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Renegade Economists October 1, 2014: DOUBLETHINK TANKS, TAR SANDS, WATER & IMPERIALISM.
Karl Fitzgerald: This week on the Renegade Economists we’re joined by Professor Michael Hudson, the author of The Bubble & Beyond, Super Imperialism, and a host of other books. You can read his work at www.Michael-Hudson.com. Certainly our favourite guest here on the Renegade Economists and Michael, today we’re going to have a look at the role of think tanks in sculpting the American mind and the public policy that flows from that. What’s your take on the role of think tanks in American economic history?
Michael Hudson: Well, today they’ve become basically public relations organisations and they’re subsidised by groups with political agendas. The first major think thank was in the 1930s and it was a very good one at that time: the Brookings Institution, headed by Harold Moulton. They wrote America’s Capacity to Produce & to Consume which, without being Keynesian, made the same points that Keynes was making about the need for consumer spending and the need for economic revival. And that was really the main think tank one heard about during the 1930s and even the ‘40s.
Later, think tanks began to be formed on the right-wing. A military think tank, the RAND Corporation, was founded in California. Herman Kahn came from there, and then the Department of Defense funded his ideas at the Hudson Institute at Croton-on-Hudson, New York. He was the model for Dr Strangelove. I joined him as the number two man and economist in 1972, just as my Super-Imperialism was published. It proved to be a big hit with the Defense Department in Washington, which used it as a “How to do it” book. My first job was to explain just how America was using monetary imperialism to get a free ride from other countries. Herman said that this was part of the “good news” that he wanted to spread.
Herman and I actually disagreed on almost every policy. We’d go around the country together arguing. He’d talk about the glass being half-full and he said I talked about it being half-empty, but I said, “No, you guys are peeing in it.” So then he talked about the economy being an expanding pie – he was into calculating GDP growth at doubling times to show that in time every economy could become a leisure economy. My job was to ask, “Who’s actually making the pie? And who’s going to eat it?” He didn’t focus much on distribution and polarization of wealth.
I ended up getting a number of the Institute’s corporate customers as clients, because they sensed that my warnings were right with regard to the financial squeeze that was coming. So Herman added Henry Kaufman and Al Wojnilower to a presentation one time, and said that we all shared a central European/Jewish outsiderness doubting that the core would be able to manage the economy well. In my case I was a Trotskyist, and Herman cultivated followers of Max Shachtman because he knew we could be trusted to be anti-Soviet. I had no trouble getting a Top Secret security clearance, much to my chagrin.
After the mid-‘70s, right-wingers and left-wingers formed their own think tanks. The left-wing think tanks were not very successful. The right-wing think tanks had much more money, especially from the Koch brothers. First was the American Heritage Foundation in 1973 by the beer brewer Joseph Coors and a few other extremists. Their aim was to fight against everything that most Americans stood for – equality, democracy and freedom from oligarchy. Then, in 1974, the Koch brothers established a propaganda institute named after a Roman hero, Cato, to help establish a right-wing oligarchy by fighting democratic government in the name of “personal liberty.” I’m told that the Koch Brothers made a fortune by extracting oil without paying from the native American reservations, so that’s basically their idea of what liberty is all about – a denial that there’s any such thing as crime or a free lunch.
Karl: Yeah, I was surprised to see that Charles Koch founded the Cato Institute, which here in Australia has quite some influence.
Michael: It was originally the Koch Institute but then he thought, instead of naming it after himself, to get prestige he’d name it after a mythical Roman farmer who was very patriotic. Of course, Koch isn’t really patriotic at all. He wants to abolish the existing government and turn it over to him and his cronies to create a kleptocracy, much as neoliberals have done in Russia which is now the basic libertarian model – just the opposite of Cato. So if you’re going to dismantle government and privatise it and turn it over to the kleptocrats, of course you want to name it after someone who’s a great patriot and wants to do the exact opposite.
