Michael Hudson on the clash of capitalisms

THE DESTINY OF CIVILIZATION: Finance Capitalism, Industrial Capitalism or Socialism by Michael Hudson (2022)

When I studied economics as a college undergraduate, I was taught there are three factors of production – land, labor and capital. And three sources of income – the rent of land, the wages of labor and the profit or interest from capital.

Land includes not just the soil itself, but all natural resources.  Labor includes all productive effort, whether of brain or brawn.

Capital, as I was taught, is the force multiplier. It includes everything that increases the productivity of land or labor – farm tractors, railroads, computers, steam engines, electric power plants, research laboratories, anything that increases or improves production.

So the landlord is a parasite, the worker is a contributor to society, but the capitalist supposedly is the driving force for progress.

Here’s the rub.  Financial capital is productive only when it is used to create physical or human capital.

But there’s no law that says financial capital has to be used productively.  In fact, most so-called “investment” consists of buying assets and collecting the income, with no value added. 

Michael Hudson, in his brilliant new book, The Destiny of Civilization, says that’s what’s happening in the U.S. specifically and also the broader world today.  Industrial capitalism, which, for all its faults, is productive, is being replaced by finance capitalism, which is parasitic.   

So much of the world’s resources go to paying off debts—government debt, business debt, mortgage debt, student debt—that too little is left over to provide for the wants and needs of ordinary people.  

So much of the world’s income goes to holders of debt that too little is left for those who do the actual work of society.

According to Hudson, the classical economists, from Adam Smith to John Maynard Keynes and including Karl Marx, thought that the chief economic problem was the rentier – the person who draws income from ownership of assets, without producing anything of value themselves.

The French economist Thomas Piketty has written massive tomes that show how the income from ownership of assets – whether land, government bonds, corporate stocks or something else – over time exceeds the rate of economic growth.

This leads to an ever-growing concentration of wealth, which ends only when some event – usually revolution, war or an economic crash – wipes out the value of the assets. This is the process that the Austrian economist Joseph Schumpeter called “creative destruction.”

In the United States and countries that follow its lead, classical economics has been replaced by the so-called neoliberal economics.  Its guiding principle is that financial capital must be preserved at all costs.

This is why, just as one example, the Obama administration bailed out the banks following the 2008 financial crisis, but did not use authority granted by Congress to help the struggling mortgage-holders.

Karl Marx was fascinated by industrial capitalism’s power to increase productivity and increase wealth.  This form of capitalism, as he saw it, laid the foundation for a future utopian worker-ruled socialist state.  Finance capitalism, in Hudson’s view, leads nowhere.

Hudson says that today civilization is today at a fork in the road: 

• one path leading to a neoliberal neo-feudalism dominated by a rentier oligarchy ruling over the indebted many.
• the alternative path is broadly mixed-economy industrial capitalism leading to socialism.

War threat’s purpose is to keep U.S. allies in line

Click to enlarge.

U.S. policy for the past 10 or so years has been hard for me to understand. Our government has driven Russia, the world’s largest nuclear weapons power, into the arms of China, the world’s largest or second largest industrial power.

Since 2014, our leaders have talked about the threat of a Russian invasion of Ukraine, but, as Scott Ritter has pointed out, they never tried to create a military force in or near Ukraine capable of resisting a Russian invasion.

The economist Michael Hudson has an answer.  U.S. war policy is not primarily about Ukraine or Russia.  Rather it is about the need for a war threat to keep U.S. allies in line.

Economic sanctions are not being imposed for strategic reasons, Hudson wrote recently. Rather the geopolitical struggle is an excuse for cutting off U.S. allies from trade with Russia, China and other designated U.S. enemies.

The U.S. is not pressuring Germany to stop Nord Stream 2 in order to block Russia in Ukraine.  It is whipping up war fever over Ukraine in order to block Nord Stream 2.

Here’s how he put it:

What worries American diplomats is that Germany, other NATO nations and countries along the Belt and Road route understand the gains that can be made by opening up peaceful trade and investment.

If there is no Russian or Chinese plan to invade or bomb them, what is the need for NATO?  And if there is no inherently adversarial relationship, why do foreign countries need to sacrifice their own trade and financial interests by relying exclusively on U.S. exporters and investors?

These are the concerns that have prompted French Prime Minister Macron to call forth the ghost of Charles de Gaulle and urge Europe to turn away from what he calls NATO’s “brain-dead” Cold War and beak with the pro-U.S. trade arrangements that are imposing rising costs on Europe while denying it potential gains from trade with Eurasia.

Even Germany is balking at demands that it freeze by this coming March by going without Russian gas.

Instead of a real military threat from Russia and China, the problem for American strategists is the absence of such a threat.

All countries have come to realize that the world has reached a point at which no industrial economy has the manpower and political ability to mobilize a standing army of the size that would be needed to invade or even wage a major battle with a significant adversary.

That political cost makes it uneconomic for Russia to retaliate against NATO adventurism prodding at its western border trying to incite a military response. It’s just not worth taking over Ukraine.

What’s the world coming to? A rant

Things are getting worse faster.  Some French movie director once said: Have the courage to believe what you know.  I keep hoping that what I know—what I think I know—won’t prove to be the case.

U.S. domestic policy is steered by a selfish financial oligarchy, which we can call the neoliberals.

U.S. foreign policy is steered by a murderous national security establishment, which we can call the neoconservatives.

