Resurrecting Greenspan Hillary Joins the Vast, Rightwing Financial
Conspiracy
Apri1 17, 2008 By MICHAEL HUDSON
On Monday, March 24, presumably representing Wall Street--as any New York
senator must do in
view of its dominant financial role in the state's political
campaigns--Hillary Clinton proposed
that Congress show its bipartisan spirit by appointing an "emergency
working group on
foreclosures," to be led by none other than Alan Greenspan and earlier
Federal Reserve Chairman
Paul Volcker, and Clinton Treasury Secretary Robert Rubin. Her idea was
for them to come up with
a plan to alleviate the subprime and financial crisis. This seems like
calling in arsonists to
help put out the fire that they and their own constituency had set in the
first place. Their
lifelong interest, after all, had been to promote deregulation and special
tax favoritism for
their Wall Street constituency, highlighted by repeal of Glass-Steagall in
1999 under Pres.
Clinton. Representing the banking sector and Wall Street (and hence being
essentially
Republicans in spirit), they were precisely the lobbyists most in favor of
anti-labor,
pro-creditor policies.
Even the Wall Street Journal expressed surprise. Jon Hilsenrath noted the
seeming irony: "In
August 1999, as the tech-stock bubble was worsening, Alan Greenspan stood
before central-banking
colleagues in Jackson Hole, Wyo., and argued it wasn't the central bank's
job to prevent asset
bubbles. All it could do was clean up the mess after the bubble had
burst." On the contrary, the
commentator noted, the Fed could have slowed the bubble by raising
interest rates and boosting
margin requirements on stock trading during the tech bubble. Mr. Greenspan
could have heeded the
advice of Fed Governor Ed Gramlich to slow and regulate subprime mortgage
lending. Instead, Mr.
Greenspan's--and Mr. Paulson's--idea was simply to clean up the bubble's
debt aftermath by
bailing out Wall Street.
Mrs. Clinton's logic, she explained on March 24, was simply that Mr.
Greenspan had a "calming
influence." Republican Presidential nominee John McCain certainly seemed
glad to propose him to
head a commission to overhaul the tax code. Barack Obama's spokesman Bill
Burton said that her
selection of Mr. Greenspan to head her working group featured "the same
people who helped to
create these problems or have a direct financial industry stake in the
outcome." Sen. Obama
himself said that her crypto-Republican plan lacked credibility in view of
the heavy campaign
donations she received from Wall Street financial lobbyists. (As of
mid-April he had raised an
almost identical sum from this source.)
Elaborating her views three days later, Sen. Clinton made it seem as if it
were the job of the
financial victims--the mortgage debtors--to solve the mortgage crisis. "In
today's economy,
trouble that starts on Wall Street often ends up on Main Street ... When
there's a run on
mortgage-backed securities and the bottom falls out for investment banks,
the bottom falls out
for families who see the value of their homes--their greatest source of
wealth--decline." To
cure the problem, she endorsed the spirit of Mr. Paulson's Wall Street
bailout, including having
the Federal Housing Administration, Fannie Mae and Freddie Mac "buy,
restructure and resell
these underwater mortgages." This is a far cry from debt forgiveness.
In her debate with Barack Obama on April 16, Senator Clinton once again
heaped praise on Mr.
Greenspan's "bipartisan" commission that nearly doubled the tax rates that
workers had to give
up out of their paychecks. A token income-tax cut was offset by F.I.C.A.
withholding that, for
many workers, now exceeds their income-tax liability. And what certainly
must be the most
unmitigated gall rivaling even her notorious Yugoslavia-under-sniper-fire
gaffe, Mrs. Clinton
rejected Senator Obama's policy of raising the F.I.C.A. Withholding rate
above the present
$97,000 level, all the way up to hedge fund managers making billions of
dollars per year. Mrs.
Clinton said explicitly that there were more progressive ways to resolve
the Social Security and
Medicare tax problem. The exchange has to be read to be believed.
