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Book Review: Debtors’ Prison: The Politics of Austerity Versus Possibility by Robert Kuttner

September 10, 2016

Debtors' Prison: The Politics of Austerity Versus PossibilityDebtors’ Prison: The Politics of Austerity Versus Possibility by Robert Kuttner

My rating: 5 of 5 stars

In Malaysia, another small nation that had suffered the effects of currency speculation, Prime Minister Mahathir Mohamad rejected the advice of IMF and resorted to direct capital controls. This was ridiculed by Western experts as a mark of economic illiteracy, yet the strategy worked beautifully. The central bank used controls mainly to kill the offshore speculative market in Malaysia’s currency, the ringgit. Outside Malaysia holders of the ringgit had to wait a year before converting the currency. Long term investment was still welcome.

The policy enabled little Malaysia to do what Roosevelt had accomplished for the United States in 1933–to break the link between foreign and domestic interest rates so that the government could use low interest rates to stimulate a recovery without crashing the currency. Despite a chorus of orthodox scorn, which involved a downgrading of Malaysia’s bonds by the ever-helpful credit rating agencies, the policy was vindicated. Growth, having declined during the speculative panic by 7.4 percent in 1998, rebounded to 6.1 percent in 1999 and 8.2 percent in 2000. It was the most rapid recovery of any of the affected Asian nations. (259)

The above is possibly the most succinct of the multiple narratives in this book that begins with Daniel Defoe‘s attempts to abolish the literal debtors’ prisons (he even drops a reference to Thomas Dekker‘s debtors’ prison stay, whose The Roaring Girl I read early this year and contains many references to debtors’ prison and footnotes describing in detail what they were like and how they differed based on social class) and compares them to the metaphoric debtors’ prison of today, austerity, which accomplishes nothing but put more wealth in the hands of those who already have the most based on the lie that economic slumps are caused by deficit rather than debt.

The Tea Party (see the extended quotation at https://scottandrewhutchins.wordpress… ) wants us to believe that poor people like me are at fault for the economic crash, not the billionaire gamblers (“speculators”) that actually caused the crash. They claim that going to graduate school was “profligate spending” on my part, that I refuse to get a job, when I take any reasonable job offer for my medical condition, and that I am a leech on society by living in a homeless shelter. The Gramm-Leach-Bliley Act, the failure to regulate derivatives, and the fact that the recession of December 2007 and the crash of 2008 were all caused by private rather than public debt. Yet they, and the International Monetary Fund, which is performing a function diametrically opposed to what it was set up to do following World War II that stimulated the economy, is keeping nations, continents really, in economic slumps in order to redistribute wealth upward to billionaires, or, in Kuttner’s words, the “rentier class.”

The central thesis of his book I found a little troubling in light of Michael Perelman’s discussions of Keynes in The Invisible Handcuffs of Capitalism, but through the course of the book, he makes a compelling case:

The late financial bubble was, in the useful phrase of the political economist Colin Crouch, privatized Keynesianism—unsustainable borrowing in the private sector. Debt pumped up the economy—but it was speculative rather than productive debt. That sort of private debt is pro-cyclical. It is excessive in booms and then evaporates just when it is most needed, in busts. By contrast, genuine Keynesianism—public spending financed by deficits—can be used as the economy requires. Today, in the aftermath of collapse, we need more public borrowing to jump-start a depressed private economy. Once we get a real recovery, higher growth will pay down the debt as it did during World War II. (8)

Before our figurative debtor’s prisons, and before literal debtor’s prisons, Kuttner tells us, there was indentured servitude, agreements that are now called “contracts of desperation” by legal scholars (10), not unlike contemporary student loan debt. “[A]fter a collapse, a debt overhang becomes a macroeconomic problem , not a personal or moral one. In a deflated economy, debt burdens undermine both debtors’ capacity to pay and their ability to pursue productive economic activity” (15). These concepts are beyond the ken of extreme right-wingers who tell the poor “Pay your debts!” as though it is a moral issue, while the wealthy discharge debts they run up all the time. They cry out for us to “live within our means,” regardless of whether doing so is actually feasible.

