Monday, August 29, 2011

Solidarity with the Libyan people

Statement by the Communist Party of Ireland

28 August 2011

The Communist Party of Ireland expresses its solidarity with the Libyan people now facing into a future of occupation, dominated and controlled by imperialism—by the United States and Britain, France, and other EU powers.

The imperialist powers acted early to forestall any development of democracy in Libya. They fraudulently obtained the support of the United Nations Security Council for a “no-fly zone,” the terms of which they had no intention of observing. In contempt of international law, and their own laws, they gave military backing to a collection of long-time agents of theirs, defectors from the Gaddafi regime, and Islamic fundamentalists allied to al-Qa‘ida. With the spurious excuse of protecting civilian lives they launched a bombing campaign that cost thousands of lives. Their elite units—SAS, Foreign Legion, and SEALs—were there from the beginning.

As is well known, these powers show complete tolerance when their allies and client states carry out torture, murder, and massacres, and their protestations of concern for human rights are therefore empty rhetoric. The character of Gaddafi or his government had nothing to do with their war aims. Their object was to re-establish control over Libya’s oil wealth and to reinforce their economic dominance in Africa. Their clients in the “interim government” have already promised to co-operate. Its establishment marks an important goal of the EU in relation to its Mediterranean and African strategy.

The supine support given to the recolonisation project by the Irish Government shows once again its complete subservience to imperialism. The Irish media also have been happy to act as tools, repeating war propaganda.

As events have unfolded over the last months, it is clear that the “interim government” has been receiving military as well as political advice and will be mere stooges of the west in the coming years. It was also a signal to the masses in the Arab world in their struggle for democracy and economic and social justice that their demands will be allowed only so long as they do not threaten the interests of imperialism in the region.

The Libyan people now face a massive struggle to defend the gains made over the last four decades, such as free universal health and education and living standards that are the highest in Africa and among the highest in the Arab world. The anti-imperialist role that Libya played over a number of decades, particular in the early years after the Gaddafi revolution, was never forgotten by the western powers, in spite of the friendly relations established in recent years.

Libyan people now as never before need the solidarity of progressive forces throughout the world as they once again experience occupation and foreign domination.

Greaves School 9,10 September

Friday 9 September 7.30 pm

The international economic crisis: Making the periphery pay

Fred Magdoff, Professor Emeritus, University of Vermont; director of the Monthly Review Foundation; has written on The Explosion of Debt and Speculation anthe current financial crisis in America’s leading radical journal, Monthly Review.

Chair: Catherine Connolly,Galway City Councillor and barrister.

Saturday 10 September 11.00 am

Is Ireland a Democratic Republic?


Sinead Pentony, Head of Policy, Think-Tank for Action on Social Change (TASC). Kevin McCorry, solicitor, former organiser of NICRA. Harry Browne, Lecturer, School of Media Studies, DIT ; former journalist with The Irish Times.

Chair: Fionnula Ui Brogáin,

Saturday 10 September 2.00 pm


Ireland and the Eurozone crisis

Anthony Coughlan, Director, The National Platform EU Research and Information Centre.
Fabio de Masi, Consultant to the chief economist of the Die Linke party in the German Bundestag. Chair: Karen Devine, School of Law and Government, DCU.

Sunday 11 September 11.00 am


An All-Ireland Economic Area: Does it make sense?

Peadar Toibín TD, Sinn Fein Dáil member for Meath West. Peter Bunting, Assistant General Secretary, Irish Congress of Trade Unions, with responsibility for
Northern Ireland. John Bradley, former Research Professor, Economic and Social Research Institute; international research consultant on economic development strategies. Chair: Robert Ballagh, President of the Ireland Institute; artist.

Sunday 11 September 2.00 pm

Where is contemporary capitalism going?

Richard Douthwaite, Co-founder of Feasta (Foundation for the Economics of Sustainability); author of The Growth Illusion, The Ecology of Money etc. Kieran Allen, Senior Lecturer, School of Sociology, UCD; author of Ireland’s Economic Crash, The Corporate Takeover of Ireland etc. Mary Cullen, Centre for Gender and Women’s Studies, TCD; former Senior Lecturer in Modern History, NUI, Maynooth.

Chair: Catherine Murphy TD,
Independent Dáil member for Kildare North.

Sunday, August 21, 2011

Jean-Claude Charlemagne

On 2 June 2011 the president of the European Central Bank, Jean-Claude Trichet, accepted the “Charlemagne Prize for European Unity” and made a telling speech about the success of the EU and the euro in responding to the crisis, and the opportunity they have seized to correct some of the deficiencies of European monetary union, all in the name of the common good and of European unity and peace.

Filled with eloquent quotations and references to the Enlightenment, Trichet dazzled his audience of European “citizens”: central bankers, Commission staff, MEPs, and a host of Brussels and Strasbourg technocrats, not to mention a hack journalist or two.

But the name of the prize gives a real indication of his political agenda and what Trichet and his cohort are really about.

If anyone else is like me, then Charlemagne rings a bell from second-year history as a European emperor, but little else comes forth, and so in writing this article I had to do a bit of investigating to get some facts right.

Charlemagne, or Charles I of Germany and France, reigned from AD 768 to 814 as emperor of the Holy Roman Empire. With power based in Frankish tribes, Charlemagne, following brutal conquest, successfully “united” these with Germanic tribes while also “uniting” them through further brutal military expansion with the peoples of Italy and Spain, including a particularly violent campaign against the Moors that lasted for decades.

Charlemagne was thirty years at war—almost the whole of his reign—leading armies that butchered the innocent and led religious crusades against those who believed in another religion. Leaving an empire with wars on many fronts and regular uprisings and revolts by its “citizens,” Charlemagne was buried in Aachen, the site of Trichet’s award ceremony.

Back to Mr Trichet and his award.

He starts with a self-congratulating monologue about the success of European monetary union. (I kid you not.) “EMU has brought growth.” Well, it brought minimal if not stagnant growth to the German economy but facilitated massive exports of capital to the periphery in growing speculative bubbles that totally distorted peripheral economies and have left entire countries bankrupt.

“EMU has fostered trade.” Ireland’s biggest trading partners are the United States and Britain.

“EMU has brought employment.” Ireland’s unemployment is now close to 15 per cent. Sustainable employment in Ireland has either been indigenously created through public and private investment or from foreign direct investment from the United States.

“EMU has brought price stability.” Ireland has been subject to massive inflation and rip-off scandals. House prices soared, indebting families throughout Ireland as a result of cheap credit from the core. Continued inflation in 2011 is hitting families hard, with basic necessities becoming difficult to fund.

“EMU has brought monetary stability . . . There is no crisis of the euro.” Who is he kidding? The Federal Reserve (the US central bank) had to bail it out earlier this year. The European Central Bank has turned into the biggest purchaser of government debts in Europe, a job it was never meant to do, and the euro has become the source of constant predatory attacks from the very speculators his authorities have bailed out. But no, it’s not in crisis: it’s doing fine.

Following this he outlines the policy for countries receiving “financial assistance” and the strict conditions attached, the three-pronged approach of surveillance, recommendations, and sanctions. But even this is a bit too hands-off for Mr Trichet, who would rather a stage 2 approach, where the ECB and the EU Commission (both unelected) take direct economic control of the country. In addition to this, the EU authorities should have the right to veto any economic policies that don’t suit them and establish a single European Ministry of Finance.

Trichet recommends making changes to the treaty in order to establish a confederation of states, with power centralised in the Commission and euro institutions in order to protect the core countries from crisis made in the periphery!

If this was the rambling of a delusional cheerleader one might laugh it off, but this is actually the policy vision of one of the most powerful people in Europe, and his speech was published by the press and information service of the ECB.

The only difference between Trichet and Charlemagne is that Trichet and his legions march with financial weapons of mass destruction to secure the mutually beneficial interests of Germany and France in expropriating billions of people’s money and resources from the periphery of Europe.

He is thoroughly deserving of this award, and maybe one or two more I could name after other European dictators who have tried similar “unity” projects.

Socialist Voice - August edition

August Socialist Voice available online at:

http://www.communistpartyofireland.ie/sv/index.html

Check it out

Rally behing ICTU motion

The following emergency motion was passed by the biennial delegate conference of the Irish Congress of Trade Unions in July. It was proposed by the TEEU and supported by the CWU, ESBOA, Impact, SIPTU, UCATT, and Unite.

