[Peace-discuss] J is for Junk Economics

[David Green]

 Transcript of 5 interviews, total about 1 hour, The Real News Network:
SHARMINI PERIES: Michael, so your book reminds me ofRaymond Williams' key words, "It was an incredible contribution tocultural criticism, a criticism of society and cultural studies as adiscipline." And I think it is going to make a phenomenal contribution tothe field of economics, your book, and it would be a reference for people to goback, especially students to go back, and look at your version of thedefinition of these terms and looking at economics from that critical prism.So, my first question to you is really about this book. Why did you write it?MICHAEL HUDSON: Well, I originally wrote it as anappendix to a book to have been called, "The Fictitious Economy," andthe book was written before the 2008 crisis. And my point was that the way theeconomy is described in the press and the way that it's described in Universitycourses has very little to do with how the economy really works. And in a way,the press reports and the journalistic reports of the economy are... use aterminology that is very well crafted euphemisms to conceal how the economyworks. So, instead of giving key words to explain what'spositive and how to understand the economy, which I do do, I also discuss allof the misleading vocabulary, the Orwellian double-think that is used by themedia and by the bank lobbyists and the corporate lobbyists to confuse peopleand make them think that poverty is wealth and to make them act against theirown interests by drawing a kind of picture of the economy as if it's a paralleluniverse. And this is parallel universe language they use and ifyou can make people use a vocabulary and concepts that make it appear as ifwhen the 1% gets richer, the whole economy is getting richer, or when GDP goesup, everybody is improving, then the people, the 95% who did not improve theirposition from 2008 to 2016 somehow will suffer from the Stockholm syndrome.They'll think, "Gee, it must be my fault. If the whole economy is growing,why am I so worse off? It must be my fault. If only we can give more money tothe top 5% or the 1%, it'll all trickle down. We've got to cut taxes and helpthem so they can give me a job because as Trump and other people said, Well, Inever met a poor person who gave me a job." But the problem is, I've met a lot of rich people andinstead of giving people jobs when they buy a company, they usually get moneyto fire people, downsize and outsource. So, the problem is you're not going toget rich people giving you jobs either. But if people can somehow think intheir mind there's an association with... between wealth at the top and moreemployment, and you have to somehow cut the taxes on the wealthy, because it'llall trickle down, then they have an upside down view of how the economy works. Well, I'd had an appendix to the book and that sort oftook on a life of its own. Everyone said look, you've got to have thisdiscussion, because if you have a vocabulary that actually describes how theworld and the economy works, then people can go, just one word lead to anotherand you build up a more realistic picture of the economy. So, I not onlydiscuss words and vocabulary, I discuss some of the key individuals and the keyeconomists who've made contributions that don't appear in the academic curriculumat all. There's a reason that the history of economic thoughtis not taught anymore in the universities. If people really read what AdamSmith wrote and John Stewart Mill wrote, they'd see that Adam Smith criticizedthe landlords. Said, you've got to tax away. It's a free lunch. Mill said rentis what landlords make in their sleep, without working. Adam Smith said,whenever businessmen get together they're going to conspire as to how to getmoney from the public at large and how to do a deal and mislead people.This is not exactly the kind of free enterprise thatpeople who talk about Adam Smith as if he were a tax cutter, an Austrianeconomist or a Neoliberal want to hear. So, it's really a book about realityeconomics and I've found to discuss reality economics I'm not going to givethem the language or the methodology that they use. That everything is anequilibrium and if you think of the economy as always being an equilibriumsomehow you think that if you're poor, or you can't pay your debt, or you haveproblems sending your kids to school, that's part of nature. And there isn't analternative. And that was what Margaret Thatcher said, "There is noalternative." But this book is all about of course there's an alternative.But to make an alternative, you need an alternative way of looking at theworld. And to do that you, as George Orwell said, you need a differentvocabulary.SHARMINI PERIES: And speaking of vocabulary and ofcourse, euphemistic economic concepts, and that's what's so unique about thisbook, because it's not just the words, like in Raymond Williams' but it's alsoabout the theory and the concepts that we are tackling, and you also talkedabout businessmen and how they use these terminologies in order to mislead us.So, here we have a businessman in office, as President of the United States,who is proposing all kinds of economic reforms supposedly in our favor, interms of workers. And you know, the big infrastructure projects that he isproposing that's supposed to elevate and lift people out of poverty and givethem jobs and so on. What is the mythology