After a general collapse, one’s means are influenced by whether the economy is growing or shrinking. If I am out of work, with depleted income, almost any normal expenditure is beyond my means. If my lack of a job throws you out of work, soon you are living beyond your means, too, and the whole economy cascades downward. In an already depressed economy, demanding that we all live within our (depleted) means can further reduce everyone’s means. If you put an entire nation under a rigid austerity regime, its capacity for economic growth is crippled. Even creditors will eventually suffer from the distress and social chaos that follow (16)

Right-wingers’ demands (and those of the German Bundesbank) remind us of the pre-Depression lunacy of Andrew Mellon, who told President Hoover to “liquidate labor, liquidate farmers, liquidate real estate . . . it will purge the rottenness out of the system. People will work harder, live a more moral life” (quoted, 19).

The real economy—as opposed to the financial one—needs cheap capital in order to grow. The lesson of the era of managed capitalism is that the economic sweet spot is the combination of plentiful credit and tight regulation, so that low interest rates finance mainly productive enterprise. The mistake of Federal Reserve chairman Alan Greenspan and chief economic advisors Robert Rubin and Lawrence Summers and others was not to loosen money; it was to loosen regulatory constraints on its speculative use. And this was no innocent technical mistake. It was the result of relentless industry pressure for deregulation coupled with the financial sector’s success in installing allies in key government posts, regardless of whether the administration was nominally Republican or Democrat….

The core claim is that budget discipline is the royal road to recovery. However, in a deflated economy, recovery is the precondition for fiscal balance. In the usual framing of the debate, not only are the cause and the effect backward, but several distinct issues are deliberately blurred. (28)

“A mistaken premise is that high levels of public spending produce high deficits. But a government can have declining domestic spending and rising deficits, as Ronald Reagan showed… in a deflated economy, an increase in the short-term deficit to finance investment is better medicine than austerity” (29).

The deficit hawks’ vision of the future if we do not cut deficits now is “just about backward. The well-being of our children and grandchildren in 2023 or 2033 is not a function of how much deficit reduction we target or enforce in this decade but of whether we get economic growth back on track. If we cut the deficit, reduce social spending, and tighten our belts as the deficit hawks recommend, we will condemn the economy to stagnant growth and flat or declining wages. That will indeed leave the next generation a lot poorer. The existing debt will loom larger relative to the size of the real economy, and there will be too few public funds to invest in the education, employment, job –training, and research outlays that our children and grandchildren need” (30). “With earnings so deeply depressed, the economy has no good substitute for that consumer borrowing. Public borrowing invested in new economic activity could play that role, but the conventional wisdom says public deficits need to shrink” (38). “In comparable conditions in the 1930s, the failure of low interest rates to end the Depression was likened to ‘pushing on a string.’ It was the wrong policy instrument, or at best not a sufficient one” (39-40).

In a protracted deflation, there is a right instrument: fiscal policy. When nobody else is willing to spend and invest at sufficient levels, the government can step in. It can borrow the money that the private sector is reluctant to spend and invest, and it can use the proceeds to create public investments and jobs, which in turn can restore purchasing power and confidence more broadly. The government can also tax idle wealth and invest the proceeds socially, so that its spending is not entirely dependent on borrowing. Most of the outlay, in the form of wages and government contracts with businesses, cycles right back into the private sector. (40)

“’The Great Recession,’” Kuttner tells us, “is a misnomer. We should stop using it. Recessions are mild dips in the business cycle that are either self-correcting or soon cured by modest fiscal or monetary stimulus. Because of the continuing deflationary trap, it would be more accurate to call this decade’s stagnant economy The Lesser Depression or The Great Deflation” (40).

Citing economist Andrew Sum, 83% of the growth in the real national income went to real corporate profits, the largest share “’by far in any of the six past recoveries and the largest in any national recession recovery since the official statistics start in 129’” (43, quoting Sum). Similarly, Kuttner quotes Sheila Bair on the total hypocrisy of this situation, “John Dugan famously said during one of my open FDIC meetings that small banks were failing and none of his big banks had failed. They didn’t fail because they were bailed out!” (48). The large passage quoted in my blog entry linked above describes why, for example, ShoreBank failed despite having been a responsible lender.

