[Marxism] Mike Whitney interview with Robert Pollin

[Walter Lippmann <walterlx@xxxxxxxxxxxxx>]

(This is a very long and interesting interview, with much food for
thought. To me, the most important single idea is the absurdity of 
tryinginG, 150 years later, to suck contemporary political answers
out of the writings of Marx, Engels and Lenin from an entirely
different social, political, economical and technological era.


Walter Lippmann
Los Angeles, California
============================================================================

(Despite the failures of the Soviet Union, is there anything in the analysis
of Marx or Lenin that can help us to better understand this present phase of
American-style capitalism?

(Robert Pollin: This is a very keen observation by Leninâone among many, many
others.  As for Marx, he remains, in my view, the single most insightful
thinker in history on the operations of a capitalist economy.  This includes
his voluminous writings on the nature of financial markets, which are full
of tremendous insights.  And remember, he was doing this writing 150 years
ago, when he had very little to grab onto as he attempted to discern the
nature of capitalism.

(That doesnât mean that I agree with everything Marx says.  I also donât see
much point in assigning labelsâMarxist or otherwiseâto people.  This is
mostly a barrier to clear, straightforward thinking that might also someone
be politically useful.  And finally, in my opinion, there is a huge amount
important thinking in Marx as to what is wrong with capitalism, but not very
much about what to do about it.  As such, in figuring out where we go from
here, we are really on our own.  Thereâs not much point in trying to figure
out what Marx would propose to do in our present situation.  We will never
know that; and even if we did know, it would still be up to us to figure out
whether Marx was making any sense.  Remember that Marx himself once said, in
exasperation at his dogmatic followers, that âI am not a Marxist.â)
====================================================================

COUNTERPUNCH
October 16, 2008

An Interview With Robert Pollin
The End of Friedmanite Economics
By MIKE WHITNEY

http://www.counterpunch.org/whitney10162008.html

  "We are in the midst of a major historic turning point, 
  equivalent to the emergence of neoliberalism under 
  Thatcher and Reagan"
      â Robert Pollin

Robert Pollin is a Professor of Economics and founding Co-Director of the
Political Economy Research Institute (PERI) at the University of
Massachusetts at Amherst. Among his recent books are Contours of Descent:
U.S. Economic Fractures and the Landscape of the Global Austerity (Verso,
2003) and (with Stephanie Luce) The Living Wage: Building a Fair Economy
(The New Press, 1998).

Mike Whitney: On Monday, the stock market recorded the biggest one-day gain
in history on news that the G-7 had settled on a plan to recapitalize the
banking system. The Federal Reserve, the European Central Bank (ECB) and the
Bank of England (BOE)  all agreed to make direct capital injections into
"systemically important" banks so they could resume lending and reduce
stress in the credit markets. They also decided to insure deposits and to
guarantee interbank lending. Do you think that these unprecedented steps
will be enough to avert a meltdown of the financial system?

Robert Pollin:  Of course, by Tuesday, the Dow fell again by over 733
points.  Meanwhile, the Nikkei in Japan fell by 10 per cent on Wednesday.
So, thus far, the answer to whether these steps are enough, on their own, to
avert a meltdown is a resounding âno.â  At the same time, to be fair, these
measures have yet to have any real effect on banksâ balance sheets.  Thus
far, the stock markets are only responding to their own guesses as to what
benefits, if any, these measures will have on stabilizing the balance sheets
of financial institutions.

But there is another element that came into play especially over the past
day.  That is the reality within financial markets that the economic crisis
has spread beyond Wall Street itself.  It is now clearly becoming a
crisis -- a recession or depression, choose your own term -- spreading into
the realm of jobs, incomes, public sector budgets, and private non-financial
profits as well.  This means that averting a meltdown of the financial
system will also require a massive stimulus of the non-financial side of the
economy.  We havenât heard yet about any significant plans along these
lines.

How much of the present crisis can be blamed on ideology? Do you think that
the ideas of Milton Friedman or the 30 year-long bias towards market
fundamentalism contributed to the present troubles in the financial markets?
Is this the end of the laissez-faire, free market "trickle down" era?

Robert Pollin:This is certainly a huge crisis for Friedmanite economics and
neoliberalism more generallyâwhich all along was the ideology that touted
free markets and deregulation to privatize profits, but to come begging for
government bailouts when the inevitable crises emerged.  This is certainly
not the first financial crisis under the neoliberal regime.  There have been
regular severe crises since the 1987 Wall Street crash.  These crises were
all quelled through Federal Reserve/Treasury bailout operations.  Whether or
not this crisis will mean the end of the neoliberal era will depend on
political mobilization â specifically, how successful the left will be in
building coalitions behind an agenda that combines egalitarianism with a
stable financial system.  I would say this:  if the left is unable to defeat
neoliberalism now, and build some version of social democracy or âleashed
capitalismâ, then we will never do it.

