March 30, 2013
By Rob Kall
I wanted to start off citing a little bit from your new book. You say in it, "The collapse of the Soviet Union in 1991 and the rise of the high speed internet have proved to be the economic and political undoing of the West."
That's a big deal! I'd like you to dissect each of those a little bit. I thought that collapse of the Soviet Union was a pretty good thing. Why are you saying it's so bad for the US?
:::::::: Rob Kall Bottom Up Radio
I interviewed Paul Craig Roberts on March 27th. This is part one of a two part interview.
Here's the link to the audio recording Podcast.
Thanks to Don Caldarazzo for doing the transcript.
Rob Kall: And welcome to the Rob Kall Bottom Up Radio Show, WNJC 1360 AM, reaching metro Philly and South New Jersey, out of Washington Township, New Jersey, sponsored by Opednews.com . Just Google the words "Liberal news," and Opednews.com shows up at the top of your Google search, or one or two [1 or 2] on your Bing.com search. But we're left of Liberal, really. And we're certainly not a Democratic or a Republican site at Opednews.com .
My guest tonight is Paul Craig Roberts. He's a former editor at the Wall Street Journal, he was policy director at the Treasury, and in recent years he has been just kicking butt talking about the truth about the economy, about the Constitution, about the rights in America, and the future of America. He's got a new book out: The Failure of Laissez Faire Capitalism and Economic Dissolution of the West. Welcome to the show, Paul.
Paul Craig Roberts: Hey, glad to be with you, Rob.
Rob Kall: I think this is the fourth of fifth time I've had you on the show, which may make you one of the most, or the most, frequently revisited guests. Your website is Paulcraigroberts.org . I wanted to start off citing a little bit from your new book. It just came out the beginning of the year. You say in it, "The collapse of the Soviet Union in 1991 and the rise of the high speed internet have proved to be the economic and political undoing of the West."
That's a big deal! I'd like you to dissect each of those a little bit. I thought that collapse of the Soviet Union was a pretty good thing. Why are you saying it's so bad for the US?
Paul Craig Roberts: Well, you know, Rob, it led to that Neoconservative nonsense about the end of History, which of course unleashed the notion of American hegemony over the world, and the ideology behind all of the wars and the aggression that the United States has been conducting since the George W. Bush administration. But I'm speaking in the book economically; and what happened economically because of the collapse of the Soviet Union and the rise of the high speed internet is that it made it possible for Western corporations (corporations in the United States, Europe) to arbitrage labor across national borders.
In other words, when the Soviets collapsed, it had a big impact on thinking in Communist China and Socialist India. Their response to the failure of the Soviet Union was to open their vast, underutilized labor to Western capital. So the corporations found out that they could produce for their home market offshore in India or China, dramatically drop the labor cost, and thereby dramatically increase the profits flowing in capital gains to shareholders and in performance bonuses to executives.
So the collapse of the Soviet Union began the arbitrage of of labor, and it ended up separating Americans from the production of the goods and services that they consume. The economy has been dead in the water ever since, and the Federal Reserve under Alan Greenspan tried to substitute - for the missing growth in consumer income in employment - consumer indebtedness. So we had the rise in consumer indebtedness, the real estate bubble, the various financial frauds, and the ongoing financial crisis.
Rob Kall: You also said about this being caused by the high speed internet. How's that tie in?
Paul Craig Roberts: Right. That's what I'm getting to now.
Rob Kall: OK.
Paul Craig Roberts: The manufacturing goods were produced offshore and sent in. Now. What the high speed internet allowed the corporations to do was to offshore the production of professional services, such as software engineering, information technology; and now, of course, research, design. They could hire people in India to do this work, and they could send it in on the high speed internet, and so we have seen the employment for Americans in rapidly growing fields such as software engineering and information technology simply dry up. The work is now done offshore and sent in on the internet. So the consequence of Soviet collapse was to destroy American manufacturing jobs, and to destroy professional service jobs that had always been the ladder of upward mobility for American university graduates.
Rob Kall: Now I've got to say, when I talk to kids going to college, I say "Don't look for a job that can be outsourced by the internet." Even radiologists are being outsourced.; so if you get an x-ray, they send the results to India to have a radiologist in India do it instead of an American doctor doing it. It's so scary.
Paul Craig Roberts: Yep.