there?MICHAEL HUDSON: Well, you just used the word reformand when I grew up for a century before, reform meant you unionize labor. Youprotect consumers. You regulate the economy so that there's less fraud inconsumers. But reform today is used by the International Monetary Fund inGreece. They're insisting Greece to reforms. What's the reform? You lower wagesby 10 or 20%. You cut back the pensions by about 50%. You stop paying pensions.You stop social spending. So, what you've had is an inversion of thevocabulary. Reform now means the opposite of what it meant early in thecentury. It's no longer Social Democratic. It's right wing, anti-labor,pro-financial reform to basically cutback social spending and leave everythingin a privatized way to the wealthy, to the corporate sector. So, reform is the very first word that I'd use thatyou have to realize how the meaning has changed as it's used in the press.Basically, what the right wing has done in this country is take all thevocabulary that was developed by the left wing and by the labor movement and bythe socialist economists for a century and they've appropriated it and hijackedit and turned it into meaning the opposite. So, there are 400 words that I dealwith and many of these words show how the meaning has been turned upside downto get people to have an upside down view of how the economy works.SHARMINI PERIES: Alright, there's so much more tounpack here, but we're going to do this in short segments for social media andother people that are watching our conversations. And this is a series ofconversations we're going to have about your book and the misleading conceptsin it. So, Michael, let's continue in segment two. SHARMINI PERIES: So Michael, now one of the thingsthat you really try to tackle in this book is, of course, the euphemisticconcepts of economics, and Trumps economic plan has focused on infrastructureinvestment, as one of its key plans for the economy. And of course, he saysthat this will create a better business climate, and create good jobs. What doyou think of that?MICHAEL HUDSON: Well, everybody is in favor ofinfrastructure, and if you look, since the very beginning of civilization, withthe Pyramids, and the Temples, and the city walls, most of the capitalinvestment in every country of the world, even today, is in infrastructure.That's why the banks, and the corporations, and the rich people, want toprivatize it, because if you privatize it, then this is like conquering a newcountry. You can take into your own hands, for your own profit,the largest capital investment there is, what used to be in the public domain.The roads, the railroads, the airline companies, the water and sewer systems,everything that people need, the schools -- you can somehow privatize, andinstead of providing them to the economy, to make the economy operate at alower cost, you can make people pay two or three times as much. You can vastlyincrease the cost of the economy, without increasing wages, squeeze the livingstandards, and suck up more and more money to the very top of the economicpyramid. So, I do talk about infrastructure in the book, but Ialso talk about individuals. And one individual, in the dictionary that I use,is Simon Patten, who was the first economics professor at the first businessschool in the United States, the Wharton School, at the University ofPennsylvania. And Patten said there are four factors of production.Classical economics talks about three factors of income -- land, labor andcapital. But there's a fourth factor of production, and that's publicinfrastructure. However, the function of public infrastructure, Patten said --and this is the capitalist saying it, this is the business school -- thefunction of public infrastructure, roads, schools, is not to make a profit,like a private investor would do, but to lower the cost of living, and lowerthe cost of business, to make the economy more competitive. So, if a country does what the United States did, andfinance a vast public school system, public education system for agriculturaleducation, low cost roads, low cost transportation, water and sewers, parks,communications -- if you provide all of this either freely, or at least at avery subsidized price -- then you're going to undersell economies that don'tsocialize the means of production. And that's why, Patten said, socialized economies withactive pubic infrastructure, can undersell other economies. Because imagine ifyou're competing with an economy that does what Margaret Thatcher did inEngland. Where you privatize the electric company, everybody's electric ratesgo up, double and triple. Privatize the roads, privatize the airlines, well,the private owners are going to want to make -- first of all, they're going towant to borrow all of the money to invest, and they're going to pay interest onall of this. And they're, usually the rate of return over and above interest bythe privatizers in the United States, they're 12%. That's Romney, and other people, who have hedge funds,that are privatizing. They're going to add all sorts of managerial costs;interest, profits, and they're going to make a capital gain on the stock. Andall of these payments to the private participants, in what's called aprivate-public partnership, all of this is going to vastly increase the cost ofthis infrastructure. And you can look at what happened in Indiana, forinstance, when it built a toll road. The state borrowed money, said we