OBAMA: "One of the centerpieces of my economic plan would be to say
that we are going to
offset the payroll tax, the most regressive of our taxes, so that families
who are earning--who
are middle-income individuals making $75,000 a year or less, that they
would get a tax break so
that families would see up to a thousand dollars worth of relief. the
rules in Washington--the
tax code has been written on behalf of the well connected. And that's been
a central focus of
our campaign.
MODERATOR : You have however said you would favor an increase in the
capital gains tax."
It's now 15 percent, compared to 28 percent under Bill Clinton.] "It's now
15 percent. That's
almost a doubling if you went to 28 percent. But actually Bill Clinton in
1997 signed
legislation that dropped the capital gains tax to 20 percent.
OBAMA: Right.
MODERATOR: And George Bush has taken it down to 15 percent.
OBAMA: Right.
In an argumentative mode, the moderator pointed out the long-discredited
"supply side"
Republican rationale for tax cuts. Is it not true, he asked, that each
time the capital gains
tax was cut, receipts increased? He did NOT explain that asset-price
inflation had gone hand in
hand with tax cuts. Nor did he note the fact that some 80% of the tax is
in land-price
gains--gains that speculators made "in their sleep" while Mr. Greenspan at
the Federal Reserve
was flooding the real estate bubble with credit.
OBAMA: Well, Charlie, what I've said is that I would look at raising
the capital gains tax
for purposes of fairness. We saw an article today which showed that the
top 50 hedge fund
managers made $29 billion last year--$29 billion for 50 individuals. And
part of what has
happened is that those who are able to work the stock market and amass
huge fortunes on capital
gains are paying a lower tax rate than their secretaries. That's not fair.
I want businesses to
thrive and I want people to be rewarded for their success. But what I also
want to make sure is
that our tax system is fair and that we are able to finance health care
for Americans who
currently don't have it and that we're able to invest it in our
infrastructure and invest in our
schools.
In response, Sen. Clinton said:
CLINTON: I don't want to take one more penny of tax money from
anybody."
MODERATOR: Would you say, 'No, I'm not going to raise capital gains
taxes'?
CLINTON: I wouldn't raise it above the 20 percent if I raised it at
all. I would not raise
it above what it was during the Clinton administration. I don't want to
raise taxes on anybody.
I'm certainly against one of Senator Obama's ideas, which is to lift the
cap on the payroll tax,
because that would impose additional taxes on people who are, you know,
educators here in the
Philadelphia area or in the suburbs, police officers, firefighters and the
like. So I think we
have to be very careful about how we navigate this. So the $250,000 mark
is where I am sure
we're going. But beyond that, we're going to have to look and see where we
are.
OBAMA: What I have proposed is that we raise the cap on the payroll
tax, because right now
millionaire and billionaires don't have to pay beyond $97,000 a year.
That's where it's kept.
Now most firefighters, most teachers, you know, they're not making over
$100,000 a year. In
fact, only 6 percent of the population does. And I've also said that I'd
be willing to look at
exempting people who are making slightly above that.
MODERATOR: But Senator, that's a tax.
OBAMA: Well, no because the alternatives, like raising the retirement
age, or cutting
benefits, or raising the payroll tax on everybody, including people who
make less than $97,000 a
year -- those are not good policy options.
Senator Clinton responded with more wishy-washy defense of her position.
Sounding like an
old-time Republican, she gave the old mantra of America's fiscal class
war:
"When it comes to Social Security, fiscal responsibility is the first
and more important
step. . . . And with all due respect, the last time we had a crisis in
Social Security was 1983.
President Reagan and Speaker Tip O'Neill came up with a commission. That
was the best and
smartest way, because you've got to get Republicans and Democrats
together. That's what I will do."
She promised not to "impose additional burdens on middle-class
families--that is, implicitly
defining the middle class as those who earn from $97,000 to $3,000,000,000
per year. This
remarkable definition of "middle class" has yet to make it into the
sociological textbooks, but
I'm sure the University of Chicago will soon make the requisite
adjustment.
Senator Obama was quick to respond: "That commission raised the retirement
age, Charlie, and
also raised the payroll tax." He said that she was proposing a "magic
solution." (This was the
equivalent of "voodoo economics" of which President Bush I accused Ronald
Reagan of practicing.)
