Paul Jay of the Real News Network interviews Heiner Flassbeck, who served as director of the Division on Globalization and Development Strategies of the United Nations Conference on Trade and Development, known as UNCTAD. He was a vice minister at the Federal Ministry of Finance in Bonn in 1998 and ’99. He’s now a professor of economics at Hamburg University.
I’m going excerpt a bit more heavily than usual, and focus on the financial markets instead of the labor markets. And focus especially on the surreal parts:
JAY: [T]he policy is–of course, you know, sets the framework, but it’s the way the economy is built and structured now that you have such policy. …
FLASSBECK: … [T]he root cause is that we misunderstand what market economy is about, we misunderstand today how a market economy has to be run, and we misunderstand the role of policies.
JAY: … [W]e’ve gotten to a point where there’s not even a pretention of an actual market.
FLASSBECK: … I have to insist it’s even worse than fraud or anecdotal or single misbehavior of a certain person. What we have is the systemic malfunctioning of the system, system malfunctioning of the labor market, systemic malfunctioning of the financial markets. And these markets are so important that–these are the most important markets in the whole economy, and if they are not working well, then you cannot expect their economic policy to achieve what they want to achieve. … Public investment is an important part of it, no doubt about it. But, again, you see the ideology is such that they tell us, well, government debt is a bad thing. Government debt is not a bad thing. Government debt is absolutely necessary if you are in the situation where you are in the United States and elsewhere where the private households are, per balance, still savers, net savers, where the government should not go into debt anymore, but where the company sector is a big saver, a net saver. Nobody wants to talk about it, that not all sectors can be net savers. [Another testimony to the power of the sectoral balances approach. –lambert] Somewhere someone has to be a debtor, because savings and debt always nets to zero. …
JAY: Do you think it’s possible that part of what’s happening here in terms of the financial elite, the, you know, economic, corporate elite is that they want a fundamental restructuring, especially the United States and Europe, they want wages to go down, they want a lower-wage environment, partly ’cause they want to compete with the low-wage economies in Asia and other places, and partly just ’cause they can[?]… But , in the sense they think there’s going to, and perhaps even to a sense is what they want, a longer-term recession that restructures the whole relationship of labor and capital, and as a result of that, they focus on public debt, ’cause if you believe that’s the trajectory, then maybe public debt does get to be big and dangerous in their eyes?
FLASSBECK: Well, . They are, because if they were that smart, they would understand that it cannot work in that way. [It seems to have been working out well for them so far. –lambert] But because the one thing is you cannot really compete with developing countries, no big economy like United States or Europe as a whole can compete with developing countries about wages. That wouldn’t make sense, because, first of all, we have a currency in between, we have an exchange rate that can be changed, so you never can succeed, finally, in cutting your wage to get export markets. That doesn’t work anyway. The other thing is that the domestic market is in danger of collapsing. And this would hurt these people as well. … I fully understand what you’re saying. They like the power that they have with rather high unemployment. But in the end, they cannot succeed with that. They can only succeed with a flourishing economy, and you can make money in the long term only if the economy is growing sufficiently quick.
JAY: But are you kind of assuming–like, you say I shouldn’t think they’re that smart. But I’m suggesting to you, [The eternal question: Are the elites stupid and/or evil? –lambert] ‘Cause you keep saying in the long run, in the long run. But do they actually care about the long run? [Perhaps the whole flap about Niall Ferguson, Keynes, teh gay, and the long run was a distorted echo in the zeitgeist of people who really have problems with the long run? –lambert]
FLASSBECK: Yeah, that’s one thing that I acknowledge already. Many of these people do not care about the long run. But this is mainly true for people in the financial markets, because they don’t have any fixed assets. You know? They have nothing that can be lost, so to say. They have a number of papers, and they know anyway that the value of these papers is very questionable, and the only problem is to get out early on. But if you are an owner of a bigger compound, of a bigger factory [incompr.] and you have a lot of fixed capital, then I think you think a bit about it. , it’s no longer an efficient model at all. [Oopsie: Caterpillar CEO: ‘We Can Never Make Enough Profit’ –lambert] I’m not that skeptical. I’m very skeptical concerning the financial market and the labor market. But I think overall in the goods market, if the other sectors are well regulated, then you have a chance to go back to [crosstalk]
JAY: Now, do you see any sign of this at the political level, a division in the interests between what you can say is the goods sector and the financial sector? Because the goods sector seems just gleeful about the fact that they can drive wages down, break unions. And they don’t seem to have any longer view than the financial markets do. I mean, they think if they get their own–they can beat up their own workers, somehow magically there’s going to be some other workers that can buy their stuff.
FLASSBECK: Yeah. Yeah. But this is an error, as I said. This is the biggest of all errors. If you are a short-sighted person in the financial markets, you can be very rational. If you are a short-sighted person in the goods market, it is much more difficult to be rational, so to say, and to get what you want, because you have to use your capacities for a couple of years, and you cannot expect that the people can be exploited for a couple of years without having negative repercussions. …
JAY: I was at a conference a couple of years ago that Soros, George Soros organized. And he started off the conference. He spoke first. And he’s certainly someone who knows how to make money out of crises. But his opening words were: And this is a guy, as I say, he knows how to make money out of these situations, but that there’s no rationality left in these circles. It’s a feeding fest. And they have a political power that doesn’t seem to be able to be challenged, at least within the current paradigm.
