush had a chance to
push privatization through.
            The current bubble stems not only from U.S. credit creation, but
from Japan¹s ³carry trade.² The Japanese government tried to help its banks
³earn their way² out of negative equity by extending credit at 0.25%. They
lent to foreigners, who sought to make arbitrage gains re-lending cheap
credit at high rates ­ up to 15% from Iceland, for instance.
            Unwinding this arbitrage has led to a repayment of ³cheap² yen
and dollar loans, pushing up the yen and dollar against sterling and the
euro. This does not mean that foreigners have more ³faith² in America. It
means that they are unwinding the bubble loans that have been fueled by a
combination of the U.S. balance-of-payments deficit (largely from overseas
military spending, not just from consumer spending on imports) and Japanese
post-bubble floundering.
            The special twist of the present bubble is of course the
tripling of the U.S. Government debt from $5 to $15 trillion, to give away
$7 trillion to the financial sector ­ mainly counterparties on speculative
gambles and fraudulent mortgage loans ­ at the cost of heavier tax payments
levied on labor and industry for the next century. The private sector has
been left just as debt-ridden. Thus, instead of wiping out financial wealth
at the top of the economic pyramid in a wave of bankruptcy, today¹s bubble
economy has created a new financial oligarchy, a new ruling class of
FIRE-sector families and vested interests that will dominate the coming
            The result already has been to make the wealth pyramid much
steeper than at any time since statistics have been kept in the United
10. Bank nationalization.  Bank nationalization versus credit control.
Credit nationalization.
Ans: ³Nationalization² is merely a euphemism for a giveaway of Treasury
bonds in ³cash for trash² swaps. The government has not wiped out equity for
insolvent banks with negative equity, but bought non-voting shares that do
not come with any management rights. This, coupled with the refusal of the
government to re-regulate the banks or tighten controls on bank lending, is
merely a giveaway to the large banks. The aim is to give the large banks
with negative equity enough money to buy healthier smaller banks, creating
yet larger financial conglomerates ³too big to fail,² so that their future
gambles will require yet further creation of Treasury debt to compensate for
reckless loans, and so on in an endless circle until the economy¹s surplus
is stripped bare.
            Credit controls could achieve everything that stock ownership
could do.
            In the United States there is a knee-jerk reaction that
government is inefficient. But it couldn¹t lose more money than
private-sector financial management has done. And in view of the fact that
credit card companies have increased their rates despite the bailout makes
the case even stronger for the government itself treating credit cards as
part of the public monetary and payments system, and taking it over ­ along
with health-management organizations and banking.
            Government banking lends for quite different purposes than
commercial banking and investment banking. A properly run government bank
would not lend for raiders to take over companies on credit, or make junk
mortgages, or derivative loans, or tax-avoidance financial deals via
offshore banking centers.
11. Large multinationals nationalization. Yes or no? Is it possible? How?
Ans: It is not necessary to formally nationalize multinational firms or
other rent-extracting businesses. As Henry George showed, the equivalent
effect may be achieved by taxing the ³free lunch² of economic rent. This
after all is what they are doing that is negative: exploiting domestic
populations and serving in vehicles capital flight, avoiding taxes by
³transfer pricing² that makes it appear that they are not earning any income
at all, so as to take these in sales-offices in the world¹s offshore banking
            All domestic affiliates of multinational firms are legally
resident of the local country and hence subject to its laws ­ its tax laws,
price regulations etc. All this is legal under international law, as long as
foreigners are treated in the same way as domestic residents.
12. Capital evasion. Tax paradises. What is its effect on economy?
Ans: Offshore banking centers are parasitic by enabling companies to avoid
paying taxes, thereby shifting the tax burden off rentiers and other
business onto the shoulders of labor. The effect of this regressive tax
shift is inflationary.
13. In a globalized economy, what role should the public sector and economic
planning of the authorities play, as part of a mixed economy?
Ans: The main way of steering credit and savings today is the tax system.
Unfortunately, since 1980 the tax philosophy has been to favor short-term
speculation, not industrial capital formation. France¹s ³indicative
planning² is one way to go, bolstered by various forms of insurance,
subsidies and for agriculture, tariff protection and quotas so that every
nation may feed itself in the face of today¹s global trade breakdown.
14. Neoliberalism has destroyed the pact that gave rise to Keynesian welfare
state, is it possible to resume Keynesian policies in a context of
neoliberal globalization?
Ans: Neoliberal economic philosophy is antithetical not only to Keynesian
policy, but to industrial capitalism and Progressive Era reforms to raise
labor productivity by providing public education, health care and rising
living standards. The objective of neoliberal economic policy is to strip
economies as rapidly as possible, by loading them down with debt; and in the
process, to shift economic planning away from government to the financial
sector, which determines who gets credit and on what terms (and indeed, who
gets elected and what their policies will be, as a result of campaign
contributions and control of the mass media).
15. If the concentration and accumulation of capital in ever fewer hands is
at the root of the current economic crisis, what measures of wealth
distribution should be taken in the area of wages, tax and budget?
Ans: The steepening of the wealth pyramid is primarily an effect of
neoliberal policy, but it becomes a cause in turn as it entrenches a
neo-feudal financial oligarchy. The main way to counter it is by a
³windfall² land tax fully capturing the land¹s rental value; a tax on other
economic rent (mainly monopoly rent, income that has no counterpart in an
economically necessary cost of production as defined by the classical
economists), and shift of money creation into the Treasury¹s hands. This
would achieve almost the same effect as a progressive income tax ­ which of
course must also be restored to pre-1980 levels.
            Also, privatized infrastructure must be de-privatized and its
debts wiped out.