need ahighway, absolutely true. Every state needs highways. And we're going to have atoll, and needless to say, they set the toll so high, to pay the privateinvestors so much money, and so that they could pay the bank so much money. Andthey could pay the stockholders so much money, that drivers in Indiana didn'tuse the toll road. So, there's a clause in the private-public partnershipnow, that if a state lets a private investor build a toll road, you can't buildany other roads. You have to force people to use the toll road. This is not afree choice economy. This is, you want to steer everybody in... You want tomake the infrastructure into a monopoly. Well, the whole purpose of public investment for 100years in the United States was to prevent monopolies. That's why we hadanti-monopoly regulations. That's why America put into effect the anti-monopolyrules. And that's what made America so much more competitive in the late 19thcentury, and the early 20th century. And it was able to undersell Europeancountries, and other countries that followed the private emphasis of publicpartnerships. So, the public-private partnership isn't really a partnershipat all. It's, you socialize the losses, and you privatize the profits, and youturn this infrastructure, instead of society being the benefit of roads,schools, cable TV systems, communication systems. Instead of providing all ofthis technology to society at a low cost, or even freely, to lower, so thatpeople don't have to earn enough wages to pay all these costs. All of a suddenyou raise all the costs. And what this is doing is, squeezing family budgets. For instance, by privatizing healthcare, people haveto pay much higher health insurance in America than anyone else. Because youhave to pay the insurance companies, you don't have monopoly rules against thepharmaceutical companies. You don't even bargain with them, to buy in thecheapest market. You buy in the most expensive market, because they're yourcampaign contributors, and that's what you've promised to do. So, this idea of the way that Trump will try to do aninfrastructure is exactly the upside-down way to do it, the wrong way to do it.It's to make his class rich. And if you're building, say, transportation,you're going to vastly increase the value of real estate, all along thistransportation. If you build new schools, you make the neighborhood moredesirable for people to go. Normally, the whole idea of classical economics was,you recapture all of this value that you've created by pubic investment. Youself-finance it by recapturing it as taxes. That wouldn't be the case withTrump. He's not going to recapture anything. You privatize all the benefits ofthe infrastructure, and his aim is make sure that the population at large getszero benefit from it. That all the benefit goes to the financiers, and thecorporate owners.SHARMINI PERIES: Why are you so apprehensive? I mean,when you... when Trump talks about the cost of pharmaceuticals, for example, hesays the problem is that we don't negotiate the price with the pharmaceuticalcompanies, and he's a negotiator. He's a businessman. So, why shouldn't webelieve him?MICHAEL HUDSON: We should hold his feet to the fire.We should say, "Hey, this is what you said. Nice to hear, but is itrhetoric? When are you going to do this?" And he's going to try to say,"Oh, Congress won't let me, the Republican Congress." But okay,"When are you going to run against these candidates, and supportcandidates who will support what you're trying to do?" So, he'll say,"That's not my department." So, nice rhetoric, nice promise, butwe've already had, how many years of broken promises by politicians?SHARMINI PERIES: Yeah. And also as a businessman, andhaving run the Trump Empire, it seems almost an antithesis, in terms of hisattitude, and approach to business.MICHAEL HUDSON: Well, he's made his business in realestate. And the way that most real estate people make money is by having publicinvestment to increase the value of their real estate. And in one of our shows,we talked about the Second Avenue subway in New York, that's increased thevalue of property all along the Second Avenue subway line. But they did it byraising the price on the subway fares. They did it by raising the taxes in New York City,same thing in Vancouver, Canada, which we also talked about. They're putting avalue-added tax on, to build transportation that's going to vastly increasewhat the landlords own. That's how Trump made his money. So, of course he thinks this is a wonderful way tocreate wealth. Well, it creates wealth for him, but the wealth that he makes iswealth that should accrue to the population as a whole, and it didn't. That'swhy he got wealthy, and the rest of New Yorkers didn't. SHARMINI PERIES: All right, Michael, in this book -- and we're now insegment three -- and we are going to talk about Trump's plan to lower taxes. Hehas said that he would reduce corporate taxes from 35% to 15%. The 35% itselfis a bit of a myth, because I don't think there are too many corporations outthere who do pay the 35%. But he's going to reduce the number of tax bracketsas well, he says, from seven to three. And your myth number 11, which is progressive incometaxes should be abolished in favor of flat tax, is a myth, just one tax ratefor everyone. Does this make any sense to you? MICHAEL HUDSON: It certainly makes sense, if you're amember of the 1%, and you want to avoid paying taxes, and you