[THS] !!!!! Michael Hudson: The coming economic dystopia

[The Harder Stuff in news and commentary]

http://www.informationclearinghouse.info/article25422.htm

"Bank lobbyists know that the financial game is over. They are playing for the short
run. The financial sector’s aim is to take as much bailout money as it can and run,
with large enough annual bonuses to lord it over the rest of society after the Clean
Slate finally arrives." 

"So what is unfolding is a Social War on a global scale – not the
class war envisioned in the 19th century, but a war of finance against entire
economies, against industry, real estate and governments as well as against labor." 


Euro-Bankers Demand of Greece
The wealthy won’t pay their taxes, so labor must do so.

By Michael Hudson

Riddle: How are the Greek rioters like America’s Tea Party movement?
Answer: Both reject government being taken over by the financial oligarchy to shift
the tax burden onto labor.

May 11, 2010 "Information Clearing House" --  The difference is that the Tea Partiers
have lost faith in government. This is just what the financial oligarchy wants, of
course. Giving up hope of gaining electoral control to pursue a fair fiscal agenda, the
Tea Partiers have abandoned the centuries-long fight for reform to make
governments better by giving them the power to check predatory finance and
wealth. Sliding to the right wing of the political spectrum and acting mainly out of
frustration, they have succumbed to a utopian desire simply to shrink a government
that they see acting adversely to their interests.

Financial lobbyists are using the Greek crisis as an object lesson to warn about the
need to cut back public spending on Social Security and Medicare. This is the
opposite of what the Greek demonstrators are demanding: to reverse the global tax
shift off property and finance onto labor, and to give labor’s financial claims for
retirement pensions priority over claims by the banks to get fully paid on hundreds of
billions of dollars of recklessly bad loans recently reduced to junk status.

Bank lobbyists know that the financial game is over. They are playing for the short
run. The financial sector’s aim is to take as much bailout money as it can and run,
with large enough annual bonuses to lord it over the rest of society after the Clean
Slate finally arrives. Less public spending on social programs will leave more bailout
money to pay the banks for their exponentially rising bad debts that cannot possibly
be paid in the end. It is inevitable that loans and bonds will default in the usual
convulsion of bankruptcy.

Greek labor is not yet so pessimistic as to give up the fight. What it recognizes that its
American counterparts do not is that somebody will control the government. If labor
– the demos – loses its spirit, power will be relinquished to foreign creditors to dictate
public policy by default. And the more the bankers’ interest is served, the worse and
more debt-burdened the economy will become. Their gain is bought at the price of
domestic austerity. Scheduled payouts by Greek pension funds and government
social spending programs must be to replenish German and other European bank
capital.

This worldview already has been delivered to Europe’s northernmost periphery,
where it has elicited a fiscal masochism that banks hope to see in Greece. Having
fallen on their swords, Baltic governments would be jealous and even resentful to see
Greece rescue its economy where they themselves failed to repudiate arrogant
creditor demands. “Seen from the eastern rim of the European Union, the looming
austerity drive in crisis-afflicted Greece reads like old news,” writes Nina Kolyako.

“For almost two years, the Baltic states of Lithuania, Latvia and Estonia have brought
in repeated draconian measures, slashing public spending and hiking taxes to try to
dig themselves out of a hole. ‘We learned the lessons very painfully, heavily and
effectively, that you need to look after the fiscal situation very carefully,’ Lithuanian
Prime Minister Andrius Kubilius told AFP in a recent interview.

‘We understood very clearly that fiscal consolidation was the only way for us to
survive.’”

Capitulating in a classic Stockholm syndrome (literally to Swedish banks in this case),
Lithuania’s government dutifully tightened the screws so much that GDP plunged by
over 17 percent. A similar plunge occurred in Latvia. The Baltics have slashed public-
sector employment and wages, imposing poverty rather than the Western European
levels of prosperity (and progressive taxation to foster a middle class) that was
promised after the Baltics achieved their independence from Russia in 1991.