Following the EU-IMF raid on the National Pension Reserve Fund to bail out the German and French bondholders, the latest threat to the assets of the Irish people emerges from the McCarthy Report.

In a paper reflecting the neo-liberal ethos of the IMF and increasingly of the EU, privatisation of national resources as diverse as our forests and greyhound tracks is advocated. Recently, the most serious suggestions involve the sale of important infrastructural companies such as the ESB, our national airports and Bord Gáis while the alternatives set out in reports such as the Cahill Report on Electricity Transmission Ownership are swept away.

These companies are in the main, profitable and provide good quality employment for many Irish people. More importantly, they are valuable national assets built up through the hard work and dedication of generations of Irish workers.

We call on this conference to pledge the ICTU to co-ordinate a structured resistance against the sale of any of these vital national assets.

Such resistance should typically take the form of concerted political lobbying; consideration of selective action in threatened entities; mobilising community support for subsequent demonstrations; targeting local politicians; petition gathering etc. culminating in a “national referendum” on the sale of the people’s assets to be held simultaneously at all union offices throughout the country, the result to be presented to government demanding appropriate action.



The economy continues to slide

The unemployment figure for July makes grim reading, not to mention the hell that many of the 470,330 people concerned experience every day, scraping by on social welfare. The figure is 14.3 per cent—the highest in six months.

The number of long-term unemployed continues to grow, increasing by more than 45,000 since July of last year. 40 per cent of all claimants have been on the live register for a year or more, compared with 31 per cent in July last year. Under-25s make up 17 per cent of all those signing on for more than a year. On a seasonably adjusted basis, an additional 1,300 women and 300 men joined the live register last month alone.

The number of redundancies notified to the Department of Social Protection jumped by 28 per cent between June and July, rising to 4,723 last month. A total of 29,555 redundancies were notified to the department in the first seven months of this year, down 24 per cent on the 38,776 recorded in the first seven months of 2010.

Meanwhile the number of bankruptcies continues to grow. According to insolvencyjournal.ie there was an increase of 6 per cent in the number of business failures in the seven months to July compared with the same period last year.

In a walk around any city, town or village you can see shops, coffee shops, restaurants and bookshops with “For sale” signs hanging out.

The Government has no job strategy except rebranding FÁS and forcing more people onto schemes and endless training courses while harassing the unemployed to account for themselves, forcing them to turn up for endless reviews, and if they don’t turn up, or turn up late, their allowance will be cut. They are still hoping that emigration will take the pressure off them and solve the jobs crisis.

The only priority for this Government, and the strategy being imposed by the EU, ECB and IMF on our people, is ensuring that we will pay back all the corporate debt undertaken by the state at the behest of international finance houses. We will pay more than €10 billion this year alone in servicing this unpayable debt.

Slashing and burning public spending and services, as well as selling off state assets, imposing water charges and a household tax of €200, regardless of its size, is their only strategy.

The recent biennial delegate conference of the ICTU adopted a resolution (see July Socialist Voice) calling for an active campaign of opposition to privatisation and cuts. This is most urgently required.

Some seemingly want to wait and allow “Labour” in government to represent the interests of working people and the trade union movement, or do a trade-off on this or that piece of Government policy. This must simply not be allowed to happen. What is needed is a national co-ordinating committee, which should be established at the highest level, to include trade unions, community groups, pensioners’ groups—all those affected by these cuts and the debt burden—to begin to mobilise and fight back in a co-ordinated way.

Now is the time to do it, not after the Government has begun the sale.

CPI Press Statement

19th August
Communist Party of Ireland Press Statement


House of cards built on the excrement of a decaying system totters on the brink.


The much heralded recovery from the 2007/8 economic crisis has proven short lived and the policies pursued by the the Obama administration of “quantitative easing”, the European Union's ongoing attempts to prop up a collapsing financial system have shown not to provide any long term solutions. The Irish government pathetically follows the orders coming from the Eupopean Union.

Throughout the developed capitalist system ther are vast sums of capital swilling about with no productive avenues for investment open to them, due to the deep crisis of over supply and the stagnation in the productive economy. The strategy of austerity is not designed to rejuvenate the economy but instead to squeeze enough capital from working people to transfer it to finance houses to try and 'sure up' the systems last investment avenue - finance.

The USA economy is now sliding into a recession on the back of a massive increase in state debt, a feature which is also common to the EU and this Irish state. The political establishment here in Ireland, in Brussels/Berlin or across the Atlantic have no answers nor solutions other than to continue to undermine and roll back workers' rights, wages and working conditions. We now face the prospect of growing mass unemployment and mass poverty and the repossession of family homes.

Working people, the poor and the sick will be made to pay the price for a system that is now caught up into a spiral of irreconcilable contradictions. There can be no lasting solution to the structural and systemic crisis at its very heart.

The Irish trade union movement must break free and shake off its petrified stupor and take courageous action to defend Irish workers and the our nation as a whole. Resistance will instill courage to fight for a better way forward than that presented by the current Irish government and its EU masters. Statement ends

Eugene McCartan
General Secretary
087 9733414

Tuesday, August 16, 2011

Ecuador's default

Ecuador's default

Audit findings prompt refusal to pay 'illegitimate' debt.
December 12, 2008


by Odious Debts Online

After months of threats, the government of Ecuador has made good on its promise to forego payment of foreign loans deemed illegitimate by the country's debt audit commission.

Ecuadorian President Rafael Correa announced that his country would not be paying $30.6 million interest due Dec. 15 on its 2012 global bonds after the commission claimed the debt had been 'illegally' acquired by past administrations.

The commission which Correa created last year to investigate all debt issued to Ecuador from 1970 until June 2006, revealed in late November that traces of illegitimacy ran throughout much of the country's $10 billion foreign debt load.

The president's public statements regarding his administration's stance have been strongly worded. Describing debt the audit found tainted by corruption as "immoral and a betrayal of the country," Correa told reporters:

"If we have to confront international lawsuits, we will confront them and, I repeat, I assume all responsibility," he said. "I could not permit the continued payment of a debt that, in any light, is immoral and illegitimate."

Correa is expected to present a restructuring proposal to creditors in due course while simultaneously attempting to have the debt annulled in international courts. In a public statement on Dec. 13 Correa said he wanted to force "a big discount" on creditors whom he had described the day before as "true monsters" who wouldn't "hesitate to crush" his country.

According to the commission, the audit uncovered criminal violations by previous governments that sold debt to pension funds, hedge funds and other overseas investors, and found most of the country's multilateral loans violated local laws as well as international treaties, lacked transparency and forced Ecuador to apply harmful policies.

Of particular interest is Correa's alleged insistence that responsibility for debt held in dispute should be paid for by each party at fault with their own assets, whether they be creditor nations, multilateral organizations and/or national authorities.

Ecuadorian activist Helga Serrano said the country's audit process had become "an important tool that will assign responsibility to those who perhaps never thought that they would be judged for their actions that threaten the life and dignity of the people."

Ecuador's default, the second in 10 years, is still relatively small by comparison to Argentina's $100 million foreign debt default in 2002 notes the Washington Post, which credited the Ecuadorian move with a more unique distinction: It is rare, said the Post, for a developing nation to cease payments not because it can't afford to pay but because it has made a political decision not to.

The audit of the debt, initiated by the Ecuadorian government with the participation of economists, lawyers, and representatives of social organizations from Ecuador and other nations is unprecedented: no other nation has embarked on a similar exercise to determine responsibility for the debt. President Correa informed sources that he would also promote the creation of an International Tribunal for Arbitration of Sovereign Debt in the United Nations.


Key Trends in the World Economy

Key Trends in the World Economy
August 11, 2011

What lies behind the renewed international economic crisis - and what policies are required to deal with it?

Given the onset of a renewed round of the international financial crisis it is useful to draw together its various elements in an analysis of its overall determinants, its course, and the policies necessary to deal with it. This is the aim of this article.

For the second time in three years almost all parts of the world economy are being shaken by a renewed financial and economic crisis. The most important immediate drivers of this are not Standard and Poor's downgrading the US's credit rating, or political struggles between President Obama and Republicans in Congress, but weak US economic recovery, Europe's widening debt crises, the consequent $8 trillion loses on international share markets by 9 August with knock on effects on balance sheets and spending, the continuing decline of US house prices and a new developing crisis of the banking system.

