Monopoly, The Land Bubble and the Financial Crisis

Scott Baker


[GroundSwell, March 2012]



(Common Ground-NYC sponsored a panel at the Left Forum.)

I recently had the pleasure of being able to set up a panel for the Left Forum, held at New York City’s Pace University, March 16-18, 2012. The theme for this year was Occupy The System: Confronting Global Capitalism.

According to the opening plenary, over 4,000 people pre-registered, with maybe thousands more registering on location over the next three days. There were over 400 panels, and over 1400 speakers. It was such a success that the Left Forum organizers are considering expanding the event by a day or two next year. I know there were several panels I wanted to go to, but couldn’t because of conflicts.

The opening plenary speakers presented a case for worry, not just for the Left, but also for all people concerned about justice (not only Social Justice), civil rights, economic fairness, and liberty. The feeling conveyed was that we have our backs against the wall, perhaps as never before since the Great Depression, and are, as opening speaker William Strickland put it, “being attacked on all fronts.” This is a scary place to be, but it has the advantage of being an incentive to mobilize and fight for our dwindling social, legal, and economic rights. It would be a familiar place for Henry George, a powerful orator who surely would have been invited to the opening plenary, if the Left Forum had existed in his day.

GroundSwell was the sponsoring journal for Common Ground-NYC’s March 17th panel: Monopoly, the Land Bubble and the Financial Crisis, Tactics to Fight the 1%. The video will be here: http://www.leftforum.org/video_gallery and probably on the Robert Schalkenbach site, in a few weeks.

This was our panel abstract, worked on with the panel members in pre-panel discussions lasting several weeks:

Abstract:

Toxic Mortgages, Ultra-leveraged derivatives, CDOs, SIVs, Liar Loans – these are just a few of the ways in which the 1% siphons money from the 99%, with the help of sycophant legislators, regulators, and other groups that are supposed to protect consumers and keep things fair. Tax policies now favor speculation over working. From this, and the banks’ ability to create money from nothing, a Land Bubble inevitably follows, as does a collapse. To “save the system,” the FRB bailed out the financial institutions with, as one retired Fed official put it, “liquidity on steroids” – recently reportedly cumulatively totaling $29 Trillion! But, beneath all the derivatives and the alphabet soup of investment vehicles lies a critical failure of capitalism: the unearned ability of the rentier class to monopolize natural resources and location. With the 1%’s monopoly on what’s vital for survival, the 99% has no choice but to pay all that remains after bare needs are met. In order to create a just society, monopolies must be taxed, including the value of their holdings of prime locations and natural resources. This would free up the Commons, decrease corruption, expand opportunities, reduce poverty, and give true productivity power back to the 99%! But how? Attend a panel discussion led by business, legislative, and academic experts to learn how to create a sane and sustainable model that rewards work and true innovation, not speculation and monopoly.

Our panelists were Andy Mazzone, Dr. Michael Hudson, and Dave Kelley, and it was moderated by CGNYC member Dr. Cay Hehner. Some of these panelists will be familiar to readers of GroundSwell, some will not be. Here are the bios on each, from the panel description submitted to the Left Forum:

Dr. Cay Hehner: Affiliation: The Robert Schalkenbach Foundation. Bio: Dir. of Education, Henry George School of Social Science, NYC, 2004-Spring 2011; Board Member, Robert Schalkenbach Foundation 2009, Aug 7-Address, “The End of Capitalism as We Know It” Council of Georgist Organizations Conference, Cleveland, OH. 2006, 21 July-Address: “Henry George and Karl Marx” Council of Georgist Orgs Conference, Evanston, IL 2005-Article: “Monopoly Globalization,” Henry George News, Jan.-Apr. Master’s degree in Economics & a PhD. in Philosophy, Free University, Berlin

Dr. Michael Hudson: Affiliation: University of Missouri, Kansas City (UMKC). Bio: President of the Institute for the Study of Long-term Economic Trends (ISLET); Wall Street Financial Analyst; Distinguished Research Professor of Economics at the University of Missouri, Kansas City; Author of Super-Imperialism: The Economic Strategy of American Empire (1968 & 2003), Trade, Development and Foreign Debt (1992 & 2009) and of The Myth of Aid (1971); PhD in Economics, NY University (1968)

Andrew Mazzone: Affiliation: Instructor at the Henry George School of Social Science. Bio: Instructor & Board member of the Henry George School of Social Science (2009-present); Chairman/President of Xiom Corp from inception (1998-Oct. 30, 2009); Chairman of the Board (Jul. 1, 2003-Jan. 2004), Steam Clean USA, Inc.; Worked at Metco (1970-Feb. 15, 1995), a subsidiary of the Perkin Elmer Corp (A Fortune 500 company), ending as President; Degrees from Babson College, Babson Park, Massachusetts, in Finance & an advanced degree in Economics, with a specialty in economic history.