want the taxes tobe paid by the 99%, makes perfect sense for them. That's their dream. And ifyou want to see where Trump is moving, you want to look at what the UnitedStates neo-liberals did in advising Russia after 1991, when it said we're goingto create an ideal economy. Russia was under the impression that theneo-liberal advisors were going to make Russia as rich as the United States,but what they really did was create a kleptocracy that was virtually tax-free. On the flat tax, where you... the more you compressthe tax rates, the more you untax where the income's really made, at the top ofthe pyramid, most of the income is made by the top 5%, or 10%. And if youcompress the tax rates, then basically, you shift the tax burden much more ontothe lower tax brackets. SHARMINI PERIES: How does that happen? MICHAEL HUDSON: Well, because the vast majority oftaxes are paid by the 10 per... I'll give an example. Since... between 2008 and2016, all of the growth in the American economy, all of the growth in income,was earned just by the wealthiest 5% of the population. So, they got all thegrowth. And 95% of the population didn't grow. Well, if you can get a flat taxor a lower tax, what Trump is suggesting, then this rich 5% that already gotall the growth, will be able to make even more money, and the 95% will be evenpoorer than they were before, relative to the very top. Now, Trump's idea is, well, if we cut the taxes on thewealthiest brackets, it'll all trickle down. But it doesn't trickle down,because what do the 5%, or the 1% use their money for? They lend more money tothe economy at large, they load it down with debt. They make their money bylending to the bottom 95%, or the bottom 99%. And when you give them moremoney, it enables them to buy even more control of government, even morecontrol of the election campaigns. They're not going to spend this money backinto the economy. They're going to spend the money, basically, on buyingmore corporate shares, buying more bonds, spending the money abroad, buyingforeign bonds in foreign companies. They're not going to spend it on thedomestic economy. So, you're going to have just the income that the averagewage earner gets, sucked up. They'll get a little more of the lower taxes, but theplan to finance all of these tax cuts is, you're going to cut back the socialservices, or you're going to privatize the economy, so the workers and thewage-earners, are going to have to spend much more of the income that they geta little bit of a tax break on. Much more on the cost of public services,education, healthcare, and everything else, while the economy basically isderegulated, they'll pay more money for the monopolies; pay more money to thebanks. And it's going to be a redistribution of wealth upward, not downward. SHARMINI PERIES: Now, the seven categories of taxbrackets we have now, hasn't really been progressive in any sense, in the senseof... it might be more than what Trump is proposing, but it really has nottaxed the wealthy enough. Even the Warren Buffetts of the world are saying,"You know, I pay less taxes than my secretary." How does that figurein in terms of your book, and mythologies that we are... forced to buy into?MICHAEL HUDSON: Well, one... the main mythology peoplethink of is, the rich people get wealthy by earning money. But that's not howrich people get money. Almost all of the gains of the rich people since 1945have been capital gains. They've been the increased value of real estate; thestock market has gone up 10%, just since Trump was elected, huge capital gain.Nobody's earned any more. But the stock market has gone up. Since 2008, you'vehad the largest bond market rally in history, as the Federal Reserve floodedthe economy with, essentially quantitative easing, to drive down bond rates...interest rates. When you drive down the interest rates, there's a huge boom inthe stock market. So, capital gains, is how the wealthy are really making themoney. They're not treated as income. That's treated as something else. And inreal estate, you never have to pay a capital gains tax. It's a zero, decadeafter decade, century after century. Because if you sell a property, and you make a capitalgain, but you buy a new property, it's not taxed. If you're a wealthy personwith a trust fund, and you sell stocks, and you make your 10% gains, sinceDonald Trump, but then you buy other stocks, you can avoid taxation. And if youdecide to hold your wealth offshore, in a Panamanian fund, like the Russiankleptocrats do, and more and more Americans do, you don't have to pay any taxat all, because it's not American income, it's unearned income. That's why Apple Computer and Microsoft... that's whythe big information technology companies have so much money abroad. They makeit in Ireland. They have one office, that could be a postal drop box inIreland, and they say that they make all their money there, don't make a pennyin America. The oil industry, the biggest industry, next to realestate is oil, gas, natural resources. Doesn't make a penny. They don't have anincome tax. Rich people actually don't earn anything at all, because if youearn a profit, you have to pay a tax on it. So, it's all about what accountantsdeclare as profit, and this is something that's not taught in academic schools.In the textbooks that people who are in economics,they're not taught how do you avoid paying any income tax at all. But that'swhat an army of tax lawyers, of