Reasons for the open reappearance of crisis

The reason severe crisis has reappeared, and what determines its dynamic, is the failure of US and European government policies to resolve the issues which created 2008's financial collapse. The policies pursued since then, which were adapted to deal with much more minor economic events than the ones which occurred, postponed the unwinding of the crisis without removing its underlying causes. As a result the focus of the crisis changed but it was not resolved.

The immediate cause of the financial crash of 2008 was an unsustainable build-up of US private sector debt – this debt being accumulated due to the attempt to maintain the growth of the US economy and to ensure political stability by sustaining US living standards. By the 4th quarter of 2007, the peak of US economic expansion, total US household, private non-financial company, and government debt was 218 per cent of US GDP – Figure 1. That the fundamental debt build up was private, and not government, is shown by the fact that household and non-financial company debt was equivalent to 168 per cent of GDP compared to 51 per cent of GDP for government debt - i.e. private debt was more than three times as large as government debt.

Interest rate increases introduced leading to 2008, in order to deal with inflation, resulted in the inability of the US private sector to finance this debt burden. The US sub-prime mortgage crisis was simply the weakest link in the overall excessive US private debt.

In 2008 the inability of the US private sector to meet its debt obligations, with consequent falls in asset values, initially in housing and then in shares and other financial instruments, destroyed US financial institutions’ balance sheets. The US financial sector overall became insolvent. Therefore a stronger and more centralized financial instrument, the US state, had to step in to rescue the private financial system - with a similar process occurring in other countries. The new crisis has broken out because of the risk that the tools available to the US and European states themselves will be insufficient to restore stability.

Transfer of private sector debt into the public sector

The debt data clearly show the process of transfer of the original excessive US private debt into the public sector – the changes in US debt since the peak of the previous business cycle are shown in Figure 2.

Following the onset of the US economic downturn in 2008, the overall US debt burden rose, reaching 247 per cent of GDP in the 3rd quarter of 2009 – these changes reflecting the decline in US GDP as well as increasing debt. Since then up to the 1st quarter of 2011, the latest available data, US debt fell only marginally to 243 per cent of US GDP - still 26 percentage points above pre-recession levels.

However the internal structure of US debt shifted. US private sector debt peaked at 180 per cent of GDP in the 2nd quarter of 2009. It then fell to 163 per cent of GDP – still 5 percentage points above its pre-recession level. But any recent decline in private sector debt has been almost entirely offset by increases in government debt created by budget deficits exceeding 10 per cent of GDP.

The US therefore simply ‘nationalized’ its debt problem – replacing private with public debt. The mechanisms by which this occurred were the indirect consequences of the financial crisis, with recession increasing welfare payments and reducing tax receipts, as well as transfer of funds to the private sector in bank bailouts and similar measures.

John Mauldin and Jonathan Tepper therefore put it correctly in their book Endgame: ‘Debt is moving from consumer and household balance sheets to the government. While the debt supercycle was about the unsustainable rise of debt in the private sector, endgame is the crisis we will see in the public sector debt.’ (p25)

In short, although the US crisis may currently appear in the form of a government deficit and debt issue, the origins of the problem lay in the private sector and the government debt issue is the consequence of nationalization of private sector debt.

The European debt crisis

Europe followed a similar path to the US but with some countries, e.g. Greece and Italy, building up large public sector debts alongside the private ones in Spain and other states. Europe’s situation is structurally more potentially threatening than the US as the Federal Reserve has greater resources than the European Central Bank and the US state is able to react in a more centralized way than the decentred structure created by the different states of the European Union.

The European Central Bank simply does not have sufficient resources to be able to deal with a spread of the debt crisis into the larger EU economies such as Spain and Italy. Given the exposure of European banks to national state debt the spreading of the European sovereign state crisis to major economies therefore has the potential to bring down the European banking system. For this reason there have been rising European interbank lending rates, reflecting banks decreasing willingness to lend to each other, extremely high rates for bank insurance in a number of countries, and sharply falling bank share prices in both Europe and the US.

Kenneth Rogoff, author of the notable quantitative study of debt crises This Time is Different, and former chief economist of the IMF, accurately summarized the situation in the financial sector as follows:

‘Securitization, structured finance, and other innovations have so interwoven the financial system’s various players that it is essentially impossible to restructure one financial institution at a time. System-wide solutions are needed… the financial system remains on government respirators… in the US, UK, the euro zone, and many other countries today.

‘Most of the world’s largest banks are essentially insolvent, and depend on continuing government aid and loans to keep them afloat. Many banks have already acknowledged their open-ended losses in residential mortgages. As the recession deepens, however, bank balance sheets will be hammered further by a wave of defaults in commercial real estate, credit cards, private equity, and hedge funds. As governments try to avoid outright nationalization of banks, they will find themselves being forced to carry out second and third recapitalizations.

‘Even the extravagant bailout of financial giant Citigroup, in which the US government has poured in $45 billion of capital and backstopped losses on over $300 billion in bad loans, may ultimately prove inadequate.’

Political struggles are the symptom of the renewed crisis and not its cause

Given the scale of the debt situation none of the means used for tackling the debt problem in the US and Europe can avoid severe economic pain. The political fighting which has broken out is simply over how this pain should be shared. The political struggles which have occurred, for example between President Obama and Republicans in Congress, or between Germany’s government and other European states, are therefore not the cause of the renewed economic crisis but its result. Analysing the different responses however leads directly to the issue of the necessary policies to deal with the financial and economic crisis.

The necessity to run budget deficits

The most ideologically right wing forces - the US Tea Party and those in Europe sharing the views of the British Conservatives - advocate limiting the public debt build up by radically reducing government spending. This is linked to a theory that the state is ‘crowding out’ the private sector. This entire analysis is false. Because of its ideological blinkers it fails to see that the origin of the crisis lay in the private sector debt. It is also extremely dangerous in terms of economic policy.

The main transmission belt from excessive debt into recession is the fall in private investment. As may be seen in Figure 3 the entire decline in GDP in the G7 economies between the 1st quarter of 2008, the peak of the previous business cycle, and the 1st quarter of 2011, the latest available data, was accounted for by the decline in fixed investment. In fixed price parity purchasing powers (PPPs) the decline in G7 GDP was $381 billion and the decline in fixed investment was $591 billion – the decline in fixed investment can be greater than the decline in GDP as it is offset by increases in household and government consumption.

The theory of ‘crowding out’ argues that resources used to finance the budget deficit would be used to generate economic expansion if released to the private sector – for example US financial analyst John Mauldin argues ‘increasing government debt crowds out the necessary savings for private investment, which is the real factor in increasing productivity.’ (Endgame p59)

But reducing budget deficits by cutting public spending cannot create an economic way out in present conditions. Reducing budget deficits cuts demand. But resources released to the private sector are used to pay down debt, so private spending will not increase sufficiently to compensate for the fall in public spending. Total demand will fall, increasing recessionary pressure.

In short, it is vital in the short term to maintain budget deficit spending, including by targeting maintaining or expanding consumption – state spending on investment is analysed below. Attempts to immediately reduce budget deficits must be strongly resisted. Countries facing an economic slowdown should run, or increase, budget deficits to compensate for the shortfall of private sector demand.

Richard Koo, in his important books Balance Sheet Recession and The Holy Grail of Macroeconomics, has dealt with this correctly in analysing the experience of the decades long fight against the consequences of over-indebtedness in Japan. As Koo noted:

‘What sets Japan’s Great Recession apart from the U.S. Great Depression is that Japanese GDP stayed above bubble peak levels in both nominal and real terms despite the loss of corporate demand worth 20 per cent of GDP and national wealth worth ¥1,500 trillion… The financial deficit of the government sector mounted sharply, leaving in its wake the national debt we face today. But it was precisely because of these expenditures that Japan was able to sustain GDP at above peak-bubble losses despite the drastic shifts in corporate behavior and a loss of national wealth equivalent to three years of GDP. Government spending played a critical role in supporting the economy…

‘Japan was left with a large national debt. But if the government had not responded with this kind of stimulus, GDP would have fallen to between one-half and one-third of its peak – and that is an optimistic scenario. U.S. GNP shrank by 46 per cent after falling asset prices destroyed wealth worth a year’s worth of 1929 GNP during the Great Depression, and the situation in Japan could easily have been much worse. This outcome was avoided only because the government decided early on to administer fiscal stimulus and continue it over many years…

‘In summary, the private sector felt obliged… to pay down debt… Disastrous consequences were avoided only because the government took the opposite course of action. By administering fiscal stimulus, which was also the right thing to do, the government succeeded in preventing a catastrophic decline in the nation’s standard of living despite the economic crisis.’ (The Holy Grail of Macroeconomics p22-25)

Naturally the form the budget deficit takes is itself extremely important. Government spending on those on average and low incomes, and on investment, is not only socially more just but is far more effective as a stimulus than tax cuts for the best-off – who save, rather than spend, a higher proportion of their income. Equally spending on investment is far more effective in expanding the economy that military spending – which does not add to productive capacity. But overall it is necessary to fight moves by fiscal conservatives to reduce the budget deficit in the short term. As an immediate response to the financial crisis countries facing the threat of economic downturn should run or maintain stimulus packages funded, if necessary, by budget deficits.