After Latvia’s parliament imposed austerity in December 2008, popular protest in
January brought down the government (as a similar protest did in Iceland). But the
result was merely another neoliberal “occupation regime” run on behalf of foreign
banking interests. So what is unfolding is a Social War on a global scale – not the
class war envisioned in the 19th century, but a war of finance against entire
economies, against industry, real estate and governments as well as against labor. It
is happening in the usual slow motion in which great historical transitions occur. But
as in military conflicts, each battle seems frenetic and spurs wild zigzagging on the
world’s stock and bond exchanges and currency markets.

All this is great news for computer program traders. The average commitment of
funds lasts only a few seconds these days as financial markets are buffeted up and
down by vast credit waves blown by the storms sweeping today’s financially
overheating planet.

The coming economic dystopia

The Greek crisis shows how far the “European idea” has shifted from 1957 when the
six-member European Economic Community (EEC) was formed. At U.S. prodding,
Britain and Scandinavia created the rival seven-member European Free Trade
Association (EFTA). Even so, the promise of Euroland – at least before Maastricht and
Lisbon – was to elevate labor to middle-class prosperity, not to impose IMF-type
austerity programs of the sort that devastated Third World countries.

The message to indebted economies is stark: “Drop dead.” And they are obediently
committing economic suicide (emulating Japan in the 1985 Plaza Accords) to endorse
the Washington Consensus – the class war of finance against labor and industry.

Political, social, fiscal and economic power is being transferred to the EU
bureaucracy, its financial controllers in the European Central Bank (ECB) and the
IMF, whose austerity plans and related anti-labor programs direct governments to sell
off the public domain, land and subsoil wealth, public enterprises, and to commit
future tax revenues to pay creditor nations. This policy already has been imposed on
“New Europe” (the post-Soviet economies and Iceland) since autumn 2008. It is now
to be imposed on the PIIGS (Portugal, Ireland, Italy, Greece and Spain).

No wonder there are riots!

For observers who missed Iceland and Latvia last year, Greece is the newest and so
far the largest battlefield. At least Iceland and the Baltics have the option of re-
denominating loans in their own currency, writing down their foreign debts at will
and taxing property to recapture for the government the revenue that has been
pledged to foreign bankers.

But Greece is locked into a European currency union, run by unelected financial
officials who have inverted the historical meaning of democracy. Instead of the
economy’s most important sector – finance – being subject to electoral politics,
central banks (the designated lobbyists for commercial and investment bankers) have
been made independent of political checks and balances.

In truly Orwellian fashion, right-wingers in Europe and the United States (such as
Fed Chairman Ben Bernanke) call this the “hallmark of democracy.” It actually is the
stamp of oligarchy, stripping away control over the economy’s credit allocation – and
hence, forward planning – while giving high finance a stranglehold over public
spending programs.

Iceland, Latvia and now Greece are the opening shots in the resulting global
campaign to roll back the great democratic reform program of the 19th century and
the Progressive Era: taxation of land and the “unearned increment” of price gains for
real estate, stocks and bonds, and subordination of the financial sector to the needs
of economic growth under democratic direction.

This doctrine was still being followed by the post-1945 era of progressive taxation that
saw the 20th century’s greatest rise in living standards and economic growth. But
most countries have reversed the fiscal trend since 1980. Tax collectors have “freed”
income from public obligation only to see it pledged to banks for higher loans to bid
up property prices.

Houses, office buildings and entire companies are worth whatever banks will lend. So
populations (and corporate raiders) have responded to the pro-financial tax shift by
borrowing to buy houses (and companies) before prices recede even further out of
reach.

And taxes on labor now are about to be jacked up to pay off the public debts
resulting from the asset-price inflation and financial wreckage that property tax cuts
have helped cause. This is the cause of national debts. Governments have run into
debt as a result of un-taxing the wealthy in general, not just real estate.

Following Western governments in shifting the fiscal burden off property and finance
onto labor over the past few decades, Greece’s government is politically unable or
unwilling to tax the wealthy, or even well-to-do professionals.

But neoliberals blame it and other debtor governments for not selling off enough
public land and enterprises to make up the gap. Tax-deductible interest charges
make privatizations on credit tax-exempt, so governments will lose the user fees they
formerly received – while populations pay higher “tollbooth” charges for hitherto
public services.