corporate tax accountants do. And Trump's idea,basically, is to claim that he's shifting the taxes, and making them moredemocratic for the people, but it actually is a vast sucking of income andwealth upward. SHARMINI PERIES: And let's talk about loopholes in thecontext of taxes. I mean, when I earlier said that the 35% that is currently inplace, is hardly paid by the corporations, and you are making reference tothat. But give us some examples of these loopholes, and of course, the issue isalso how to address these loopholes, and if you have any solutions for that. MICHAEL HUDSON: The very worst loophole, is whatDonald Trump has talked about, and he said it's the tax deductibility ofinterest. He said if you let building owners, or if you let corporate raiders,borrow the money to buy a company, and then instead of paying dividends to thestockholders, you'll load the company you take over, with so much debt, you'regoing to pay bondholders. But you don't have to pay... you can deduct theinterest from your tax liability. So, if you pay interest to bondholders, and let's saythe corporate interest rate is, what it was when the process began in the1980s, 50%, you can pay twice as much of your corporate cash flow tobondholders, as you could pay to stockholders, but in the process you load downcorporations with debt. That's what's happened today, is debt leveraging. Now,Trump has said he wants to remove the tax deductibility of interest. That's thesingle most important loophole there is, and if he could do that, that's fine. But I suspect that Trump knows that it's not thePresident that decides the tax policy. It's Congress. And he knows that theRepublicans who he helped bring into power, in Congress, and in the Senate, thelast thing they're going to do, is close the very biggest tax loophole in theUnited States. That is the whole basis for the corporate raider movement, forthe corporate takeover movement, for the financialization of industry, for thereal estate sector, for the oil and gas sector. The last... you're going tohave every lobbyist in the country watering down this loophole. So, Trump is making a promise that sounds absolutelygreat. It's a promise that cannot be done politically, under Congress as it'snow set up. Yet he knows it won't be done. It's an easy promise to make, and hecan then go to the people and say, "Oh, I wanted to help you folks.Congress wouldn't let me." PERIES: It's The Real News Network. I'm SharminiPeries coming to you from Baltimore. I am speaking with Michael Hudson in our studio in Baltimoreabout his new book, "J Is For Junk Economics: A Guide to Reality in theAge of Deception".Thank you again for joining me.MICHAEL HUDSON: Good to be here. SHARMINI PERIES: So, Michael, one of the concepts thatyou deal with is really about balancing the budget, the whole mythologysurrounding that. Which is your myth number 17 where you say, "Governmentbudget deficits are bad. Balanced budgets are good. And budget surpluses areeven better." What's wrong with this? MICHAEL HUDSON: The popular press acts as if somehowthe government balance sheet, the governments act like a family. And just asfamilies have to balance the budgets, governments have to. But this is a falseanalogy because if you spend more than you earn, you can't write an I.O.U. andthen this I.O.U. everybody else can spend as if there's money. You have to, atsome point, pay the I.O.U., usually with interest, to the bank. But that's notthe case with the government. When a government runs a budget deficit it can doso in the way that Abraham Lincoln funded the Civil War, you print the money.And you print the money to pump money into the economy, if you spend it intothe economy. Almost every year until the 1990s, the United States,like every other country in the world, increases the foreign debt by running abudget deficit, by spending money into the economy for infrastructure, forschooling, for roads and this is what enables the economy to grow. This stoppedunder the Clinton administration in the 1990s. At the end of the administrationhe fell for this neo-liberal theory that you should balance the budget and heactually ran a budget surplus. So the government stopped spending money intothe economy. The result was the economy had to depend on somebodycreating the money. If the government doesn't who creates the spending power?Well, the answer was the banks. That Clinton did exactly what he was told to doby the Secretary of the Treasury, Robert Rubin, and said, "Let the bankscreate all the money and charge interest instead of the government creatingmoney just by spending it like the greenbacks were spent." The advantageof the government creating money is you don't have to pay interest and it'sself-financing. The people talked about, look at how large the government debt isand yet this is debt that never has to be repaid. Adam Smith wrote that nogovernment has ever paid its debt. Now, I think it's easier for most Americans tounderstand this by looking at Europe instead of the United States. Europe,under the Eurozone, central banks are not allowed to create money. And as aresult the economies of Europe are all shrinking into austerity. Greece is themost notorious example. Here you have unemployment among youth up to 50%. Youhave the economy suffering in the last five years for the worst depressionsince the 1930s. And yet the government is not able to spend the money tocreate public rebuilding of the