Budget deficit and the medium term

While budget deficits with a large component targeted at maintaining consumption are immediately vital to prevent short term economic decline they are not sufficient, faced with deep economic problems, to relaunch substantial growth because they do not deal with the most fundamental issue driving the downturn – the investment fall. This is in addition to the fact that few countries have Japan’s financial strength, which enabled it to sustain a very large budget deficit over a long period. For most countries large budget deficits can be run in the short term but are financially unsustainable in the medium term.

A policy of running large budget deficits is often inaccurately described as a 'Keynesian' one - inaccurately as Keynes own central concern was factors affecting investment and not budget deficits.1 Paul Krugman in the New York Times, for example, regularly but wrongly argues that the budget deficit is both the most central issue in economic policy and the core of Keynes views. US economist Paul Davidson similarly claims in The Keynes Solution: ‘Anything that increases spending on goods and services increases the profitability of business firms and the hiring of workers.’ (p54) But this is false - for example, an increase in spending on goods and services accompanied by cost increases may lead profits to fall.

However, even if profit did increase due to increases in demand, companies may not reverse the cuts in investment that are the core of the recession. Keynes pointed out that to generate investment a price must be paid to overcome ‘liquidity preference’ - the advantages of holding assets in cash and other liquid forms. In circumstances of high uncertainty, such as at present, the cost of overcoming liquidity preference may be prohibitive and therefore it will prevent investment taking place even if such investment would yield a positive profit.

Low interest rates necessary but not sufficient

Even more fundamental than liquidity preference in the present situation is that, given excessive indebtedness, companies use resources to repay debt, that is to build up their balance sheets, and not to invest even if demand increases. Therefore stimulating demand by budget deficits may prevent worse declines in production but does not produce significant output increases.

In such conditions low interest rates are also insufficient as an economic policy to provide a way out. Low interest rates are necessary to prevent interest payments becoming unsupportable and to remove a block to borrowing for investment. But they do not lead to investment under conditions where companies are intent on paying down debt and have no intention of borrowing for investment.

International redistribution of debt

As any solution to the present situation must involve medium term debt reduction a number of states are seeking to achieve this at the expense of other countries even without formal defaults on debt payments. In particular the US, via falls in the exchange rate of the dollar, reduces the real value of its debt at the expense of countries which hold dollar assets. Such policies however clearly only aid one country at the expense of others, effectively redistributing the debt without reducing the overall debt burden.

Inflation is not a relatively harmless solution

It is important to remove an illusion currently being suggested that inflation would be a relatively painless and non-harmful way to reduce debt. The idea behind this is that while the monetary volume of debt, its nominal value, would remain the same its real size would be reduced. Kenneth Rogoff, for example, has argued this:

‘It is time for the world’s major central banks to acknowledge that a sudden burst of moderate inflation would be extremely helpful in unwinding today’s epic debt morass…. Moderate inflation in the short run – say, 6% for two years – would not clear the books. But it would significantly ameliorate the problems, making other steps less costly and more effective. ‘

Similarly the British economist Will Hutton has argued:

‘As the IMF's chief economist, Olivier Blanchard, has suggested, if the options are public and private default, continuing bank weakness, economic stagnation (perhaps depression), or inflation, then the least bad option is to accept inflation, but to manage it within bounds.

‘Since inflation will happen anyway as governments seek the least bad way out, the choice in reality is whether to accept and manage it or not. Once debt is at a sustainable level and growth has resumed, then the world's financial system can be redesigned to avoid a repeat, and price stability restored.

‘This is the truth that cannot speak its name: as a senior financial policy official told me, even to raise it at home or abroad merely as an issue for debate is to invite universal disapproval. But truth must be faced. Britain should provide a lead – both for its own economic fortunes and to set the new international standard. As a minimum it should announce a new programme of quantitative easing, in effect printing money; insist the Bank of England uses the money it prints to buy the broadest range of private debt; and immediately replace the 2% inflation target with a target for the growth of money GDP – so getting Britain off the hook of its unpayable private debts.’2

However someone will have to suffer the loss in real resources created by the inflation. Usually this is the majority of the population as the rate of increase of incomes fall behind the rate of inflation. Politically a policy of lowering debt by inflation is therefore likely to be drastically unpopular for whoever implements it.

Furthermore economically inflation, striking at the majority of the population by reducing living standards, will actually cut consumption – which strengthens recessionary tendencies. Inflation also does not deal with the issue of increasing investment – the fall in which drove the recession. In short inflation is not a solution either politically or economically to a crisis of the depth which currently exists.

Indirect means of stimulating investment

If the way out is turned to, the necessary policies cannot be separated from the analysis of the depth of the crisis.

If the current economic crisis were of small or moderate dimensions then it could indeed be tackled by increases in budget deficits which primarily raised or maintained consumption. Such deficits would increase demand while liquidity preference, lack of profitability and debt levels would be insufficient to prevent companies responding to the increase in demand by raising investment - therefore substantial economic recovery would occur. This, however, has clearly not occurred in the crisis since 2008 despite large budget deficits being run.

Given budget deficits have been insufficient, attempts are also made to raise investment by extremely low interest rates and by seeking to reduce liquidity preference – the latter being a key goal of the talk regarding the need to ‘restore confidence’. These measures have also clearly not succeeded.

Confronted with this impasse more logical economic commentators are therefore beginning to address the need to raise investment. Such discussion currently primarily centres on advocating indirect means such as tax breaks. For example Joseph Stiglitz recently argued:

‘those worried about the shortage of policy instruments are partially correct. Bad monetary policy got us into this mess but it cannot get us out. Even if the inflation hawks at the Federal Reserve can be subdued, a third bout of quantitative easing will be even less effective than QE2. Even that probably did more to contribute to bubbles in emerging markets, while not leading to much additional lending or investment at home.

‘The Fed’s announcement that it will keep the target federal funds rate near zero for the next two years does convey its sense of despair about the economy’s plight. But, even if it succeeds in stopping, at least temporarily, the slide in equity prices, it won’t provide the basis of recovery: it is not high interest rates that have been keeping the economy down. Corporations are awash with cash, but the banks have not been lending to the small and medium-sized firms… The Fed and Treasury have failed miserably in getting this lending restarted, which would do more to rekindle growth than extending low interest rates though 2015.

‘But the real answer, at least for countries such as the US that can borrow at low rates, is simple: use the money to make high-return investments. This will both promote growth and generate tax revenues, lowering debt to gross domestic product ratios in the medium term and increasing debt sustainability. Even given the same budget situation, restructuring spending and taxes towards growth – by lowering payroll taxes, increasing taxes on the rich, as well as lowering taxes for corporations that invest and raising them on those that do not – can improve debt sustainability. ‘

By identifying raising investment as the key target Stiglitz does address the central dynamic of the recession. But the issue is once again quantitative and related to the depth of the crisis. Will measures such as tax breaks be sufficient to raise investment if they are added to other policies such as running budget deficits and low interest rates? If the economic crisis is not deep they will suffice. If the economic crisis, and the necessity to pay down debt, is stronger then indirect measures to target investment, such as tax breaks, will not be sufficient.

The current indications, given the scale of the economic problems and debt burden, is that indirect means to stimulate investment by policies such as tax breaks will be insufficient to relaunch substantial economic growth.