FLASSBECK: No, that’s right. As I said, in the financial markets I fully agree. If you look at how fiercely they are fighting at this moment in the United States against any bit of regulation in the commodity markets, for example, where we have very clear evidence, as I said, we have extremely clear evidence that the prices are driven up by financial speculation, by the kind of financialization that we have, where we have clear evidence that the volatility is increasing. … [W]e have a big systemic problem. This is a systemic problem of the market economy. As I said, I’m not as skeptical in the goods market, in the normal producing markets. There it is always an attempt, as you said, by enterprise, by company sector to drive down wages in a very short-sighted view also. But this is manageable, much more manageable by a competent [Is “competence” the issue?! –lambert] government than in financial markets, because the financial markets are putting so much pressure and they have so much money and they are permanently sponsored by the government system with zero interest rates at the moment.
At this point, I ought to go all analytical, but I have to confess I’m as bewildered and flummoxed as Soros (and Jay’s tone sounds more than a little puzzled). I keep going back to Jeffrey Sachs, with whom Flassbeck and Jay (and Soros) seem to agree:
Jeffrey Sachs: Well, thank you very much for saying it and practicing it. I do believe – by the way, I’m just going to end here because I’ve been told I have to run to the U.N. in fact right now – I believe we have a crisis of values that is extremely deep, because the regulations and the legal structures need reform. But I meet a lot of these people on Wall Street on a regular basis right now. I’m going to put it very bluntly. And I’m talking about the human interactions that I have. I’ve not seen anything like this, not felt it so palpably. These people are out to make billions of dollars and nothing should stop them from that. They have no responsibility to pay taxes. They have no responsibility to their clients. They have no responsibility to people, counterparties in transactions. They are tough, greedy, aggressive, and feel absolutely out of control, you know, in a quite literal sense. And they have gamed the system to a remarkable extent, and they have a docile president, a docile White House, and a docile regulatory system that absolutely can’t find its voice. It’s terrified of these companies.
If you look at the campaign contributions, which I happened to do yesterday for another purpose, the financial markets are the number one campaign contributors in the U.S. system now. We have a corrupt politics to the core, I’m afraid to say, and no party is – I mean there’s – if not both parties are up to their necks in this. This has nothing to do with Democrats or Republicans. It really doesn’t have anything to do with right wing or left wing, by the way. The corruption is, as far as I can see, everywhere. But what it’s led to is .
I have waited for four years, five years now, to see one figure on Wall Street speak in a moral language, and I’ve not seen it once. And that is shocking to me. And if they won’t, I’ve waited for a judge, for our president, for somebody, and it hasn’t happened. And by the way it’s not going to happen anytime soon it seems.
So, as Professor Flassbeck does in part three, we can make all the policy recommendations we want — and I think we should, if only to pre-figure the kind of politics where we’re actually listened to — but what difference does that make when the elite moral environment is pathological? (Which I take to mean, though Sachs does not say, that actual persons are sociopaths or psychopaths (“no responsibility to people”)). Sachs isn’t using moral pathology as a metaphor; he means it quite literally. I mean, take Elizabeth Warren: I like her well enough; she has a nice smile, even if whenever I see people smiling in the media, I ask myself “What the hell have they got to smile about?” Regardless, if Flassbeck, and Jay, and Soros, and Sachs are right, Warren’s policy recommendation of (say) lowering student loan interest rates to 0.75 percent isn’t even tinkering around the edges; it’s not even tinkering in the next country over; it’s not even tinkering. It’s the same with my plastic; whenever I put something on it, a percentage goes all the way up the food chain to enrich an actual sociopathic person; and so with Warren’s 0.75%, even if that is “better” than 6%. (Then again, there are some systems that do seem to work in a not completely Kafka-esque fashion, like food stamps, or the U.S. Mail, or Costco as opposed to Wal-Mart, or a ton of little businesses in my small town, as well as millions of ordinary relations, many non-transactional in nature, among all sorts and conditions. It doesn’t do to be apocalyptic; realism is quite frightening enough.)
I dunno. For awhile, I was running the riff that “Versailles is a sac of pus waiting to burst.” Flassbeck, Jay, Soros, and Sachs seem to agree. But when exactly does the wait end? And what pricks the sac? And what happens after that? Besides a messy and dangerous clean-up phase, including terrible risks of infection?* Clearly TINA has me in its grip. If this were a family, I’d try to stage an intervention. But the political economy is as much like a family as government is like a household. Is there a way forward here? Readers?
NOTE * From the Twentieth Century: The Czars -> Lenin; The Last Emperor -> Mao Tse-Tung. One death is a tragedy; one million is a statistic….
NOTE This interview the middle part of a three-part series. Here’s the first: Apres Moi, Le Deluge – Make Money Now To Hell With Tomorrow; and the third: Taxing Corporate Profits will Force Investment.