economy and the banks won't let them do itbecause they're trying, basically the idea of the neo-liberals who are tryingto prevent the government from spending money is to say, "Well, if thegovernment can't run a deficit then it can't spend money on roads andinfrastructure and schools, they'll have to privatize it." And if we can privatize the economy then we can turnthe whole public sector into a monopoly. We can treat what used to be thegovernment sector as a new financial monopoly. And instead of giving freeschooling we can make people pay $50,000 to get a college education or $50,000to get a grade school education, as you have to if you go to New York privateschools. We can turn the roads into toll roads. We can charge people for waterand we can charge for what used to be given for free under the old style ofRoosevelt capitalism and social democracy. So what this idea that the government should notcreate money is, governments shouldn't act as governments. The governmentshould be Wall Street. Instead of governments planning on how to allocateresources to help the economy grow, Wall Street should be the allocator ofresources and we'll starve the government. And that's what the Republicanssaid. We want to starve the government to a point where it can be drowned inthe bath tub. And if you don't have a government who is going togovern? Obviously the people with the money. It will be Wall Street, it will bethe corporate sector and this claim for a balanced budget is saying, "Wedon't want the government to fund public infrastructure we want it to be privatizedin a way that will generate profits for the owners, interest rates for the bondholders and the banks that fund it, management fees and most of all capitalgains for the stockholders and we will jack up the prices for publicservices." The reason why all of the European countries, all of the UnitedStates and North American countries ran budget deficits for so many years isbecause they want to keep this infrastructure in the public domain, they don'twant it to be privatized. Because the kind of things that government spendsmoney on, roads, railroads, schools, water are exactly the kind of things thatpeople absolutely need and they're the last things that you want to beprivatized. Because if they're privatized instead of the government spending onit, then they can be monopolized. And all of these public spending programs arereally for natural monopolies. And the whole idea of a well-run economy is to preventa natural monopoly. Well, this was not done in Russia and you just have to lookat the disaster of Russia under the neo-liberals, since 1991, the hugeimmigration rates, the shortening life spans, the rise in disease rates, risein drug use, you can see how demoralizing a country is if you can just stop thegovernment from spending money into the economy, causing austerity, loweringliving standards and really putting the class war into business. So what Trumpis suggesting is putting the class war into business, financially, with anexclamation point. SHARMINI PERIES: You talked about the implications ofcutting government spending and, in fact, your myth number 18 deals with this.You say that cutbacks in public spending will bring the government budget intobalance, restoring stability. And you just demonstrated through the Russianexample that this is quite misleading and, in fact, it has the opposite effectand destabilizes the population. So this policy Trump seems to endorse thecutback in public spending -- give us some examples of how this could affectsociety, specifically.MICHAEL HUDSON: Well, you used the word"stability" and this is a kind of slogan to prevent thought. Andthat's what George Orwell said, he didn't use the word "junkeconomics" but he said that's what a double-think is. The function is toprevent thought. Stability is very much akin to the great moderation. Rememberhow economists running up to the 2008 crisis said, "This is a greatmoderation." And what made it moderate? Well, Alan Greenspan went before the Senate Committeeand gave a long talk on what is it that's made America so stable? Well, we nowknow it was the most unstable decade in a century. It was a decade of financialfraud, it was a decade where economic inequality between wealth and the rest ofthe economy widened. And Greenspan said, "What's stable is the workershaven't gone on strike. The workers are so deeply in debt they owe so muchmoney that they're one paycheck away from missing an electric utility paymentand they're afraid to strike. They're afraid even to protest against livingconditions. They're afraid to ask that their wages be increased to reflect theproductivity. What's stable is we, the rich people, my constituency, the fivepercent or the one percent get all of the income and the people getnothing." That is stability according to Alan Greenspan. So when you use words like stability or all of theseeuphemisms that are used are there to make people think that somehow it'sstable is the economy is slowly and slowly squeezed and that's basically whathappened in the great moderation. It was the great squeeze of everything and itwas squeezed, again, because the government was cutting back spending on socialprograms at this time. It was dismantling the whole new deal array of consumerprotection agencies, which also Trump wants to get rid of. The first thing hewanted to get rid of, for example, he said, is Elizabeth Warren's ConsumerFinancial