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Interview with Michael Hudson

(a) How is it that you wrote Super Imperialism as early as 1972? What was your inspiration, your main sources?

In the mid-1960s I was the balance-of-payments economist for Chase Manhattan Bank. At that time the U.S. private sector was just exactly in balance, and the entire payments deficit stemmed from U.S. military spending. I also was junior member of the Columbia Group opposing the Vietnam War, composed of my mentor Terence McCarthy and Seymour Melman (both of Columbia Universitys Mudd School of Industrial Engineering). Our position was that the Vietnam War was consuming the U.S. gold stock and undermining the dollar Every Friday morning Wall Street would look at the Federal Reserve Boards statistics on the gold cover. At that time every U.S. paper currency note had to be covered 25% by gold. As fast as the U.S. was spending dollars in Vietnam and other French colonies, and on its military bases in Germany, the central banks of France and Germany would cash them in for U.S. gold held at the Federal Reserve Bank in New York. Like many others on Wall Street, Chases CEO George Champion said that the war was not fiscally responsible. It was supported by the socialists, and by labor generally. At the Socialist Party, Michael Harrington banned any opposition to the war in the partys youth paper, Young Socialist Challenge. When he and, alas, my friend Max Shachtman argued that the war should be supported as a proxy war against Stalinism, the Young Peoples Socialist League lost over 80% of its members, and the Socialists did also. I found that my opposition to the war did not help me at the left-leaning (but Stalinoid) New School for Social Research, where I taught balance-of-payments analysis and international finance at the Graduate Faculty from 1969-72. As a byproduct of my teaching I wrote a history of international trade theory and also of balanceof-payments accounting. I had two book offers by 1971, both for $10,000. One was from Random House for my history of trade and international financial theory, and one from Holt Rinehart and Winston for Super Imperialism plus two other books. So I took the latter offer, finding current events more pressing.

I wanted to call the book Monetary Imperialism, but my editor at Holt Rinehart, Sig Moglin, had gone to school with a Communist Party roommate and wanted to call it Super Imperialism. Most of the reviews were in business magazines such as Business Week, and I got enough consulting and lecturing offers to leave academia to advise Canadian and U.S. financial institutions, and to work with Herman Kahn at the Hudson Institute as an economic futurist. Herman offered to triple my New School salary, and the economics department there didnt want me to teach financial theory in any case, because Mr. Heilbroner insisted that there was no debt problem and said he objected to my anti-Malthusian policies. Holt Rinehart told me that the largest orders for Super Imperialism came from Washington and Canada, and Herman later told me that Washington meant the Defense Dept. and CIA. They used my critique of Americas free ride as a how-to-do-it book. The Defense Dept. in fact gave the Hudson Institute an $85,000 contract to explain to them just how the United States was obliging other countries to give it a free financial ride. I compiled son of SuperImperialism, Global Fracture, out of the articles and reports I produced for the Hudson Institute. The sources were public: Congress was quite explicit as to the self-serving character of U.S. economic policy, and of foreign aid in particular. Politicians inserted important articles from the press into the Congressional Record. The IMF annual meetings reported the policy disagreements, and the daily financial press was much more thorough in covering the balance of payments than is the case today.

(b) Do you see any Fracture today? China? Venezuela and the Bank of the South? Any other?

The world economy is still mired in a tenuous prefracture condition. A real multipolar world economy will have to wait until an alternative to the dollar is developed. The euro and sterling are satellite currencies. The first step obviously is the Shanghai Cooperation Organization, which includes India, Russia, Iran and Central Asia joining China. There is some pressure to create a Latin American bloc too, but no concrete steps have been taken apart from Venezuela and Cuba.

But actually it is the United States that is trying to break large geographical areas into regions. This is what happens when NATO moves into Georgia, Central Asia and Central Europe. What Republican Senator John McCain proposes as a new League of Democracies to act independently of the United Nations is to create a league of puppet states. The word democracy has lost its former political meaning, and now means simply pro-U.S. geopolitical and military alignment. The word reform likewise has taken on anti-labor, pro-rentier connotations that are just the opposite from what the word meant a hundred years ago.

(c) What about Europe? Do you see any solution to the Chicago school in Europe?

The European Central Bank is hopelessly monetarist and (what is pretty much the same thing) anti-labor. The irony is that although the European Union was started by socialists, its key government apparatus has been taken over by neoliberals. They have made it highly pro-financial and pro-American rather than trying to develop a domestic European market and raise European living standards. The litmus test to watch is its relationship with the post-Soviet economies such as the Baltic States. They are buckling under the neoliberal policies they naively adopted by taking the Washington Consensus advice endorsed by the European Community. Most economically destructive is the heavy flat tax on labor income and the merely negligible property tax. The balance of payments for postsoviet economies is collapsing now that their real estate bubble (mortgages denominated in euros and other foreign currencies) has burst and no long can finance their structural trade deficits. The only solution is to reverse course and act in Europes own self-interest by producing for its own consumers rather than for the U.S. market simply in exchange for U.S. Treasury bonds that never can be paid. A domestic European economic orientation would raise domestic living standards and expand the internal market, which is how the United States itself rose to world dominance. But this would entail reversing Europes anti-labor policy. A new kind of economics would have to be taught probably in departments other than the present neoliberal economics departments. I have tried to do this at the

Berlin School of Economics at its heterodox post-Keynesian meetings in November 2007 and 2008.