Civilization faces two threats, nuclear war and global climate change.

Neoliberals and neoconservatives are making both worse.  Because of them, the U.S. has restarted the nuclear arms race and is stepping up fossil fuel production.

They also are soaking up resources needed to provide basic public services, maintain infrastructure and provide a social safety net.  Manufacturing capability and governmental capability are being hollowed out because of failures to invest.

The neoliberal and neoconservative elite maintain their power by corrupting the democratic process.  One way is by creating a dependence on big donors to conduct political campaigns.  Another is through gerrymandering, voter registration purges, creating artificial difficulties in voting and using hackable electronic voting machines.

This year the USA faces a near-perfect storm— (1) a pandemic that nobody really understands, (2) unemployment exceeding Great Depression levels and (3) the likelihood of more floods, storms, fires and other weather- and climate-related disasters.

The powers that be give us only two choices – (1) shut everything down and deprive millions of people of their livelihoods or (2) open everything up knowing that hundreds of thousands of people may die.

It’s possible that the coronavirus pandemic will ease off sooner than predicted, but it won’t be the last pandemic and may not be the worst.

We’re headed toward an election in which, as in 1876, there may be a dispute as to who really won.  I don’t expect a new civil war, but then the historic Civil War came as a surprise.

The Bernie Sanders campaign showed the near-impossibility of bringing about meaningful political change within an existing political party.

The Greens, Libertarians and other small parties have virtually no chance of coming to power, and probably wouldn’t know what to do with power if they got it.

Maybe a national reform movement can be created through grass-roots organizing, but this could take decades—barring a societal collapse, which is more likely to bring to power demagogues and dictators than new FDRs.

I’ve pushed back against those who say Donald Trump is a new Hitler.  It is not just that he doesn’t have the political acumen or sense of purpose of a Hitler.  The Trump-as-Hitler meme ignores the degree to which the USA of 2016 had already adopted Nazi-like practices—unprovoked military aggression, contempt for international law, assassinations, torture, detention without trial.

Neoliberalism’s failure in a time of pandemic

Rev. Dr. William J. Barber II on Twitter

The United States is unprepared to deal with the coronavirus pandemic—short of hospital beds, short of test kits, short of ventilators and other medical supplies.

This is not merely because of the negligence of a few individuals.  It is the result of acceptance of the philosophy of neoliberalism.

Neoliberalism teaches that business corporations should be structured so as to keep costs as low as possible and revenues as high as possible, and that all institutions should be like business corporations.

It also teaches that accumulation of wealth by individuals and corporations is a good thing because private investment is the source of progress and economic growth.

What’s wrong with that? you may ask.

What’s wrong is what we see now—national needs neglected and the whole society put at risk.

Hospitals and other health care providers are told they must operate with maximum efficiency.  All resources must be fully utilized all the time—no empty beds, no unused equipment, no moments to relax for nurses and other staff.

This means there is no slack in the system.  It is hard to provide for the ebb and flow of illness and injury even in normal times.  In an emergency, such as this one, the health care system is overwhelmed.

Also, hospitals and other health care providers must obtain their supplies from the lowest priced source, even if that source is a sweatshop on the other side of the planet.

This means that the United States depends on China and other foreign countries for medical supplies.  If the leaders of these countries decide to limit shipments to the U.S. in order to guarantee supplies for their own people, what can we Americans do about it?

The bipartisan, dysfunctional US economic policy

The USA has had a bipartisan economic policy for 20 or 30 years now.  It’s what some people call “neoliberalism.”

The basic idea is that prosperity depends on rich people investing in the economy, so that the key to prosperity is to allow rich people to accumulate money.

It is reducing upper-bracket tax rates, reducing government regulation and reducing government spending except on the military and police.

It is allowing manufacturing companies to become competitive by shifting production to low-wage countries, holding prices down by allowing cheap imports, and shrinking the social safety net to encourage people to take low-wage jobs.

It is giving financial institutions free rein to make risky investments, because free markets are important, and bailing them out when they fail, because large-scale financial failure would destabilize the economy.

It is not enforcing the antitrust laws because business consolidation supposedly promotes economic efficiency.

It is now than then enacting some benefit for working people, but never anything that threatens the incomes of the wealthy or the power of big corporations.

§§§

The North American Free Trade Agreement is an example of neoliberal bipartisanship.  The idea for NAFTA originated in the Ronald Reagan administration, the George H.W. Bush administration negotiated it, but it took the Bill Clinton administration to get it approved.

NAFTA shifted the balance of power against organized labor.  Employers could credibly threaten to pick up and relocate in Mexico if workers didn’t give them what they wanted.

Another joker in NAFTA was the investor-state dispute resolution provision.  It gave foreign companies the right to ask for damages if a local, state or national government passed some law or regulation that reduced their profits.  The theory was that this was a trade barrier, the same as a tariff.  Investor-state disputes are decided not by courts, but by arbitrators.

The investor-state dispute resolution provision was a main reason why Congress declined to endorse President Obama’s proposed Trans-Pacific Partnership Agreement.  President Trump deserves credit for dropping the TPP.

The new U.S.-Canada-Mexico Agreement contains an investor-state dispute resolution provision.  However, unlike NAFTA,  it also contains labor and environmental standards and not just protections for companies.  If these turn out to be meaningful, President Trump and the present Congress will deserve a certain amount of credit.