Then came Sen. Clinton's most remarkable claim of the evening--but one
that the papers have not
picked up:
CLINTON: "But there are more progressive ways of doing it than, you
know, lifting the cap."
But what could be more progressive than raising the cap on F.I.C.A.
withholding? What on earth
could be more progressive than starting to reverse the tax shift onto
labor that has been
occurring ever since the Reagan and Greenspan regimes?
For that matter, how can deregulation of the financial markets be deemed
fair?
In an earlier presidential primary debate Mrs. Clinton also cited the
Democrats' acquiescence in
the Greenspan Commission's 1983 tax shift off the high income brackets
onto wage-earners--by
increasing F.I.C.A. wage withholding for Social Security as a personal
user fee rather than
funding it out of the general budget--as a model of the bipartisan spirit
she hoped to emulate
if elected. She thus reflected the attitude of her husband, when as
President, Bill Clinton
appointed Mr. Greenspan to a new term as Fed Chairman, saying: "This
chairman's leadership has
been good, not just for the American economy and the mavens of finance on
Wall Street. It has
been good for ordinary Americans."
Yet it was Greenspan that acted as a kind of economic Karl Rove in
crafting anti-labor policies
favoring the very rich, above all the Social Security tax-shift onto
labor's shoulders to which
Mrs. Clinton pointed. He welcomed recession as an excuse to cut taxes,
ostensibly to
"jump-start" economic growth but actually producing a benefit mainly for
wealthy investors and
property owners.
Packaging deregulation as new, more efficient regulation
The Bush Administration's enormous commitment of public funds to support
Wall Street prompted
columnist Martin Wolf of the Financial Times to announce that the free
market was dead.
"Remember Friday March 14, 2008," he wrote; "it was the day the dream of
global free-market
capitalism died. Deregulation has reached its limits." The price for
Treasury support would have
to be an end to the deregulation that had permitted the debt crisis to
reach such unprecedented
proportions. As evidence of the new attitude Wolf cited "the remark by
Joseph Ackermann, chief
executive of Deutsche Bank, that 'I no longer believe in the market's
self-healing power.'"
Although more extensive public regulation was the traditional aftermath of
financial crisis, the
debt bubble has provided the financial sector with unprecedented wealth to
translate into
political law-making policy to dismantle regulation. Financial lobbyists
accordingly anticipate
that "the coming fight will rival the storm leading up to the 1999 passage
of the
Gramm-Leach-Bliley Act [which repealed Glass-Steagall]. That law made it
easier for securities
firms and banks to be owned by the same company, dropping regulatory
barriers in place since the
Great Depression. In 1998 and 1999, when Congress was finalizing passage
of that law, the
financial-services industry spent a combined $417 million on lobbying,
according to the Center
for Responsive Politics. In 2007, financial-services companies spent more
than $402 million on
lobbying, led by $138 million from the insurance industry."
The focal point of this lobbying effort has been Mr. Paulson's Treasury
working group to draw up
a Blueprint for Financial Regulatory Reform. As he explained in his speech
on March 31, the
Treasury Department's Blueprint for Financial Regulatory Reform had been
moving earnestly since
June 2007 to "reform" the nation's regulatory structure. He concluded his
speech with a paean to
the repeal of Glass-Steagall under President Clinton: "We recognize that
these ideas will
generate some controversy and healthy debate. This is not unlike the
circumstances surrounding
the 1991 "Green Book," which after a period of constructive discussion
resulted in the passage
of the Gramm-Leach-Bliley Act, modernizing our financial services industry
some eight years later."
Repeal of Glass-Steagall gave the subprime debacle its jump start by
removing the Depression-era
roadblock from bank merging with brokers. This permitted financial
conglomerates to be formed
and gave them the ability to securitize (that is package), loans as
investments. Vertical
financial conglomerates were formed, starting with Citibank's merger with
Travelers Insurance,
and leading up to the recent intention of Bank of America to acquire the
troubled Countrywide
Financial, the nation's leading subprime lender.