David I. Kelley: Affiliation: Economic Adviser to Dennis Kucinich. Bio: David I. Kelley is one of the country’s leading authorities on pension present value issues. Mr. Kelley received his M.A. from the University of Connecticut. He is a registered representative and a registered principal with the National Assoc. of Security Dealers, as well as a Certified Financial Planner. He is a frequent lecturer on pensions and present values for family law bar associations, Judicial Colleges, and companies across the U.S.

The complete entry is here: http://www.leftforum.org/panel/monopoly-land-bubble-and-financial-crisis-tactics-fight-1

The panelists and I met twice in the months leading up to the forum. These are busy and sought-after people, of course, so we not only had to make the most of our meetings, but of the emails and organizing in between. Michael Hudson, in particular, seems to be everywhere these days, and said he was treated like a rock star at a stadium he and his colleagues recently spoke at in Italy (http://michael-hudson.com/2012/03/mmt-as-the-austerity-alternative/). You can bet we had some interesting and lively pre-panel discussions about economics, the Henry George School (where we met), and Henry George! Hudson reminded me that George himself alienated many of the kinds of progressives we were likely to find at the Left Forum, though he agreed with me that George was, and is, still to the Left of the Right-wing leadership running the country today. Hudson has had a not always congenial relationship with the Henry George School, or with Georgism (http://www.cooperativeindividualism.org/hudson_selling_henry_george.html and http://michael-hudson.com/2008/01/henry-georges-political-critics/), having worked for it in the 1990s, but he likes the direction board member Andrew Mazzone is helping take the school in, now that the leadership has changed. * I think this kind of catching up and dialog between important economic scholars is one of the most important and underappreciated benefits of this sort of effort. Disagreements will remain, and these should never be trivialized, but as Hudson has written: “I have heard the argument from many Georgists that there would be no overall economic problem because what the government collects in land-rent tax will be matched by a corresponding un-taxing of labor and capital…It is true that overall functions could un-tax labor and capital and make up the difference with a land tax. This is what George said, and it is what I believe and support” (http://www.cooperativeindividualism.org/hudson_selling_henry_george.html). (*Former President of the HG School, Dan Kryston, died on January 6, 2012. The school has been undergoing significant changes since then.)

The Robert Schalkenbach Foundation – with indispensible help by CGNYC member Mark Sullivan, and webmaster Vajra Minter (who worked on our fliers, giving them a professional look) – also set up a table in the exhibitor area with which we stocked Common Ground and Robert Schalkenbach handouts, including past CGUSA GroundSwell newsletters. Videographer Brian Waldbillig from Schalkenbach also filmed the panel – even quickly recovering when we had to move to a larger room due to the overflow crowd of 73 people! CGNYC member Ralph Rivera manned the table at crucial points, talking with some of the thousands of event goers and helping with both panel and table signage and directions. It was a great team effort, and proves that to achieve our goals, we must engage on multiple fronts!

An hour and 50 minutes is not a lot of time to present an alternative view of economic history, the roots of the current crisis, and how the rentier class has taken an ever larger share of our economic pie, while the vast majority – the 99% in Occupy Wall Street speak – struggles just to stay even over the last 40 years, and has actually fallen behind over the last 10 (well, maybe the bottom 90% only, but that is still a lot, with just 400 Americans owning more wealth than the bottom half of all America! (http://www.politifact.com/wisconsin/statements/2011/mar/10/michael-moore/michael-moore-says-400-americans-have-more-wealth-/. Statistic-citer Michael Moore was a keynote speaker at the Left Forum Saturday night, after making an appearance at Zuccotti Park, where 70+ Occupy protestors were later arrested)).

I’ve used italics in the following speakers’ sections, to indicate my own thoughts and additional analysis.

Andrew Mazzone

How did we get here? Andy Mazzone began to answer that with a too-brief, but still essential recapping and analysis of post-WWII American economic history. He read a 2-page opening written by Michael Hudson, which identified the stages of the recent crisis, and the missed opportunities, including the chance to shut down megabanks like Citibank, when the Government was the major stockholder. Mazzone then proceeded to expand upon recent history further.