§§§

Bill Clinton was a good friend of the banking industry.  Early in his administration, Congress passed the Siegle-Neal Act, which eliminated restrictions on interstate banking.  Bank mergers followed in rapid succession.

He twice reappointed Alan Greenspan, advocate of banking deregulation, as chairman of the Federal Reserve Board.  He proposed and got repeal of the Glass-Steagall Act, which separated commercial banks, whose deposits were insured by the federal government, from investment banks, whose deposits could be risked in potentially high-profit investments.

His administration explicitly forbid regulation of derivatives, which are investments not backed by any tangible asset—essentially a form of gambling on the economy.  All these decisions set the stage for the Great Recession of 2007-2009.

Why hospitals never have enough nurses

Prasad’s Law:

Medical goods and services that concentrate wealth can be paid for; medical goods and services that disperse wealth are “unaffordable.”

Source: naked capitalism

Prescribing more drugs or scheduling more doctor’s appointments means more revenue.  Hiring more nurses does not.  Click on this link for a discussion of what this means.

Charles Dickens’ Hard Times and our times

Throughout the 20th century, critics regarded Charles Dickens’ Hard Times (1854) as one of his lesser novels.  It didn’t have the huge menagerie of colorful, memorable characters that most of his novels did, nor did it provide much comic relief from its hard tale..

Hard Times is back in vogue because the philosophy of its central character, Thomas Gradgrind, is back in vogue.  Gradgrind is a schoolmaster and later Member of Parliament for Coketown, a stand-in for the gritty industrial city of Manchester.

Gradgrind’s philosophy is based on the famous fact-value distinction—the idea that facts are objective because they can be proved or disproved, but that values are subjective because they arise from personal feeling.

He operates a school devoted to rote memorization of facts—no games, no art or literature, no appeals to the imagination—and to a philosophy based on the ethic of rational self-interest.

It was a fundamental principle of the Gradgrind philosophy that everything was to be paid for.  Nobody was ever on any account to give anybody anything or render anybody help without purchase.  Gratitude was to be abolished, and the virtues springing from it were not to be.  Every inch of the existence of mankind, from birth to death, was to be a bargain across a counter.  And if we didn’t get to Heaven that way, it was not a politico-economical place, and we had no business there.

This was a living philosophy then, and it is a living philosophy still.  We now call it neoliberalism, and its adherents are to be found throughout Silicon Valley, Wall Street and the economics departments of great universities.

Gradgrind practices what he preaches.  He stifles sentiment and emotion in himself.  He denies himself the emotional intelligence to see through the boastful, hypocritical self-made industrialist, Josiah Bounderby.

He encourages his daughter, Louisa, to marry Bounderby, and his son, Tom, to go to work for him, as does his star pupil, Bitzer.

Louisa has a good heart, but she is morally adrift because she never is given any justification for the promptings of her heart.  Tom, on the other hand, lacks moral intuition, and is not taught anything to make up for the lack.  He is a self-destructive fool because his extreme self-absorption makes him unaware of the possible consequences of his actions until it is too late.

But it was Bitzer who is the most perfect representation of Gradgrind’s teachings.  He is diligent at his job, saves his money, doesn’t drink, smoke or gamble and guides his life by cost-benefit analysis.  When in the end he turns against Gradgrind in order to advance his career, he calmly justifies his decision by citing his old schoolmaster’s “excellent teaching” about self-interest.

∞∞∞

I read Hard Times as part of a novel-reading group hosted by my friend Linda White.  It was published the same year as Elizabeth Gaskell’s North and South, which was our group’s previous book.  Although there is no reason to think the two writers influenced each other, there are remarkable similarities.

Both have morally sensitive heroines with inadequate fathers.  Both depict self-made industrialists in conflict with labor unions.  Both make their noble worker character speak in a hard-to-understand dialect that sets him apart from all the others.  Both have their worker character ask the industrialist for help, and be rebuffed.

But the two novels are very different in both style and viewpoint.  North and South is an effort to give a fair and balanced account of conditions in 1850s Manchester.  Hard Times burns with indignation.

Gaskell’s Margaret Hale has a Christian faith that not only gives her a moral compass, but is a magnetic field that draws others into her influence.  Dickens’ Louisa has the same moral impulses as Margaret, but she has no philosophy or faith that would give her the confidence to act on them.

Pro-family vs. anti-family conservatives

The conservative blogger Rod Dreher put up an interesting post this morning quoting an evangelical Christian man who says he and his wife can’t afford to have children because of corporate business practices and neoliberal economic policies supported by both Republicans and Democrats.

He and his wife are both employed in STEM fields and earn six-figure incomes, but their employers constantly remind them that they can be replaced at any time by immigrants from India willing to work at one-third their salaries.  Losing a job would mean losing health insurance, which might mean bankruptcy.

A cousin actually went bankrupt because his newborn had a rare disease, and his insurance company decided that the medical staff on duty that day were not in its network, even though the hospital itself was in-network.  Then there is the cost of education, which can bankrupt even an affluent family.

The most interesting part was his contrast of European and American conservatives.

Europe’s conservatives actually are pro-family there and support pro-natalist policies. The US media as usual is embarrassingly confused about populists like Matteo Salvini, Victor Orban, the AfD in Germany, the NF in France, Vox in Spain, the Sweden Democrats and the conservatives in Denmark, Poland, Austria and the Netherlands.

These aren’t racists like the media claims, in fact quite the opposite, they are not the ones calling for invasion of foreign countries, but rather for the preservation of their own native European Christian cultures, Christian values and distinctive identities within their ancient homelands. And above all for supporting the family unit. [snip].