Karl: And listeners, if you ever need motivation on why you should continue studying in this sort of area, the topics that Michael and I talk about, go to the staff page for the Cato Institute and have a look at some of those cheesy mug shots there. It’s probably some of the best motivation to say hang on a minute, these aren’t the sort of people I want sculpting public policy. And the size of some of these institutes and the staff they employ, I mean, Cato is one of the small ones at probably 100 staff members there, but the RAND Institute you were mentioning before, that has 1,700 people working for it.
Michael: That’s largely in national security issues. It was formed essentially to advise the Defense Department. It was there that Herman Kahn wrote on thermonuclear war. His principle was if there is a thermonuclear war, some people will survive. That’s why Dr Strangelove made such fun of the sort of Kahn/Kissinger figure of Peter Sellers saying, “Look, we’ll have caves and we’ll need to have attractive women in the caves to help us breed well”. But Herman said he wanted to be right under the atom bomb. He didn’t want to live in that kind of society, but he said at least you could have a survival. Then he moved to the east coast and formed the Hudson Institute in 1961. However, that later went broke. Many critics got so angry at him for writing on thermonuclear war that he started the Corporate Environment Study. That is the second reason why I was brought in. He wanted to advise corporations as a futurist, but he kept talking about the whole world being very positive and having economic growth. Most people knew that wasn’t going to take place. Interest rates were on their way up, rising to 20% by the end of the 1970s.
The Hudson Institute went broke by the time Herman died in 1983, and was sold to the Lily-Tulip Corporation and other right-wingers in Indianapolis, Indiana – one of the most Bible thumping, right-wing cities in the United States. Hardly anybody I knew there went along, so it became much more right-wing and neo-con. So think tanks do go broke when their job is merely thinking rather than lobbying. Once they’re up for sale, any ideology can buy them and use them as a lobbying organization. That’s really what these so-called think tanks are in today’s world. You could say that their role is to prevent thought, to prevent people from thinking. The aim is Orwellian: to craft a rhetoric to replace thinking with a deceptive set of labels, so that they don’t understand what’s going on. The right-wing institutions that dominate today’s think-tank world (as they do academic economics departments and business schools) promote the fantasy that turning over the government property to wealthy kleptocrats is the way for everybody to get rich. The reality, of course, is robbery. For instance, I had a pension agreement with the old Hudson Institute. The first thing the right-wingers in Indianapolis did was steal the pensions from the former employees, and give it to themselves and other right-wingers. That was their idea of a free market – just as Wall Street and the 1% are scaling back or stealing pensions in the economy at large today. For them, “wealth creators” are those able to take the most from other people, from nature and from the economy at large. In other words, most think tanks have become an arm of the rentier class.
Most think tanks are run by right-wing kleptocrats who want to enable their donors to get a tax deduction. Instead of saying, “Here’s political lobbying” they can get a tax deduction for paying people to pretend to be objective and to give policy papers that are put on the desks of senators and representatives and politicians all over the world. In that sense think tanks are like business schools have become, broadcasting a bland ideology that there’s no such thing as unproductive labour; no such thing as unearned income. Everybody earns what they get, so the 1% actually get their 60% of all the income in America because they’re so productive, as if they’re job creators rather than job destroyers by imposing austerity and debt deflation in an increasingly monopolized economy. The reality, of course, is that they’re reducing jobs by imposing austerity on the rest of society on behalf of the 1%.
So when you look at a think tank you have to say, “What is it that they want me to believe?” They begin with a policy and then reason back to craft a logic that will lead to this policy. This logic usually involves a tunnel-vision, taking for granted the existing unfair way in which the world works. What they think about is not how to make the future better, or to forecast existing trends (which would mean debt deflation, monopoly and economic polarization), but “How do we develop a rhetoric that can make this policy that serves us instead of the people seem good – as if it benefits the population at large?” They’re like politicians, the church or the universities. You can think of the church as a think tank. You can think of universities as think tanks. They’re all representing an ideology.
Karl: Back to your buddy Herman Kahn and the RAND Corporation. How did he see the role of the military in encouraging peace?