Kuttner’s third chapter, “The Allure of Austerity,” starts by telling us about billionaire investment banker Peter G. Peterson, who warned that a crash would come due to budget deficits crowding out productive investment. The reality of the crash had everything to do with the lax financial regulations he promoted in four books and articles Kuttner describes as “jeremiads” that never mention the risks of financial speculation. While he says it would be wrong to single him out, he calls him “emblematic of a creditor class that has become increasingly dominant—hegemonic—in American fiscal politics” (51-52).

Clinton and Greenspan struck a deal in 1993 to trade smaller deficits for lower interest rates. “The two policies had no logic connection, except in Alan Greenspan’s ideology. “Projected deficits were having no impact on interest rates,” thus making cutting the deficit a political rather than an economic imperative (55).

Higher growth and reduced unemployment also increased payroll tax receipts and moved the Social Security accounts further into the black. Deficit hawks were fond of pointing to the estimates by the Social Security trustees projecting that at some point in the 2030s or early 2040s Social Security would not be able to meet all of its anticipated obligations. The 2012 Trustees’ report put the program’s long-term deficit at about 1 percent of GDP—something easily solved by modest tax increases on high-bracket wage earners, or better yet, by rising wages.

Social Security is financed by taxes on wage and salary income. It is at risk of incurring a modest shortfall two decades from now only because wages have not kept pace with productivity growth. If wages tracked productivity, Social Security would never be in deficit. In one three-year span during the booming 1990s, the date of social Security’s projected shortfall was pushed back by eight years—from 2029 to 2037—because a high-employment economy meant more payroll taxes coming into the Social Security trust funds. At that rate of improving solvency, Social Security would soon be in perpetual surplus. All it took was decent economic growth with fruits shared by wage earners. The budget hysteria lost its credibility, and the austerity crusaders went into temporary eclipse. (55)

That did not last. In the grip of the recession that George W. Bush started in December 2007, Barack Obama sold out to the austerity lobby in a February 23, 2009 speech quoted on pages 62-63. Kuttner notes several fallacies that Obama made: “Deficits did not cause the economic crisis. Confidence in economy has more to do with whether we are on a path to recovery than with whether we are on a path to reduce debt. The horizons of our children and grandchildren will be more a reflection of the health of the real economy than of the ratio of national debt to GDP (which, remember, was at record levels during the postwar boom, America’s greatest era of high growth and shared prosperity)” (63). “There is a better path to recovery and fiscal responsibility. The economy needs deficit-financed public outlay during the next few years, and then very gradual budgetary restraint as the recovery strengthens. Deficit-narrowing built on increased revenue collections that reflect an improved economy is far superior to budget balance that comes from belt-tightening” (68).

Similarly, the deficit hawks are wrong about Medicare:

Medicare’s cost inflation is mainly the consequence of the extreme inefficiency of the larger health system of which the program is a part. (Since 2000, Medicare’s inflation rate has been lower than that of the private parts of the system.) The fact is that nations with universal health insurance cover everyone for about 9 percent of GDP, while we spend nearly twice that—and leave tens of millions without insurance, even after the Obama reforms.

While all societies have had to deal with an aging population and costly advances in medical technology, ours has uniquely high health care costs and a higher-than-average rate of cost increases mainly because of the commercial domination and fragmentation of our system. That reality, in turn, leads to a seeking of profit centers (which are someone else’s cost centers) rather than the cost-effective use of medical outlays. More than thirty years of private sector solutions, such as the use of HMOs and incentive compensation for physicians, have not been able to alter this dynamic. With the Obama plan reliant mainly on for-profit insurers, it is not likely that the latest reform proposals will fundamentally bend the cost curve either, except at the expense of care. (72)