Direct means of raising investment

The most decisive way to overcome the current situation flows from the above trends. Its practical effectiveness was shown by its use by China in its successful 2008 stimulus package, which was followed by over 30 per cent GDP growth in three years. Keynes also analysed and advised it. This is that the state must overcome the reality or threat of a fall in investment by itself undertaking and organizing investment. Keynes noted this in The General Theory of Employment, Interest and Money: ‘It seems unlikely that the influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment. I conceive, therefore, that a somewhat comprehensive socialization of investment will prove the only means of securing an approximation to full employment.’ (p378)

Such an analysis flowed from Keynes practical experience regarding the relation between the depth of economic crisis and lack of sufficient efficacy of other economic instruments: 'Only experience… can show how far management of the rate of interest is capable of continuously stimulating the appropriate volume of investment… I am now somewhat sceptical of the success of a merely monetary policy directed towards influencing the rate of interest… I expect to see the State… taking an ever greater responsibility for directly organising investment; since it seems likely that the fluctuations in the market estimation of the marginal efficiency of different types of capital… will be too great to be offset by any practicable changes in the rate of interest.' (p164) Therefore: ‘‘I conclude that the duty of ordering the current volume of investment cannot safely be left in private hands.’ (p320)

Keynes naturally did not advocate an administered economy. But he therefore explicitly argued in the General Theory that the state should have the ability to intervene sufficiently to determine overall investment levels.

Keynes also noted that this 'somewhat comprehensive socialisation of investment' and 'the duty of ordering the current volume of investment' did not mean the elimination of the private sector, but socialised investment operating together with a private sector: 'This need not exclude all manner of compromises and devices by which public authority will co-operate with private initiative… apart from the necessity of central controls to bring about an adjustment between the propensity to consume and the inducement to invest there is no more need to socialise economic life than there was before…. The central controls necessary to ensure full employment will, of course, involve a large extension of the traditional functions of government.' (p378)

The country which most approximates to this economic system is China. China, of course, describes its economy in a different way and using Marxist terminology. China defines itself as passing through ‘the primary stage of socialism’ and its overall system as ‘socialism with Chinese characteristics’. However it is not the important question whether China’s definition of its own system should be accepted, or whether its economy should instead be regarded as conforming in important features to the system described by Keynes in the General Theory of Employment, Interest and Money. What is important is understanding how such an economic system works and to note that China has been able to run the world’s largest stimulus package without an unsustainable budget deficit, and why its macroeconomic policy has come through the international financial crisis more successfully than the US and Europe – and why China’s economic system has generated, during the last thirty years, the most rapid economic growth of any major economy in the world.

China’s economy

The difference between China and the US and Europe, of course, lies in economic structure. After its 1978 economic reforms China abandoned an administered economy. But it did not abandon the ability of the state to set the overall level of investment, and it maintains a state owned banking system which is stronger in a crisis than the ones in the US and Europe and which can be instructed to expand lending in order to sustain stimulus packages. China therefore actually implements Keynes point that ‘the duty of ordering the current volume of investment cannot safely be left in private hands.’ That is, a ‘somewhat comprehensive socialization of investment’ does exist in China, not in the sense that the private sector is eliminated, on the contrary China’s private sector is large and dynamic, but in the sense that the state has sufficient levers to determine the overall level of investment. In contrast in the US and Europe the conditions outlined by Keynes do not exist, and the state sector is insufficiently large to deliver an investment-led stimulus.

As a conseuence of these differences China has come through the financial crisis far more successfully than the US or Europe

Implication of the differences

Once again the interaction of these different factors cannot be separated from analysis of the scale of economic crisis itself. China’s economic structure clearly gives it a superiority which has allowed it to avert serious downturns, as shown both in the 1997 Asian debt crisis and in the international financial crisis since 2008, and to maintain very long term rapid economic growth. But how serious the lag in the US and Europe compared to China is depends on how serious the economic crisis is.

If the economic crisis is not deep then gradually time, and greater application of the measures which are available to the US and European economies – budget deficits, low interest rates, tax breaks for investment – will overcome the investment decline. China will still grow more rapidly, but the US and Europe will also resume growth. If the crisis is deep then only adoption of full scale Chinese methods of direct state action to implement ‘the duty of ordering the current volume of investment’ would suffice. That, however, would require a huge extension of the state sector of the economy, and therefore greater application of the indirect methods available in the US and Europe will be tried first.

One clear implication, of course, is that in all these different circumstances China continue to will grow much more rapidly than the US and Europe even if the latter escape a 'double dip' recession.

Conclusion

The realistic conclusions which follow from the present renewal of the international financial crisis, in terms of both analysis and the required policy response, are therefore clear:

The International financial crisis has recurred because the economic policies to deal with the 2008 crash in the US and Europe did not remove its underlying cause - excessive debt build up in an attempt to sustain US economic growth and living standards. The post-2008 policies failed because they were designed to deal with much less serious economic events than the ones which unfolded.
The effect of the policies pursued after 2008 has been to nationalize large part of the debt that originated in the private sector. Therefore, in most cases, and in particular in the US, even if the crisis reappears around state finances the actual origins of the problem lay in the private sector debt.
The strategic failure to overcome the debt crisis creates strong pressure to a renewed crisis of the banking system.
The debt crisis transmits itself into the real economy above all though a collapse in investment – taking the G7, the entire decline in GDP is due to the fall in fixed investment.

In the short term it is necessary to deal with the crisis by continuing to run budget deficits, and countries that have not done so may well need to introduce budget deficit spending. China is an exception because its economic structure allows it to run large stimulus packages without budget deficits due to its ability to directly stimulate investment. Only a handful of other countries, however, have a state sector large enough to fund and run such investment programmes and therefore other economies will have to run budget deficits in the short/medium term. However while budget deficits are necessary to avoid sharp economic decline the experience of the last three years has shown that the economic crisis is too deep for budget deficits by themselves to stimulate significant growth because they do target the core of the recession, the investment decline.

Very low interest rates must be maintained in order to lighten the burden of interest payments on the overextended debt, and to remove an obstacle to investment. However, once again the experience of the last three years has shown that the economic crisis is too deep for low interest rates themselves to relaunch investment and substantial economic growth.

China possesses the advantage that it can directly stimulate investment. In other countries there is also a growing realisation that the core transmission of the economic problem lies in investment falls. But without a sufficiently large state sector most other countries do not have the means to directly launch investment. Therefore indirect methods such as tax incentives for investment and similar measures are being proposed. It remains to be seen in practice, if these are introduced, whether they are effective. Given the depth of the crisis the probability is that even if such measures are introduced they will not be enough to sufficiently overcome the low investment level. Consequently growth will continue to be very slow in the US and Europe even if a new recession can be avoided.
The world economy will therefore see a further period in which China’s economy will grow rapidly while the US and Europe remain at best relatively stagnant.

John Ross

Notes

1. See Ross, J. ‘Deng Xiaoping and John Maynard Keynes’. Soundings Winter 2010.

2. The British newspaper The Observer made the same call:

‘The only alternative to default is inflation – governments printing money to get out of the corner they, their banks and their citizens are in. The question facing policymakers in the years ahead will be which of the unpalatable options they confront – economic stagnation, public and private default together with endemic bank weakness, or uncontrolled or managed inflation – they are going to choose…

‘The British government's policies are locked in the same impotent stasis as the rest of the world's – battening down the hatches, cutting public spending and borrowing, and refusing to accept realities. The government should declare independence. It should abandon the suffocating 2% inflation target and replace it with a target for the total volume of spending in the economy. It should prepare to stimulate the economy with more quantitative easing – in effect printing money – using the proceeds to lend directly to public agencies and departments prepared to lift capital spending.’

Wednesday, August 10, 2011

WFDY Statement on riots in England

Regarding the riots in London and other parts of Britain

WFDY condemns the reckless violence and widespread criminality of recent nights, however we understand it as a direct product of the capitalist system and of the resulting dangerous lack of stability and rights for the youth of today, accompanied by disenfranchisement and exacerbated by unprecedented levels of alienation.

It is clear that the anger of the youth is derived from a number of factors including police brutality, the massive reduction in public spending on youth and other services, and a general frustration at a future with little prospects. Furthermore, WFDY notes that the cuts in public spending have had a disproportionate impact on both the youth and ethnic minority groups.

The first and main responsible for the wave of violence that now is taking place is the system under which the British people live, responsible for massive unemployment, huge rates of precarity, extremely expensive access to the higher levels of education and almost impossible access to proper housing, mainly for the young generations. It is also important to remind that it is this system that engages the British youth in wars just to satisfy the greed for profit of the big national and international monopolies.

We admit these concerns along with our member organizations in Britain, especially with comrades of YCL Britain, demanding to address the root causes of unrest and violence and by supporting the genuine concerns of young people in the street and their frustration while outright rejecting their way of vandalizing, looting and creating chaos without certain goal of socio-economic transformation.

