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Professor Chomsky gives the inside scoop to Amy Goodman. Wish I'd been there to hear this dear man answer Amy's questions. He illuminates what happened under Carter also. Remember the firing of Carter's friend and Budget Director, Bert Lance, or the troubles of his Treasury Secretary? No? I hardly can myself and I was paying attention. No wonder the Rethugs can't fathom what's wrong with a little bit of corruption. (Emphasis marks inserted - Ed.)
NOAM CHOMSKY: Well, let's start with G20. If you look at the Financial Times, the world's major business journal, the day before the G20 meeting, they had a section on it, and they pointed out, I think correctly, that the main purpose is to present a picture of harmony and agreement. It doesn't matter what you do, but make it look as if we're all together on this. Now, there are sharp splits about how to approach the issue, but you have to make it look as if we're all together. That's pretty much what happened.
Now, in the communiqué, which you read before, the crucial word was "voluntary." So, the countries there are supposed to voluntarily choose to do x, y and z. Well, that means we couldn't make an agreement. So we'll call it voluntary agreement.
Now, there was one point on which they agreed: a sharp recapitalization of the International Monetary Fund; pour a lot of money into the IMF. That's a pretty dubious move. I mean, the record of the IMF has—the IMF is more or less a branch of the US Treasury, even though it has a European director. Its past role has been extremely destructive. In fact, its American US executive director captured its role when she described it as "the credit community's enforcer," meaning if a third world dictator incurs a huge debt—people didn't, but the dictator did; say, Suharto in Indonesia—and then the debt defaults, the lenders, who have made plenty of money because it was a risky loan so they get high interest and so on, they have to be protected, meaning not by the dictator, by the people of Indonesia, who are subjected to harsh structural adjustment programs so that they can pay back the debt, which they didn't incur, so that we can be compensated, rich Westerners can be compensated. So that's the IMF, the credit community's enforcer, a very destructive role in the third world. Now it's to be recapitalized.
Now, there's discussion about this, and it's interesting. You can read it in the financial pages. The supporters of the recapitalization say, "Well, the IMF has changed its spots. It's going to be different from now on. We realize that it had this terrible role, but now it's going to be different." Well, is there any reason to believe it will be different? In fact, if you look today, it's quite striking to see the advice that the Western powers are following, the programs that they're following, and compare them to the instructions given to the third world.
So, say, take Indonesia again. Indonesia had a huge financial crisis about ten years ago, and the instructions were the standard ones: "Here is what you have to do. First, pay off your debts to us. Second, privatize, so that we can then pick up your assets on the cheap. Third, raise interest rates to slow down the economy and force the population to suffer, you know, to pay us back." Those are the regular instructions the IMF is still giving them.
What do we do? Exactly the opposite. We forget about the debt, let it explode. We reduce interest rates to zero to stimulate the economy. We pour money into the economy to get even bigger debts. We don't privatize; we nationalize, except we don't call it nationalization. We give it some other name, like "bailout" or something. It's essentially nationalization without control. So we pour money into the institutions. We lectured the third world that they must accept free trade, though we accept protectionism.
Take the "too big to fail" principle, which the House committee is discussing today. But what does "too big to fail" mean? "Too big to fail" is an insurance policy. It's a government insurance policy. Government means the public pays, which says, "You can take huge risks and make plenty of profit, and if anything goes wrong, we'll bail you out." That's "too big to fail." Well, that's extreme protectionism. It gives US corporations like Citigroup an enormous advantage over others, like any other kind of protection.
But we don't allow the third world to do that. I mean, they've got to privatize, so that we can pick up their assets. Now, these are happening side by side. Now, here's the instructions for you, the poor people; here's the policies for us, the rich people. Exactly the opposite. Is there any reason to think the IMF is going to change it?
AMY GOODMAN: Do you think President Obama is any different than President Bush when it comes to the economy? And if you were in the Congress, would you have voted for the bailouts and the stimulus packages?