Michael: He looked at the world as a Cold War almost abstractly – “us versus them”. In his mind the problem was simply one of “How do you beat the other side,” whoever the other side might be. He was a brilliant military tactician. He was like a fat kid in high school who spends his time thinking about military and tanks. Also, he had a very quick abstract mathematical mind. I remember on one occasion he invited me to dinner with the General who, I was told, had been in charge of killing more than anyone else. Herman said, “You know, there’s one thing: I invite you for dinner, you won’t insult him”. So I thought, “What am I going to do? I can’t insult him”. Then I listened to him and he sounded more coherent than any peace leader I’d met. Herman had said, “Look, we can divide all of Vietnam into canals. We can cut everything into canals and put fences and nobody can communicate and that way we can prevent the country from doing anything”. And the General explained why the Vietnam War had to be lost. It wasn’t a war against communism. Over thousands of years, North Vietnam wanted most of all to be independent from China. American policy was completely miscast. I was pleasantly amazed.
Herman didn’t pay much attention to the politics. There was a song by Tom Lehrer about Wernher von Braun: “I send the bombs go up but don’t care where they come down; that’s not my department, said Wernher von Braun”. That’s what Herman was like. He could think of a tactic without really thinking of it being in the service of good or bad. He was just a very patriotic American – except that his main loyalty was to Israel. When we went to Canada he was not able to get a security clearance there because he said his loyalty was to Israel. I was actually the person who had the security clearance, ironically enough with my background.
Karl: You’re on 3CR’s Renegade Economist, this week with Professor Michael Hudson, author of The Bubble & Beyond, Super Imperialism, and hundreds and hundreds of articles on www.Michael-Hudson.com that are sure to give you a new outlook to life on Planet Earth. Michael, how about the Heritage Foundation? These guys had unprecedented access to Ronald Reagan and seem to have fed into the Bush leadership realm there. What dirt do you have on the Heritage Foundation?
Michael: It’s like the Cato Institute, an ultra-right-wing institute whose party line is that government is the enemy, you have to stop government planning. Of course, every economy is planned by someone or other. If you oppose government planning, that role shifts to Wall Street. The Koch family is rich enough that, essentially, they want to be the planners. Their plan is essentially fossil fuels, oil, and everything that the greens and the left-wing are against. The right-wing of the Republican Party in America has left enough leeway for the Democratic Party under Obama to move hard-right, neo-con and pro-Wall Street. And Obama, as you know, is supporting the tar sands in Canada, which are the dirtiest source of oil in the world.
The first large contract I worked on at the Hudson Institute in 1973 and ’74 was on the gasification and liquefaction of the tar sands, for ERDA, the Energy Research Defense Agency. They asked the Hudson Institute to do an economic analysis. I found that in the analysis the government gave me, they had the price of water at zero. Of course, oil gasification makes gas out of water, and this is much more the case for the tar sands. This drive went on into the Carter administration. Herman and I went to the White House and it was explained to me, that this was the whole idea of tar sands. The aim is to use so much water that it creates a drought in America. The drought was seen as doubling or quadrupling grain prices. In essence, the idea was for America to pay for higher priced oil with higher priced grain. This would support the balance of payments enough to finance U.S. military power throughout the world. In the process, of course, it would starve as much as a quarter of the population of Africa and Latin America.
Today’s gasohol is having this effect. It is diverting farmland away from food production to gasohol. In the process, it is driving down the world oil price, and thus hurting Russia’s balance of payments, while increasing food export prices for the United States. American foreign policy has almost always been based on agricultural exports, not on industrial exports as people might think. It’s by agriculture and control of the food supply that American diplomacy has been able to control most of the Third World. The World Bank’s geopolitical lending strategy has been to turn countries into food deficit areas by convincing them to grow cash crops – plantation export crops – not to feed themselves with their own food crops.
I made a write up of coal and tar sands liquefaction based on what the water really would cost. They never released my original report. The government re-wrote it, putting in the price of water at zero cost. Just like in the case of atomic energy for power, they treat atomic waste as having no cost, as if you can just dump it in the river – meaning in practice that you pay a lot of money to the mafia and they dump it in the river.