Rob Kall: You wrote in your article When Truth Is Suppressed, Countries Die - the first half of the article is mostly about this topic, about how theorists were saying that we would be transitioning to an information economy, and did the creative approaches and what have you, and what you argued was that you've got to have production; you have to have manufacturing, or if you lose that, you're in big trouble. I wanted your comment, and I just think that it also ties into the space program, which both parties are just throwing away and selling off and getting rid of now, and letting India and China and every other country pick up on.
It seems to me like -- I've been saying it for a while now: the US is being strip-mined, and they're basically just going through us, and we're going to be left a third world country, which you've written a lot about. Talk a little bit about that and globalization too, because this is all tied in to corporate globalization. I've just thrown a lot at you; pick whatever you want to talk about from it.
Paul Craig Roberts: OK Rob. It's certainly the case that innovation follows manufacturing. If you're not manufacturing things, you're out of touch, and you don't know what to innovate, or how to innovate. So the kind of arguments that we got from the shills for global corporations (like Michael Porter at Harvard, all of these people paid to come up with phony studies to reassure Americans that they weren't really losing anything by closing down the manufacturing sector), the argument they made was: "OK, look. These are 'dirty fingernail' jobs, and we don't need them. We are now going to all be white collar workers doings intellectual work innovating! We'll be doing all the innovations, and the Chinese will have the dirty fingernail jobs of producing the products that we innovate.
This was the Line, this was the "New Economy" that they talked about. Of course it was all just baloney! Because, as I said (to repeat myself), if you're not making things, you don't know what to innovate. You get out of touch with technologies. You become a Third World Country. We now see from all the surveys that increasingly, American corporations innovate outside the country where their offshore plants are. And we recently had a report from twenty  MIT professors who were aided by the graduate students, so we had twenty professors at MIT who have issued a report that we've lost the ability to innovate, or we're, in the process, about lost, because things that are made aren't made here, and so we've lost the ability to innovate. So I see that as vindication. I've been warning about this for years, and this study, it was recently reported out in the last month or two, I think.
The other point I've been making for a decade about offshore production is not free trade, it's labor arbitrage; and that all tradable goods and services can be moved offshore. So that you can very easily have a permanent unemployment rate of 25% or 35% percent or even higher, because the only jobs that can't be offshored require hands-on performance: like going to the dentist, or getting your hair cut, or being served in a restaurant by a waitress, or in a bar by a bartender. Those kinds of jobs are the only ones that can't be offshored, and so -
Rob Kall: Paul, can you just describe what you mean by arbitrage? I think it's usually a word used to talk about the stock market. What does it mean, and how does it apply in terms of jobs?
Paul Craig Roberts: It means the same things as in the stock market if there is a difference in price. In the case of labor arbitrage, the price is labor. So if the American manufacturing worker costs $22 an hour (with all the benefits, and so forth), and the Chinese at the time this started cost 25c an hour (laughs), you have an amazing labor cost difference. And so they look at this and they say: "Well, wow! We could really drop our cost of production by producing with this Chinese labor, because instead of twenty-five bucks an hour, it's twenty five cents." That's what we mean by labor arbitrage. They just say, "OK, we're not hiring these Americans, we're going to hire the Chinese." That's labor arbitrage, and it has nothing whatsoever to do, nothing is being traded.
There's no free trade, there's no any kind of trade, it's just labor arbitrage. It's just like if somebody in the stock market sees a difference in pricing somewhere, they move quickly to take advantage of it. Now they use these extremely high speed computers to try to get in front of trades, and they trade on nano-pennies in nanoseconds. So that's what the labor arbitrage means. Now let me finish this story. As I warned for a decade, the job offshoring was undermining employment opportunities in the United States, and certainly had stopped the rise in consumer income.
Well, two years ago, the Nobel Economist Michael Spence did the same studies that I've done, and came to the same conclusion. It was published (I think) as a Council For Foreign Relations paper. He said the same things that I've said, that the United States faces a hell of an employment challenge, because so much has been moved off, and so much more can be. The main function of globalism is to de-industrialize high-wage countries that are developed.
The other main result of globalism is to turn lesser developed countries that had viable agriculture and were self-sustaining, to turn them into monocultures; supplying like one crop for global markets, and then that makes them -- first of all, that destroys the economic-social systems there, and people now are dependent on food imports. The big farms, of course, haven't room for much of the population that used to be on sustainable farms. So globalism is a wrecking force of amazing power to wreck. It doesn't do anything good except for shareholders of big corporations and their managers, or chief executives.