Coming out of WWII, America was the world’s leading manufacturer, Europe and Japan having – conveniently for us – blown themselves up in the war. The U.S. as Mazzone said, had a hegemony of power, with American workforces making over 50% of all manufactured goods in the world (up to 80% in the 1970s (http://www.nytimes.com/2009/02/20/business/worldbusiness/20iht-wbmake.1.20332814.html). Contrast that to today, when America makes about 65% of manufactured goods (according to MAPI) used domestically, and dropping, together with the relative lowering of wages for the manufacturing sector, and this shows just how much America has shifted from thriving off the products of a vibrant labor and middle class, just gaining its power in George’s day, to our own time, when the FIRE sector now accounts for some 80% of GDP, according to some calculations – often led by panelist Dr. Michael Hudson: en.wikipedia.org/wiki/Financialization. This is an unprecedented and unearned amount of wealth, placed in the hands of the hands of the “parasite” or “vampire squid” class, as Hudson and originally, Matt Tiabbi, described the Financial industry in a now infamous article: http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405. It is hard to overestimate the deleterious effect of this siphoning off of wealth, but the panelists tried valiantly to emphasize its importance.)

Mazzone described the American post-WWII plan: it would end autarchic rule such as that in Nazi Germany, keep our competitive edge, while farming out the dirty, drudge work to cheaper manufacturing outside the country. (Prior to this panel, Mazzone indicated that this is the time he came of age and he has said that the opportunities he had in the latter half of the 20th century do not exist for young people today in America). The plan then was: rebuild Europe and Japan, certainly (but not Russia, which was now the competing model of Communism), but America must keep its technological leadership. Only, because of the increasing dominance of the financial class – which, as Dave Kelley later pointed out, produces next to nothing nowadays – this is not what happened.

In the 1960s, said Mazzone, cracks began to appear in this strategy, from the military “policing” of the system draining American resources, and from the “rise of the rest.” (This was not the rise of the proletariat, but simply the result of Capitalism’s march towards ever-lower pricing at the expense of the workers, never the monopoly class, which absorbed, not so much created, wealth that even the vanquished European autocrats could not have imagined.) But, as Kelley pointed out later, it has simply become impossible in our time, for the consumer class to continue to consume when middle class incomes had been slashed so severely. In a later analogy from Hudson, he said the parasite is rudely killing its host.

Mazzone talked about how free trade does not necessarily go along with imperialism. Imperialism might typically require protectionism, but in this case, he said, America had no choice because it was impossible to keep the protected countries from developing the technology that would eventually displace the workers of the American protector. By the 1970s, the outsource-based erosion was well underway.

Both Mazzone and Hudson talked about the financialization of America and how this has led to a structural debt problem and the erosion of purchasing power now well known to everyone. He concluded that this was done because the financial elites really don’t care what happens to America, but only about making money in a “virtual country.” (In a separate discussion with Mazzone, well before this panel, he had remarked to me that the new strategy of the elite is basically to buy and sell to themselves – say, the top 15% – or less, over time, as wealth become increasingly concentrated, while the bulk of the population is given just enough to keep them from revolting. But, as I pointed out then, and as Kelley, Mazzone, and Hudson support, the newly powerful rentier class* cannot survive without living off the productive class. The irony of meeting in a room, in a building, in a city, all built from labor, not financialization, should not be overlooked either. More pointedly, I said having a robust middle class might be impossible without a significant manufacturing base). (* Hear his recent radio interview here, especially the end part on land: http://michael-hudson.com/wp -cotent/uploads/2012/Renegade%20Economists%20radio% 2007.03.2012.mp3.)

Mazzone said the U.S. collected $3 trillion in taxes, 85% from income taxes. He broke our economic assets further:

Land: $6 trillion. (This, of course, is under-assessed and under-taxed. In NYC alone, Common Ground estimates $1 trillion in land values, about twice the official total from the NYC Dept of Finance.)

Oil: $3 trillion. (Ditto from above; this is probably too low, especially now, with fast-rising oil prices. It is my opinion that a Georgist ~100% resource tax on oil, as close to below the wellhead as possible, would end speculation and spur productivity and efficiency. It would also allow for consistent planning by the alternate energy industry.)