NOAM CHOMSKY: He's different. I mean, first of all, there's a rhetorical difference. But we have to distinguish the first and the second Bush terms. They were different. I mean, the first Bush term was so arrogant and abrasive and militaristic and dismissive of everyone that they offended, they antagonized even allies, close allies, and US prestige in the world plummeted to zero. Now, the second Bush administration was more — moved more toward the center in that respect, not entirely, but more, so some of the worst offenders, like Rumsfeld, Wolfowitz and others, were thrown out. I mean, they couldn't throw out Dick Cheney, because he was the administration, so they couldn't get rid of him. He stayed, but the others, a lot of them, left. And they moved towards a somewhat more normal position.
And Obama is carrying that forward. He's a centrist Democrat. He never really pretended to be anything else. And he's moving towards a kind of a centrist position. He's very popular in Europe, not so much because of him, but because he's not Bush. So there is the kind of rhetoric that the European leaders and, in fact, the European population tend to accept. In fact, you know, even in the Middle East, where you'd think people would know better, they accept the illusions. And they are illusions, because there's nothing to back them up. So, yes, he is different from Bush.
Same — on the economy, well, you know, the current Obama-Geithner plan is not very different from the Bush-Paulson plan. I mean, somewhat different, but circumstances have changed. So, of course, it's somewhat different. But it's still based on the principle that we have to — somehow, the taxpayer has to rescue the institutions intact. They have to remain intact, including the people who, you know, destroyed the economy. In fact, they are the ones who Obama picked to fix it up.
AMY GOODMAN: Explain.
NOAM CHOMSKY: Like Larry Summers, for example, who is now his chief economic adviser. I mean, he was Secretary of Treasury under Bill Clinton. His great achievement was to prevent Congress from regulating derivatives, exotic financial instruments. Well, that's one of the main factors that led to the crisis.
His kind of senior adviser, one of the first, was Robert Rubin, who was Secretary of Treasury right before Summers. His main achievement — many achievements, like what he did to Indonesia and the third world, but here, his main achievement was to lead the way to revoke the Glass-Steagall legislation from the New Deal, which protected commercial banks from risky investments. It broke down those barriers. Immediately after having done this, he left the government, joined Citigroup as a director, and they began to make huge profits, including him, from picking up insurance companies and so on and making very risky loans, relying on the "too big to fail" doctrine, meaning if we get in trouble, the taxpayer will bail us out, which is just what's happening, taxpayers now pouring tens of billions of dollars into rescuing Citigroup.
Well, these are the advisers who were supposed to fix up the system. Tim Geithner was right in the middle of this. He was head of the New York Federal Reserve, so, yes, he was supervising these actions. Now, you know, you can argue about whether they're doing the right thing or the wrong thing, but are these the people who should be fixing up the system?
Actually, the business press just had some interesting things to say about this. Bloomberg News, you know, main business press, had an article in which they reviewed the records of the people who Obama invited to his economic summit. I think it must have been last November or December. They just reviewed the record. I think there were a couple dozen of them. People on the — you know, people like, say, Stiglitz, Krugman, they were never even allowed close to it, let alone anyone from the left or labor and so on, given token representation. So they went through the records, and they concluded that these people should not be invited to fix up the economy. Most of them should be getting subpoenas because of their record of accounting fraud, malpractice and so on, and helping bring about the current crisis.
AMY GOODMAN: Why do you think Obama chose to surround himself?
NOAM CHOMSKY: Because those are his beliefs. I mean, his support comes from the — his constituency is basically the financial institutions. Just take a look at the funding for his campaign. I mean, the final figures haven't come out, but we have preliminary figures, and it seems to be mostly financial institutions. I mean, the financial institutions preferred him to McCain. They are the main funders for both—you know, I mean, core funders for both parties, but considerably more to Obama than McCain.
