From an interview of economist Michael Hudson at iTulip:

“EJ: Who wins the political battle shaping up here between the PIIGS and their creditors? Within the structure of the euro?

MH: I guess whoever has the most guns politically. The Greeks are out on the streets. The French are out on the streets. They’re not like Americans. They’re really protesting and the class war is back in business over there. Same thing in Ireland.

EJ: My French friends will tell me they’re barbarians over there. We’re very civilized here in the United States.

MH: That’s our problem, as Freud said in “Civilization and its Discontents.”

EJ: I remember reading that book in college. He explained the conflict between the demands of society for individuals to stifle the animalistic behavioral foundations of human nature. Is there a way to diffuse the conflict? A muddle-through option? The IMF has been in and out of the Greek rescue.

Debtor versus creditor nations split the EU

MH: The IMF cannot be part of the solution. It’s part of the problem. The EU basically is part of the problem because it’s pro-financial. So the whole way in which the European Union is structured, basically in a centralized way to be run by the financial lobbyists, obviously isn’t working. The EU isn’t really like the United States. It doesn’t really have it’s own parliament and systematic taxes. The Germans are saying today that in the old days, a century ago, if a problem like this came up in, say, Latin America, the United States would send in the marines. They’d occupy the custom’s houses and as these governments made most of their money on charging customs on imports and exports the marines would collect it and pay the creditors.

But now what are the creditors going to do today? Are, let’s say, the Germans going to take over in Greece? Who will act as the equivalent of the Internal Revenue Service to collect the money? The Germans would have to promote not a military dictatorship as the colonel powers did in the old days but a popular government that would tax the rich and the Germans aren’t going to do that. The European Union, the creditors, because they support the right wing not the left wing, are preventing these governments from collecting taxes progressively to balance the budget and pay the debts. That’s the problem: it’s a right-wing versus left-wing problem. Unfortunately, there isn’t really a left wing in Europe to make this case very well. The social democrats have more or less abandoned what used to be an economic policy at the outset. They are now concerned more with political and social issues than economic issues. So there isn’t really a party in Europe that is taking the side of progressive economic policies. They’ve left economics and finance, and debt and credit policy, to the right wing to discuss among each other rather than making it a left-wing topic like it used to be a hundred years ago.

EJ: Isn’t that something of a global phenomenon?

MH: Yes.

EJ: I don’t see it as being terribly different here in the US.

MH: Or in Australia. The Labor Parties all over the world. The most right-wing parties that you can see are the labor parties of Australia and New Zealand where they were leading the privatization sell-offs and leading the tax shift favoring the financial sector. And they didn’t even realize it! They’ve somehow “decoupled” financial analysis from the social analysis that characterizes social democratic and labor parties from their outset a hundred years ago.”

My Comment:

Hudson is always interesting to read, as long as you keep in mind his basic Marxist orientation. So he gets the details right, and then he goes on about the old demon “right-wing” in rhetoric that doesn’t make sense to me, and that even his own writing betrays.

“So Old Europe is quite culpable for having promoted a kind of neo-liberalism that was so right-wing as never to have been able to get a foothold at all either in Western Europe or in the United States. In Latvia there is a flat tax on labor of over 50% and less than a 1% tax on property.”

But right-wingers are the ones arguing the hardest to abolish taxes, especially in this country….

So, with the acknowledgment that I’m an alert student of economics who’s been reading/researching the economic crisis for a few years, but whose main training is in history and politics, let me note the puzzling discrepancies I find in the writing of a man whose knowledge and industry experience are said to be impeccable by even people who don’t agree with him:

1. Why does MH blame “right wingers,” when it was Austrians and right-wingers who were vehemently opposed to the bail-out and to TARP that saddled the country with the banks’ debts? Since when are social-democrats right-wingers?

2. Monetarism and monetary intervention are uniformly advocated by all economists, from the so-called left to the so-called right. Indeed, it’s only the extreme right (to the right of the statist Chicago school) that criticizes all monetary intervention.

3.  Why does Hudson argue against deflation? Deflation is the one thing that will ultimately put the economy back on track. All those overpriced houses would fall in price to within reach of the average citizen. Deflation might reduce wages but it will save pensioners and support savers (who have taken the brunt of the damage done by the boom).

4. A default by Greece would have helped the Euro, ultimately.

5. Why does Hudson think that inflating away a country’s debt is good for the working man or for pensioners or for small business? Inflation will whittle away at the currency, at savings, and at real income. None of which is good for ordinary people.

6. Hudson is right that Social Security and Medicare in the US are not entitlements, since people have all contributed to them. One solution to funding them is to dismantle the war machine. Convert all bases to peaceful uses. That requires no extra funding. Why is it that Hudson doesn’t raise that as an option?

7. Hudson claims that Latvian taxes are of a kind no Western nation would levy (50%) on labor. Really? Adding up all income taxes and sales taxes, taxes in the northern European countries are surely that high, and taxes in the US and UK are well on their way there.

8. Despite talking about “social culture” Hudson says nothing about whether the Eastern European countries have the same kind of business and social culture that have made the northern countries creditor countries. What are the rates of savings, of corruption, of business creation? What are the laws regarding property rights? What are the incentives, or lack thereof, for business?