In this extremely sensitive moment, WFDY calls upon all the young people in Britain to organize themselves and find the best ways to revolutionary transform their country, which will surely be through the overthrown of this dominant order and not through the destruction of public or private goods, for a Britain and a world of peace, solidarity and social transformation.

The CC/HQ of WFDY
Budapest – August 9, 2011

WFTU Palestine Campaign

INTERNATIONAL CAMPAIGN

FOR THE RECOGNITION AN INDEPENDENT, SOVEREIGNTY PALESTINIAN STATE
IN THE 1967 BORDERS WITH EAST JERUSALEM AS ITS CAPITAL


The World Federation of Trade Unions continuing its long lasting solidarity with the Palestinian people and its resistance against the occupation announces the launching of an international campaign for the recognition of the Palestinian State with the 1967 borders and East Jerusalem as its capital.

It’s high time that important steps are being made for the end of the Israeli occupation and the barbarity of the Israeli’s army forces.

The Palestinian People are suffering because of the Israeli occupation, the occupation of the territories after the 6-day war of 1967, the separation wall built by Israel, the organized attacks against the West Bank and the Gaza Strip.

We call on the governments to support the recognition of the Palestinian state, as a member state of the UN. The WFTU has already addressed a letter to the UN Secretary General Mr. Ban Ki-Moon about this subject, demanding the immediate recognition of the Palestinian State.

The WFTU demands:

The end of the settlements and the withdrawal of all settlers who have settled across the borders of 1967.

The demolition of the separation wall in Jerusalem.

All the Palestinian refugees to be granted the right to return to their homes, based on the relevant decisions of the UN The elimination of any exclusion against the Palestinians in the West Bank and the Gaza strip.

The immediate release of imprisoned Palestinians and other political prisoners kept in the Israeli prisons.

The withdrawal of the Israeli army from all the occupied territories of the 1967, including the Golan Heights and the Shebaa area of Southern Lebanon.

We call on the trade union movement to support this campaign with messages of solidarity and press releases.

Kindly address your messages to the following e-mail addresses:


mohammad_yahya2007@yahoo.com, international@wftucentral.org, press@wftucentral.org, inquiries@un.org

Monday, August 8, 2011

Hiroshima and Nagasaki Day

WFDY Solidarity Statement on Hiroshima and Nagasaki Day

The world Federation of Democratic Youth would like to extend its solidarity with Victims of use of Nuclear weapons in Hiroshima and Nagasaki on this sad commemoration of 66th anniversary of Hiroshima and Nagasaki Day.

On this sad occasion we would like to remind that the first festival of WFDY had highlighted two issues in the village near Prague where there were devastated consequences of Nazi war. The first issue was how fascism and its alliances did its barbaric acts to the people of weaker nation, different ideology and races whereas another issue is on the use of nuclear bomb by the United State against civilian people of Japan. No logics can justify such use of nuclear weapons in the cities of any moral war and no any reason for safety and retaliation to any aggression can justify the use of nuclear weapon against any civilians and in the case in which the bomb was used by the USA against Japan it worth to underline that the country had, in fact, already surrendered and stopped hostilities. Due to the drop of these nuclear weapons in august 6th and august 11, 1945, 90000- 160000 people in Hiroshima and 60 to 80 thousand people in Nagasaki were died of which 60 percent were killed at its first flash burns.

WFDY has always clear stance about imperialist and war policy of Japan that had carried out lot of suffering to the people of Korea, China, and Indo-China and making alliance with fascism for aggression is condemnable; and people’s resisting for their liberation and freedom in the countries always deserve victory. In fact, such war policy of Japan had pushed and misused the peace loving, dedicated and patriotic common people of Japan for war and aggression against neighbors. At the same time, we have our all respect and solidarity to the common people of Japan that they are great aspirators against nuclear weapons, defenders for any violation against their constitution of non-aggression and to promote peace and harmony in the world.

The third and fourth festival of WFDY had highlighted the issue of nuclear weapon to be abolished from world; and in many times we had taken some serious campaign against disarmament. The world is stepping in 21st century and our tragic sadness of using nuclear weapons has matured by 66 years. However, it is invisible that all the accumulation of nuclear weapons in this world with capacity to destroy this world many times and every corner to demonstrate the final show of idiocy spending billions of dollars while people in other world are dying from hunger, starvation and AIDS pandemic.

Finally, we express our commitment to fight against accumulation of nuclear weapons on this planet and to fight for the cause of disarmament in which the imperialist world order is first and foremost responsible, and pushing the whole humanity into the brink of disaster. The world needs full denuclearization and disarmament, not the hypocrite measures that USA (the only country that has actually ever used the bomb) and its imperialist allies demand from other countries (Iran, DPRK, etc.) while they keep developing aggressions and occupations and more and higher technological and more precise nuclear weapons.

Further, we express our solidarity with the struggles carried out by our member organizations in Japan JLSY, KYLJ, DYLJ, as well as all other members of WFDY, in those fronts.

WFDY CC, Headquarters
Budapest, Hungary
August 6, 2011

Saturday, August 6, 2011

Democracy Now Interview with Michael Hudson

Debt Deal – Economy Sacrificed for Military Bias
August 2, 2011
By Michael Hudson

Democracy Now, August 2, 2011
After Months of Partisan Wrangling, Wall Street & Pentagon Emerge Victorious on Debt Deal

AMY GOODMAN: After months of a bitterly partisan stalemate, the U.S. House of Representatives has voted in favor of raising the federal borrowing limit and avoiding a default on the national debt. The final count showed 174 Republican ayes and 66 Republican nays, with Democrats split evenly, 95 on each side. The vote came just hours before a Treasury deadline that potentially would have seen the U.S. run out of cash and default for the first time in its history. The bill is expected to be approved by the Senate and signed into law by President Obama today.

The deal includes no new tax revenue from wealthy Americans and will provide no additional stimulus for the lagging economy. It will cut more than $2.1 trillion in government spending over 10 years while extending the borrowing authority of the Treasury Department. The deal will also create a new joint congressional committee to recommend broad changes in spending to reduce the deficit.

The compromise deeply angered right-wing Republicans and progressive Democrats alike. Republicans were upset the bill did not further curtail government spending. Meanwhile, both the Progressive Caucus and the Black Caucus rejected the deal for placing the burden of deficit reduction on poor people. Democratic Congress Member Jim McGovern of Massachusetts said, quote, “I did not come to Washington to force more people into poverty.” Congressional Black Caucus chair Emanuel Cleaver blasted the final debt deal on his Twitter account, writing, quote, “This deal is a sugar-coated Satan sandwich. If you lift the bun, you will not like what you see.”

Several other senators said they were struggling with how to vote but suggested if it became a matter of their yes vote or default, they would back the measure. The White House dispatched Vice President Biden to lobby congressional liberals, and House Minority Leader Nancy Pelosi also urged her colleagues to come off the fence.

REP. NANCY PELOSI: It’s hard to believe that we are putting our best foot forward with the legislation that comes before us today. I’m not happy with it, but I’m proud of some of the accomplishments contained in it, and that’s why I am voting for it. Please think of what could happen if we defaulted. Please, please, please come down in favor of, again, preventing the collateral damage from reaching our seniors and our veterans.

AMY GOODMAN: Enough Democrats and Republicans reluctantly joined forces to see the proposed legislation through by a vote of 269 to 161 last night.

In a stunning emotional moment during the extended roll call, Democratic Congress Member Gabrielle Giffords of Arizona received a standing ovation as she voted yes on the bill, her first vote since a near-fatal shooting in Tucson, Arizona, in January.

REP. NANCY PELOSI: Her presence here in the chamber, as well as her service throughout her entire service in Congress, brings honor to this chamber. We are all privileged to call her colleague, some of us very privileged to call her friend. Throughout America, there isn’t a name that stirs more love, more admiration, more respect, more wishing for our daughters to be like her, than name of Congresswoman Gabby Giffords. Thank you, Gabby, for joining us today.

AMY GOODMAN: Congress Member Gabrielle Giffords was among the 95 Democrats who voted for the bill.

White House spokesman Jay Carney called the deal “a victory for the American people.” The debt deal was also a victory of sorts for the Pentagon. Rather than cutting $400 billion in defense spending through 2023, as President Barack Obama had proposed in April, the current debt proposal trims only $350 billion through 2024, effectively giving the Pentagon $50 billion more than it had expected over the next decade. Speaker John Boehner had met earlier with the House Armed Services Committee to assuage alarm about the potential spending cuts from the Pentagon.