As part 2 of this book suggests, Europe has been wrestling with austerity and its alternatives for a century. The excessive reparations imposed on Germany after World War I helped create a chronic debt crisis all over Europe and ultimately fed into the forces that produced the Great Depression and Hitler. After World War II, the policy of the victors was diametrically opposite. Though even more drastic reparations might have been justified by the far greater damage done by the Nazis, the victorious allies recognized that an economically healthy Germany was the best protection against a lapse back into fascism. The postwar recovery program included not just Marshall Plan aid but massive debt relief. (74)

This book was published in 2013, thus predicting the fascism of the supporters of Donald Trump. John Maynard Keynes, Kuttner tells us, pointed out in November 1918, that the fallacious argument that the Allied claims matched Germany’s capacity to pay, and that reparations should not impair Germany’s productive capacity (79), but opponents did not want to “let the Hun off.” The plan failed and led to the prominence of the hard-right, anti-German Tory party. “With our knowledge of Hitler’s rise to power, it seems preposterous that French and British leaders of 1918 and 1919 could have held such self-defeating views,” (81), but he deficit hawks are failures at learning from history (as well as deriding those who study history academically).

“Speculators may do no harm as bubbles on a steady stream of enterprise,” wrote Keynes, “But the position is serious when enterprise becomes the bubble on a whirlpool of speculation,” (85) which is more like what we have today. “Currency instability rewards only speculators. These policies help the rentier class, at grave expense to the rest of society and to the productive potential of a real economy” (85). The goal was to punish the German people for a war prosecuted by a regime that no longer existed.

Given today’s austerity fever, what is all the more remarkable is that social provision was dramatically expanded in Europe at a time when the debt overhang of the war might have led to calls for belt-tightening. Yet the first Labour government after World War II built the National Health Service and expanded other social forms of income at a time when Britain’s debt ratio was over 200% of GDP. Continental nations still literally digging out from the ruins of war expanded socialized health, retirement, and worker protection systems. Far from hobbling postwar recovery, the social elements of the new European economy energized it. Those who blithely assume that the high European growth rates were simply a natural consequence of recovery from war and prewar depression should take a close look at the stunted period after World War I, when no such durable recovery occurred. The success reflected deliberate policies that blended security and growth and constrained private financial speculation. These, in term, reflected a political base of a strengthened democratic left and a weakened financial and nationalistic right. (108)

Now the financial right is with the Democrats, the nationalistic right is with the Republicans, and the democratic left taken up by the Green and Socialist parties that are marginalized in the United States. Common sense is pushed to the side and dismissed as radical. “Yet, the real economy grew. In many respects, it grew not despite the constraints on speculative finance, but because of them; not in spite of the social complements to the market but as a result of them. In the three decades after the war, the founding nations of the Common Market grew at a rate that has not been matched before or since. Most of Western Europe enjoyed not just full employment but overfull employment. Several nations had to import gust workers to keep up with the demand. Wages rose with productivity, and the income distribution of the Common Market countries became more equal (109)”. This is precisely what the deficit hawks do not want. “So while laissez-faire capitalism has disgraced itself in both theory and in practice, there is no politically robust opposition on the democratic left. The democratic state, as the instrument of a functioning social contract of security and opportunity, is thwarted by both the EU’s own rules and by the political power of finance to set the terms of engagement and to play one state against another,”(129) as we see as Goldman-Sachs destroys Greece and other European nations, while the austerity hawks blame it on “profligate spending” while lionizing the true cause, financial speculation by big banks. “Had Merkel backed Greek recovery and reform from the outset, or even left open the possibility of aid, there would have been far less downward pressure on the bonds. Instead, they refused to help, virtually inviting speculative attacks” (134).

The European Commission, on the other hand, believes the false dogma that “freer markets will lead to more economic growth. For example, labor markets are supposed to be liberalized for the sake of competitiveness, a polite way of creating pressure for wage reductions. Countries receiving emergency aid, such as Greece, Ireland, and Portugal, get even more explicit direction and in effect become wards of Brussels. In the pursuit of budget balance, Ireland was required to scrap its minimum wage but permitted to keep its low corporate taxes. So the demand for fiscal tightening is far from evenhanded. The entire process functions as a neoliberal hammer” (143).