Gold and surpluses from monopolies: $7 trillion. (This amount, it seems to me, is both too low, and open to interpretation.) Total: $16 trillion

Therefore, says Mazzone, a tax of just 20% on unearned, in some cases, monopoly, income, would produce the amount of last year’s Federal budget: $3 trillion. Taxing unearned income does not affect productivity or initiatives. The effect of untaxing labor and sales at the same time, while alone unable to stop the monopolization of Land * by the elites, together with a Georgist tax on Land and monopolies, would add to the national wealth pie through greater opportunity and productivity gains. It would also eliminate the highly destructive effects of commodity speculation and would slow resource depletion and pollution. (The taxing of monopolies is not strictly Georgist, though it may be complimentary. Yet, in this writer’s opinion, the precise method of calculating the “surplus” Mazzone speaks of needs to be worked out more thoroughly, though he has told me elsewhere that a strict formula may not be possible. Life is not always neatly divisible by 2!) (* Land is capitalized in this paper to indicate the classical definition of ALL material resources as Land. Actual land will be indicated by a lower case ‘l.’) Michael Hudson It was Hudson’s turn next. He began by pointing out that financial reform and tax reform must go together to be effective and illustrated how far awry the banking industry has gone, moving from a business-supporting role to a business-destructive role. The original idea of the 19th century economists, Hudson said, was to have the banks align with industry, wherein instead, they now primarily speculate in the derivatives markets (or even buy back their own shares. The recent rise in stock prices – as opposed to top-line revenue – is in many cases simply due to near zero interest rate loans being used by companies to finance stock buybacks, which primarily benefit large stockholders, significantly including the occupiers of the C-suites. Small wonder. The stock market, thanks to the Fed’s liquidity infusion primarily, has doubled in the last three years, while commodities have in some cases done better than that. Of course, the bailouts and guarantees are well known by now. This continues a trend begun even in Jimmy Carter’s time, accelerated by both Republican and Democratic Administrations since then. The net result: who would want to make a 30-year loan at 4% under those conditions, when you can double your money in 5, and even get bailed out if you bet wrong? None of these changes, supposedly in the name of “efficient markets” has much helped the 99%, or at least not the bottom 80% or so. This distortion of the banking model would be impossible under a Georgist system that taxed resources and prime locations accurately, returning that rent to public rather than private hands. )

Hudson points out in a speech previously cited that even today’s implementation of Georgism is far too tepid, taking 1% of market price instead of a more appropriate 10%. However, assuming for the moment that truly committed Georgists would swallow hard and then go along with this, along with untaxation of labor, then bank mortgage loans, currently comprising 80% of all bank loans, Hudson tells us, the other 20% being for corporate takeovers (itself a dubious use of money, except for those holding stock options,) would be just on houses, not on the land beneath them. (This land portion is about half the typical loan.)

The bankers, Hudson said, have aligned themselves with the landowners, becoming one and the same in many cases, discouraging taxes on Land while encouraging taxes on labor, thus raising the price of labor (though not the return to labor. This recent alignment may come as a surprise to some in the mostly young Occupy movement so prevalent at the Left Forum,) but it is, according to Hudson, a recent development. The labor theory of value, he tells us, was meant not only to determine prices, but also to isolate that portion of surplus that was economic rent.

But, beginning from when the landed aristocracy siphoned off land for itself, the banks have seen where the money is, and as always, they “follow the money.” Ricardo – still taught, unlike George – was a “lobbyist for the banking class” Hudson says, unwilling to speak against his benefactors. This is where things began to go wrong, he says. For example, the Ricardo brothers devised the first Greece loan, at high interest, that was unpayable. The result, says Hudson, is that for the first time in history, going into debt, as opposed to saving, is seen as the way to make one rich. Of course, this only works if various debt bubbles, the biggest being on land, continue to rise. Clearly, this has not happened. What has happened is that the financiers have been allowed to borrow at well less than 1% – through 2014, according to the most recent Fed chairman promise – and loan out money at a higher rate, if they loan it out at all, and don’t simply plough it into the derivative markets, as previously described. Hudson said that except for the University of Missouri, where he teaches, the theoreticians don’t believe that what has happened can happen, and they even have the mathematics to prove it! (This naturally brought some laughs from the audience, who knows much better than the egghead economists). Hudson said he had to stop teaching at the New School some 40 years ago, because he had been told by his bosses that he was “confusing” his students, with all his talk about Land Rent and that he was “just as bad as Henry George”! Well, maybe, I think, he was just as good! (Read Mason Gaffney’s “The Corruption of Economics” to see how Henry George, and with him, Classical economics with its emphasis on Land, had been systematically expunged by the land-grant universities and their benefactors.)