You can learn a lot from campaign contributions. In fact, one of the best predictors of policy around is Thomas Ferguson's investment theory of politics, as he calls it—very outstanding political economist—which essentially—I mean, to say it in a sentence, he describes elections as occasions in which groups of investors coalesce and invest to control the state. And he takes a look at the formation of campaign contributors, and it gives you a surprisingly good prediction of what policies are going to be. It goes back a century, New Deal and so on. So, yeah, it can predict pretty well what Obama is going to do. There's nothing surprising about this. It's the norm in what's called political democracy.
AMY GOODMAN: Would you have let Citibank, would you have let Citigroup, would do have let the AIG fail?
NOAM CHOMSKY: Well, there are other possibilities. So, the government could just take over the viable parts. And parts of them are functioning; parts are dysfunctional, like the toxic — what they call the toxic asset parts, you know, the financial manipulations.
Well, one thing you could do, which has been suggested by a number of economists like Dean Baker, just take over the good parts, essentially nationalize them, put them under public control. And "nationalize" means public control, at least if you have a democracy. Not here, but if you had a functioning democracy, it would mean let them be under public control, and the parts that are responsible for the huge losses, just let them go off by themselves. In fact, that would be the way of taking care of the AIG bonuses that everyone's screaming about. In fact, as Baker pointed out, just spin off the parts that were involved in financial manipulations and caused the crisis, let them go bankrupt and let the executives try to get the bonuses from a bankrupt firm, OK, with no legislation necessary. That's what should be done with Citigroup.
And in fact, it's interesting, it's kind of happening. You know, after the breakdown of Glass-Steagall, they did bring in — they made use of it, under Rubin's direction, among others, to take — bring in insurance companies and other risky investors. Now they're divesting them. And they're going in the direction of becoming, you know, commercial bank.
Now, incidentally, this is not the first time this has happened. Paul Volcker is on the news today, you know, saying, "Let's slow down," and so on. Well, he's the one who, under Reagan, who helped bail out Citigroup last time they crashed. At that time they were Citibank. They had followed World Bank and IMF instructions and lent huge amounts of money to Latin America and were assured by the World Bank that it's all fine, you know, markets will take care of it, etc. Well, in a crash, Paul Volcker came in. He raised interest rates very sharply. Third world countries, whose payments are tied to US interest rates, couldn't pay their debts. The IMF moved in, took care of it, and essentially recapitalized Citibank. That's the way the system works: you make risky loans, you make a lot of money, and if you get into trouble, we're here to bail you out, namely the taxpayer.
AMY GOODMAN: And how do the Republicans differ from the Democrats in this? What do you make of—do you see it as just a minor footnote that Republicans, or some of the governors like Palin, like Jindal—
NOAM CHOMSKY: There's a difference.
AMY GOODMAN: — are saying they're not going to take stimulus money?
NOAM CHOMSKY: There's a difference. I mean, we basically are a kind of a one-party state. I think C. Wright Mills must have pointed this out fifty years ago. It's a business party, but it has factions — Democrats and Republicans — and they're different. They have somewhat different constituencies and different policies. And if you look over the years, the population has — the majority of the population has tended to make out better under Democrats than Republicans; the very wealthy have tended to make out better under Republicans than Democrats. So they're business parties, but they're somewhat different, and the differences can have an effect. However, fundamentally, they're pretty much along the same lines.
So take, say, the current financial crisis. Actually, it began under Carter. The late Carter administration is the one that began—was pushing for financialization of the economy, you know, huge growth of speculative financial capital, deregulation, and so on. Reagan carried it much further, and Clinton continued it. And then, with Bush, it kind of went off the rails.
So there are differences, but differences within a pretty narrow spectrum. And anyone who's a little off the spectrum, like Nobel laureates in economics who are a couple of millimeters off the spectrum, they're basically on the outside. You can interview them, but they don't show up at the economic summit.
AMY GOODMAN: How does the global economy and our own economy relate to the issue of war and US foreign policy?