            One way to stop bad bubble credit is to enact a Fraudulent
Conveyance law: If a bank or other creditor makes a loan to a borrower
without knowing or having a reasonable idea of how the loan is to be repaid
in the normal course of business, the loan is declared fraudulent and
therefore null and void. This law is still on the books of New York State.
            It would mean that creditors could not lend to a company and pay
themselves by breaking it up and selling off its assets, closing down R&D
and shifting pension plans away from defined-benefit plans to
defined-contribution plans (or simply declaring bankruptcy to wipe out
pension obligations altogether).
            It also would mean that banks could not lend to countries
without having an idea of how these economies could generate a
balance-of-payments surplus able to pay the interest to the international
bankers ­ that is, how to pay without selling off the public domain in what
is in effect a pre-bankruptcy sale.
16. How much power do workers have to influence economic policies and spread
the wealth has been brought into question by neoliberalism. What are the
strategies to be taken by the labour movement to improve the correlative of
forces and counter power?
Ans: Workers have little power to influence economic policies today. Elected
representatives owe more to their campaign contributors than to voters in
what the Americans call ³pay to play² politics. Unionization is one form of
power, but it would have to be a class movement rather than a craft-union
movement. Consumer boycotts have a role to play. Where political
representation is effective, that is important too, but the financial
interests seem to have by far the upper hand when it comes to tax and credit
policies. And that is where the great lever of inequity is today.
17. Is there a crisis in the hegemony of the dollar as the currency of
reference? Is there an alternative? What role do the Euro and the Chinese
yuan have? 
Ans: U.S. diplomacy aims at preventing any real alternative to the U.S.
dollar. The euro is not really an alternative as much as a mere satellite
currency. (In the decades after World War I, for instance, the British
sterling area became a ³feeder² into the U.S. dollar area. This remains the
U.S. model for the euro area.)
            In order for a nation¹s money to be a currency of reference, it
is necessary to run a large enough federal budget deficit to provide an
investment vehicle in which foreign central banks can hold their
international reserves. It also is necessary to run a chronic
balance-of-payments deficit to provide a rising volume of these reserves
into the global financial system.
            At present only the United States does this. The EU imposes a
limit on government budget deficits of just 3% of GDP, preventing the
creation of a sizeable volume of euro-bonds for foreign central banks to
hold ­ and also, of course, preventing Keynesian-style recovery from the
deepening depression into which Europe is now sinking.
            As for the yuan, the attempt to expand the Shanghai Cooperation
Organization (SCO) from a military defense organization to a general Asian
currency area shows the extent to which financial and military power go
together ­ as if the American dollar hegemony were not sufficient proof, not
to speak of the British Empire¹s Sterling area before that.
18. Iceland: what has happened and what outputs do they have?
Ans: I am leaving for Iceland from Bilbao precisely to find out the answer
to this question.
19. Venezuela, Bolivia, Ecuador,... Is there a possibility to experience an
alternative to global capitalism? Is there a potential geopolitical space
where objective conditions are sufficient to raise an economy on the IMF,
WB, WTO,...?
Ans: As other countries withdraw from the US-centered Washington Consensus
order, they will provide an alternative that is likely to enjoy superior
economic success. The result will be to restore a multi-polar world ­ and
this in turn is the only practical way to create a system of international
checks and balances to prevent predatory financial and other economic
policies from impeding economic growth and creating a new imperial
            The United States has been fighting such a development since the
1954 overthrow of the Iranian democracy and Guatemalan government. No doubt
it will continue to use the combination of targeted assassination and overt
military force that has characterized its behavior in Cuba, Chile, Vietnam,
Cambodia and other countries, not to speak of Japan in the first post-1945
decade. Attempts to recover domestic self-determination will be treated as
³terrorism² and met with U.S. violence on an unprecedented scale. So the
fight for survival will not be a pretty one.
20. To what extent the need for redistributive policies and linked to the
needs of people, requires nations as the Basque Country, access the status
of independent state in the context of Europe?
Ans: That is a political question, whose answer requires a greater
understanding of Spanish and Basque political relations and laws than I
have. Certainly the European federalist organs are not meeting the
redistributive needs of the people ­ or for the economy as a whole. The
European Central Bank and other EU agencies are permitting financialization
to carve up economies and strip assets rather than build them up.
            I worry that what may be in store for the European countries is
what Europe did vis-à-vis the post-Soviet countries such as the Baltics. The
European strategy has been to impose an onerous flat tax on labor (62% in 
Latvia) and almost no tax on real estate and other property (about 0.1% in 
Latvia), thereby deindustrializing the economy and spurring an emigration of 
male working-age labor (25 to 35 years old) while promoting a real estate 
boom. When the real estate bubble bursts, the European governments then load 
down these hapless post-Soviet economies by lending their governments money 
that they merely pass on to the Swedish banks (that have made bad loans to 
the Baltics) and the Austrian banks (that have made bad loans to Hungary, as 
they did in the 19th century).
            So the question really becomes one of what to do about the fact 
that ³Old Europe² (the contemptuous term used by former U.S. Defense 
Secretary Donald Rumsfeld) has adopted a Counter-Enlightenment as its 
political, cultural and intellectual program. This pro-financial program is 
not only anti-labor, it is anti-industrial.
            As such, ³Old Europe² is now pursuing an inherently 
self-destructive path. Either the European Union will break up, or it will 
shrink and impoverish the entire continent. In this respect it is difficult 
for any region to ³save itself.² It is necessary to save what remains of 
European civilization from its mad subordination to the Washington Consensus 
that seeks to create new client financial oligarchies and reduce Europe to 
debt peonage.

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