Karl: Yes, and same for the access to water through the Artesian Basin here in Australia for the uranium mining, they use thousands and thousands of litres of water each day at no cost. So Michael, that’s staggering to hear some of these stories, but worse yet is just the state of democracy around the planet and the fact that politicians have to pawn their policies to pay for advertising on what was once known as the “public airwaves”. Now, I was surprised to see recently that some 95% of US candidates are decided by whoever has the most campaign contributions. That is a pretty harrowing level of control the corporate interests have over what should be this fundamental human right.
Michael: Well, that’s what democracy is Karl: democracy of money, $1 per vote. Just as it was in Rome. The richest citizens were able to vote first. If you look at the Roman constitution it was biased in favour of wealth. Essentially, democracy means every person has an equal ability to finance the candidate of their choice and whoever raises the most money buys the most TV time, gets to present themselves in the biggest rhetorical hit to the population at large. We’re in a celebrity culture and neither party really is talking much about economics. They’re talking about cultural issues primarily, family issues, ethnic issues, sexual preference, but the one thing left out of account is the economic dimension. Only the right wing seems to be talking about it. As you’re seeing in Europe, French and other right-wing parties are gaining votes because the left has agreed not to talk about economics, but left that to the central planners on Wall Street or the city of London or Frankfurt. Herman found this already in 1972, when only the “Southern cracker” George Wallace was talking about the real economic issues. He was shot.
Karl: There seems to be a new US trend where corporations are setting up their own teaching streams through universities that they fund and are training students into their particular processes, so when they graduate they go straight in the system, they already know the invoicing, they know the project management software, they know their management standards.
Michael: This may be in some schools, but it’s not in most. For instance, in economics, which is my field, it was hard to get a job. Even in the 1960s when I got my degree, corporations said they only valued an economics PhD because it showed that the prospective employee was willing to work very hard, and if they’d work hard for something as silly as an economics PhD, they’d work hard for anything the corporation wanted them to do, and would say anything that in order to get ahead, because that’s how they had to get their economics PhD. You’re talking more as if there’s a technical school going on, and I haven’t been following that.
Karl: Yes, well, it’s a new development so we’ll keep our eye on that because it sounds like another layer of blinkers to keep on students. Michael, it’s interesting that the poor have been convinced that it’s more within their interests to vote along the racist-type line with this new sort of far right angle than to vote along their economic interests. The think tanks have been very good at sculpting these sort of values to come through their various press releases and the memes they develop through society.
Michael: Well, most of the poor people don’t vote. There’s very low turnout and the Republican Party in America is trying to make sure that even if they try to vote, they’re not permitted to, because it’s requiring all sorts of public identification. In order to get it, there’ll be a police record searched, there will be a search for fines, anything from jaywalking to jail fines. There’s been an intimidation against the poor, on the ground that they may not vote in the right way. Of the poor that do vote, they tend to watch Fox News. I guess that’s the equivalent of your Sky News in Australia. This is ultra-right-wing. It presents a right-wing economic platform of individualism as if it were somehow democratic and populist. Populism has always been right-wing economics wrapped in a left-wing kernel of personality. Most electioneering in the United States is personal attack on the opponent. The question is, who can you attack more? Very much like the American legal system in court: The aim to discredit the witness or the plaintiff. Insurance companies, for instance, try to defend themselves by discrediting claimants, asking the jury, “Should this person, whose life we’ve just shown you isn’t very nice, really get paid for the insurance he’s taken out?”
The idea of politics here is to discredit any candidate on the other side. I learned this when I was in my 20s. The Catholic Church was funding my early critique of American foreign aid as being imperialist. I asked whether they thought I should go into politics. They said, “No, you’d never make it”. And I said, “Why?” and they said, “Well, nobody has a police record or any other dirt on you.” I asked what they meant. They said, “Unless they have something over you to blackmail you with, you’re not going to be able to get campaign funding. Because they believe that you might do something surprising,” in other words, something they haven’t asked you to do.
So basically throughout politics, on both sides of the spectrum, voters have candidates who are funded by backers who have enough over them that they can always blackmail. But then the other side gets this blackmail. For instance, when President Clinton was being impeached the Koch brothers, I’m told, went to the Democratic Party and said, “Okay, look, we will drop the impeachment against President Clinton if you will let us drop your law suit against us for stealing $5 billion and basing our fortune on the oil that we’ve illegally stolen from the Navaho and the other Indians”. So Clinton is reported to have said, “Okay, I get to screw my interns and you get to steal the oil on the Republican side”. That’s how politics are done over here.