Secretary of the Treasury Henry Paulson's $700 billion bailout plan was
opposed by over 200 economists. The vast majority of the economists
supported the idea of capital injections into struggling banks rather than
buying up their toxic mortgage-backed assets. EU nations settled on the
capital injections plan, too. On Monday, according to the New York Times,
Paulson met with a group of CEOs from the country's largest banks and
announced his plans for distributing the first $250 billion provided by
Congress.

Citigroup and JPMorgan Chase were told they would each get $25 billion; Bank
of America and Wells Fargo, $20 billion each (plus an additional $5 billion
for their recent acquisitions); Goldman Sachs and Morgan Stanley, $10
billion each, with Bank of New York Mellon and State Street each receiving
$2 to 3 billion. Wells Fargo will get $5 billion for its acquisition of
Wachovia, and Bank of America the same for amount for its purchase of
Merrill Lynch.

Half of the money allocated by Congress is being given to many of the same
Wall Street giants that are directly responsible for the current implosion
of the financial system. Doesn't this confirm our worst fears about Paulson,
that he is merely a banking oligarch who serves the interests of the
financial industry?

Robert Pollin: Paulson is a Wall Street manâand Goldman Sachs man, more
specificallyâthrough and through.  There was never any doubt about that.  He
will always do his best to serve his Wall Street constituency.  At the same
time, this constituency has now been discredited to an extent unprecedented
since the 1930s.  So again, it will be a matter of how well the left
mobilizes its forces to push for a different agenda with the Treasury and
other major economic policy-making institutions.  It will not be easy, and
it wonât happen overnight.  But now is most emphatically the time to make
serious advances in building a serious alternative agenda.

Many pundits now point to the Lehman Brothers default as the main cause for
last week's turbulence in the stock market. Can you explain how one bank can
have such a dramatic effect on global stocks and credit markets?

Henry Paulson made the decision for one dayâand one day onlyâto try free
market capitalism during a financial crisis.  That is, he and Federal
Reserve Chair Ben Bernanke decided that if Lehman Brothers canât make it on
its own, then, according to the logic of free market capitalism, they should
be allowed to fail.  But once they made that decision, such  deep panic
ensued, on Wall Street and financial markets throughout the globe, that they
backed off literally the next day, when the bailed out AIG Insurance.

Under neoliberalism, financial market players have become accustomed to do
as they wish when the market is going up, but to get bailed out when the
market is going down â privatization of profits and socialization of losses.
The collapse of Lehman sent the signal that the old rules of neoliberalism
may no longer apply â that market losers may really go down hard, as the
true-blue free market modelâas opposed to the neoliberal modelâsays they
must.  Thatâs why Lehmanâs failure caused such vast  panic.

Do you find it surprising that foreign investors and central banks have not
sued the various US brokerage houses for selling them complex securities
that were toxic? Why hasn't the ECB or the BOE demanded that the US buy-back
this fraudulent mortgage-backed garbage or threaten to boycott US financial
products?

Robert Pollin: We have to be clear on what we mean by âforeignâ investors.
They may well be physically living in other countries, and their
institutions may have business charters outside the U.S.  But they are
heavily integrated into the U.S. economy.  Neither the European Central Bank
(ECB) nor the Bank of England (BOE) want to see either Wall Street or the
dollar collapse.  They themselves would also go down in the event of a
global depression.  So they are not about to call for boycotts of the U.S.
economy.  The Europeans may have some harsh words for the US players behind
closed doors.  On the other hand, nobody forced the Europeans to buy
mortgage-backed securities.  They also would hardly want to claim to be
untutored innocents playing above their heads in financial markets.  They,
like the Americans, had every opportunity to think about whether
mortgage-backed securities were good ways to make big-time profits.  They
all decided to go for it.

The Obama campaign has reportedly received $10 million from Wall Street
contributors, whereas, the McCain campaign has taken in $7 million. Does
this explain why no one in Congress from either party is demanding that
Glass Steagall be restored, or that all derivatives contracts be put under
government regulation, or that all financial institutions (that pose a
danger to the overall system) maintain a capital cushion of 12 per cent? Has
the big money which flows into the political system made it impossible for
congress to do the work of the people?