The European Commission continues the double standards of the literal debtors’ prisons—it “does not press for adjustments on the part of surplus countries, primarily Germany. Keynes’s model for the Bretton Woods system, by contrast, was intended to put pressure on the surplus countries to expand so that the deficit countries would not have to contract. But the current EU procedure creates a systemic bias in favor of contraction (144). Greece is suffering because of forced privatization with no economic logic (149). International Swaps and Derivatives Association “epitomizes the power of private regulation. Even though the swamps are issued by regulated banks and have the potential to crash the economy and create massive losses absorbed by taxpayers (as they did when AIG collapsed in September 2008), they are largely unregulated, even to this day. In place of transparency and public regulation, the terms are set by ISDA representing their issuers—a gross conflict of interest” (153). Greece’s crisis was entrenched by billionaire Kenneth Dart, heir to the Dart Styrofoam container company, with his Dart Management, “which epitomizes everything unsavory about the unregulated shadow banking system. Dart had threatened to sue Greece’s caretaker government if he did not get his bonds back at 100 cents on the dollar (twice what he paid for them). Kuttner says he was told that an elected Greek government would never have paid (156). So we have the majority of a nation suffering for no fault of their own because of one man’s greed. But private capitalism is supposed to be the most ethical system there is? Give me a break.

By late 2012, it was painfully clear that the austerity cure was only worsening the condition of Greece and Europe. The more that Greece cut spending and raised taxes in order to meet fiscal targets, the more the economy shrank, revenues fell, and the deficit increased. In 2010, when the EC and the ECB first agreed to exchange aid for austerity, they projected Greek GDP at 235 billion euros in 2013. The actual number will be about 183 billion, according to the Greek government. The debt was supposed to peak at just under 140 percent of GDP in 2012. It will be around 180 percent, rising to 190 percent in 2013. As spending in basic services was cut and cut again, human hardship kept increasing. Greek public health officials reported the first outbreaks of malaria since the 1950s. Unemployment exceeds 25 percent. The number of Greeks with jobs declined to just past 3.7 million from 4.6 million in 2008. Austerity has put Greece on a treadmill that never leads to recovery” (162).

Yet the deficit hawks think if you make things austere enough, it will make people get jobs that do not exist. “There is no compassion for the fact that Europe suffered an economic drag before the collapse in part because of Germany’s lavish subsidies of its own eastern states. Nor is there any comprehension of the double standard reflected in the €2 trillion forgiven to the former East Germany but the massive resistance against aid to fellow EU members. Germany, having tightened its own belt to help fellow Germans, is feeling self-righteous and willing to run roughshod over its neighbors” (164). “It is now apparent that the metastasis of a fiscal imbalance in Greece into a general crisis of speculation against sovereign debt and serial runs on European banks and nations was a preventable tragedy. Perverse policy was rooted in fragmented institutions, flawed ideology, and asymmetries of power, but that doesn’t excuse it. At each step of the way, policies were pursued with the primary goal of reassuring financial markets and punishing fiscal offenders, not of addressing underlying economic ills. The need to appease money markets—which often make systematic pricing errors—became an unquestioned article of faith (167).” As [author: Michael Perelman] said, neoclassical economics is a religion. “The excluded alternative is to appreciate the folly is not in failing to stay ahead of the verdicts of markets, but in allowing markets to define what’s acceptable. Markets, by definition, are hardly reliable. After all, it was the failure of markets to accurately price securities that caused the collapse. Yet in the fifth year of the crisis, markets were still being permitted to define the correct price of sovereign bonds, and the self-fulfilling destruction of national credit systems by speculative markets was precluding a cure” (166-167). “Prevention of disabling debt is better achieved by adequate regulation of credit before the fact than by erecting prisons for the casualties of the last crisis” (173).