Karl: Michael Hudson, that’s quite a story. Change is finally occurring in the global macroeconomic agenda with Janet Yellen, Federal Reserve, indicating that interest rate signals will change in the near term, so it looks like next year interest rates may start to increase in America. That’s leading to some very interesting developments in the bond market. What are you seeing play out?
Michael: Nobody can tell. You just had Bill Gross leave the largest bond fund, the Pimco bond fund, because he said that he didn’t think the Federal Reserve was going to be able to raise interest rates on a 10 year bond over 2%. He lost money because a lot of other funds have made money gambling on corporate junk bonds that are yielding about 6.5% now. He said, “Look, there’s a great over-extension in the junk bond market, they’re going to go down”. So he played it safe, put his money in two-percenters and basically was forced out because he didn’t make as much money as the people who were saying, “Maybe we can make another year’s profit off our junk bonds, more than the Treasury can pay”. So there are billions of dollars on every side. It’s a gamble, and nobody really has a clue.
Karl: Do you think what Gross was saying – and I knew there was some serious politics behind him resigning there – is that interest rates are dead in the water as a housing market tool? Peoples’ debt levels are so high now that here in Australia once interest rates start increasing, which is not far away, this is going to put incredible stress on families and who knows what sort of debt defaults will result?
Michael: Has the suicide rate gone up yet?
Karl: I haven’t been checking that metric Michael, no.
Michael: There’s a basic rule: you don’t know how far you can push somebody until you actually have a reaction. So they can continue to indebt Australians more and more, they can continue to tighten the screws. Until there are suicides and people going postal and being violent, you don’t how far you can push them.
Karl: Well, we do live in a very lucky country here and they call it the “great Australian economic miracle” is struggling along, we’re now in our 22nd year I think since we’ve had a recession.
Michael: I don’t think you’re lucky at all. The person who told me they were lucky was a Central Banker in Australia who said, “We’re lucky because we live right near China and we can export iron ore and other raw materials”. But he also said, “We’re so lucky that we don’t need industry” and he confided to me, “In fact, we really don’t need employees. We don’t need industry, we don’t need employees; all we need is iron ore,” that is, to make a big hole in the ground. If you think that’s lucky then 90% of the Australian population should either emigrate or expect to be financially squeezed.
Karl: Yeah, well, we do have good education, good health, a strong democracy. We’ve learnt from some of the mistakes of other nations so that we do have things like compulsory voting, so people are at least encouraged to pretend they have an interest in politics on some front or another.
Michael: So you get to choose between “yes”, “yes please” or “yes, thank you”?
Karl: That’s right, yeah, Tweedledum, Tweedledee. But we’ve got record debt to GDP levels now and one of the trends that I’m always tracking is the level of investors in the land game, the housing market. And in your excellent book The Bubble & Beyond you remind us how rent is now for paying interest. What we call interest-only loans here account for some 60% of all investment loans. All speculators need do is pay the interest, and then they pay off the principal when they flip the property in a couple of years. So Michael, how are these interest-only loans playing out in America and around the world?
Michael: There haven’t been that many interest-only loans here anymore. Also, there are not many 100% loans either. Banks are insisting on larger down payments, and higher incomes by buyers, with no fictitious income statements like the “Liars’ loans” which mortgage brokers filled out. (The “liars” in question usually were the bankers and their brokers, rarely the hapless borrowers.) So they’re becoming much more conservative in the United States.
The problem with interest-only loans when you’re not paying down the principal, is that if and when real estate prices go down, the debts remain in place. The home owner is left with negative equity. In America you’re allowed to walk away from the property and leave the bank holding the property and absorbing a loss on the loan. But I think in other countries, maybe Australia, if you walk away you still owe the money, so the debt will follow you for all of your life.