Rather than seeing this as the source of the subsequent subprime problems
as Senators Paul
Wellstone and Byron Dorgan did at the time, Mr. Paulson explained, "I am
not suggesting that
more regulation is the answer." Just the opposite. "A state-based
regulatory system is quite
burdensome. It allows price controls to create market distortions. It can
hinder development of
national products and can directly impact the competitiveness of US
insurers." The aim is to
dismantle what remains of public regulation.
Reflecting the financial interests behind him, Mr. Paulson's solution is
to assign overall
regulatory authority to the Federal Reserve. The Fed works for its owners,
the commercial
banking system, and its chairman is appointed by a government that
believes in "central bank
independence." The result is a financial sector regulated by its own
leaders and lobbyists, not
by elected officials--seemingly a clear conflict of interest. The
lobbyists evidently have
decided that the best public relations wrapping is to present deregulation
as "simplification,"
and to claim that "streamlining" it will lower costs to investors and help
prevent a loss of
"competitiveness" to Europe, especially London. Especially annoying to
Wall Street are the
Sarbanes rules requiring full disclosure of information, passed in the
aftermath of the Enron
fraud. Upon taking office, Mr. Paulson claimed that these rules
handicapped U.S. financial firms
relative to their foreign counterparts. "In November 2006, the Committee
on Capital Markets
Regulation released a report concluding, 'It is the committee's view that
in the shift of
regulatory intensity balance has been lost to the competitive disadvantage
of U.S. financial
markets.'"
The implication is that anything that lowers costs to Wall Street--by
rolling back regulatory
bureaucracies and reporting requirements such as are called for by the
Sarbanes-Oxley
legislation--will be passed on to customers. Such presumptions ignore the
fact that Wall Street
prefers to pay out its profits as bonuses or dividends rather than pass on
cost savings. What is
passed onto its customers instead is runaway CEO compensation. "Market
discipline" has not kept
financial markets honest or low-priced. Deceptive subprime practices have
made dollar
investments a pariah in global financial markets. Investors have lost
faith in the nation's
investment bankers, mortgage brokers and credit-rating firms, drying up
the market for U.S.
mortgage-backed securities and leading to their being dumped across the
board.
In sum, the mid-March crisis provided an opportunity for Mr. Paulson to
pull out the
deregulatory plan he proposed when he became Secretary of the Treasury in
summer 2006, and paste
a "regulatory" cover story on it. Mr. Paulson plan for deregulation
anticipates "consolidating
banking and insurance regulators and potentially merging the Securities
and Exchange Commission
with the Commodity Futures Trading Commission, then stripping the combined
entity of much of its
regulatory authority." A major aim is to prevent any repeat of state
attorneys general or other
regulators emulating Eliot Spitzer's $1.4 billion in fines against Wall
Street companies for
their improper behavior and close-down of Arthur Andersen.
Calling the federal power to annul state regulation or that of other
agencies "regulation" is
dependent on voters not understanding the bait-and-switch act going on. It
needs the compliance
of New York's Wall Street Democrats, senators, congressmen and
presidential candidates, whose
campaign funding after all comes mainly from the state's financial sector.
So where are the Democrats on this? Above all, Hillary would seem to be on
the hot seat. Where
was she at 3 o'clock in the morning on the day that Bill annulled
Glass-Steagall?
What seems most remarkable in Mr. Paulson's and Dr. Bernanke's comments is
the absence of
quantitative discussion of just what the "systemic risk" is. The bailout
is to be paid by the
non-financial sector, above all labor ("consumers") to "save the system."
But just what is the
system? It certainly is not industrial production. It is more a faith that
compound interest can
keep on expanding ad infinitum. The reality is that the exponentially
soaring debt overhead
threatens to plunge the economy into chronic depression as interest and
other financial charges
eat further and further into the economy's ability to spend on consumption
and tangible capital
investment. To ignore this financial dynamic is to turn economics into a
junk science.
For the past decade the banking system and its mortgage-broker affiliates
have avoided the usual
wave of defaults and insolvencies by lending debtors enough money to pay
the interest charges.
Adding the interest onto the debt in this way is known as a Ponzi scheme.