“Curiously, the language of morality is seldom directed against the improvident creditor. Yet as applied to debtors, the earlier, moralistic view of unpaid debt as a sin persisted alongside the more modern instrumental one. In a society heavily influenced by Calvinism, commercial success was given a free moral pass, while failure and debt suggested divine disgrace—a sign, as Cotton Mather put it, that the debtor was ‘most evidently called of God into a low and mean condition’” (174). Citing anthropologist David Graeber, Kuttner notes that in languages such as Aramaic, Hebrew, Sanskrit, and German, debt, guilt, and sin, are the same word. The very deficit hawks that perpetuate the unjust system discourage us from studying the liberal arts where we come to understand how such prejudices become built into our language, just as many romance languages enforce ideas about gender. Compassion for the speculative class includes the expansion of limited liability corporations. “Long before the creation of bankruptcy relief under Chapter 11, limited liability provided financial protection for the expanding commercial class. It could be, and was, justified as facilitating a risk-taking society. By contrast, a small farmer who had a crop failure could wind up losing everything, evicted from his land or pushed into a debt peonage relationship with a larger merchant or landowner. His liability for personal debts was unlimited, bankruptcy was unhelpful, and state forbearance laws provided only limited and intermittent protection. By the late nineteenth century, corporations (and their cousins, trusts) concentrated the distribution of wealth and political power in America. Both the common and statutory law ensured that despite reverses to particular individual investors, the corporate system would thrive” (187). “Receivership [used to restructure insolvent railroad companies] under the common law, and later Chapter 11, was more about advancing corporate interests than about providing fresh starts to common debtors, much less about macroeconomic relief after a crisis” (188). “In the 1920s, despite [Benjamin] Strong’s basic competence, the Fed made one misstep after another. These were not random blunders but rather reflected two basic structural biases that were second nature to the bankers who ran it: the natural preference of the creditor class for tight money and an indulgence of speculation. It was this seemingly anonymous pairing of opposites that made bankers rich (196)”. On pages 200-1, Kuttner describes how businesses took advantage of the way bankruptcy laws were written to legally loot pension funds that were guaranteed by the government. The government was left holding the bag for these debts because the corporations could spend enough to have laws written in their favor. Prior to the ERISA regulation of pensions, it was not possible for a company to stay in business if it dumped its pensions. Over the following pages Kuttner provides example after example of household name corporations such as American Airlines and Kodak legally stealing employee pensions and taking corporate welfare through twisted uses of Chapter 11 law that would be illegal for an individual. The very people who insist that student debtors pay their debts give these big corporations a pass, apparently failing to see the hypocritical evil. Bush even passed the Bankruptcy Abuse and Consumer Protection Act in 2005 that presumes that the person abused the law if they have above median income, even if circumstances show otherwise. “Thanks to the ‘reform,’ when overburdened consumers go broke, credit card companies now have far more latitude to squeeze them for repayment” (205-206). Century after century, the real abusers go unpunished, while the punishment for the innocent continues to be draconian.

Historically, courts have favored the rentiers. Appling v. Odom, for example treated sharecroppers as contract workers without the rights that free tenants had historically enjoyed.

The Jim Crow system kept black and white small farmers from uniting around common economic interests. Landowners sometimes evicted white tenants and replaced them with blacks, who were more desperate, had less bargaining power, and were easier to control. This risk of displacement helped poison relations between black and white tenants, a by-product that the landed elite noted with satisfaction. (225)

This reminds me of how shelters often eliminate the normal shelter residents who can’t find jobs and/or have physical disabilities for Mentally Ill/Chemical Abuser (MICA) clients, who get the shelter $6,500 per head per month rather than the usual $3,500, the vast majority of which goes to the building owner rather than to the services. Many of my transfers have come about as a direct result of a shelter’s inability to control me. Whistleblowing was directly tied to my transfers from Eddie Harris and NAICA. Whistleblowing Project Renewal didn’t do much, and whistleblowing The Bowery Mission has been much more specific and less systemic. Even though Project Renewal was a filthy dump, I was there about a year before being transferred, and I have been at The Bowery Mission over two years.