Europe’s populist conservatives all favor universal healthcare, low-cost childcare, free or low-cost tuition for colleges, 6 weeks of vacation (great for bonding with the family) and protection of the local labor market and wages. When I worked in Europe all Americans and other foreigners (including many tech workers from India) were paid the same or higher wages than locals, and if any employer tried to undermine the local labor market and wages, he’d be greeted with a prison term.

Source: Rod Dreher | The American Conservative

If somebody like that doesn’t think he can afford to live what used to be considered a normal life, what about the rest of us?

I’m reminded of Chris Arnade and his contrast of the “front-row kids” and “back-row kids”—the ones who get ahead because they value education, adaptability and individual success most, and the ones who are left behind because they value family, tradition and community more.

This is a good example of the coming together of the cultural conservative critique and economic radical critique of our current political economy.

What will come next?

Centrally planned economies didn’t work.

Unbridled neoliberal capitalism isn’t working.

Blood-and-soil nationalism won’t work.

What will come next?  My candidate for the next big thing is some form of radical localism.

Small communities would push back against the power of multinational corporations and big government bureaucracies.

Ideally their civic and economic life would be based on a mixture of town-meeting democracy, volunteer groups, civic associations, producer cooperatives, consumer cooperatives, individually-owned  businesses and large numbers of self-employed workers.

A society based on radical localism wouldn’t be capable of building mega-projects or projecting world-wide military power.

But it might be more resilient when catastrophic global climate change kicks in, the global supply chains cease to work and dysfunctional national governments lose their legitimacy.

Modernization has created an angry world

I think the world is locked into struggle between a heartless corporate neoliberalism and a rage-filled blood-and-soil nationalism, neither of which offers hope for the human future.

Pankaj Mishra, author of AGE OF ANGER (2017), said this is part of a conflict of ideas that originated with Voltaire and Rousseau in the 18th century and is still going on, all over the world, today.

Voltaire taught that if you give up your outworn prejudices, superstitions and customs, and embrace science, reason and commerce, you will gain the power to determine the course of your life, as well as enjoy a rising material standard of living.

His enemy, Rousseau, spoke for all those who were angry because this bargain was not kept, or because they rejected the bargain in the first place.

They included millions of people in Europe and North America in the 19th century and also billions in Asia and Africa in the 20th and 21st, who have been uprooted from village communities and left to fend for themselves in an unforgiving global economy.

Voltaire, although a brave defender of religious and intellectual freedom, despised the ignorant masses.  He admired “enlightened” despots, such as Frederick the Great and Catherine the Great, for trying to force their unwilling subjects to adopt modern—that is, French—ways of life.

Rousseau cared nothing for modernization.  His ideal was an imaginary Sparta, an austere, primitive and close-knit society of brave warriors.   He thought it unimportant that Spartan warriors were predatory and merciless to others.  What mattered was their comradeship with each other, and also their manliness.

Another theme of Rousseau, in contrast to Voltaire, is the need for manliness and the corresponding need to keep women in their place.   Once again, this is an example of Rousseau wanting something he didn’t have.  He was never able to fulfill the traditional role of the male, which is to be a protector and provider for women and children.

Neoliberalism is about more than free markets

The common mistake about neoliberal ideology is to think that it is about nothing more than unrestricted free markets.

In fact, neoliberalism is about unrestricted accumulation of capital.

Concentration of wealth at the top is an intended, not an unintended, consequence.

The idea is that of classical economics’ three sources of wealth – land, labor and capital – it is capital that is the force multiplier.

Capital investment, as Karl Marx recognized in the Communist Manifesto, is what has increased the total amount of wealth available to humanity in the modern capitalist era.   What neoliberals say is that this process can and should continue, with capital remaining in private hands.

That is why neoliberals advocate upper-bracket tax cuts and government austerity, and oppose minimum wage laws and labor unions.   Working people only waste their wages on their personal needs, neoliberals think; capitalists invest and increase the wealth of society.

That is neoliberals they advocate bailing out banks in the USA and Europe, while insisting that home mortgages, student loans and the debt of nations such as Greece by repaid to the last penny.

There is logic to this, once you accept the underlying assumptions.  The wrongness of this idea is shown, not by economic theory, but by the history of the last 40 years.

We have had increasing austerity and increased concentration of wealth in the upper brackets, but the investment needs of the USA and other advanced countries are unmet.

Neoliberalism and the Grenfell Tower disaster

If British reports are to be believed, the Grenfell Tower inferno in central London might have been averted for a cost of a mere $6,000 — or a little more than $100 for each of the 58 unfortunates who, on the best estimate available this weekend, perished in the disaster.

According to the London Daily Mail, when the tower was recently renovated, builders opted for a cladding material so inappropriate that it is rated “flammable” in Germany and its use in tall buildings in even lightly regulated America is banned.  The attraction was a saving of a mere 10 percent.  On the Mail’s numbers, that added up to a total saving compared to a safe material of £5,000 — equal to a little more than $6,000.

Such is the dystopia that deregulation, British-style, has wrought — a dystopia whose excesses are now finally coming to be widely recognized by voters and elected leaders alike.

Source: Eamonn Fingleton

This is neoliberalism in action.   First you privatize a public service, as was done with public housing in Great Britain, because for-profit corporations are supposed to be intrinsically better able to make decisions than public bodies.  Then you make decisions based on assumptions about profit-and-loss, because this is supposed to be objective and rational.

