If You Can't Tap Their Phone, How Do You Know Who To Shoot?

So you're seeing a replay of Chile under Pinochet and the military dictatorship in the Ukraine now. And the result, of course, will be to tear Ukraine apart -- it's bankrupt, no matter what, there no doubt will be civil war there. The Americans are hoping to use the civil war as an opportunity to move in NATO and to move H-bombs right onto the Russian border. This is risking a threat of war. This is crazy.
Karl: With the added side benefit of undermining Germany's economic sovereignty with their energy prices. And I find that geopolitical play a very interesting one following on the heels of the very embarrassing NSA phone hacking of Merkel, and it sounds like this is another little side play to undermine another country's growing importance on the world stage.

Michael: Well, I guess an American would reply that if you can't tap their phone, how do you know who to shoot? It's obvious they're control freaks by now and to the Germans, especially to Angela Merkel who came out of East Germany with the Stasi tapping everybody's phones, you can just imagine the effect there. America is losing its cache as a democratic country and people are beginning to think that it's moving into the position that Russia used to be in, while you're having Russia act as the reasonable party trying to avoid war in this case. They're turning the Cold War inside out and the result is that European politics are being torn apart with it.

Karl: And so are you saying that out of this that Vladimir Putin really, he's not the bad guy? Is that what you're saying? Because it looked very suss as this invasion and all this hoo-ha over Ukraine happened just four days after the Winter Olympics.

Michael: I would not say that any politician is not a bad guy. The question is his hand is being forced. You can be a bad guy and still have your position forced and you can still be attacked. You know what President Nixon said in our country: paranoids have enemies too. So even if you don't like Vladimir Putin, you can say Vladimir Putin can also be attacked and maligned and forced into a situation where he has to protect himself and his own position within Russia by responding and by protecting Crimea from the American attempt to pry the naval base in Sevastopol away from Russia. Of course he had to act, he had no choice. That doesn't mean he's a good guy or a bad guy; it means that the Americans forced these events on him.

Karl: Well, let's hope more people start to look at this natural resource wealth that underpins such geopolitical machinations because really things seem to be speeding up faster and faster and it's becoming more and more obvious to people like yourself, Michael, what's going on. But to see the Paul Krugmans, to see them just so surprised that such wealth inequality is occurring is just staggering.

And I just wanted to finish off today's interview with a bit of discussion on a new economic law that's perhaps coming through, Michael. It's called Hudson's Law. What's this all about?

Michael: I think the neo-Liberals have found out that -- it's essentially the Stockholm syndrome on a political scale. For years people thought that, well, in a democracy, if people are getting poorer and poorer and wealth is becoming more and more unequal, the poor are going to fight back and they're going to elect different leaders who are going to change the tax laws and get out of their poverty. But what they found is exactly the opposite.

You have the most unequal impoverished neo-Liberal economy in Europe, Latvia that continues to vote for the neo-Liberals, putting almost the entire tax on labour, not on real estate, not on the oligarchs. And they found that the more labour is oppressed, the more emotionally depressed and frightened they become. That when workers are very badly paid they're so frightened of losing the job, they're so frightened of being one paycheque away from homelessness that they won't strike, they won't protest. They'll just say "I'll do whatever you say, Master". They thought if they are obedient enough and support the rich that the rich will somehow treat them nice in a kind of patron-client relationship, such as you had at the end of the Roman Empire. And, of course, that's not really what happens. Once the rich begin to abuse the poor and they find the poor take it, the abuse gets worse and worse and worse and that corruption of democracy is one of the political counterparts to the disparity in wealth that Piketty's been tracing.

Karl: And so what you're saying there is that the greater the wealth gap, the more the weak identify with the strong and they hope to really be helped out by their oppressors?

Michael: Because the wealthy become celebrities. In America, the most widely admired people are people like Donald Trump or the rich Wall Street bankers that have made their money basically through what my colleague Bill Black calls "control fraud". They admire people who are rich, no matter how they get their richness, and basically they imagine that somehow they could get rich in the same way if only they're obedient enough and follow the system. It's unrealistic, but that's psychology.

Karl: Michael, just to finish off then, you must have a few stories on Donald Trump and the incredible unearned income he's benefited from. Is there one play that defines his ride to uber-wealthdom through unearned income?

Michael: Well, as one friend of mine at the NYU real estate department said, when Trump buys a building and puts his name on it, just putting his name on it adds 10% to the building's value. Somehow, so many people want to identify with him personally because he's rich that just putting his name on, without earning money, will add to the value of the building. And in terms of earning money, his former wife wrote about ten years ago that they were walking down the street and they passed a homeless guy sitting begging for quarters. And Donald said "You know, that man is as rich as I am" and the wife said "You mean, he's a billionaire?" and Donald said "No, he has at least a zero net worth. I have a negative net worth, I'm so much in hock to the banks".

Well, what Trump did was, he simply didn't pay the banks. And the banks are so desperate for real estate people to come in, borrow the money and manage the properties to make enough interest to pay them, that they let him scale back the money to the banks. He did the same thing with his gambling casinos in Atlantic City and managed to avoid paying. So you have Trump, who made his money by extreme debt leverage, by having negative net worth at various times in his life, somehow coming out on top thanks to the fact that the Federal Reserve under Alan Greenspan was flooding the economy with enough money to inflate the price of his property above water and to create a Rentier class rich enough to buy property in his buildings and pay him the price that he was asking for.

Karl: Well, Professor Michael Hudson, thanks very much for joining us here on the Renegade Economists.

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