Protection Agency. And he said, "The problem is this, it'strying to prevent fraud and that's limiting choice. Just like we let people goto McDonald's and buy junk food and buy junk sodas and get obese, we have tolet them have the free choice to put their pension funds in Wall Streetcompanies that are going to cheat them." Now, these companies have had to pay tens of billionsof dollars for financial fraud and that's bad because they've had to pay it.And we want to dismantle all of the penalties against financial fraud, againstcheating consumers. Because that's reducing the amount of money that richpeople can get and rich people are what's driving the economy. Well, they'redriving the economy by fraud. I mean, that's the kicker in all of this. So in dismantling the government spending on TheConsumer Financial Protection Agency, The Public News Agencies, The Endowmentfor the Art, you're stripping the economy away and making the American economyjust like what Margaret Thatcher did in England, you strip it away and make ita much less dynamic, much less lively place and, above all, a much poorereconomy. And that is the aim of all of these reforms which mean undoing allwhat reforms used to mean for the last century. So all of these words and thevocabulary that are used in the press all dovetail into each other into afictitious economy so that people think they're living in a parallel universe andare unable to use the vocabulary and the economic concepts to explain just whythe economy is so unfair and why they're getting squeezed so badly and how itdoesn't have to be this way. They don't have to be squeezed. But that requiresan alternative program and an alternative program means recapturing thelanguage to explain what it is you're trying to do. SHARMINI PERIES: So, Michael, on page 260 of your bookyou deal with the issue of social security and it's a myth that social securityshould be pre-funded by its beneficiaries. Progressive economic taxes should beabolished in favor of a flat tax. Just one tax rate for everyone you say. Wetalked about this earlier but let's apply what this actually means when itcomes to Social Security.MICHAEL HUDSON: The mythology is to try to convincepeople that after all, if they're the beneficiaries of social security, itshould be pre-funded. Well, that's like saying that you're the beneficiary ofan education, you have to pay for the schooling. You're the beneficiary ofhealthcare, you have to pay for that. You're the beneficiary of America'smilitary spending, that keeps us from being invaded next week by Russia, youhave to spend for all that. Where do you draw the line? Nobody really anticipatedin the 19th century that people would have to pay for their own retirement.This was viewed as an obligation of society and you had the first pensionsocial security program in Germany under Bismarck. And the whole idea is socialsecurity is a public obligation. There are certain rights of citizens and therights should be after your working life you deserve a retirement. And you haveto be able to afford this retirement and not have to beg in the street formoney. So the wool that's been pulled over people's eyes is to imagine thatbecause they're the beneficiaries of social security they have to actually payfor it. And this was Alan Greenspan, a trick that he pulledbasically in the 1980s when he was head of the Greenspan Commission. He said,"Let's achieve what we need to do in America. We need to traumatize theworkers. We need to squeeze them so much that they will never have the courageto strike. Never have the courage to ask for better working conditions. Let'sreally squeeze them and the best way to do it is to very sharply increase theirtaxation. But we won't call it a tax. Of course it's a tax, but we will sayit's not a tax, it's your contribution to your social security." And nowthis is 15.4% of everybody's pay check. It comes right off the top. WhatGreenspan did was say, "Let's make the wage earners, as a whole, pay thisFICA cut out of their pay check every month, let's lend it to the governmentand now with all of this huge surplus that we're squeezing out of the wageearners there's a cut-off point now." The cut-off is around 120,000. Richpeople don't have to pay for the social security funding, only the wage earnerclass has to. This is lent to the government to actually enable the governmentto say, "We have so much extra money in our budget pouring in from socialsecurity that now we can afford to cut taxes on the rich."So the sharp increase in social security tax for thewage earners went hand-in-hand with the sharp reduction in the taxes on realestate, on finance and on the ... TA(?) part of society. The people who live oneconomic rent, not by working, not by producing goods and services but bymaking more money on their real estate, on their stocks and bonds in theirsleep. And that's how the five percent have basically been able to make theirmoney. So the whole idea that social security has to befunded by the beneficiaries has all been a setup for them to claim now, wecan't afford to pay any of the money because the budget doesn't have enoughmoney. Social security's running a budget and after running a surplus since1933, for 70 years, now we have to begin paying it out, that's the deficit,that's the disaster, we have to begin cutting back social security. What DonaldTrump is saying we want wage earners to have to starve in the street after theyretire. The