It requires an
exponentially growing influx of funds to pay investors and creditors, and
hence cannot be
sustained for long, because no economy in history has grown at the
exponential rates needed to
keep up with the debt overhead. This is the basic problem at the core of
today's economic
policy. It aims to save the "sanctity of debt," that is, the financial
sector's claims on the
rest of the economy. But this attempt only polarizes the economy between
creditors at the top of
the pyramid and an increasingly indebted base at the bottom.
A simple example may illustrate the debt treadmill. Consider a little
brick home in a suburb of
Cleveland, Ohio. There are two economic conditions under which you could
own it. Choice One is
to own the home free and clear of a mortgage, in an economy that values it
at $100,000. Choice
Two is to own it in a debt-fueled market that values it at $250,000,
requiring the buyer to take
on a $100,000 mortgage to afford it. This appears to maximize wealth
creation inasmuch as the
homeowner has $50,000 more net worth.
But the Choice Two homeowner owns only 60 percent of the property. At 6
percent interest the
$100,000 mortgage absorbs $500 a month, not counting amortization
payments. This $6,000 annual
interest charge--plus $3,000 for self-amortization on the typical 30-year
mortgage--absorbs 30
percent of gross income for a homeowner earning $30,000 per year. Net of
about $10,000 in wage
withholding for FICA and income tax, the homeowner must pay 45 percent of
take-home pay even
before property taxes, fuel and repairs.
So which homeowner is doing better: Choice Two with higher net worth on
paper, or Choice One
which is less debt-ridden and whose home therefore is more affordable?
The Federal Reserve's net worth statistics give the impression that all
Choice Two has more
wealth creation. But most families "own" less and less, and must pay
heavier carrying charges
that eat into their spending power. By the end of 2007, home equity fell
below 50 percent for
the U.S. economy on balance--down to 47.9 percent. This means that most
Americans now have less
of an ownership share in their most basic asset than their bankers. On top
of this, they are
obliged to place their retirement savings in the hands of money managers
whose fees absorb most
of the income. Many pension funds are now left with substantial losses on
packaged mortgages
such as Bear Stearns was selling.
Germany is an example of the Choice One economy. Housing absorbs only
about 20 percent of its
average household budget, less than half that of most American homebuyers
today. Its lower debt
and property overhead, along with national health care, helps explain its
competitive power in
international markets. America, by contrast, is burdened with the high
proportion of the cost of
labor reflecting the inflation of housing prices that has forced more and
more buyers into debt,
while the middle class has seen its stagnant wages exacerbated by wage
withholding for Social
Security and medical insurance. Many have been able to maintain their
living standards only by
borrowing against their home equity.
Making loans is how banks make their money. As long as the loans are used
to bid up property,
stock and bond prices, they can claim that they are "responding to the
market" by getting
homeowners, commercial real estate investors, corporate raiders and
financial managers to pledge
their assets as collateral for yet new loans in a process that seems to be
self-sustaining. But
at a point the carrying charges on this indebtedness absorb all the
disposable income and
corporate cash flow. All it takes to upset the applecart is a major
default, embezzlement or fraud.
Real estate reached this state of affairs by summer 2006. Behind the
property bubble was an
increasing entry price to buying a home--an access price that had to be
paid in extra years of
the buyer's working life. Traditionally, economists have defined
equilibrium pricing as the
level at which the rental income just about covered an owner's carrying
charges. But as real
estate prices exceeded the rents that could be charged to cover debt
service, speculators
withdrew from the market. It became much less costly to rent than to own.
New buyers had to pay
for their operating deficits out of income earned elsewhere.
The magic was gone once carrying charges could not be lowered any further.
Interest rates had
been lowered as far as they could be, down payments had been lowered to
near zero, amortization
had been lowered to zero (so that the mortgage loan never would be paid
off, but simply
carried), and fraudulent property assessment had become commonplace.
Adjustable-rate mortgages
were resetting at higher levels. Fuel costs were rising, increasing
operating expenses for
electric power and gas. Local property taxes were catching up with soaring
real estate prices.