Rob Kall: Now, in your new book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West, you write, "Globalism and financial concentration have destroyed the justifications of market capitalism. Corporations that have become too big to fail are sustained by public subsidies, thus destroying Capitalism's claim to be an efficient allocator of resources." When you talk about globalism, I think you're talking about corporate globalism, which is basically the only globalism we have. Am I right on that?
Paul Craig Roberts: Yeah, sure. What they mean by globalism is the total free movement across national borders of capital and production, so that -
Rob Kall: In a sense, by creating this corporate Globalism system that we have now, we have a system where corporatism transcends the power and the Democracy of nations! Isn't that true?
Paul Craig Roberts: Yeah, right. Well we've seen that, haven't we; in Greece, Italy, and now Cyprus. Remember when the Greek bailout was up, and the Greek Prime Minister or President said, "OK, I'm going to put it to vote"? And the EU said, "No you aren't! The people don't get to decide. You resign right now." And then they appointed from outside, they appointed the government of Greece. And they did the same thing to Italy! The Italian Prime Minister or President or whatever they call him wasn't elected, he was appointed by the EU bankers.
So now what we see in Cyprus with this new development where they have redefined bank depositors as investors whose capital is at risk, they won't let this go to a vote. The Parliament voted down the first bailout plan, and so the second plan that the bankers came up with and took to the Cyprus President -they said: "There's no vote. You can't vote. Either you sign this, and thereby commit the country, or we're cutting you off from money, and you're going down the tubes." So the assault on Democracy is widespread. It's the same thing here. You may remember when Paulson wanted the bailout for the banks, he wanted the $750 billion, he went to Congress and said, "Quick, give us some money or there's Martial Law."
So there's no longer - governments don't represent the people anymore. In Europe, they represent the very powerful private banks, and they're going to be sure they don't lose any money; so that shareholders in the banks are being made whole by, in the case of Cyprus, seizing some share of the bank deposits of depositors. And what they did in Greece, they cut wages and salaries, they cut pensions, they cut social services, they sold off public assets like water companies to private companies, who then doubled the price, and then that way the suppressed the living standards of the Greek people in order to pay off bankers, so that the shareholders of the banks didn't lose any money. Now we have the Dutch Minister saying, "OK, the Cyprus solution of stealing bank deposits, that's the template for all future bailouts." It's going to come here, too. Not only that, Rob -
Rob Kall: You've got a great article that you wrote saying, "It has happened here," based on the Sinclair Lewis book It can't Happen Here. I want to go to another article, you wrote. You wrote an article called While Left and Right Fight, Power Wins. I'm going to get back to it as soon as I do a station ID.
This is the Rob Kall Bottom Up Radio Show, WNJC out of Washington Township, reaching metro Philly and South Jersey, sponsored by Opednews.com . Where you're going to get news that you won't see in the mainstream media, where you get the kind of news that the mainstream media blocks from the people that the mainstream media won't cover.
Now, Paul, back to this article, While Left and Right Fight, Power Wins - I want to start it off and then you can talk about it. What you wrote was, "My experience with the American Left and Right leads to the conclusion that the Left sees private power as the source of oppression, and government as the countervailing and rectifying power, while the Right sees government as the source of oppression, and a free and unregulated private sector as a countervailing and rectifying power." A beautiful, clear way of saying that! "Both are concerned with restraining the power to oppress, but they take opposite positions on the source of the oppressive power and remedy."
And you say, "The Right is correct that government power is the problem, and the Left is correct that private power is the problem. Therefore, whether power is located within the government or private sectors cannot reduce, constrain, or minimize power. " And you talked about how the Founding Fathers had a solution, that it didn't work, and now we've got accumulation of new dictatorial powers in the Executive Branch in the name of protecting us from terrorists, and with deregulation's creation of powerful corporations to big to fail. Can you talk a bit more about this?
Paul Craig Roberts: (laughs) Well Rob, you covered it about as clearly as -
Rob Kall: Well, OK, yeah, you said it beautifully and clearly -- so, what's the answer? The Left and Right are up against each other, do you see a way that the Left and Right can find some common ground?