Also, you judge the worth of a human life based on that person’s financial net worth.

Thankfully, not everybody makes decisions on this basis.  The brave firefighters who saved Grenfell Tower residents were motivated by a sense of duty, not a cost-benefit analysis.  Yet firefighters, too, in the UK as well as the USA, are being weighed in the neoliberal balance and found wanting.

Neoliberalism vs. nationalism in France

The French election on Sunday narrowed the field to two candidates—Emmanuel Macron, a neoliberal defender of globalization, and Marine Le Pen, a blood-and-soil nationalist, in the run-off election May 7.

Macron is an Obama-like outsider, who offers a vaguely-defined hope and change and, in fact, was endorsed by Barack Obama, but who actually represents France’s financial establishment.

Le Pen is usually described as the “far right” candidate.  She promises to protect France from what she calls the twin threats of globalization and Islam.

But she also is in favor of locking in France’s 35-hour work week, lowering the retirement age to 60, bolstering public services and reducing income taxes on low-income workers

Macron is in favor of flexibility on the 35-hour work week, industry deregulation, reduction of government spending and cutting corporate taxes.  So which is the right-winger?

He favors CETA—the Canadian-European Free Trade Agreement—which, like NAFTA and the defunct proposed Trans-Pacific Partnership Agreement, would restrict business regulation in the name of protecting free trade.  So who is the left-winger here?

Le Pen would replace the Euro with a “nouveau franc,” reestablish border controls and repeal certain European Union laws.  If the EU refused to cooperate, she would call for a referendum on whether France should secede.  If the French voted to stay in the EU, she would resign.

Macron wants to strengthen the Euro and France’s ties with the EU.   He generally favors current French policy on immigration.  Le Pen would restrict immigration to 10,000 persons a year and kick out all unauthorized immigrants, as well as all Muslims on terrorist watch lists.

Neoliberalism and Its Discontents (1)

What follows is notes for the first part of a talk for the Rochester Russell Forum scheduled at Writers & Books Literary Center, 740 University Ave., Rochester, NY, at 7 p.m. Thursday, April 13, 2017

Neoliberalism is the philosophy that economic freedom is the primary freedom, economic growth is the primary goal of society and the for-profit corporation is the ideal form of organization.

It is the justification for privatization, deregulation and the economic austerity currently being imposed on governments by lenders.

Neoliberalism has its roots in classical liberalism, which arose in the 18th and 19th centuries.  Classic liberals said that the purpose of government is to protect human rights, including religious, intellectual, political and economic freedom.   They fought the absolute power of kings and the privileges of aristocrats and demanded the right of individuals to determine their own fates.

Classical liberalism came to be supplanted in the early 20th century by a belief that government regulation and welfare could, if well thought out, enhance human freedom by giving individuals more choices.   A graduate of a public school or university, for example, has more options than a person unable to afford an education, so taxing the public to pay for public schools and universities would be a form of liberation.

Neoliberalism is a backlash against social liberalism.  Neoliberalism affirms that freedom of enterprise is the only important freedom.   Its well-known adherents include Friedrich Hayek, Ludwig von Mises and Milton Friedman.

It came into widespread acceptance in the 1980s, as a reaction against the manifest failures of central economic planning and as a way to break the political gridlock of the welfare state.  Ronald Reagan and Margaret Thatcher were both strongly influenced by the neoliberals.

Neoliberalism’s strongest adherents are to be found among economists, journalists, financiers, Silicon Valley executives and right-of-center parties in the English-speaking world and western Europe, and in international institutions such as the International Monetary Fund, World Bank and European Central Bank, which enforce neoliberal policies on debtor countries.

It is more of an implicit philosophy than a credo, a series of assumptions that has come to permeate our society.

What follows is my attempt to understand the logic behind these assumptions.

Neoliberalism and its discontents (2)

What follows is notes for the second part of a talk for the Rochester Russell Forum scheduled at Writers & Books Literary Center, 740 University Ave., Rochester, NY, at 7 p.m. Thursday, April 13.

Neoliberalism has generated an antithesis—blood and soil nationalism, which holds that the supreme human value consists of the ties of loyalty and customs among people of common ancestry who live in the same place.

Blood and soil nationalism is not fascism, although it can fit very well with fascism.  It is not racism, although it can fit very well with racism.

The difference is that fascism and racism are international movements.  They are disconnected from the culture and heritage of any particular place.

Loyalty to a heritage and a way of life, to kindred who live in a particular place, is the most natural feeling in the world.   It is wrong to devalue this feeling.

The problem is that, for many people, local cultures and heritages have already been hollowed out by the consumer culture promoted by the mass media of entertainment and advertising.  What is left is a hollowed-out version of patriotism consisting of loyalty to your own group and hatred of some other group you see as a threat.

People embrace this hollow nationalism as a way of giving a meaning to their lives that the neoliberal consumer and advertising culture does not provide.

How I became radicalized

For most of my life, I thought my country was fundamentally sound and moving in the right direction.

I knew there were serious problems and injustices in American life, but I thought that these were aberrations, contrary to our democratic ideals, which under our democratic system would be reformed over time.

I rejected the Communist belief that the crimes of capitalism are systemic, while the failures of Communism are failures to correctly understand or follow Marxist doctrine.