The mortgage market thus was set for a downturn. Every mortgage banker
with whom I spoke by 2006
saw it coming. But until the break came, Wall Street managers wanted to
get every last added
fraction of a percentage point in interest that could be squeezed out. So
did fund managers, who
are graded every three months against the norm. This short-termism obliges
them to follow the
herd. They hope to reverse course in a hurry when the break comes, but
financial crashes occur
much faster than it takes for prices to rise. The business cycle is
basically a run-up of real
estate mortgage debt growing slowly but ending in a fairly rapid crash.
Bank credit--that is, debt for mortgage borrowers--was created almost
without cost as the
Federal Reserve held short-term interest rates quite low. An increasingly
large debt overhead
fueled an asset-price inflation that Alan Greenspan celebrated as "wealth
creation." Deregulated
banks and other financial institutions packaged and sold mortgage loans to
hedge funds, pension
funds and other institutions. It seemed that a perpetual motion machine of
financial wealth had
been found. But it rested on the ability of the underlying "real" economy
(production and
consumption) to take on more and more debt and pay more and more interest.
The policies proposed by Republicans and Democrats alike treat strapped
homeowners as deserving
government aid only to the extent of enabling them to go pay the
institutions that hold their
mortgages. This fig leaf of humanitarian concern for debtors enables the
government to provide
public credit that ends up in the hands of the super-rich who own and
manage the financial and
property sector.
But one sees the dominant attitude in the vindictive rhetoric used by Sen.
John McCain toward
debtors he deems "undeserving" of government aid. He blames insolvent
homebuyers for causing the
problem for failing to calculate how deeply their adjustable-rate
mortgages (ARMS) would eat
into their stagnant disposable income or to anticipate how sharply
property taxes, heating and
electricity prices would rise as the dollar plunges in global markets.
Congress has proposed setting aside millions of dollars to provide
mortgage counseling--a
sanctimonious blame-the-victim re-education program to convince insolvent
debtors at least that
they should feel guilty if they walk away from properties worth less than
the debts attached to
them, as financial professionals do.
The kind of re-education program that really is needed would provide an
understanding of the
dynamic that threatens to lead to debt peonage. On paper, two thirds of
Americans have seen
their net worth grow mainly from the rising price of their homes--or more
to the point, their
land ("location, location, location," magnified by the failure of property
taxes to keep up with
market prices). As long as mortgage lending was pushing up prices more
rapidly than debt was
growing all was fine. At the Federal Reserve, Mr. Greenspan took credit
for orchestrating this
"wealth creation." It was a euphemism for asset-price inflation and debt
creation.
It is a far cry from tangible capital formation. Instead of raising labor
productivity and
living standards, it is a purely mathematical dynamic that governments
cannot rescue in the end.
It is folly even to try to do so. Yet in March, Sec. Paulson mobilized the
credit-creating power
of the government's financial and housing agencies to support the price of
mortgage
securities--and the land valuations that back them. The aim was not to
help strapped homeowners
but to save creditors who imagined that they could get rich while most of
the economy was being
driven into debt peonage.
Given this perverse financial plan, it is irresistible not to finish with
how Franklin Roosevelt
addressed the spirit of today's proposed reforms:
These economic royalists complain that we seek to overthrow the
institutions of America.
What they really complain of is that we seek to take away their power. Our
allegiance to
American institutions requires the overthrow of this kind of power. In
vain they seek to hide
behind the flag and the Constitution. In their blindness they forget what
the flag and the
Constitution stand for. Now, as always, they stand for democracy, not
tyranny; for freedom, not
subjection; and against a dictatorship by mob rule and the over-privileged
alike.
Today's financial sector would turn this rhetoric of economic democracy on
its head. This raises
the following question: If FDR were alive and running today, would Hillary
and others denounce
him as an off-the-wall radical? Would he be out of touch with today's
voters? What would they
say about his anger? How far would a presidential candidate get who
announced at his
Inauguration, as Roosevelt did on March 4, 1933, "The money changers have
fled from their high
seats in the temple of our civilization. We may now restore that temple to
the ancient truths.
The measure of the restoration lies in the extent to which we apply social
values more noble
than mere monetary profit."