Escalating foreclosures in the 1930s brought about radical politics, much as my homelessness has squarely put me at the radical end of politics. One heroic figure Kuttner mentions is Milo Reno, who helped found the Farmers’ Holiday Association. These organized farmers blocked roads to auction sites to prevent competitive bids against their dollar bids that were used to restore farms to their owners (216). Having had a job at the time, I could not be present when Picture the Homeless managed to halt the auction of a public building to for-profit developers at the Bronx County Building in 2015. Although most of the public buildings up for auction that day had already been sold by the time members made it into the building, members spread around enough flyers calling into question the legitimacy of the sale that no one wanted to bid. One is also reminded of Jill Stein’s plans for buying student loan debt and forgiving it, as Rolling Jubilee and Strike Debt of Occupy Wall Street have done for blocks of medical and student debt that had been packaged and resold by for-profit investors and the sweat equity purchases of housing in the 1980s that New York City did in the 1980s. Although not every who is homeless, certainly not I, is qualified to fix up apartments and bring them up to code, for those who can, it is an excellent policy to bring back for which many organizations push for the return.

Kuttner shows the inefficiency of the free market in the development of NINJA (No Income, Job, or Assets) loans, in which investors on multiple levels made profits, in spite of being a macroeconomic disaster (222-3).

In examining the history of international debt crises, he reaches two conclusions: “First, debt crises in peripheral nations originate in the fads, fashions, and panics of creditor countries. They are less the consequence of good or bad policies in debtor nations than of boom and bust cycles in London or New York capital markets. This pattern only intensified in the twentieth century, as technology enabled even shorter-term investment flows.” And second, debt policies in the nineteenth century we so random as to show that the debt collection system of colonization was more flexible and less draconian than in the twentieth (243).

On the South Korean financial crisis of the late 1990s, Kuttner quotes Paul Blustein: “’In a sense, the international banks got away with murder. They had foolishly injected billions of dollars of short-term loans into a country with a shaky financial system, yet they were suffering no losses.” On the contrary, the banks were ending up with guaranteed above-market returns” (258). Again, the creators of the problem get the rewards, and the law sides with them and not with the victims. In a 2008 conference at the United Nations, Yaga Reddy, who had recently retired as governor of the central bank of India explained to Kuttner that India was maintaining a growth rate of eight percent because reserve requirements had prevented banks from speculating in the securitized derivatives that had crashed the Western economies. “We don’t understand these complex financial securities, Reddy said, “so we don’t permit our banks to use them. We leave them to the advanced countries like you” (261). If only the United States could be so wise! As with Malaysia quoted above, Néstor Kirshner, President of Argentina, after paying off its debt to the International Monetary Fund, intentionally kept the IMF out of all its negotiations with other countries, realizing that the austerity policies it demanded were “an irresponsible method of indebtedness that did nothing but isolate us” in favor of a self-borrowing deficit model to having Latin America’s highest growth rate of 8.9%, in spite of a projected decline (264). Tim Geither’s religious fervor to pressure the Chinese to allow the value of the renminbi to be set by market forces has repeatedly failed in spite of a U.S. trade law requiring countries that rig currency for trade advantage to be punished. Although the United States has refused to charge Beijing with currency manipulation and impose sanctions, “the contention that the value of China’s renminbi is set by market forces is laughable. If that were the case, China’s currency would be worth substantially more against the dollar, as befits a country with a chrnic trade surplus. But the Chinese government regularly intervenes in currency markets to keep the renminbi depressed, both to advantage Chinese exports and to discourage its use as a global reserve currency” (265).

Finally, Kuttner notes that neoliberal capitalistic growth is unsustainable, and that reforms must acknowledge the limited carrying capacity of the planet. “Air conditioning a room uses ten times the amount of electricity in Mumbai as it does in Chicago. If India and China were to attain Western levels of consumption at Western levels of pollution, our environment would be destroyed” (270).

In Kuttner’s conclusion, he reminds readers that the post-war era had “a regulatory regime in which private finance was compelled to serve the rest of the economy, public and private, rather than its own interests. That rare set of constraints, in turn, undergirded the postwar boom” (276).