For more, we’re joined in studio by William Hartung, director of the Arms and Security Initiative at the New America Foundation, author of Prophets of War: Lockheed Martin and the Making of the Military-Industrial Complex.

We’re also joined by Michael Hudson, president of the Institute for the Study of Long-Term Economic Trends, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, author of Super Imperialism: The Economic Strategy of American Empire.

We welcome you both to Democracy Now! Michael Hudson, what about this vote? What does it mean?

MICHAEL HUDSON: It’s best thought of as an anti-stimulus package. As for the feeling among the Democrats that I’ve spoken to, I’ve never seen them so depressed. What depresses them so much is the irony that it probably could only be passed under a Democratic administration. Yves Smith has called it a “Nixon goes to China moment in reverse.” And that’s because only a Republican could have made an opening to a Communist country and not be accused of being soft on communism. Only a Democratic president could have drawn along a Democratic Congress in support of a law that is going to add tax deflation to the debt deflation we already have in the economy.

AMY GOODMAN: What does that mean, “add tax deflation to the debt deflation”?

MICHAEL HUDSON: That means that the government is going to be sucking money out of the economy. Normally, government is supposed to provide the economy with purchasing power. Running a deficit is traditionally, for 5,000 years, how every country’s government has supplied money. But now the government isn’t going to do it. There’s a kind of junk economics belief that governments shouldn’t run deficits. Yet it’s by running a deficit that an economy expands. That’s what injects the purchasing power in it.

This is why Mr. Obama had the $700 billion stimulus package a few years ago. The idea was for government spending to stimulate employment, or at least slow the unemployment.
Right now, the economy is shrinking. It needs some kind of spending to overcome the shrinking. If the government doesn’t supply the credit, the economy will have to rely on commercial banks. And they’re going to charge interest. This means that all of the growth that does occur in the economy is basically going to be paid to Wall Street, not to the people who produce the wealth, not to industry or its employees. The economy is going to shrink. Industrial corporations will shrink. Real estate prices will shrink further. But the government isn’t doing anything to prevent this shrinkage into a deeper and deeper recession.

AMY GOODMAN: So, why did Obama go this route? What were his alternatives?

MICHAEL HUDSON: He had many—

AMY GOODMAN: And what about the relationship that was touted between Obama and Boehner, ultimately people saying it was the Tea Party that broke with Boehner, and so he just couldn’t follow through for Obama?

MICHAEL HUDSON: It wasn’t the Tea Party. Suppose that a Republican were president, or George Bush. If George Bush or Republican McCain would have been president and proposed this, you would have had the whole Democratic Congress voting against it. And you would have a lot of progressive Republicans voting against it. But they’re not going to vote against a Democratic president. And in fact, that’s why it was called a “Nixon goes to China in reverse.” Only a Democrat could have imposed so deflationary, so negative and regressive a fiscal policy. And that’s why the Democrats felt so frustrated when they were split, as you pointed out, 95 to 95. They felt that they had to support the Obama Administration.

The reason why they’re so disappointed is that there were many alternatives. While this fight was building up last week, you didn’t have a squiggle in the bond market. Wall Street was not worried that there was going to be any problem.

Obama could have invoked the 14th Amendment, saying that the government is always going to pay the debts, that can’t be questioned. He could have issued a $1 trillion platinum coin, worth maybe $50, to the Federal Reserve and retired the government debt. There were all sorts of technicalities that he could have done. He didn’t propose to do any of them.

The reason seems to be because, as he explained to voters in his speech last week, he believes in running a budget surplus. He believes that’s good for the economy. And that’s the tragedy of all this: It’s not good.

AMY GOODMAN: I want to turn to Obama. Unveiling the deal on Sunday night, he said the agreement was borne out of a need to compromise.

PRESIDENT BARACK OBAMA: Now, is this the deal I would have preferred? No. I believe that we could have made the tough choices required, on entitlement reform and tax reform, right now, rather than through a special congressional committee process. But this compromise does make a serious down payment on the deficit reduction we need and gives each party a strong incentive to get a balanced plan done before the end of the year. Most importantly, it will allow us to avoid default and end the crisis that Washington imposed on the rest of America.

AMY GOODMAN: Your assessment of what President Obama said and how this could have been averted? I mean, there was a person, a journalist at a press conference in December, when he went along with the Bush tax cuts for the wealthy, saying, why didn’t you attach this, a guarantee of a debt ceiling, if you were going to do that at the time? And Obama said he wasn’t afraid.

MICHAEL HUDSON: Well, the real question is the reverse. How did these tax issues get attached to a debt ceiling issue? Since 1963 the debt ceiling has been raised every eight months on the average. It’s just automatically been raised. Nobody in any of these 83 times has ever tried to attach a policy rider to the debt ceiling. It’s always been like an accountant signing off on everything. This is the first time that a debt ceiling has ever been linked to tax policy. That’s never been done before. So there didn’t have to be a compromise. Mr. Obama could have simply said, “Tax policy is tax policy. If you want to argue over that, spend a year in doing that. But a debt ceiling is something all by itself.”

AMY GOODMAN: But clearly, people already saw that this might be an issue, because the Tea Party Republican activists were already talking about it.

MICHAEL HUDSON: Yes. I think that Mr. Obama didn’t anticipate that it would be made an issue. He was thinking like a lawyer and thinking this is how it’s normally done, there’s no connection. What he could have done is gone to the people and explained why he believed that. He could have said, “Look, I didn’t anticipate it, because this is outrageous. This has never been done, and I’m not going to let the Republicans link a rider onto this. I don’t have to compromise, because this isn’t the point to compromise.” Compromise is when the Senate and the House debate a tax law, but this isn’t the time for debate. This is the time to approve what the Congress has already agreed to spend.

AMY GOODMAN: Our guests are Bill Hartung of the Center for International Policy and Michael Hudson of the University of Missouri, Kansas City, an economist. I want to turn to who won and who lost. Now, let’s be clear on what this commission is and what’s going to happen to Medicare, Medicaid, Social Security. Michael Hudson?

MICHAEL HUDSON: The commission is going to be composed of three people, suggested by the House leader, Republican and Democratic leaders each, and the Senate Republican and Democratic leaders. The Republican—six Republican appointees to the commission are already pledged to no taxes, and especially no closing of loopholes, nothing that will increase the money paid by their campaign contributors to the Republican Party.

We don’t know who the Democratic appointees are going to be. But in the last commission that Mr. Obama appointed, the deficit reduction commission, they were Democrats who were in favor of cutting Social Security. They were Wall Street Democrats, or what used to be called the Democratic Leadership Council. So the worry is that the Democrats are going to push their own tax cutters and that really there’s not going to be very much difference between the Democrats and the Republicans in what they propose for Social Security and Medicare.

Mr. Obama had threatened that there wouldn’t be enough money to send out Social Security checks, and that simply isn’t true. The Social Security Administration has its own holdings of Treasury bills, just like an individual would hold their own savings. Of course they could have cashed in the Treasury bills.

AMY GOODMAN: What about the credit agencies, the rating agencies?

MICHAEL HUDSON: They have played a very bad role in this. Here’s what happened. Under the Frank—the bank reform—

AMY GOODMAN: With Congress Member Frank.

MICHAEL HUDSON: —the rules for the credit rating agencies were changed. The government was angry at them for giving AAA ratings on junk, and their defense in courts saying, “Well, yes, we gave AAA ratings on junk mortgages, but they’re legally only opinions.” So the Dodd-Frank bill said, “You rating agencies are liable for your opinions.” Well, then the rating agencies said, “We want to make money on selling our opinions, and we don’t want to have to take any responsibility for them, so we’re going to get you. We’re going to threaten to downgrade the U.S. government, until you say, ‘OK, we don’t want to hear your risk assessments anymore, because you’re hurting us.’”

But the proper response is to say, look, the rating agencies are just out to make money selling their opinions that are up for sale. The rating agencies are trying to get brownie points with Wall Street for opposing Social Security, for essentially yelling fire when there isn’t any fire. And at the same time, they want to weaken the Dodd-Frank bill so that they don’t have to ever be liable for making a warning about a country, and they can continue to go back to giving AAA ratings for junk, which is how they make their money.

AMY GOODMAN: Bill Hartung of the Center for International Policy, what happened to the Pentagon in this? They were actually surprised in the other direction, that they did so well.