So let's start by discarding the inane propaganda about unmanaged (that
is, deregulated) "free"
economies, the faith-based belief that self-regulating economic systems
exist that must not be
"interfered with" by government bureaucrats, formerly known as regulatory
agencies, attorneys
general and state prosecutors, Congressional oversight committees and what
remains of New Deal
agencies. This anti-government, anti-regulatory propaganda has been pushed
for decades so that
public agencies and Congress, supposed to act as representatives of the
people, remain only
passive spectators to an economy left in private hands for financial
profit.
The reality is that all economies are managed, either by the private
sector or by
government--usually by a combination of the two. Any successful economy
engages in forward
planning, and any well-balanced economy shapes how "the market" operates.
Adam Smith's Wealth of
Nations was all about how wise governments should shape--and tax--their
markets. America's
present-day economic system didn't evolve through natural forces, much
less by divine
intervention. Its industrial takeoff was subsidized by protective tariffs,
internal
improvements--that is, public infrastructure spending--and increasingly
progressive taxation.
And conversely, the spate of tax laws, fiscal giveaways and Federal
Reserve policies that helped
inflate the real estate bubble since 2001 were man-made--and shaped
specifically by real estate
lobbyists and financial promoters. FDR fought the battle against high
finance decades ago,
explaining:
The royalists of the economic order have conceded that political
freedom was the business
of the government, but they have maintained that economic slavery was
nobody's business. They
granted that the government could protect the citizen in his right to
vote, but they denied that
the government could do anything to protect the citizen in his right to
work and his right to live.
This is the dimension missing in today's election campaign. But is not
democracy economic as
well as political?
Michael Hudson is a former Wall Street economist specializing in the
balance of payments and
real estate at the Chase Manhattan Bank (now JPMorgan Chase & Co.), Arthur
Anderson, and later
at the Hudson Institute (no relation). In 1990 he helped established the
world's first sovereign
debt fund for Scudder Stevens & Clark. Dr. Hudson was Dennis Kucinich's
Chief Economic Advisor
in the recent Democratic primary presidential campaign, and has advised
the U.S., Canadian,
Mexican and Latvian governments, as well as the United Nations Institute
for Training and
Research (UNITAR). A Distinguished Research Professor at University of
Missouri, Kansas City
(UMKC), he is the author of many books, including Super Imperialism: The
Economic Strategy of
American Empire (new ed., Pluto Press, 2002) He can be reached via his
website,
mh@[EMAIL PROTECTED]
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Finally, the campaigns of 1793 and 1794 set Clausewitz on the path of
recognizing war as a
political phenomenon. Wars, as everyone knew, were fought for a purpose
that was political,
or at least always had political consequences. Not as readily apparent
was the implication
that followed. If war was meant to achieve a political purpose, everything
that entered into
war — social and economic preparation, strategic planning, the conduct of
operations, the
use of violence on all levels — should be determined by this purpose, or
at least accord
with it. Even though soldiers had to acquire special expertise, and
function in what in some
respects was a separate world, it would be a denial of reality to allow
them to carry on
their bloody work undisturbed until an armistice brought their political
employer back into
the equation. Just as war and its institutions reflected their social
environment, so every
aspect of fighting should be suffused by its political impulse, whether
this impulse was
intense or moderate. The appropriate relationship between politics and war
occupied
Clausewitz throughout his life, but even his earliest manuscripts and
letters show his
awareness of their interaction.
The ease with which this link — always acknowledged in the abstract —
can be forgotten in
specific cases, and Clausewitz’s insistence that it must never be
overlooked, are
illustrated by his polite rejection toward the end of his life of a
strategic problem set by
the chief of the Prussian General Staff, in which every military detail of
the opposing
sides was spelled out, but no mention made of their political purpose. To
a friend who had
sent him the problem for comment, Clausewitz replied that it was not
possible to draft a
sensible plan of operations without indicating the political condition of
the states
involved, and their relationship to each other: ‘War is not an independent
phenomenon, but
the continuation of politics by different means. Consequently, the main
lines of every major
strategic plan are largely political in nature, and their political
character increases the
more the plan applies to the entire campaign and to the whole state. A war
plan results
directly from the political conditions of the two warring states, as well
as from their
relations to third powers. A plan of campaign results from the war plan,
and frequently - if
there is only one theater of operations - may even be identical with it.