Karl: Yeah, that’s right, that’s one of the big stressors we have here for sure. And these higher down payment rates you’re talking about, some people are calling it the next big thing in terms of public policy and that’s this macroprudential policy. There are various ways to do it, but one of the ways is to ensure that there’s, for example, a 20% deposit before people can access a housing loan. Do you see much validity in such a policy as a way of pulling out the speculative heat?
Michael: In principle, it makes sense. In America what happens is the banks that would make the mortgage, they’d say, “Okay, we’ll lend you 80% as a mortgage loan and we’ll give you 20% as a personal loan”. So a lot of buyers would buy the property with a personal loan to make up the 20% down payment. So the banks can get around it. The big thing to remember is that it’s the banks that are the crooks, not the borrowers.
The banks are trying to get around the regulations. You have to be willing to throw the bankers in jail for cheating, and make a law saying that if a banker makes a loan to a property without knowing how the borrower can pay back the loan, the loan is declared fraudulent and is annulled. You have to have a fraudulent conveyance law to prevent predatory loans enabling a bank to say, “Okay, here’s an interest only loan. We know you can’t pay it, but we don’t care because we’ll get to claim whatever you had for all your life. And if everything goes wrong, we’ll tell the government you have to bail us out because otherwise we go broke and we’ll starve the economy of credit and there won’t be any more cash in the ATM machines”. That’s essentially what the American banks did in 2008.
So you have to have some way of controlling the banks. I don’t see any group in Australia that’s really talking about this.
Karl: I agree Michael, more needs to be said on this topic. But my concern with macroprudential is that it will lock out first home owners even further and enable those who already have capital to provide that 20% down payment, so they’re the ones who get the loans and not those who are scraping together their two-bobs to access a housing loan. So that’s my concern with macroprudential is that it’s another sort of diversion from looking at the serious issue of distribution and taxing these rentier gains, these immense capital gains that occur from ownership of any portion of the earth.
Michael: Well, in order to make a judgment on what you said, one would have to know how much it costs to rent a home or a place to live, compared to how much to buy it. In America, in many cases it’s much cheaper to rent. Many people prefer to rent, because they want to avoid buying an over-priced property and then taking a big loss. They would rather rent and wait for the prices to come down. A lot of people are still doing that.
Karl: Yeah, well that’s certainly the case here in Australia, but the problem is investors are basically pushing renters out every couple of years as they flip the property. The new price that the next greater fool has agreed to is so high that the current renters have little capacity to pay a rent that gets even close to justifying the new purchase price. The norm is that new renters are ushered in, people who have no idea what the past renters were paying. This is a way to keep under wraps the impact of rent as a secret tax the wealthy charge the poor. So there’s problems with renting, it’s hard to find a long term rental agreement.
Michael: Oh, what’s long term? In New York the leases were usually two or three years.
Karl: Yeah, well, I wish you could get that. You basically become month-on-month after you’ve been there a year or two. You can’t get a six or seven year lease, like you can in Germany.
Michael: That’s crazy.
Karl: Hmmm. Now, what about these Rental-Backed Mortgage Securities, Michael? Are you tracking those yet?
Michael: They’ve not really taken off yet. Essentially, the worry is it’s another junk mortgage bubble and nobody can really tell.
Right after the 2008 crash a lot of hedge funds got into the real estate market and bought up all these properties that were being foreclosed upon in places like Charlotte, North Carolina. Interest rates went all the way down to about 1% and 1/10th of a percent on government bonds, so the hedge funds said, “Look, we’re going to buy property for all cash. We’re not going to debt leverage. We’re going to do exactly the opposite of debt leveraging. We’re going to buy all cash properties and get rent and make a much higher rate of return”. They’ve done that. And they bought so many foreclosed properties from the banks, buying them literally by the hundreds at a time, that now they say, “Okay, now we’ve bought out these properties, the property prices have gone up largely because we’ve bid them up by buying them. Now let’s cash out, we’ve made all that we can make on the rental income. Now let’s go public and cash out and sell it to the investors and leave them holding the bag, and take our money and run”.
Karl: Well, I’m going to be interested to see what happens because from what I’m reading here it’s still booming ahead and the returns are immense, some 25% return year-on-year when you include the economic rent with the extortive rents they’re charging. So I think it’s only just beginning and this really worries me, because we’re going to see the corporatisation of the rental market as well as the mortgage market and that’s something that may well be the next tier in this neo-serfdom era.
