Wednesday, March 25, 2009

Thomas Geoghegan on “Infinite Debt: How Unlimited
Interest Rates Destroyed the Economy”

Well, we took that stuff off, the thing that was kind of an instinct in human and legal civilization, from the time of the Code of Hammurabi up to the present, and we created all these incentives for money to go into speculation, derivatives, because we addicted the economy to very, very high rates of return by squeezing money out of people. And the way in which we disinvested from the economy was, in my view, not so much globalization or trade as the fact that we had preteens in shopping malls who were running up, you know, debts where they were paying 25, 30 percent interest, when investors could only get five, four, three percent from our globally competitive industry.
Well, history—historians like Niall Ferguson, conservative historians and progressive historians, many economic historians, see history as nothing but a turf war between three groups: the manufacturers, workers and the bondholders, or the financial sector. So where does labor fit in in all of this? People lost the ability to get wage increases and got the ability, an incredible ability, really unknown in previous times, to get credit cards with which they had high rates of interest. So, unable to get wage increases, people—or unable to get union cards, really, people got credit cards and began running up these great debts, which addicted the country to high rates of return in the financial sector, so that people were kind of spending their way out of the real economy, pushing more and more money, by the fact that they were going into debt, into this virtual financial sector economy. So, really, the inability of people to raise their own wages and the incredible ease with which they could get credit instead helped create this flow of capital out of manufacturing and into finance. You know, we, the little people in this country, helped finance the bloating up of this financial sector and really the downsizing of our own jobs in the real economy. We sent the signals, you know, to investors to put money into the financial sector and not into the manufacturing sector.
If private employers were not paying healthcare costs to the private sector, the private insurance industry, a lot of that money could go for wage increases. It also could make the country much more globally competitive. You know, in this congressional campaign that I just finished, I argued for an increase in Social Security, single payer, basically for the government taking over non-wage labor costs so that the globally competitive parts of the economy could lower their labor costs, hire more employees, people could actually get pay raises, and the government would be assuming these non-wage labor costs, which are so, so important to making the country globally competitive. It’s what many of our high-wage rivals are able to do. And they run trade surpluses; we run trade deficits.
AMY GOODMAN: So, what is your recommendation? You make four major points, what you think has to happen now.

THOMAS GEOGHEGAN: Well, my major points change from month to month, and that was some time ago, but I still stick with those that are in the article.

First of all, we ought to have an interest rate cap in this country. Senator Durbin proposed 35 percent, but it should be much lower than that, especially for the banks that we’re bailing out. I’d slash it at least by half.

Second, I think that there should be something in the country like what Europeans, the Germans, in particular, have, the Sparkasse—and I’m probably mispronouncing the German word. Somebody taught me the correct pronunciation of it, but I’ve bungled it. These are state-run banks that make low-interest rate loans to consumers and are a wonderful alternative to the payday lending system that is being put up in most states, soon will be in New York, too, I assure you, but are certainly in California and Illinois.

And third, I think that as long as we’re in the process of bailing out the banks, we’ve got to restructure them. That’s one of several grievances I have against the administration plan. And in particular, at the very least, let’s put aside the issue of nationalization. I think that there should at least be these public guardians on the board of directors who will, from inside the bank—from inside the bank, there has to be a restructuring of these banks to ensure that these banks are much more in the nature of fiduciaries and guardians and do what banks ought to be doing in this country: pushing money into the globally competitive parts of the economy, accepting lower rates of return, not squeezing money from consumers. It’s not enough to have external outside regulation. You have to change the internal corporate structure of the banks. And I think some kind of codetermination with the public at the board level is the way to go.

And finally, I think that we have to inject equity not only into the banks, but to the people who the banks are lending to. We’ve got to make people—we not just have to force the banks to extend credit, we have to make people more creditworthy. And one of the ways of doing that and encouraging future-oriented thinking is, I believe, for the President and the administration right now to make a big point about promising people that if they work for a living in this country, they will get a decent public pension to live on when they retire. So, instead of cutting back on entitlements—and all the veiled sounds coming out of Washington are to that extent—I would increase the replacement rate of Social Security from our very low level now, which is something like 40 percent on average, to the amount that other developed countries pay on average, according to the OECD, which is closer to two-thirds of working income.


Everything on this blog is a fall back position from a time when the problems were simpler. There is much to admire in the above excerpts and the whole is worth reading and/or viewing. Here are some ideas we have fallen so far away from that I am not even sure we can return to them. Most people barely understand the purpose of these ideas.

Money should be worth something intrinsically, like gold.

Usury should be illegal or tightly controlled.

Production should push the economy forward not financials.

We are so disconnected from what is real and what is created as legal artifice that we have absolutely lost our connection to labor as the primary mover of any sound economy. We all want to be the rich person benefiting from the labor of others. We imagine ourselves in a position of luxury, if not today then someday soon before we retire.

But labor is the only real economic value. Everything else is a con. The more you believe the fictions that are woven into the fabric of our society, the more you fall back from what is real.