Just as the U.S. Government has done, it has issued bonds to finance the deficit
resulting from these tax cuts. The buyers of these bonds (mainly German banks) are
demanding that Greek labor (and now German taxpayers as well) should bear the
burden of tax shortfalls. German and other European banks and bondholders are to
be repaid at the social cost of drastic cutbacks in pensions and social spending – and
if possible, by more privatization sell-offs at distress prices.

The riots in Greece have erupted because labor understands what most journalistic
reporting shies away from confronting. Growth in real wages has slowed (and has
stopped cold in the United States since about 1979). Home ownership has been
achieved at the cost of new buyers taking on a lifetime of mortgage debt. And the
post-Soviet economies won their political freedom from Russia, only to find
themselves insolvent today, dependent on IMF and EU direction of their economies to
obtain the loans to pay their foreign bankers that loaded down their housing, public
enterprises, industry and families with debt.

Bondholders and financial speculators have ganged up to demand EU, IMF and US
support for them to take their gains before the financial game crashes.

The grab can be done most quickly by shrinking economies under IMF-style austerity
plans.

Unemployment is to rise while driving economies even further into debt – not only
public debt as shrinking markets lead to falling tax revenue, but also foreign debt as
import dependency increases.

Creditors are to be paid by letting them appropriate the economic surplus, in the
form of debt service at the expense of new capital investment, infrastructure
spending, public social spending and rising living standards. Economically, the Greek
uprising is a revolt against the policy of sacrificing prosperity to pay foreign creditors
in this way.

At the political level, the fight is to save Greece from being turned into an anti-state.
The classical definition of a “state” or government is the ability to levy taxes and issue
money.

But Greece has relinquished its fiscal authority to the EU and IMF, which are telling it
to violate what political theorists list as the Prime Directive of any government: to act
in the long-term national interest. The Greek government is being directed to act on
behalf of bank capital, and indeed, that of foreign countries to engage in asset
stripping, not to promote long-term growth.

At issue is whether nations will be run by creditors or by popular aims to reap the
benefits of economic growth. An oligarchic push for IMF-EU loans to bail out foreign
banks and bond speculators at the expense of Greek labor (the intended taxpayers of
the future) aims at making labor rather than finance capital take the loss of
government arrears resulting from un-taxing wealth. The aim is to enable foreign
banks to avoid having to pay the price for acting as enablers in draining the domestic
market. Government policy is to be taken out of the hands of voters and
subordinated to the IMF and EU acting as instruments of international finance.

This creates a state of affairs in which neither Greece nor the EC are “states” or
“governments” in the traditional political sense. The EU and IMF bureaucracy is not
elected. And at the point where their foreign-dictated financial plan succeeds, the
economy’s capital will be stripped and social democracy will collapse.

Bailout costs Merkel

On Sunday, May 9, German voters expressed their anger at the government’s role in
bailing out German bankers (euphemized as bailing out “Greece”) at the expense of
German taxpayers. The European Central Bank [ECB] is not creating free euro-money
but is billing national governments.

The Social Democrats overtook Chancellor Angela Merkel’s Christian Democratic Union
party in North Rhine-Westphalia.

Winning only just over a third of the vote – a bit less than the Social Democrats (and
down over 10 percentage points from the last election, of which 4 points were lost
just in the last week when the bailout package was promoted by Ms. Merkel) – the
CDU lost its majority in Germany’s upper house.

Many German voters may have wondered whether taxing the poor to pay the rich to
engage in usury was really as “Christian” as the party claimed to represent. Or maybe
they were concerned that Germany’s tax collector is to pay nearly $30 billion as its
share in the bailout of bankers – not all of whom are beloved in Germany, even when
they are German. And some no doubt saw the game as a financial deception by the
banking sector’s compliant politicians.

The deception

Europe’s financial lobbyists used the crisis as an opportunity to promote a broad
series of bailouts. For Swedish and Austrian banks, the EU approved a €60bn
extension of the balance-of-payments facility already put in place to help Hungary,
Romania and Latvia keep current on their debts to Austrian and Swedish banks
respectively. To circumvent the Eurozone’s no-bailout principle, this special bailout
law is based on Article 122.2 of the EU treaty permitting loans to governments in
“exceptional circumstances.”