Although in the past, the State Department had asked him how the dollar standard was making other countries pay for the exchange disadvantage and to finance American imperialism, they said it would be an unfriendly act – to them – for him to publish his findings in his book, Superimperialism. (He did so anyway, marking him as an iconoclast.)

Hudson traced the historical roots of the crisis back to the medieval era. Under free trade imperialism, workers were taken care of to keep prices low, and to make manufacturers competitive. Prior to the 13th century, Hudson says, the banks followed Christian doctrine and didn’t charge interest, after that they charged agagio – a fee for foreign exchange conversion commission. However, in the nineteenth century, Ricardo took this 500-year old theory and turned it against the landlord by a “thoroughly wrong-headed” idea of the soil having original and indestructible powers; fertilizer wouldn’t help, neither would mechanization – nature provide all. Ricardo, Hudson says, is where “it all began to go wrong” and extractive rent started being charged.

The bankers realized that to make money you needed a division of labor, while they financed industry. But this did not stop the financialization of industry. Hudson does see some silver linings in the clouds, in terms of recent British banking reform, but he says the Americans are opposing this, so it may not last.

Hudson has a less benign view of the reason for America’s post-WWII growth than Mazzone, pointing to the adoption of the dollar as the monetary standard worldwide. This, he says, forced the world’s poorer countries to pay up for U.S. goods in U.S. dollars. In a different time and place, Mazzone has agreed that the dollar is in many ways, based on oil. Since oil and its derivative products are now indispensible for modern life, this does have the effect of making oil-based dollars better than gold-based dollars. (Now, however, partly as a result of shortages due to peak oil – though oil demand has actually declined in the U.S. – and peak demand world-wide, the weakening dollar, and, perhaps most of all, the speculative element in the oil futures markets, oil has again topped $100/barrel. The last time it did this was the summer of 2008, when it hit a record $147/barrel, only to collapse 7 months later to just $35, even though world-wide demand had gone down less than 10% in that time, not by ¾ as implied by the price drop. I wish the panelists had addressed the damage from speculation a bit more, to counter the ever-repeated mantra that commodity prices are due simply to supply and demand and the magic of “price discovery” (perhaps this is more “magical thinking” than actual magic?). Thinkers and regulators from Robert Reich and Senator Bernie Sanders (D-VT) to CFTC Chairman Gary Gensler have all said that speculation is now a significant part of commodity prices, though they fall short of the 60% (and above) figure cited by Global Research and others. This speculative excess, whatever the true percentage of final costs, is responsible for a struggling middle class in America, and outright starvation elsewhere.

Hudson broke down the typical American blue-collar family budget this way:

40% – Rent

15% – FICA – (FICA is 6.2% for employer and employee = 12.4% + 2.9% for Medicare = 15.3%. FICA is capped at $110,100)

10%-15% – Interest on credit card debt and other loans. (It’s worth noting that credit card debt is among the most usurious in the world and would have been banned during most points in human history, when debt rarely exceeded 8%.)

10% – Other taxes. Income/Excise/Sales taxes – (these would of course disappear under a Georgist system.)

This totals to 75%-80% of take home pay, leaving very little for everything else – gas, clothes, education, etc. These extractive expenses also make it impossible for the American worker to compete. It is not the high wages workers take home that is the problem, it’s the high extractions from those wages. When Alan Greenspan – whom Hudson says he once had to fire – asked why the laboring class is struggling so badly despite being in a recovery, this is the answer. Again and again in the presentations, it was made clear that the destructive ability of the rentier class to absorb all surpluses and simultaneously create ever-greater universal debt cannot be over-emphasized. This includes credit-card debt, education debt – which, Hudson pointed out, is over a trillion dollars and which cannot be wiped out in bankruptcy. The economy, says Hudson, is loaded down so much that it cannot compete. Hudson contrasted the situation in America with that of Germany, where only 20% of income goes to rent, where health care is free, construction costs are half ours but the quality is much better, the economy is generally less criminalized, and workers less unionized (this last one puzzles me as to why it should make workers better off, but I am willing to concede that there are other ways to enhance workers’ lives than by union-striking and demands, at least in other countries). Germany doesn’t have much of a FIRE sector either, which is, Hudson says, what comprises most of the American economy today.

Hudson was not done castigating the banks; pointing to the growth in loans being almost entirely due to bank-to-bank loans, loans to pension funds, marketing in derivatives, but not bank-to-consumer loans. Capital formation these days is due to corporate retained earnings, and corporate commercial paper issued to mutual fund companies. Whereas formerly, capitalism was designed to: increase output, raise living standards, and expand the economy through increased industrialization, now it serves to: borrow money (buying debt from banks, the only product they sell), move production to cheaper locales offshore, and actually shrink the economy through debt repayments paid for with de-industrialization.