But my own beliefs were the mirror image of this.  I believed that the crimes of Communist countries were the inevitable result of a bad system, while the crimes of Western countries were aberrations that could be corrected.

The first step in my radicalization was the passage of the USA Patriot Act in October 2001.  I was shocked at how fundamental liberties, such as habeas corpus and trial by jury, could be simply wiped off the blackboard, and the majority of Americans would see nothing wrong with this.

I always thought of torture as the ultimate crime against humanity, because it destroys the mind and soul while leaving the body alive.   Torture became institutionalized, and even popular—possibly because of the illusion that it would be limited to people with brown skins and non-European names.

But I still thought of this as an aberration, part of a scheme by Dick Cheney, Donald Rumsfeld and others to restore executive power that had been lost after the Watergate hearings.  I voted for Barack Obama with great enthusiasm in 2008, not because I believed he would be a strong reformer, but because I thought he would restore the country to normal.

I soon learned that there was a new normal, one that was different from what I thought it was.

How neoliberalism feeds political correctness

Maximillian Alvarez, a graduate student at the University of Michigan, wrote in the current issue of The Baffler that the real driver behind “political correctness” on American university campuses is the neoliberal idea that students are customers, and that the job of the university is to give the customers what they want.

The traditional idea of the university was that the professors were the custodians of knowledge, that their job was to impart knowledge and wisdom to students and that their work should be judged by their peers.

The neoliberal idea of the university is that professors are vendors and students are customers, and that the measure of a university’s success is the ability to maximize enrollment and tuition.

Alvarez wrote that the conflict over “political correctness” is a conflict over which of the university’s customers are more important—the students and parents, or the wealthy donors.  (In the case of public colleges and universities, there is a third customer—the businesses that depend on public institutions to provide vocational training.}

Here’s what Alvarez had to say:

When professors today say they fear their students, they’re really saying that they’re afraid their students’ reviews and complaints will get them fired.

What professors fear are the changing administrative policies that have pinned the fate of their job security to the same unstable consumer logic behind Yelp reviews and the reputation economy.

The image of the wise, hard-nosed professor who upends her students’ assumptions about the world, who provokes and guides heated debates in class about subjects that may offend as much as they enlighten, rests on a whole host of factors that no longer enter into the crabbed, anxiety-driven working life of the casually employed academic.

Nor do such factors typically emerge in our debates about political correctness at universities.

Three in particular are worth highlighting.

First, tenure for faculty is disappearing—and along with it the sort of job security that once made university teaching an attractive long-term career.

Now the lion’s share of college teaching jobs goes to part-time (adjunct) instructors and non-tenure-track faculty.

Brexit: the revolt of the losers

The dominant neoliberal economy sorts people into winners and losers.  Brexit is a revolt of the losers.

The winners are the credentialed professionals, the cosmopolitan, the affluent.  The losers are the uncredentialed, the provincial, the working class.

Losers are revolting across the Western world, from the USA to Poland, and their revolt mostly takes the form of nationalism.

The reason the revolt takes the form of nationalism is that the world’s most important international institutions—the World Bank, the International Monetary Fund, and the European Central Bank—are under the control of a global financial elite that does not represent their interests.

I don’t fully understand the decision-making process in the European Union, but looking at its web site, my impression is that public debate is not a part of it.

The only vehicles for exercising democratic control, at the present moment in history, is through democratic national governments.  I am in favor of international cooperation, and I don’t know how I would have voted on Brexit if I had been British, but I certainly can understand Britons who don’t want to be at the mercy of foreign bureaucrats and the London governmental, banking and intellectual elite.

Democratic nationalism is the only form that democracy can take until there is a radical restructuring of international institutions.  Without a strong progressive democratic movement, the only alternative to neo-liberal globalization is right-wing anti-democratic populism as represented by Donald Trump, the United Kingdom Independence Party, Marine le Pen’s National Front in France, Greece’s Golden Dawn and others.

Why a profitable company laid off 1,400 people

In February, 1,400 employees of Carrier Air Conditioner in Indianapolis were told their jobs were being transferred to Mexico to cut costs.

It turns out that, according to the annual report of United Technologies, its parent company, that Carrier was a profitable and growing business segment.  In 2015, it was UT’s best-performing division in the company.

So why mess with it?  UT management hoped to boost the company’s stock price by cutting costs.  Managers say they plan to keep on cutting costs for the indefinite future, evidently without regard to

All this runs contrary to the way I was taught in college that a capitalist free enterprise system is supposed to work.

I was taught that the duty of corporate management is to ensure that the corporation survives and is profitable into the indefinite future.  This goal is achieved by making good products and at a reasonable price, and provide good customer service.  To do this, it is necessary to re-invest a good portion of the profits in the business.

UT management’s philosophy is evidently the opposite—to take money out of the business and give it to the passive shareholders.

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The New York Times evidently had a good article on this, which unfortunately is behind a pay wall.  David Dayen summarized its conclusions in an article for Salon.

Last year, Carrier produced a significant chunk of total profits for its parent company, United Technologies.  Of $7.6 billion in earnings in 2015, $2.9 billion came from the Climate, Controls & Security division, where Carrier resides.  Profits from this division have expanded steadily in recent years, which is not what you’d expect from a unit desperate to cut labor costs.

A look at United Technologies’ annual report reveals even more good news: Commercial and industrial products, Carrier’s category, make up over half of UTC’s $56 billion in net sales. Climate, Controls & Security had 3 percent growth in 2015, the highest in the company; it was the only division to increase its profit margin year-over-year.