Paul Craig Roberts: I don't know. They don't seem to be able to. They're locked -- you know, generals fight the last war, and so does the Left and Right. Now, there have been different times in our history when there was too much private power, not enough government power as a countervailing force. the roaring twenties, and then we had Roosevelt and the New Deal, and they put in financial regulation to put some sort of social control over the private power, so things got in better balance. Then beginning with the Clinton [administration], massive deregulations. We had with Thatcher and in France the massive privatizations of State companies. With Clinton, this moved so far that they repealed the Glass-Steagall act, which had separated commercial from investment banking. Once that happened, we got the financial crisis.
In other words, from Roosevelt giving us some kind of a balance, what really happened was the entrenched bureaucracy then got more and more arrogant and abusive, and became gratuitously interfering in people's lives and in business. I can remember, for example, in the 80s OSHA would go around -- there are a lot of small businesses, there's only one door in, one door out; OSHA would go around and fine people because they didn't have an exit sign over the only door (laughs). This is an abuse.
There were other cases. In Florida, for example, there was a father and son, and they had a State permit to build a house, and they built the house, and the Federal Government declared that they had built on a wetland and put them in prison for building a house where they had a permit to build! This is going too far. And other environmental regulations went too far: they gave farmers and ranchers lots of trouble for cleaning out the drainage ditches for re-fencing property. They claimed The Navigable Waters Act of the United States, and they claimed that cleaning out a drainage ditch could lead to pollution of navigable waters, even though there's no navigable water in sight!
So the things got so abusive that it caused a reaction to the regulation, and then the reaction has gone to far. They've completely deregulated the financial system, they've taken all the constraints off of debt leverage, they have taken the position limits off of speculators. So, it's now gone back to where it was before Roosevelt (laughs). So this sort of thing happens because it gets out of balance. When one side runs with it too far it becomes abusive, it becomes too much regulation, and then it becomes too little regulation. So keeping the balance requires sensibility, intelligence, and not ideologies. If the people are committed to ideologies and are operating ideologically, then it always gets out of balance.
Rob Kall: It seems, though, that currently we have two parties that are both on the same side, the corporate side - more than anything else What do you think about that statement?
Paul Craig Roberts: Well, that's true, the two political parties. But they're not necessarily identified with Right Wing and Left Wing. What happened to the Democrats was the offshoring of the manufacturing jobs destroyed the power of the labor unions and the ability to finance the Democratic party. See, the Democrats were financed by labor, the Republicans were financed by business, and so there was countervailing power. They could contain one another. Neither side could go too far away from some sort of balance. But when the unions lost all these manufacturing jobs, and former cities which were powerhouses in manufacturing just dried up and disappeared, the Democrats then had to go to the same sources of financing as the Republicans. So now, both parties are dependent on the same financing, and this then has made it easy for the corporations to control both parties!
Rob Kall: So you take it back again to globalization. Again, globalization has contributed to the loss of us having two really different political parties. So what do we do about globalization? Could we just shut it down? When Bush was president, he just said "We're not going to participate in the Kyoto treaty." Is it possible that a leader could come along and say, "We're just not going to participate with the World Bank, and the World Trade Organization, and NAFTA and CAFTA. We need to re-write all of them!" Is that something that could change things? Could that make a difference?
Paul Craig Roberts: I don't think it could happen because it serves corporations in the short run. You know, American corporations, not Japanese or even German, not Chinese, but American corporations are very short term. The chief executive is there only four of five years. That's the time he has to make his fortune, and the way they're making their fortune is by offshoring. So they're not going to want -- and the WTO, NAFTA, all these things were set up for corporate interest. So since they have the power now, political as well as economic, particularly the banks, then they're not going to say, "OK let's get rid of our get rich quick scheme that's serving us so well." They're not going to do that.
What's happening though is that it's failing. It doesn't work for the industrial countries, it works for China (laughs), who gets all the offshored production, and so American GDP becomes Chinese GDP, and American jobs become Chinese jobs, and American consumer income becomes Chinese consumer income. What's happening is the balance of power in the world is shifting completely away from the West. It's washed up.
Rob Kall: So what you're saying is, the more trade agreements that Obama and any President signs, they're basically accelerating the transition of power to China.
Paul Craig Roberts: Exactly. Yeah. And India, other former third World countries, but they're the rising countries now.
Rob Kall: The BriC countries.
Paul Craig Roberts: Look, the Chinese manufacturing force, you know how large it is? 112 million! You know how large the American is? Eleven million. Eleven!
