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 Citys 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 couldnt 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-NYCs
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 whats 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. Masters 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 countrys 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)).
Ive 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 worlds 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 Georges 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 Capitalisms
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 dont 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 years
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 writers 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 Hudsons 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 Feds 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 Carters 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 todays
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
dont simply plough it into the derivative markets, as previously
described. Hudson said that except for the University of Missouri,
where he teaches, the theoreticians dont 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
Gaffneys 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 didnt
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 wouldnt
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 Americas
post-WWII growth than Mazzone, pointing to the adoption of the dollar
as the monetary standard worldwide. This, he says, forced the worlds
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. (Its
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, its
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 doesnt 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 Balzacs 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, thats perfect.
We manufacture nothing, we just have this (extractive) element
.Its
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 didnt 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 Kucinichs 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 dont 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 Mazzones
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 authors 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). Thats 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 companys 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 Zells
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 hed 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 Yorks
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 dont 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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