“Organic sales growth at UTC Climate, Controls & Security was driven by the U.S. commercial and residential heating, ventilation and air conditioning (HVAC) and transport refrigeration businesses,” according to page 14 of the report. In other words, air conditioners – what the workers are making in Indianapolis – drove the growth of the best-performing facet of United Technologies’ business.

So why would a profitable, growing business need to ship jobs to Mexico?  Because their shareholders demanded it.

African factory workers in deepest Iowa

Writer Paul Street reported for Counterpunch on his experiences working alongside Congolese and Sudanese immigrant workers in a Procter & Gamble factory in Iowa.

Here in and around the liberal bastion of Iowa City, a university town where wage-earners’ working class lives are all but invisible to a large local cadre of privileged and mostly white academicians, the lower end of the workplace and the job market – the factory and warehouse positions filled by temporary labor agencies, custodial jobs, taxi drivers, etc. – is crowded with immigrants.

Paul Street

It is chock full of nonwhite people who feel fortunate to have any kind of job that helps them escape danger, misery terror, and oppression in far-away places like the Democratic Republic of the Congo, Rwanda, Sudan, Honduras, Mexico, and Haiti.

Does anyone really believe that Iowa City’s giant Procter & Gamble plant – my low-wage, finger-wrenching workplace between from September of 2015 through February of 2016 and the origin point for many of North America’s leading hair-care products – is crawling with Congolese and Sudanese workers, along with a smattering of Central Americans, Caribbean islanders, marginal whites, Black Americans, and Africans from other states, because P&G (the nation’s 25th largest company and its top consumer packaged goods firm by far) is nobly committed to racial and ethnic diversity and a world without borders?

Of course it isn’t.  P&G reserves its better paid and more “skilled” and secure “career” production jobs almost completely for non-Hispanic whites.  These “plant technician” jobs require no more than a GED (high school equivalency) degree and start at around $20 an hour.

Street said P&G relies on Staff Management / SMX, a temporary help agency, to provide its lowest-paid workers.  They get $10 to $11.85 an hour.  SMX gets an additional fee—Street heard that it was $6—on top of that.

The work includes filling boxes on rapidly moving assembly lines with shampoo, conditioner and mouthwash bottles, building and wrapping pallets at the end of never-ending packaging-assembly lines, putting stickers on one shampoo or conditioner bottle after another, and more and worse.

It’s all performed in exchange for inadequate wages (far lower than they ought to be thanks to the SMX rake-off) and at constant risk of being sent home early and without warning since there’s often “no more product today” (that’s called “labor flexibility” and it’s no small problem for workers who already paid for a full day’s worth of child care).

He himself quit because, he found after five months of pulling apart tightly glued boxes, he could no longer clench and un-clench his fists.  The function in his hands returned after a week off the job.

Les Leopold on runaway inequality

I grew up and spent my early working years in the golden age of capitalism, which was from 1945 to 1976.  Almost anybody—as least, any white American man—who was willing to work could get a decent job sufficient to support a family.

Then a lot of things turned bad as once.  Worker pay no longer kept pace with productivity, but the pay of CEOs and wealthy investors grew much faster.   Manufacturing declined and high finance expanded.  Hourly wages declined and debt increased.  What went wrong?

I recently finished reading a book, RUNAWAY INEQUALITY by Les Leopold (recommended by my e-mail pen pal Bill Harvey) that explains what happened as well as anything I’ve come across.

He blames America’s current woes on the adoption of what he calls the Better Business Climate model of economic policy.

This model is based on the argument that the key to economic prosperity is economic growth, that economic growth depends on investment, and that investment depends on business profitability, and that the way to increase business profitability is lower taxes, lower social spending and fewer regulations.

We used to call this Reaganomics.  Now we call it neoliberalism.   Many people thought it was a plausible response to the economic stagnation and high inflation of the late 1970s.  I myself thought it was worth a try (more fool I).  I wouldn’t have objected to making rich people richer if everybody else had benefitted in the long run.

But this isn’t how things worked out.  Instead:

• Wage increases stopped keeping pace with productivity.
• The CEO-worker wage gap took off.
• The financial sector grew at the expense of manufacturing.
• Wall Street profits skyrocketed.
• The income gap between the super-rich and the rest of us widened.
• Corporate debt, consumer debt and government debt rose.

What went wrong?

The case for a global debt writedown

Debt that can’t be repaid, won’t be.
==Michael Hudson

Since the 1970s, every economic recovery has been weaker than the one before.  Michael Hudson, in his new book, Killing the Host, said the reason is that, with each recovery, there has been a greater overhang of debt, which drains resources from the real economy of tangible goods and useful services.

The current economic recovery has been a recovery of the financial markets, not a recovery of jobs and wages of ordinary people.   United States and European Union economic priority has been to protect bond-holders and creditors from loss.

Hudson argued that this is unsustainable.   Either there will be a planned write-off or write-down of global debt, or there will be a financial collapse, like the one that began the Great Depression of the 1930s.  Either way, the debt will be wiped out.

His preference is for what he called a Clean Slate, as was done in West Germany in 1947 as part of a currency reform.  Basically, most German debts were canceled, except for employer wage contracts and bank accounts below a certain maximum amount (since wiping out bank debt means wiping out bank savings).

This, together with tax reform, the lifting of wage and price controls and the 1953 forgiveness and restructuring of German public debt, made possible the German economic miracle.