NOAM CHOMSKY: Well, actually, you had a pretty good interview with Joseph Stiglitz about that a couple of months ago, in which he discussed the relationship of — he was talking about the Iraq war. And as you'll recall, he pointed out correctly that the Iraq war, which, first of all, is going to cost trillions of dollars, also had the effect of sharply increasing the price of oil, predictably. And as he pointed out, we could sort of paper that over for a while by a housing bubble, so there was a huge housing bubble which anyone with eyes open could see. I mean, for a century, housing prices had sort of tracked the economy, GDP; then, all of a sudden, they shot way beyond the trend line, which means there's a bubble, and it's going to burst, and you get into trouble. But the housing bubble, which was supervised by Alan Greenspan and with the Democrats — actually, it started under Clinton — it replaced the tech bubble under Clinton, and it gave an illusion of prosperity, which — so you didn't see the effects of the rise in oil prices, which went very high. But if you trace all the connections, yes, there's a clear connection, as he pointed out, between the war and the economic crisis.
And in fact, it's deeper than that. The US is just in a class by itself in military expenses. It basically matches the rest of the world, and it's far more advanced. Well, that's drawn from somewhere. You know, that's money that's not being used to develop the economy.
Now, in fact, you have to add a footnote here, because part of the very high level of US violation of free trade principles is that the economy itself is based on military spending to a substantial extent. So the modern information revolution — computers, the internet, fancy software and so on — most of that comes straight out of the Pentagon. My own university, MIT, was one of the places where all of this was developed under Pentagon contracts in the 1950s and the 1960s.
In fact, that's another critical part of the way the economy works. The public pays the costs and takes the risk of economic development, and if anything works, maybe decades later, it's handed over to private enterprise to make the profits. And that's a core element of the economy. Of course, we don't permit the third world to do that. That's considered a violation of free trade when they do it. But it's the way our economy works. And it's kind of complementary to the "too big to fail" doctrine of protectionism for financial institutions. But the general — we do not have a capitalist economy. We have kind of a state capitalist economy in which the public has a role: pay the costs, take the risks, bail out if they get into trouble. And the private sector has a role: make profit, and then turn to the public if you get into trouble.
AMY GOODMAN: Would you extend that to healthcare?
NOAM CHOMSKY: Well, healthcare is a dramatic case. I mean, for decades, the healthcare issue has been right at the top of domestic concerns, for very good reasons. The US has the most dysfunctional healthcare system in the industrial world, has about twice the per capita costs and some of the worst outcomes. It's also the only privatized system. And if you look closely, those two things are related. And the privatized system is highly inefficient: a huge amount of administration, bureaucracy, supervision, you know, all kinds of things. It's been studied pretty carefully.
Now, the public has had an opinion about this for decades. A considerable majority want a national healthcare system, like other industrial countries have. They usually say a Canadian-style system, not because Canada is the best, but at least you know that Canada exists. Nobody says an Australian-style system, which is much better, because who knows anything about that? But something like what's sometimes called Medicare Plus, like extend Medicare to the population.
Well, up until — it's interesting. Up until the year 2004, that idea was described, for example, by the New York Times as politically impossible and lacking political support. So, maybe the public wants it, but that's not what counts as political support. The financial institutions are opposed, the pharmaceutical institutions are opposed, so it's not — no political support. Well, in 2008, for the first time, the Democratic candidates — first Edwards, then the others — began to move in the direction of what the public has wanted, not there, but in that direction.
So what happened between 2004 and 2008? Well, public opinion didn't change. It's been this way for decades. What changed is that manufacturing industry, a big sector of the economy, has recognized that it's being severely harmed by the highly inefficient privatized health system. So, General Motors said that it costs them over a thousand dollars more to produce a car in Detroit than across the border in Windsor, Canada. And, you know, when manufacturing industry becomes concerned, then things become politically possible, and they begin to have political support. So, yes, in 2008, there's some discussion of it.
Now, you know, this is very revealing insight into how American democracy functions and what is meant by the term "political support" and "politically possible." Again, this should be headlines. Will a proposal come that approaches what the public wants? Well, we're already getting the backlash, strong backlash. And what private healthcare systems are claiming is that this is unfair. The government is so much more efficient that they'll be driven — there's no level playing field if the government gets into it, which is true.
So there.
Suzan
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