Today, says Hudson, we have financial conquest instead of military conquest, though you must still have the military behind you (800 American bases). The military itself has been privatized as well. This model is in direct contrast to the Classical model, which was to tax the Land monopoly away. While Land has become more valuable, it has become also less taxed, taxes being levied on labor and capital instead. He concludes: Americans said, ‘we will pay labor higher wages, eliminate tariffs,’ in disagreement with the British economists of the turn of the last century. Another disagreement concerns the use of the public sector, which historically was considered a “fourth factor of production” and the means by which a society would out-compete and undercut other nations, and not through privatization of infrastructure, which in reality does the opposite, by making costs of business higher.

Another interesting historical narrative was presented by Hudson wherein a choice was made to merge banking, industry and the government in Germany, which Marx-critic Herbert Somerton Foxwell (17 June 1849 – 3 August 1936) said would allow pre-WWI Germany to out-compete England and move towards Socialism. Despite this superior German-industrial banking model, however, the world moved towards the Anglo-American “Vampire-Squid” model, facilitated by military force in WWI and II.

Hudson said the parasite took over the host after WWI, gradually forcing us into a model whereby banks get money for producing nothing. Acknowledging the theme of the forum, Hudson said the Occupy movement basically has it right in fighting parasitism, and returning to Classical Liberalism, whereas Hayek had it wrong about progress leading to a shrinking government. Instead, government has expanded, being sold off and grown for the highest bidder. Landowners meanwhile, most often the banks, have profited from Balzac’s observation: “Every family fortune is made by long forgotten theft.” Hudson even went as far as to state a controversial position that America should have taken the side of Germany in WWI. This, of course, would have eliminated the cause of WWII (which was, as James Galbraith has said in a TV series, now on Youtube, perhaps not much more than a final major battle of WWI.) As both Galbraith and Hudson observed, the severity and duration of WWI were greatly underestimated – Hudson says expectations were that the war would be over in 6 weeks since the allies “would run out of money.” (It is telling that money materializes when it has to, and perhaps says more than anything about the priorities of the ruling banking class.)

What banks ought to do, says Hudson, is make money by monetizing equity, not selling more debt. (While America did learn the lesson of too much debt from WWI, and canceled the debt from Germany post-WWII, the banking class is now undoing the positive results of the Marshall Plan and seems determined to introduce a neo-feudalist society.)

The rentier class fought back after WWI, untaxing land, mining, etc., and the result, as Hudson drew on the board, is a graph something like this:

Growth of the FIRE Sector?

Growth of the Whole Economy

This is, Hudson says, almost the exact opposite of everything the Classical economists, including George, talked about. The Occupy Wall Street group represent a rejection of neo-liberalism and are actually fighting for what Adam Smith fought for, taxing the Land and fighting against the rentiers.

Hudson concluded that despite recent anti-governmental denigration, the government must plan the economy or the banks will. The financial planning is to take over industry, decrease wages, increase output, squeeze out a surplus to pay their debts, and shrink the economy. This is the system we have today.

David Kelley

(Kelley is not a theoretician like the previous two speakers. He is a businessman and adviser to perhaps the greatest progressive voice in Congress today, Dennis Kucinich. * So, his observations and solutions tend to be more practical and political. This was part of an intentional mix as well, since I wanted to present something as a practical alternative, so familiar to these kind of Leftist meetings. After all, we had promised “tactics to fight the 1%” right in our title. (* Kuninich lost his recent primary in a redrawn and gerrymandered Ohio Congressional district.))

Kelley started off by gently chiding his co-author collaborator and saying “Michael was being naïve” in not understanding the cost of wars – $14,500/avg. for a family of 4, about this much for health care too. There was no way to deny the harm of the enormous shift in wealth over the past 40 years. Kelley and Hudson had previously worked out that the total income share – including collected rent, dividends, capital gains, etc – of the top 1% has gone from 37.8% in 1979, to 57.5% in 2003, and finally to 66% in 2010. This result is, Kelley pointed out, without going into the nuanced financial sector breakdown of Mazzone and Hudson, an unsustainable “gushing of wealth to the top”. You cannot have incomes of workers stagnant for nearly half a century and expect a consumer society to continue, Kelley said. Breaking with partisan politics, Kelley said the answer is not the Democratic party, e.g. the suppression of options like universal health care – which Kucinich has tried to introduce several times. The Democratic Party has been bought out, Kelley says. Bank of America was cited, referring to a recent Matt Tiabbi article, as a criminal enterprise.

