Dec 9, 2013
Obama’s Master Class in Demagogy 101
Posted on Jul 27, 2013
By Michael Hudson
The problem weighing down today’s economy is still the debt overhang. Households are “deleveraging,” that is, spending their income on paying down the debts they have inherited. This is what is stifling market demand, and hence new investment and employment. Obama’s speech seeks to gloss over this problem as if his failure to write down debts is no longer an issue:
But “tightened our belts” means paying down debt and thus diverting spending away from goods and services. The debt has not been “shed.” It has been paid out of salaries, reducing what is left to spend on goods and services. When the media try to assure readers and viewers that the economy is on the way to recovery, it is as if the economy can afford to resume growth without writing down the debts that were run up by 2008.
The president acknowledged that “nearly all the income gains of the past ten years have continued to flow to the top 1%.” If he can’t deny it, best to come right out to say it. After all, is this not what he and other politicians have promised their campaign contributors? That’s what politics is all about today: making sure that the gains flow to the top 1%.
We’ve got ports that aren’t ready for the new supertankers that will begin passing through the new Panama Canal in two years’ time. We’ve got more than 100,000 bridges that are old enough to qualify for Medicare. Businesses depend on our transportation systems, our power grids, our communications networks – and rebuilding them creates good-paying jobs that can’t be outsourced. And yet, as a share of our economy, we invest less in our infrastructure than we did two decades ago.
The question is, how will infrastructure be financed. The danger that is looming is a giveaway to high finance, such as we have seen in Chicago, where Goldman Sachs and other hedge funds bought the right to install tollbooths on Chicago’s sidewalks with parking meters to squeeze out revenue at the cost of raising the price of driving and transportation in the city.
Most great fortunes in history have been carved out of the public domain. That was the case with America’s colonial land grants, and the railroad land grants after the Civil War. The great question facing Europe as well as America today is whether infrastructure will be provided at a low price – which can best be achieved by public investment – or at a high price as rent-extracting owners turn roads into toll roads, bridges into toll bridges, and so on throughout the economy. This is the looming Wall Street plan, using today’s downturn as an opportunity to cloak a vast new monopoly grab as a “solution” to the economic problem rather than looming as a new threat to price American labor and industry out of global markets.
The same thing is happening in Greece and other Eurozone countries obliged to pay bondholders by selling off infrastructure. In today’s world, privatization means financialization – funding the new construction with debt-financing, building interest and dividend charges into the price of services – and making this revenue tax-free as a result of the tax deductibility of interest.
I think that Obama’s speech is seeking to “foam the runway” for this plan. One need merely look at what the City of London’s Public-Private Partnership has done to that nation’s transportation system to see a peep into what would be a dysfunctional future for this country. The plan would be for the government to guarantee returns (against cost overruns or losses), passing all losses on to “taxpayers.”
This is essentially what the President proposes to do with mortgages that are still underwater. “I’ve asked Congress to pass a good, bipartisan idea – one that was championed by Mitt Romney’s economic advisor – to give every homeowner the chance to refinance their mortgage and save thousands of dollars a year.” Under this plan the government will absorb the loss – the writedown – that otherwise would be borne by the banks and other mortgage holders. Taxpayers will foot the bill to pay Wall Street. This is the basic model for Obama’s infrastructure plan to be unveiled in the next few weeks.
So what we have in the President’s Knox College speech is an exercise in political stealth. In essence, his message is: “I know how unfair society is. Trust me.” It was what Charles Keating said to his S&L depositors. It worked for Bill Clinton. The more clearly a candidate can vocalize peoples’ desires for prosperity, upward mobility and deterrence of wrongdoing, the better they seem likely to legislate a solution. As the famous quip attributed to George Burns, Groucho Marx and others puts it: “The secret of life is sincerity and fair dealing. If you can fake that, you’ve got it made.”
The basic script is a fairy tale that balancing the budget in the face of the $13 trillion in Wall Street bailouts requires cutting back spending elsewhere in the economy. The Federal Reserve and Treasury were able to create this money for the banks, but pretend to be unable to do the same for the projected $1 trillion in Social Security deficits that may or may not materialize a generation from now. New wars in Syria and elsewhere can be funded by money creation, but not social spending programs – to say nothing of financing public infrastructure costs with public money creation rather than by recourse to Wall Street. This is the great policy asymmetry of the Obama Administration’s plans to use the economic crisis as an opportunity to cut and ultimately privatize Social Security as the capstone of a financialized Public-Private Partnership.
Here’s the problem that President Obama did not address in his speech: Today’s debt deflation and economic shrinkage are pushing federal, state and local budgets into deficit. This is forcing public spending to be cut back proportionally. That cutting will push state, local and federal budgets even further into deficit. This is why we are hearing calls to start selling off public infrastructure – to buyers who will become new customers for Wall Street investment banks.
It is the same phenomenon we are seeing in Europe. The newest economic prize is the right to buy rent-extraction rights to turn public roads into toll roads and similar rentier tollbooth installations. All this increases the cost of living and doing business, making the economy high-cost even as it is being impoverished.
That is not a solution. It bears out the classic principle that the solution to every problem tends to create new, even larger problems. Often these are unforeseen. But today’s problems in the making are all too foreseeable. What is needed is to keep translating the President’s speeches into their subtext.
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