(d) Bubble economy: big recipes for big troubles. Tell us some of them: the big ones.

The bursting of the bubble means negative equity for countries whose landlords receive rent in domestic currency but owe mortgage debts in hard currency. Thats the problem with bubbles: When asset prices collapse, the debts that have bid them up remain in place, leaving a residue of Debt Pollution in the form of Negative Equity. This is the condition that much U.S. real estate is in, and it has created negative equity for the big U.S. moneycenter banks. The U.S. response has been to put pressure on Saudi and Bahraini sheiks to pour yet more money into Citibank and other insolvent American banks to bail them out. At some point this may create pressure to recoup their losses by raising oil prices all the more and moving out of the U.S. orbit. On a more general scale, European and Asian investors have discovered that the U.S. financial sector is run by crooks, from Bear Stearns and UBS up to the semipublic FNMA and Freddy Mac. The ratings agencies have shown themselves to be as venal as Arthur Anderson, KPMG and the accounting sector. Theres almost no way a U.S. balance sheet reveals the financial position of firms or other collateral today from liar loans at the bottom of the real estate subprime crisis to the balance sheets of the largest financial institutions. This is why stockholders have bailed out of these stocks. Their book values and mark to myth valuations are fictitious.

(e)

Socialism: What does it mean in the 21st century?

There always have been two kinds of socialism: distributive socialism (opposing inequality) and productive socialism (urging public enterprises to play the role of economic leadership). Throughout the 19th century the core was economic. The expectation was that raising productivity would lead to rising living standards. So socialists discussed the best way to introduce industrial technology while minimizing the rake-off by the idle rich property owners and the financial sector. Socialists focused their analysis on the core of society. 4

Today, socialism in the United States and many other countries focuses on political considerations, in particular on the groups left out of development the poor, racial and ethnic minorities, Third World poverty, and the confusion that Stalinism created over whether Marxism means central planning and autocracy, or a way of shaping markets with feedback mechanisms and democratic control that is, democratic control apart from U.S.centered NGOs. Early socialist economic reform required democratic political reform to replace the control of parliaments by the landed interests. But as Aristotle pointed out, democracy is the stage immediately preceding oligarchy. Oligarchy is primarily a financial phenomenon. A creditor class appropriates property by getting the rest of the population in debt to itself. Many socialists anticipated that banks would become the planning agencies under publicsector leadership. But as matters have turned out, the financial sector has remained privatized and indeed has been the leading force in de-industrializing the United States and England. And Labour Parties have been in the forefront of privatization. Tony Blair out-Thatchered Mrs. Thatcher in England with his privatization of the railroads and other basic infrastructure that even the Conservatives worried would be a disaster if it happened on their watch. But socialists always have developed the best political rhetoric, enabling them to promote nearly any policy with a patina of populist pretenses. This has enabled socialist parties to turn into the exact opposite of what they used to be. Labour Parties from Britain to Australia, for example, have been captured by the emerging oligarchies and turned neoliberal and pro-financial that is, antigovernment and anti-labor. They promote market fundamentalism, which does not mean free markets but a relinquishing of planning and regulation from the public sector to the financial sector. Somebody must plan economies, and if the government refrains from doing this, the big banks and wealthy families fill the vacuum. Every successful economy in history has been a mixed economy between public and private. This was supposed to be the aim of Social Democratic parties throughout the world. The political question concerns just which class should regulate the economy, who should be taxed, and how the financial system will allocate resources.

Marx believed that socialism would emerge out of capitalism, and classical economists in the 19th century almost all expected governments to emerge as the brains to steer economies in the public interest. This meant promoting the most efficient technology and providing basic infrastructure at a low price, while taxing away the free lunch of property rents and other unearned income including financial extraction via interest-bearing debt and what used to be known as stock watering. So right now, socialist politics has never been at a lower ebb. The fact that when Russia sought to replace Stalinism with a market-oriented economy, it took the IMF World Bank Washington Consensus advice to create a domestic oligarchy, shows the intellectual poverty into which socialist doctrine had sunk.

(f) Basque economy to point?

Country. What could we do to improve our get economic sovereignty, at least to some

Regarding economic sovereignty, the most important aim should be to gain control of the tax system so as to tax economic rent and unearned income prices that have no necessary counterpart in costs of production. You also should rule that interest is not tax-deductible. The latter policy would keep bankers from providing credit to finance outsiders buying out your resources. You might also use what pension fund assets you have to secure active management decisions by the labor force. Regarding political sovereignty, now that the United States is supporting Kosovo independence and mounting other regional independence movements to break off regions in countries with raw materials that U.S. investors want, the Basques can ask for similar status. The aim would be to gain control of your tax policy and financial policy.

(g) What are the main works you are working on?

Three major economic books: an analysis of modern finance capitalism, a history of debt and debt cancellations, and a history of the decline and fall of classical antiquity (largely from debt polarization). Also, Im collecting my archaeological essays from over the past two decades into Temples of Enterprise, showing how commercial techniques were developed in the temples and 6

palaces of Sumer, Babylonia and their Bronze Age neighbors, not by private sector individuals on their own.

Thanks, Michael. 2008.08.15 joseba felix tobar-arbulu

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