Rob Kall: But let me get back: is it possible if we could find and elect a leader who said "My first step as the new President is to cancel these global trade agreements." Would that be possible, if they were able to stand up to all these different people.
Paul Craig Roberts: How would he get financed to get elected?
Rob Kall: That's another issue, but could it be done? Could we just step away from them and "These aren't working. We're going to start over again and write new, real global trade agreements that reflect on our need to protect our industries and not let them just be totally destroyed.
Paul Craig Roberts: It can't happen for the reason I said, that right now it serves the interest for the power, so they're not going to overturn it. Now, when it becomes apparent that we've destroyed ourselves, you can't get the power back. You think the Chinese are going let you all of a sudden let you overcome this? No. They'll hold the upper hand. They're not going to say "OK, let's now destroy ourselves the way the Americans destroyed themselves." I think it's all over with for the West. I don't think they can come back, and so what we're going to be in is a period of transition in which the West becomes no longer the ruler of the universe. It will be slowly declining. In fact, the collapse could be sudden. We don't know what -
Rob Kall: Now you've written about that. You've written about how at some point the dollar is going to burst, and you've talked in some interviews and your writing about how, in these different bubbles -- are we in the middle of a dollar bubble right now, a money bubble?
Paul Craig Roberts: Yes. The dollar is one of the biggest bubbles in history. The Federal Reserve is creating over a trillion new dollars annually, but the demand for dollars is not rising by a trillion annually. And so, sooner or later, this has to affect the price of the dollar, that is, the exchange value. And we already see the important nations moving to decouple from the dollar.
We have the BriCs: this is China, Russia, Brazil, India, South Africa. Altogether now, that's probably about half the world's population. And it's probably half of the traded goods (laughs). And so they're setting up a system in which they settle their trade with one another in their own currencies. The dollar is no longer used as a reserve currency. They're setting up their own version of an IMF. They're just going to bypass all the Western institutions. We see in China and Asia the rise of an Asian currency bloc, which is being organized around the Chinese currency. We see deals with Japan and China to settle their trade with one another in their own currencies.
So the demand and use for the dollar is about to rapidly constrict. We'll have a situation where the Feds are not only creating a trillion new dollars more than the demand is growing, but the demand will be shrinking! And so the thing will blow up. And when the dollar bubble pops, so does the bond market bubble, the stock market bubble. We will have the biggest economic catastrophe in the history of the world, and there is no solution. The United States will go from being a so-called superpower to a nothing!
It could happen at any time. It's a perfect storm that the idiot policy makers have created because they don't serve the public interest, they serve a few rich bankers. The whole thing has been keyed toward protecting the banks that our deregulation policy allowed to get to big to fail. Not only that, but the public officials, the Secretary of the Treasury, the FED, the financial regulatory agency heads, they're all the former bankers themselves, all their proteges. You have a situation where the class that caused the crisis is running the solution, and the solution is to keep the banks from having any pain; what it does to the rest of us is not their concern.
Rob Kall: I've been calling, along with a number of others, for an end to billionaires, a "No Billionaires" program. That the billionaires have just too much power, these oligarchs are buying and running our politics, our nations. What do you think about the idea of a no billionaires policy?
Paul Craig Roberts: I don't mind it, but I don't think that addresses the real issue. Because the people running the policy are not individual rich people: they are the very large financial institutions. They may finance billionaires in some scheme a billionaire has, but the power is Goldman Sachs, JP Morgan Chase, Citibank, Bank of America. It's these financial institutions, they have financialized the economy. The economist Michael Hudson has made it clear that what's happened is Industrial Capitalism is over and done with. We have Financial Capitalism, and what they do is, they organize a whole economy so that all the surplus is drawn off in interest paid to banks.
The banks any longer finance plant equipment and industries. It's "Debt Peonage," that's what Michael Hudson calls it, Debt Peonage, where increasing shares of national income are drawn off into the banks in interest and fees, all that sort of thing. And so there's no -- even if consumers had growing incomes with an increasing share drawn off into interest payments, that leaves very little for increased demand for goods and services. You kill it, you kill the economy by financializing it. And that's what's really happened.
Rob Kall is executive editor, publisher and website architect of OpEdNews.com, Host of the Rob Kall Bottom Up Radio Show (WNJC 1360 AM), and publisher of Storycon.org, President of Futurehealth, Inc, and an inventor . He is also published regularly on the Huffingtonpost.com
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