But the political
element even enters the separate components of a campaign; rarely will it
be without
influence on such major episodes of warfare as a battle, etc. According to
this point of
view, there can be no question of a purely military evaluation of a great
strategic issue,
nor of a purely military scheme to solve it.’
Everyman’s Library, 1993 ISBN: 0679420436 On war /by Clausewitz, Carl
von, 1780-1831.
Knopf, 1993. From the introduction by Peter Paret, Pg7
_____________________________________________________________________
The U-2 is a jet-powered reconnaissance aircraft specially designed to fly
at high altitudes
(i.e., above 70,000 ft [21 km]). It was used during the late 1950s to
overfly the Soviet
Union, China, the Middle East, and Cuba; flights over the Soviet Union,
the primary mission
for which the plane was designed, ended in 1960 when a U-2 flown by CIA
pilot Gary Powers
was shot down over the Soviet Union. This event was a major political
embarrassment for the U.S.
http://www.espionageinfo.com/Te-Uk/U-2-Spy-Plane.html
Soviet Prime Minister Khrushchev's reaction to the overflights which
were discovered
just before a summit conference in Paris with President Eisenhower: "It
was as though the
Americans had deliberately tried to place a time bomb under the meeting" .
. ."How could
they count on us to give them a helping hand if we allowed ourselves to be
spat upon without
so much as a murmur of protest?" The only solution was to demand a formal
public apology
from Eisenhower and a guarantee that no more overflights would take place
. . .
But the apology Khrushchev was looking for would not come. Despite
having trespassed
on the Soviet Union for the past four years with scores of flights by both
U-2's and heavy
bombers, the old general still could not say the words, it was just not in
him. . . A time
bomb had exploded, prematurely ending the summit conference. . .
Back in Washington, the mood was glum. The Senate Foreign Relations
Committee was
leaning toward holding a closed door investigation into the U-2 incident .
. . In public,
Eisenhower maintained a brave face. He "heartily approved" of the
congressional probe and
would 'of course fully cooperate,' he quickly told anyone who asked. But
in private he was
very troubled. For weeks he had tried to head off the investigation. His
major concern was
that his own personal involvement in the overflights would surface,
especially the May Day
disaster. Equally, he was very worried that details of the dangerous
bomber overflights
would leak out. The massed overflight may in fact, have been one of the
most dangerous
actions ever approved by a president.
pg. 51-55 ~Body of Secrets; Anatomy of the Ultra Secret National Security
Agency
James Bamford
----------------------------------------------------------------------
"Let me give you a word of the philosophy of reform. The whole history of
the progress of
human liberty shows that all concessions yet made to her august claims,
have been born of
earnest struggle. The conflict has been exciting, agitating,
all-absorbing, and for the time
being, putting all other tumults to silence. It must do this or it does
nothing. If there is
no struggle there is no progress. Those who profess to favor freedom and
yet depreciate
agitation, are men who want crops without plowing up the ground, they want
rain without
thunder and lightening. They want the ocean without the awful roar of its
many waters."
"This struggle may be a moral one, or it may be a physical one, and it may
be both moral and
physical, but it must be a struggle. Power concedes nothing without a
demand. It never did and
it never will. Find out just what any people will quietly submit to and
you have found out the
exact measure of injustice and wrong which will be imposed upon them, and
these will continue
till they are resisted with either words or blows, or with both. The
limits of tyrants are
prescribed by the endurance of those whom they oppress. In the light of
these ideas, Negroes
will be hunted at the North, and held and flogged at the South so long as
they submit to those
devilish outrages, and make no resistance, either moral or physical. Men
may not get all they
pay for in this world; but they must certainly pay for all they get. If we
ever get free from
the oppressions and wrongs heaped upon us, we must pay for their removal.
We must do this by
labor, by suffering, by sacrifice, and if needs be, by our lives and the
lives of others."
http://www.buildingequality.us/Quotes/Frederick_Douglass.htm
Frederick Douglass, 1857
- - - - - -> More political discussion continues at
http://www.politicsusaweb.com/
----------------------
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