As Hudson admitted, this is pretty strong stuff and unlikely to be accepted.  An alternative is the enforcement of an old New York law, going back to Revolutionary times, against fraudulent conveyance.  This means that a debt is void if the lender knew in advance that it couldn’t be paid back.

If Snidely Whiplash lends money to Mrs. Innocent Goodbody, a poor widow living on Social Security, with her $250,000 house as collateral, with the expectation she won’t be able to keep up the payments and he’ll be able to foreclose on the house—that’s an example of “fraudulent conveyance.”

This applies to the subprime mortgages and “liar’s loans” prior to the 2008 financial crash.  Another concept, “accounting fraud,” applies to the bad loans that were given high debt ratings, securitized and sold to the unwary.  Canceling debt originating in fraudulent conveyance and accounting fraud would have a huge impact.

Hudson said that home mortgages could be scaled back to what is necessary to amortize a property based on its assessed value.  Or mortgages could be scaled back to 25 percent of the borrower’s income, which is what conservative lending practices require in the first place.

Congress in fact authorized a program to do just that as part of the 2008 bank bailout.  But Timothy Geithner, Obama’s Treasury Secretary, declined to implement it.

All this disrupt the financial markets and the economy generally, but Hudson wrote that it would clear the way for a good economic expansion, based on investment in the real economy, as happened in Germany.

Anyhow, he wrote, the alternative is more foreclosures, more economic hardship, more government bailouts until it becomes absolutely clear that that the debts are unpayable.   In the end, debt that can’t be paid, won’t be.

The assumptions and logic of neoliberalism

There is no such thing as society.  There are only individuals, and their families.      ==Margaret Thatcher

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Neoliberalism is the philosophy that economic freedom is the primary freedom, economic growth is society’s primary goal and the for-profit corporation is the ideal form of organization.

It is the justification for privatization, deregulation and the economic austerity being imposed on governments by lending institutions.

What follows is my attempt to understand the thinking behind neoliberalism.  I welcome comments, especially from those who think I am wrong or unfair.

Government is by definition coercive.  All governmental authority is ultimately backed by armed force.  The role of government should be limited to protection of life and property and enforcement of contracts.   

Private enterprise is by definition free choice.  Privatization by definition increases freedom.  All income deriving from the private sector, and not involving force or fraud, is earned income.

Most people are good judges of their individual self-interest and bad judges of the common good.   People generally make good decisions as consumers and poor decisions as voters.  Consumer choice is more meaningful than the right to vote.

Free markets, though the law of supply and demand, coordinate individual choices without the direction of any particular people or group of people.  The free market is more impartial and just than any system of planning or regulation could be.

A capitalist dictatorship that protects property rights is better than a socialist democracy that attacks property rights.

Economic growth is the key to increasing economic well-being.  Growth is produced by capital—that is, by investment in machines, factories and other human-made goods that generate new wealth.  

In a free enterprise economy, capital is invested by private individuals based on the law of supply and demand.  Whatever diminishes the ability of individuals to accumulate wealth or respond to the signals of the free market diminishes capital and retards economic growth.

Money spent on welfare and charity may temporarily alleviate distress, but it will not cure poverty.  Only capital investment and economic growth will do that. 

Capital investment and economic growth should take precedence over public education, public health, the environment and other so-called pubic goods, because they are the means of generating the wealth that pays for the public goods.

Banks, investment firms and financial markets are the key institutions of society.  They must be preserved in order to support investment and economic growth.

Monetary obligations are absolute.  Any person, organization or government that borrows money has an absolute obligation to pay it back, no matter what the sacrifice.  People who don’t repay their debts or fulfill their contracts are parasites on the system.

Inequality is a good thing.  To break up accumulations of wealth that have been acquired by legitimate means is not only unjust because it destroys the just reward for achievement.  It destroys the capital by which new jobs and wealth are created.

The international record of neoliberalism

‘Debt that can’t be paid, won’t be’

The world’s peoples and governments, including us Americans, collectively owe more money than ever can be repaid.  How we got to this point and what it means are the topics of a book I finished reading last week, KILLING THE HOST: How Financial Parasites and Debt Bondage Destroy the Global Economy by Michael Hudson.

Classical economists distinguished between earned and unearned income, between hard-working laborers and merchants and what they called “rentiers,” people who “got rich in their sleep” by collecting income from land or financial assets.

They condemned what they called “rent-seeking,” which was the attempt to set up as toll-keeper for some part of the economy.

A great deal of 18th and 19th century economic thought was devoted to how to shift income away from landlords, monopolists and holders of financial assets, and into the hands of those whose efforts created real wealth.

In his book, economist Michael Hudson told how this distinction came to be forgotten in the 20th century, and what followed.

Operations of finance, insurance and real estate sector of the economy came to be regarded as equivalent to the production of actual goods and services, and the bidding up of prices of financial assets came to be regarded as equivalent to increase in real wealth.

All income came to be regarded as “earned” income.  The result is that more and more of the economy consists of the transfer of wealth from the real economy to the financial sector, but our economic blinkers keep us from seeing it.

There are many ways to increase financial wealth without increasing real wealth.  Corporations that use their profits to buy back stock increase the stock price and enrich shareholders, for example.  But unlike investment in machinery, research and development or new products, stock buybacks do not make the corporation itself more valuable or more viable.  Rather they drain the institution of needed resources.