federal reserve has just published statisticssaying the average American families, 55 and 60 years old, only has about$14,000 worth of savings. This isn't enough. The whole idea is there's been avast looting of pension funds, very largely by Wall Street and that's why theinvestment banks have had to pay tens of billions of dollars of penalties forcheating the pension funds. The current rate of return risk-free is 0.1% ongovernment bonds so the pension funds don't have enough money to pay pensions.So the idea is that what people thought there was going to be available fortheir retirement, all of a sudden isn't. There are so many corporate pension funds that aregoing bankrupt that the Pension Fund Guarantee Corporation doesn't have enoughmoney to bail it out. It's in deficit. And if you're going to be a corporateraider, if you're going to be a Governor Romney or whatever and you take over acompany, you do what Sam Zell did with the Chicago Tribune, you loot thepension funds, you empty it out to pay the bond-holders that have lent you themoney to buy out the company and you say, "I'm sorry there is nothingthere. It's wiped out." Half of the employee stock ownership programs havegone bankrupt. That was already a critique made in the 1950s and the 1960s. In Chile, the Chicago boys, who really developed thisprogram, University of Chicago economists, made it possible for the Chilean whoprivatized and who privatized the social security system, to set aside apension fund managed by the company, mostly they invested in its own stock. Thecompany would then set up an affiliate that would actually own the companyunder an umbrella then leave the company with the pension fund to go bankrupthaving already emptied out all of the pension fund and a loan to be a corporateshell. So it's all a shell game basically for this. Andthere's no social security problem whatsoever. Of course, the government hasenough money to pay social security. That's what the tax system is all about.But if you do what Donald Trump does and you say we're not going to tax therich and if you do what Alan Greenspan did and we're not going to make richpeople even contribute to the social security system, then, of course, it'sgoing to show a deficit. It's supposed to show a deficit when people retired.It was always intended to show a deficit but now that the government actuallyisn't using social security surpluses to make the pretense that you can affordin the budget to cut taxes on the rich, now they're baiting and switching. Soit's basically part of the shell game and explaining that myth is partly what Itried to do in my book.SHARMINI PERIES: And if the rich people don't have tocontribute to the social security base, are they able to draw on it?MICHAEL HUDSON: They will draw social security up tothe given wage that they didn't pay social security on, which is up to $120,000these days. So yes, they will get the little bit but all of the real wealth,the people that make more than $120,000, all that is completely exempt from thesocial security system. What they have done are the rich people who run thecorporations give themselves golden parachutes. And even for the companies that have engaged inmassive financial fraud, the large banks, City Bank, Western Union -- all ofthese have golden parachutes. They still are getting enormous pensions for therest of their lives. And they're talking as if, well, the pensions are indeficit, corporate pensions, but that's because the corporate pensions, for theleading officers, are quite different from the pensions to the blue-collarworkers and the wage earners as a whole, so again, there's a whole kind offictitious economic statistics that are used in the dictionary ismathy-ness(?). The idea that if you can put a number on something it's somehowis scientific and the number you put on is realistic when it really is theproduct of corporate accountants and lobbyists reclassifying income in a waythat it doesn't appear to be income.And somehow taking money out and giving it to therichest 5% and making it appear as if all this deficit is the problem of the95%, that's blame the victim economics. And you could say that's the way thatthe economic accounts are being presented by congress to the American people isa blame the victim economics. That it's your fault social security's goingbankrupt and it's all a mythology of saying we should not treat retirement as apublic obligation just as we should not treat healthcare as a publicobligation. We should have the highest healthcare costs in the world so thatout of your pay check, which is not increasing, you're going to have to paymore and more for FICA withholding for social security, more and more forhealthcare for the pharmaceutical monopoly and the health insurance monopoly.More and more to use public services for transportation to get to work becausethe state is not funding that anymore because we've cut taxes on the rich andso we don't have the money to do it. And you're going to privatize the roads sonow you're going to have to pay to use the road to drive to work if you don'thave public transportation. So you're turning the economy really into what used tobe called feudalism. Except we don't have serfdom, people can live whereverthey want, but they all have to pay to this new sort of hereditary financialreal estate public enterprise class that is transforming the economy.
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