WILLIAM HARTUNG: They did reasonably well. President Obama, as you mentioned, had talked about $400 billion in cuts over about a decade. That would have allowed the Pentagon to still grow with inflation, so that wasn’t even a real cut. So this is less than that, at $350 billion, and it counts other things. They can cut veterans’ benefits. They can cut the Department of Energy. They can cut international affairs. They can cut Homeland Security. So even down at $350 billion, the Pentagon will not bear all of it. And that was John Boehner’s contribution to the package, was to protect the Pentagon and that larger basket of agencies.

AMY GOODMAN: How powerful were the military contractors, the lobbyists, in what has taken place, in the final deal?

WILLIAM HARTUNG: Well, they weren’t too vocal about it, because they didn’t want to look like special interests, but they worked on the inside. They had Boehner on their side. They had Buck McKeon, the head of the House Armed Services Committee, whose biggest contributor is Lockheed Martin, who’s got big military facilities in his district. They had people like Randy Forbes, whose district is near the Newport News Shipbuilding complex, which builds attack submarines and aircraft carriers. So they used their influence to get people on the inside, their allies in the House, to push their agenda.

AMY GOODMAN: Let me ask you, Michael Hudson, how the debt ceiling was put into place to begin with? In fact, it was linked to the military, right?

MICHAEL HUDSON: It was put in place in 1917 during World War I. The idea was to prevent President Wilson from committing even more American troops and money to war without Congressional approval. It was much the same in every country of Europe—England, France and so forth. Parliamentary control over the budget was introduced to stop ambitious kings or rulers from waging wars. So the whole purpose was to limit a government’s ability to run into debt for war, because that was the only reason that governments ran into debt. Almost all governments, for hundreds of years, have been in balance in their domestic spending. War is what pushes up debt, as it has done in the United States.

Now, the irony of all this is that three weeks ago you had Dennis Kucinich and Ron Paul trying to stop the Libyan—

AMY GOODMAN: Democrat and Republican.

MICHAEL HUDSON: —the Libyan war by introducing a rule to deny Mr. Obama the funding to continue to wage war on Libya and to enforce the War Powers Act on the president – to say, look, the president can’t go to war for more than three months without getting congressional approval.

Mr. Obama said we’re not at a war. Even when we bomb people, that’s not a war; only if our people are killed while we’re bombing them are we at war. And none of our people are getting killed. Bombing people is not war. And then you had, all of a sudden, this fortuitous budget deficit issue coming up, and that untracked the whole discussion of limiting the budget from the discussion about war, where Mr. Kucinich and his Republican colleague had tried to prevent the American military expansion in the Near East. That worries them, and it worries a lot of other Congresspeople too. But somehow, despite the fact that war is always the main cause of budget deficits, that wasn’t an issue in this time around.

AMY GOODMAN: Bill Hartung, your response to that, and also, the whole issue of how—the kind of lobbying power the Pentagon itself has, not just the military contractors, and when there are cuts, where those cuts go, who is hurt most?

WILLIAM HARTUNG: Well, first of all, I think on the issue of war spending driving the debt, that’s absolutely true. If you look at Korea, you look at Vietnam, you look at the Bush administration, along with the tax cuts, that’s been the huge driver of the deficit. So it’s ironic now we’re dealing with that deficit without touching the Pentagon, essentially.

In terms of the distribution of cuts, if you’re giving more money to Lockheed Martin and Northrop Grumman, it’s going to come from feeding programs, from housing programs, from administration of justice, from environmental protection. The whole rest of the budget, other than Social Security and a few entitlement programs, is discretionary. The Pentagon gets 56 cents on the dollar out of that already. And if they suffer almost no cuts, they’ll be a bigger part of the discretionary budget when this is all over.

AMY GOODMAN: And then, in terms of overall what someone wants their nation to be, when you are a first-rate military power—and there’s no question that the U.S. is the most powerful military on earth—but other parts of your country—the economy, the health levels of the people, all of the different aspects that make a country great—are much lower, are second-rate, isn’t this a problem, when it comes to how you approach problems, the first—your first point of attack will be to attack, because it’s your strongest way to deal, Michael Hudson and Bill?

MICHAEL HUDSON: This is what the fight of classical economics in the 18th and 19th century was all about. Parliamentary reform was intended to stop the power of the kings and the aristocracy from going to war, and to refocus the economy on developing national industrial power. For hundreds of years this was the essence of economics. And all of a sudden it is no longer being discussed now. The war is—ever since the Vietnam War, the military spending has been deindustrializing the American economy. If you have a Pentagon contract, it is cost-plus. The higher they spend on airplanes, on armaments, the more money they get. So you have them engineering not to cut costs, but to maximize costs, because that’s how they make their profit.

So you have a warping of American engineering and technology toward the military, and that’s why the industrial core has been shifting to Asia, because they don’t have this military bias. The economy is being sacrificed to the military. And that’s somehow evaded discussion here. And yet, in Europe, for hundreds of years, this is what economics was all about.

WILLIAM HARTUNG: Well, it’s interesting.
AMY GOODMAN: Bill Hartung?

WILLIAM HARTUNG: This year is the 50th anniversary of Eisenhower’s military-industrial complex speech. He talked about the need for a balanced economy, for a healthy population. Essentially, he’s to the left of Barack Obama on these issues. And—

AMY GOODMAN: The general turned president.
WILLIAM HARTUNG: Yes.

AMY GOODMAN: Of course, a Republican, Dwight Eisenhower.
WILLIAM HARTUNG: And we’re spending twice as much on the military as we did when Eisenhower gave that speech. So, we’ve got a huge imbalance in our budget. You can’t really defend your country if people are sick, people aren’t healthy, people aren’t educated. So it’s kind of undermining the roots of the ability to defend the country, going forward, to throw money at weapons makers, to throw money at this huge military base infrastructure that isn’t needed for defense proper of the country. So, it’s completely out of balance, and we’re going to pay a price for that if we don’t turn that around.

AMY GOODMAN: Well, I want to thank you both for being with us. Bill Hartung, author of Prophets of War: Lockheed Martin and the Making of the Military-Industrial Complex, now at the Center for International Policy. And also, Michael Hudson, professor of economics at the University of Missouri, Kansas City. His website michael-hudson.com.

New poster from the CPI

Wednesday, August 3, 2011

WFTU Campaign on Palestine

WORLD FEDERATION OF TRADE UNIONS
Athens, Greece – July 29th, 2011

FOR THE RECOGNITION AN INDEPENDENT, SOVEREIGNTY PALESTINIAN STATE IN THE 1967 BORDERS WITH EAST JERUSALEM AS ITS CAPITAL

The World Federation of Trade Unions continuing its long lasting solidarity with the Palestinian people and its resistance against the occupation announces the launching of an international campaign for the recognition of the Palestinian State with the 1967 borders and East Jerusalem as its capital.

It’s high time that important steps are being made for the end of the Israeli occupation and the barbarity of the Israeli’s army forces.

The Palestinian People are suffering because of the Israeli occupation, the occupation of the territories after the 6-day war of 1967, the separation wall built by Israel, the organized attacks against the West Bank and the Gaza Strip.
We call on the governments to support the recognition of the Palestinian state, as a member state of the UN. The WFTU has already addressed a letter to the UN Secretary General Mr. Ban Ki-Moon about this subject, demanding the immediate recognition of the Palestinian State.

The WFTU demands:

The end of the settlements and the withdrawal of all settlers who have settled across the borders of 1967.
The demolition of the separation wall in Jerusalem.
All the Palestinian refugees to be granted the right to return to their homes, based on the relevant decisions of the UN The elimination of any exclusion against the Palestinians in the West Bank and the Gaza strip.
The immediate release of imprisoned Palestinians and other political prisoners kept in the Israeli prisons.
The withdrawal of the Israeli army from all the occupied territories of the 1967, including the Golan Heights and the Shebaa area of Southern Lebanon.

We call on the trade union movement to support this campaign with messages of solidarity and press releases.

AUF Norway Message of Thanks

We are very grateful for the wave of sympathy and support that has
reached us from all over the world after the brutal attacks in Oslo
and on Utøya. It has warmed our hearts in a dark hour for the whole
country.

The most important task now is to help the victims, their families and
everyone else who has been affected. As Prime Minister Jens
Stoltenberg declared, “Evil can kill individuals, but it can never
defeat a whole people”.

We will respond by strengthening our democracy and regaining our sense
of security.

Best regards

Julie Lødrup
Arbeidernes Ungdomsfylking (AUF)