Robert Pollin: The big money flowing into Obama, and to Democrats more
generally, certainly will make it more difficult for our elected officials
to do the work of the people.  But here again, Wall Street has now been
discredited to a degree unprecedented since the 1930s.  That should give the
left serious political leverage, even while fully recognizing the influence
that big money will continue to play with both the Democrats and
Republicans.  And we donât need to go back to Glass Steagall
specificallyâthe financial regulatory system that came out of the wreckage
of the 1930s Depression.  We need to recreate its basic principles and then
some â that is, to create a regulatory system focused on financial stability
and channeling credit to socially productive activities, like affordable
housing, job expansion, and building a clean energy economy.  Does that mean
that the financial system should be state owned?  Certainly there is a case
for at least partial ownership.  That is hardly an outlandish crazy-left
idea now, since George Bush and Henry Paulson have made this a cornerstone
of the Republican-led bailout plan.  But the real issue â whether it be
through public or private ownership or some mix â is to move financial
institutions and markets in the direction of egalitarianism.  That wonât
occur automatically by any means even with publicly owned financial
institutions.

So far, foreign flows into US Treasuries (to cover our $700 billion current
account deficit) have not been a big problem. As the Federal Reserve and the
Treasury expand their balance sheets to provide a backstop for the financial
system--as well as emergency fiscal stimulus for maxed-out consumers--we
could be facing a funding crisis as severe as anytime in history. In July,
the purchases of US Treasuries hit a record low of roughly $6 billion
leaving a shortfall of $50 billion. Now that we are headed into a global
recession, do you think that foreign central banks will begin cutting back
on their purchases of US debt? What effects will this have on the US economy
(and the dollar)? Will interest rates rise sharply?

Robert Pollin: I think U.S. Treasuries are now, and will remain for some
time, the single safest, and most desirable, financial instrument in the
global financial system.  I donât think foreigners will shift dramatically
away from Treasuries, though they may do so modestly.  At the same time,
U.S. investors will continue to clamor for Treasuries as opposed to buying
stocks, bonds issued by private companies, and derivatives.  This will push
down the interest rates on Treasuries.  However, other interest rates will
continue to be very high.  The growing disparity between the low Treasury
rates and the high rates on private bonds, including those of AAA
corporations, reflects the very high level of riskâthe ârisk premiumâthat
investors are now attaching to any security that doesnât have the full
backing of the U.S. government.

In 1967 former Fed chair Alan Greenspan published an essay titled "Gold and
Economic Freedom" which could have been written by a Libertarian like Ron
Paul. The article proves that Greenspan has a good grasp of how low interest
rates and credit expansion lead to disaster. In fact, he even blames the
Great Depression on loose monetary policies. Here is a particularly
revealing excerpt:

  "When business in the United States underwent a mild contraction in 1927,
the Federal Reserve created more paper reserves in the hope of forestalling
any possible bank reserve shortage. More disastrous, however, was the
Federal Reserve's attempt to assist Great Britain who had been losing gold
to us because the Bank of England refused to allow interest rates to rise
when market forces dictated (it was politically unpalatable). The reasoning
of the authorities involved was as follows: if the Federal Reserve pumped
excessive paper reserves into American banks, interest rates in the United
States would fall to a level comparable with those in Great Britain; this
would act to stop Britain's gold loss and avoid the political embarrassment
of having to raise interest rates.

  The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed
the
economies of the world in the process. The excess credit which the Fed
pumped into the economy spilled over into the stock market -- triggering a
fantastic speculative boom. Belatedly, Federal Reserve officials attempted
to sop up the excess reserves and finally succeeded in braking the boom. But
it was too late: by 1929 the speculative imbalances had become so
overwhelming that the attempt precipitated a sharp retrenching and a
consequent demoralizing of business confidence. As a result, the American
economy collapsed.... The world economies plunged into the Great Depression
of the 1930's....The abandonment of the gold standard made it possible for
the welfare statists to use the banking system as a means to an unlimited
expansion of credit..." (Gold and Economic Freedom, Alan Greenspan)

What role did Greenspan play in the current financial crisis and why did
Greenspan leave interest rates below the rate of inflation for 31 months
when he knew it would lead to catastrophe?

Robert Pollin: I donât agree that low interest rates and credit expansion
lead to disaster.  They only lead to disaster in an unregulated financial
system, in which credit flows overwhelmingly support speculation as opposed
to investments in productive activities that create useful things for
people, like schools, housing and public infrastructure.  Indeed, I strongly
support an extensive system of government loan guaranteesâi.e. credit risk
insuranceâto support private investments in retrofitting buildings and
affordable housing.  This will maintain low interest rates to finance these
activities, and channel large amounts of cheap credit into these areas.