Kelley said that the banks have not grown too big to fail, they have grown too big to succeed (a finding demonstrated empirically, that beyond a certain size banks actually start to lose efficiency of scale.) 40% of corporate finance is now in the FIRE sector, said Kelley, and they produce nothing but simply extract rent, while 120 million Americans are virtually sharecroppers. This set of profits should not be added to the real economy, but instead be subtracted from the total, as it really reduces the real economy. Interest charges and monopoly charges of rent reduce the real economy. Taking this to its logical conclusion, Kelley said “This means that if we get to 100% of profits from the FIRE sector, that’s perfect. We manufacture nothing, we just have this (extractive) element….It’s a zero net sum game.” This is ridiculous, Kelley said.

As another example, Kelley said a non-producer like hedge fund manager John Paulson, who famously made $12.9 billion shorting the housing bust on the way down, made what 855,456 minimum wage earners made in one year. Kelley asks us, as surely Henry George would have, whether one man laboring for four years is worth what nearly a million people laboring for 1 year makes. (Of course, this actually understates the damage, as many of those minimum wage earners were losing their jobs and possibly their homes, while Paulson was making a small-country sized fortune.) This is not only morally repugnant, says Kelley, but economically inefficient and unsustainable. (This, perhaps more than any of the models and historical references presented by the previous speakers, drove home the harm caused by the elevation of the rentier class, to the audience, which gasped audibly. This message was in the best tradition of Liberation Economics, as practiced by Henry George.)

(Dave Kelley advised me, during the writing of this article, that he did not address a more basic problem in his example. The “wealth creation” of John Paulson was a zero-net sum gamble, which transferred wealth from one group to another. Of course, the group that guaranteed much of these loans was AIG, which was bailed out by taxpayers to the tune of $182.5 billion. Thus, taxpayers made good on the bets that Paulson had made with others. On the other hand, those 855,456 people were likely involved in producing real wealth, i.e. real goods and services. This makes the pay of Paulsen and the minimum wage cohort even more disturbing because, essentially, he got paid for gambling and the others got paid for productive (we assume) work.)

Kelley pointed to the example of bailed out CEOs who failed, then lived to fail again, like John Meriwether, who bankrupted two companies.* Although Kelley didn’t use the term, I think he would agree this is a form of neo-feudalism, and certainly about as far from Georgism as it is possible to get. (*Long Term Capital Management and JWM Partners LLLC. Well, we know from George how to fix that, impose a Land Value Tax on the full rental value of the Land!)

The Wall Street financiers are not the best and the brightest, said Kelley.

“How is this just?” he asked, his voice rising in incredulation, and echoing the sentiment of the crowd. We are told, Kelley said, quoting Margaret Thatcher that, “There Is No Alternative” (this has sometimes been called TINA by Thatcher, and then later, economists, usually more critically than her – http://en.wikipedia.org/wiki/There_is_no_alternative). Yet Germany, which was cited by Hudson earlier, has just 81.5 million people, and the 4th highest manufacturing base in the world. Turning to a solution, Kelley pointed to Kucinich’s bill, HR2990, the N.E.E.D. Act,* which would simply spend debt-free money into the real economy, for infrastructure, education and even Social Security. (The benefits of Greenbacking, as this bill would do, are beyond the scope of this paper, but it is agreed by Hudson and Mazzone, both Georgist experts, and indisputable, that Henry George was a Greenbacker as well, coming right out and saying so at least once.

Kelley used several depressing examples of oppositional smear-politics and lies from the ill-fated Kucinich campaign to demonstrate the sorry state of political dialog in America today. (Clearly, this is not new – Tammany Hall counted out Henry George in the 1886 Mayoral race too. But it is exactly the sort of thing that must be addressed if we are ever to have a society not rule by rentiers.) The political answer says Kelley, is OWS, direct action, and embarrassing people with their lies.

Questions and Answers

Naturally, the audience had many questions for the panel, and moderator Dr. Cay Hehner handled them deftly and in order, until it was finally time to leave the room.

Q: Why don’t industrialists criticize financial firms and their practices?