Wartime annual deficits, as high as 29 percent of GDP, were more than double the level that led to a run on Greek sovereign debt and nearly triple the recent peak annual deficits in the United States. But these war deficits were accommodated by private savings, public borrowing, and the creation of money by the Fed. Had private financial markets during the war an postwar years been permitted to set interest rates, the war would have been prohibitively expensive, money would have been diverted from the war effort into the pockets of bankers, and capital costs would have risen sharply for industries involved in war production. It also turned out that preventing markets from speculating in government debt ensured that the postwar recovery would not be stunted by speculative pressures to raise interest rates (277).

Kuttner notes that standard accounts of central banking treat this period as a regrettable anomaly in the history of the Fed, but this only reinforces Perelman’s point that neoclassical economics is a religion. Instead, Kuttner argues, “it should be seen as the one period when the Fed was brought under democratic control to serve public purposes.” Conservatives decry the Dodd-Frank Act of 2010 (and some idiots have even blamed the 2008 crash on it) but the act prevented Fed actions from being conducted in secret, which was “justified as insulating monetary policy from political pressure. But in practice, it meant that the Fed’s primary constituency was private finance” (278). In other words, conservatives believe that conflict of interest is good for the economy because it is good for them, and, they try to argue as the wealth gap widens, good for everyone else.

To hear the orthodox account of the past three decades, in which each new financial ‘innovation’ was described as a great gain for economic efficiency and hence GDP gowth, you’d think the tight limits on finance in the postwar era had suppressed the genius of markets and the health of the economy. Yet the postwar boom was the most successful economic period of American history. With a well-regulated financial sector, the economy thrived, growing at a real rate of 3.8 percent a year for twenty-seven years. Business had no trouble finding capital—or customers. For this was also the rare era when wages rose in tandem with productivity. As the economy prospered, it actually became more equal. (279)

The neoliberal orthodoxy is completely at odds with history. Kuttner notes the right-wing contention that World War II’s inflationary pressures had simply been deferred, but that the historic record disproves that claim—a brief period of inflation after the lifting of price controls in 1946 that was contained by the late 1940s, and resurged slightly during the Korean War, again as a result of price controls, but completely gone by 1954—from then until 1966, the average inflation rate was only 1.2%. This period of prosperity coexisted with record levels of unionization, wage increases with productivity increases, and the finance sector constrained (281).

The neoliberal orthodoxy wants revenge on the rest of us. “That the investor class lost out during America’s greatest boom era defies a core premise of orthodox economics. Presumably, if we want increased savings, investment, and growth, we need to reward investors… Yet the postwar boom was one in which investors on average did poorly—and the economy delivered broadly distributed prosperity. There was plenty of capital to finance industry’s needs—much of industry was, in fact, self-financed by retained earnings—and plenty of consumer purchasing power to buy the products. Low capital costs, modest inflation, and tight financial regulation were just the ticket to refuel the real economy” (285). This is what the Tea Party doesn’t want you to know and will dismiss as a liberal lie, and neither of the mainstream parties will do any better. Clinton and Trump are both serving the rentier class and the rentier class alone. They have no intention of doing anything remotely resembling what Kuttner recommends, and instead will give the rest of us more punishment (slave labor in the case of the very poorest) to benefit the wealthy and irresponsible few, all the while externalizing that irresponsibility onto the responsible poor. Under either Clinton or Trump, the good like Shorebank will be destroyed by the evil like Goldman-Sachs. On an individual level, the good will continue to be priced out, homelessness will increase, while the evil, like Jamie Dimon, will continue to buy more vacation homes while fraudulently stealing homes from senior citizens. The conservatives, including Hillary Clinton, will continue to point their fingers at the poor and tell them that they did not work hard enough, while socializing the debts of the rich onto the taxpayer, rewarding the wealthy for every macroeconomic failure for the foreseeable future. Double standards attack most people’s sense of injustice to the core. Only by reversing such double standards can society, as a whole, succeed.

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