Greenspan himself is as responsible for this current financial disaster as
anyone.  His only competitors on this score are former Republican Senator
and top McCain advisor Phil Gramm and former Clinton Treasury Secretary
Robert Rubin.  They all were relentless cheerleaders for financial
deregulationâDemocrats and Republicans alike.  They were spouting nonsense
about the virtues of unregulated financial markets at least since the 1980s.

In "Imperialism is the Highest Stage of Capitalism", Vladimir Lenin says:
"The development of capitalism has arrived at a stage when, although
commodity production still "reigns" and continues to be regarded as the
basis of economic life, it has in reality been undermined and the bulk of
the profits go to the "geniuses" of financial manipulation. At the basis
of
these manipulations and swindles lies socialized production; but the immense
progress of mankind, which achieved this socialization, goes to benefit...
the speculators."

Despite the failures of the Soviet Union, is there anything in the analysis
of Marx or Lenin that can help us to better understand this present phase of
American-style capitalism?

Robert Pollin: This is a very keen observation by Leninâone among many, many
others.  As for Marx, he remains, in my view, the single most insightful
thinker in history on the operations of a capitalist economy.  This includes
his voluminous writings on the nature of financial markets, which are full
of tremendous insights.  And remember, he was doing this writing 150 years
ago, when he had very little to grab onto as he attempted to discern the
nature of capitalism.

That doesnât mean that I agree with everything Marx says.  I also donât see
much point in assigning labelsâMarxist or otherwiseâto people.  This is
mostly a barrier to clear, straightforward thinking that might also someone
be politically useful.  And finally, in my opinion, there is a huge amount
important thinking in Marx as to what is wrong with capitalism, but not very
much about what to do about it.  As such, in figuring out where we go from
here, we are really on our own.  Thereâs not much point in trying to figure
out what Marx would propose to do in our present situation.  We will never
know that; and even if we did know, it would still be up to us to figure out
whether Marx was making any sense.  Remember that Marx himself once said, in
exasperation at his dogmatic followers, that âI am not a Marxist.â

Liberals and progressives in the US seem much more focused on social issues
than economic ones. Only recently, have they become more aware of the
growing polarization between rich and poor and the inherent shortcomings of
this crisis-prone, bubble-generating, wealth-shifting system. As the
financial crisis spreads into the real economy triggering increasing
unemployment, falling demand, tightening credit and soaring foreclosures;
there will probably be many opportunities for change. Do you foresee a rise
in "issue-oriented" populist movements or, maybe, a third political party?
What are the immediate economic goals that progressives should pursue?

Robert Pollin: I do think we are in the midst of a major historic turning
point, equivalent to the 1930s New Deal, or the emergence in 1979/80 of
full-tilt neoliberalism under Thatcher in the UK and Reagan in the U.S.  It
seems clear that the economic agenda will rise to the top of the heap as a
focus of concern for the left.  This is not to denigrate other issues, such
as the environment, anti-imperialism, racism, or sexism.  But I think we
will now be able to start seeing more clearly the connections between a
critique of neoliberal capitalism and these other arenas of social and
political struggle.  For example, with the environment, it was only a year
or so ago that the conventional wisdom held firmly that we could either have
a clean environment, or a growing economy with an abundance of good jobs,
but we couldnât possibly have both.   Trade-offs such as this were
inevitable.  You were simply a confused, mushy thinker if you didnât
understand this.  It is now becoming clear that building a clean energy
economyâand by this I mean a zero fossil fuel driven economy, with no âclean
coalâ and no nukesâcan also be the engine to build a full employment economy
as well as help construct a stable financial system.

Of course, to put such an agenda in place will mean treading through
multiple political minefields.  Should people work within their communities
alone?  In unions?  Form a left caucus within the Democratic Party?  For
environmental justice groups?  Keep trying to build third parties?  I think
all these approaches have merit, and that we on the left should try all of
them.  We should also have enough humility to acknowledge that none of us
really knows what will work best under any given set of circumstances.  Letâs
try a lot of things, keep learning, and stay open-minded.  And I would
emphasize one other thing.  During the 1968 uprising in France, one of the
most bracing slogans to have emerged out that struggle was âBe Realistic,
Demand the Impossible.â  I am more inclined to embrace its mirror image as a
guide for moving forward.  That is, âBe Utopian, Demand the Realistic.â

Mike Whitney lives in Washington state and can be reached at
fergiewhitney@xxxxxxx



=========================================
     WALTER LIPPMANN
     Los Angeles, California
     Editor-in-Chief, CubaNews
     http://groups.yahoo.com/group/CubaNews/
     "Cuba - Un ParaÃso bajo el bloqueo"
=========================================

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