A: Hudson: There is nothing to criticize if you are doing the same thing. Hudson had the chance the elaborate on the financialization of industry, turning them effectively into banks. With Mazzone’s prompting, he brought up the case of General Electric as an example – a firm that many people still think of as the quintessential manufacturing industrial, but which, thanks to GE Capital, has now been turned in large part into a bank. GE Capital famously flamed and burned, while finding new ways to create credit and turning that into profit, for a while. For a while, said Hudson, GMAC provided most of the profits to GM. Even countries, Hudson said, have been financialized, forced to sell off parts of themselves to outside buyers – an example being Greece, which is selling off some of its smaller islands. Greece may be going toward the Iceland model, Hudson says, as a monetarily sovereign nation again, out of the Euro. (In this author’s opinion, this would be a healthy development in the long run, and a good example to the world.)

Q: How does the financial sector enable its own recovery by staging a global Land grab?

A: Hudson explained that post-WWII, the countries were divided up by the Allied powers, the earliest example of a “Land grab.” He gave an example of how the financiers indebted Greece permanently. The debt crisis in Greece is being used to privatize everything, and turn the economy into a “toll booth economy.” Greece has had a dictator imposed upon them, because a democratic election would have gone against the rentiers (and Germany). That’s why Greece is going the way of Iceland Workers too, says Hudson, have been forced to become stockholders, actually put in the perverse position of wishing for the company’s stock to rise and benefit their pensions, while tacitly supporting the downsizing of their own employment and wages as drags on profits. It is, as Hudson put it, “Making labor vote for its own downfall.” Returning to the malfeasance of so-called “private equity” Hudson pointed out that one half of all pension funds have gone broke, and used as an example, Sam Zell’s pension-raiding corporate takeover of the Tribune media empire that ultimately resulted in chapter 11 bankruptcy (http://en.wikipedia.org/wiki/Sam_Zell). He suggested that pensions should move towards a German-type system of pay-as-you-go instead of invested pensions that must make a certain return to be “solvent”. Occupy Wall Street, said Hudson, is on the right track in calling for restructuring the financial system, not simply fixing it. Nothing less will do.

Q: (Hudson) said 80% of all loans are mortgages, and banks are not making loans to businesses. Could you talk about that?

A: Kelley pointed out that banks do not loan to start businesses, or as venture capitalists, but only against collateral or against receivables, explaining why small businesses cannot get off the ground with new credit. “Banks no longer fund companies. They only loan to each other for casino games.”

Q: If you eliminated the deductions and subsidies, what would happen to the FIRE sector?

A: Hudson, who is an advisor to the Chinese Government, also said that real estate is included in Chinese financial statements but not in American ones (an important point to Georgists who want to see Land get its proper accounting, but still falling short of the true solution of taxing land itself to prevent bubbles. China is having its own land bubble). Hudson also said that the real estate sector in America has not paid taxes since 1945, due to alleged, and repeated, depreciations, nor have mining companies, as taxes have been shifted onto labor instead.

I wish he’d had time to delve into this more, but we finally had to go.

Epilog

Cay Hehner, I, a member and another former member of CGNYC, and two interested parties, all went to dinner in Little Italy afterwards, to catch up, celebrate a successful panel, and generally enjoy New York’s sidewalk café scene.

Why do we do this? The Left Forum was “occupied” by activists young and old, some of whom had been doing this for years or even decades – indeed in some cases their messages at the exhibition space could have been from the 1960s. That is not a selling point! They, like Georgists, have seen more promising times. Yet, we persist, out of a sense that “justice must be done” or camaraderie, habit, obligation, or any combination of these, and more. We don’t seem to be winning.

Part of the advantage of being the 1%, or maybe even the .1%, is that there are so few of you to disagree. You can get on with your plan because, after all, all the .1% could fit in a gathering at Davos. The 99%, on the other hand, even if they accept that the system is unfairly rigged, and instead take a direct interest in making a more just and sustainable model, squabble, disagree, and even take constructive criticism as a philosophical attack, or worse. This results in a splintering of activist groups well beyond what would be caused by mere political-economic disagreements. A great deal was made of solidarity and comradeship at the Left Forum, since numbers are about all the 99% has left, when money, power, and Land have all been mostly taken away. But where the policy meets the road, disagreements remain, and personalities clash, sometimes fatally for the common cause. This splintering, of course, simply helps the elites remain in power. We need more venues like this to find our commonalities, to bind and plan, and figure out ways to regain our rightful heritage.

Perhaps in the end, we do what we do because we must, because to go along with an unjust system is simply psychically intolerable. Hopefully, we can find kindred souls who feel the same along the way. I know I did.

(GroundSwell does not have space for footnotes; part of some have been inserted into the text with an *. Others may be asked for from the author.


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