Michael: I think that’s right. You’ve put your finger on it, the corporatisation of rents. In the past most rental properties were run by either mom or pop or by maybe real estate corporations, but now that they’re issuing stock they’re becoming a very large absentee owner block.
Karl: Michael, there seems to have developed a minimum wage sense of competition between Seattle and California, and probably into other states now, where the push is on to raise minimum wages. Isn’t that a good thing for property investors throughout America?
Michael: Well, that’s a good thing period. The question is what’s going to happen to the recipients of the minimum wage? Are they going to be able to use it to stay out of debt? What are they going to use it for? Are they all going to simply have to pay it in higher rent and higher living costs or are they going to use it by keeping their current living standards and simply paying off their credit cards? It’s just beginning here so one doesn’t have a clue. But I think so many families in America are one paycheque away from homelessness. Even if they’re home owners, they’re one paycheque away from missing a mortgage payment or even if you miss an electric bill then the rate on your credit card goes way up because you’ve become so-called “more risky”.
So people are absolutely strapped here, and I don’t know what they’ll do with the minimum wage. Right now many people who get minimum wage also get public assistance. So if you work, for instance, in a hamburger joint, you’re also allowed to get food stamps and to get public aid. The public is subsidising the low-paying industries. So we don’t know whether a higher minimum wage will just mean they don’t get food stamps anymore. There are so many different ways this can turn out.
Karl: Michael, I’m surprised to hear you, one of the world’s leading economists, say you don’t have a clue on a number of these issues what’s going to happen. Is that because you’re wary of what these think tanks will roll out as a way to continue to push public policy in favour of the rentier interests who make so much easy money through the various monopolies?
Michael: Well, they’re all pro-rentiers. The question is at which point does the rentier strategy become self-defeating? There are what we call inner contradictions and so many things are right near the breaking point that you can’t tell just when the breaking point will come – until there’s actually a break in the chain of payments. That may be some big fraud somewhere, it may be a bankruptcy, it may be an insolvency. There’s no way of knowing. But everything is stretched so thin right now that there’s an enormous amount of money going into government bonds, short term bonds that pay only 1/10th of 1% interest because the big money can’t decide what’s happening. The big investors are getting out of the stock market in this country and it’s the small investors that are getting in. When the small investors and the Canadians get in, you know it’s time to bail out. So there must be some reason all the smart guys are bailing out.
Karl: Michael, if you were to give our listeners one piece of homework, what would it be?
Michael: Homework? Well, you know how self-interested I am. I’d say I’ve tried to outline these ideas in my book The Bubble & Beyond and the other book, Finance Capitalism & Its Discontents and Super Imperialism. I write books trying to explain how to think about the economy, in a way that’s alternative to the mainstream status-quo economics sponsored by the think tanks and academics we mentioned above.
Karl: Well, it’s such an interesting manner you write, I implore listeners to pick up The Bubble & Beyond. Michael, thanks so much for joining us on this extended Renegade Economist interview.
Michael: Thanks a lot. I’ve talked to the publisher and I think in about a month my book should be available in Australia through Amazon.
Karl: Fantastic buddy, excellent mate. Now, I just wanted to tidy up, there was one section there where you were talking about visiting the White House and the price of water.
Michael: They wanted totally deprive agriculture of water to create an artificial drought in order to use the water to make gasohol and liquefy the tar sands instead of growing crops. That’ll lead to a crop shortage and that will lead to much higher priced crops and that will lead to much better balance of payments of America.
Karl: That comes back to this sovereignty over our resources and the ability to look after ourselves that an effective tax system with low land prices enables.
Michael: Well, even if you have sovereignty over your resources, if you decide I’m going to make more money by growing gasohol instead of crops, even more money by making plantation export crops and sugar instead of feeding ourselves, then you’re going to be in danger of America saying, “Well, we don’t like what you’re doing politically, so we’re going to stop our crop exports to you and you have a choice: you can either join NATO, our strategy, or you can starve”.