If we give Ms. Merkel credit for understanding the economics at work, then we must
accuse her of lying through her teeth. The Baltic debt problem is chronic and
structural, not “exceptional.” Ms. Merkel also must know that she is being deceptive
in pretending to help Latvia by extending loans that the EU limits explicitly to support
the lat’s exchange rate, not for domestic development. The foreign exchange is to
cover the cost of Latvians paying mortgages in euros to Swedish banks, and of
Latvian consumers buying food and manufactures that EU governments subsidize
while leaving the Baltics in a state of economic and financial dependency.

Latvia thus is being victimized, not helped. The aim is to give Swedish banks a little
more time to keep collecting payments on loans that are going to go bad in due
course. Foreign exchange spent in facilitating private debt service to foreign banks
becomes a national debt, to be paid by Latvian taxpayers.

This EU loan thus is an exercise in naked neo-colonialism.

Will the belated shift of German voters to back the Social Democrat red-green
coalition with the Green and Left parties do much to stem matters? Probably not.
Greek President Papandreou acquiesced in the cave-in despite being head of the
Socialist International. So the question is whether Greece really is checkmated,
destined to see its public spending, pensions, health care, schooling and living
standards rolled back in the way that the Baltics have experienced. They have been
an experiment in neoliberal central planning. If they are an example of what the
future is to bring, the world will soon see a wave of Greek emigration, Baltic-style.

That evidently is what stock markets around the world anticipated when they soared
on Monday morning at the news of Europe’s trillion-dollar bailout.

What really was bailed out is the principle that economies should be stripped so that
finance capital may rule.

But the fight surely is not yet over. It will escalate for the remainder of the 2010s,
because it is nothing less than an attempt to roll back the history of the 19th and
20th century’s struggle to replace the power of vested property and financial interests
with principles of progressive taxation and public enterprise.

Is this where Western civilization really is supposed to be leading? Confronted by
parliaments controlled by aristocracies, the 19th-century reformers sought to take
them over on behalf of democracy. Classical political economy was a reform program
to tax away the “free lunch” of land rents, monopoly rents and financial interest
extraction. John Maynard Keynes celebrated this program in his gentle term,
“euthanasia of the rentiers.”

But the vested interests have fought back. Calling social democracy and public
regulation “the road to serfdom,” they are trying to set Europe’s economies on the
road to debt peonage. Making an end-run around national elected governments to
impose the Washington Consensus, IMF and EU institutions have gained fiscal and
economic control over governments and their tax policies to cut taxes on wealth –
and borrow from it to finance the resulting fiscal deficits.

America’s Tea Partiers and anti-tax rebels have given up the fight to reform
governments. Squeezed by debt from which they see no escape, they demand lower
taxes – and are willing to see the highest brackets become the major beneficiaries in
an even more regressive tax shift. Faced with the corruption of Congress by lobbyists
acting on behalf of the vested interests, they reject government itself and seek safety
in local gated communities.

They see Congress and parliaments throughout the world losing autonomy to the
IMF, the EU and other Washington Consensus organizations seeking to impose
austerity and shift the tax burden onto labor and industry, off property and off
predatory finance.

The only way to prevent a regressive tax shift and debt squeeze is to gain control of
governments on behalf of the spirit of classical economic and Progressive Era
reforms. At least, that is what Greek labor is rioting for. Someone must control
government, and if democratic forces withdraw from the fight, the financial sector
will tighten its trip.

Last week is still only the beginning of how this drama will play out. The response by
the post-Soviet economies, which have retained their own currencies, is to come this
summer and autumn.

Michael Hudson is Chief Economic Advisor to the Reform Task Force Latvia (RTFL). He
is the author of America's Protectionist Takeoff. His website is www.michael-
hudson.com

References
“Austerity drives are old news for Baltic States,” Baltic Course, May 10, 2010.

“Governments to control loan guarantee scheme,”, Ben Hall, Financial Times, May 10,
2010.