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Cross-posted from Henry George School of Social Science

Andrew Mazzone Interviews PCR
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This is an excellent conversation I had with Andrew Mazzone of the Henry George School of Social Science. Of all my interviews, this one is the best. Read the transcript, below...
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Interviewer: We Georgists are simple anti-monopolists. Formerly we focused on taxing land rents. Now we would generalize the tax on economic rent to all forms of monopoly on grounds that taxing economic rent would encourage production and prevent many crises that result from speculative activities financed by debt leverage.

But we won't debate that necessarily. We'll discuss your findings and, just so you know, we have the greatest respect for you here. And Michael Hudson has the greatest respect. And we're big fans of Michael Hudson. And we're -- although I won't advertise it on this show, we're neo-Georgists, rather than pure Georgists, okay?

Roberts: I'm a big fan of Michael Hudson as well.
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Interviewer: Absolutely. He's a repentant -- unrepentant Marxist, but that's okay. We'll let him get away with it. He has pointed out to the Georgists that financialization has triumphed , as the main source of monopoly.

Interviewer: Why don't you correct the supply-side economics concept relative to Keynesian as an opener here?

Roberts: Well... it really goes back to the beginnings of the explanation of price formation. There was an argument between economists whether the price was determined by the cost of production -- that is, by supply -- or whether it was determined by demand -- in other words, what people were willing to pay for it. And this argument went on until Alfred Marshall appeared and said that that argument is like arguing which blade of the scissors cut the paper.

That both supply and demand determine price. Well, it's that idea that was
missing in macroeconomics. Because in the Keynesian model, monetary and
fiscal policy only affect the aggregate demand curve. If you raise or lower taxes, you shift demand. You would either increase consumer demand with, for example, reduction of taxes, or you would reduce consumer demand with an increase of taxes. And what the supply-side economists added was that changes in fiscal policy, such as changes in the marginal rate of taxation, can shift the aggregate supply schedule.

And this was the completion then of macroeconomics. Instead of having only the demand blade of the scissors, supply-side economics brought in the supply blade. What the supply-side economists were able to demonstrate -- and this was later incorporated by Paul Samuelson into the 12th edition of his famous economics textbook. What we were able to show was that changes in marginal tax rates affect two important relative prices.

One is the price that determines the tradeoff between current consumption and saving. The higher the tax rate on investment income, the cheaper it is to consume in the present. Because the higher the tax rate on investment income, the less future income you give up by consuming today.

So if you were to lower the marginal tax rate, you would raise the opportunity cost of current consumption in terms of foregone future income. So this would encourage more savings and more investment.
The second important relative price affected is the price of leisure in terms of current income. The higher the marginal tax rate on wage and salary income, the cheaper is leisure in terms of foregone income by not working. A reduction in marginal tax rates raises the cost of leisure and thus encourages a larger supply of labor.

Interviewer: Let's assume that applies in a closed economy, which the United States was around 1970. All of a sudden a dramatic shift has occurred. And it changed the dynamic of America significantly. And you were the economist that pointed that out.

And I want to start from that point, moving forward. Why, all of a sudden, was it de rigueur to outsource out of our closed economy in a tremendous, unconstrained way, which of course would negate the balance of macroeconomic fine-tuning in our relatively closed economy? What accounted for this massive shift? And how important was it?

I, as an old line manufacturing executive who believes in keeping manufacturing and the learn-by-doing skills and the related companies in manufacturing together, was appalled at that outsourcing at the time. I was a CEO of a Fortune 500 company back in the day, in a manufacturing company to boot. And I saw what was being lost. Why then? It in effect negates the goodness of supply in a macro context right there.

Roberts: Well, the main event was the collapse of the Soviet Union. When the Soviet Union collapsed, it caused a rethinking in China and in socialist India. The two countries had closed economies to western capital. But the collapse of the Soviet Union and the appearance of "the end of history," the neoconservative argument that the Soviet collapse proves that there is no alternative to American democratic capitalism caused a sea change in thinking in China and India.

This caused China and India to open up their vast, underutilized labor forces. And so American firms found -- in fact, all first-world firms, but, initially primarily the American ones -- found they could dramatically drop their labor costs by moving their manufacturing jobs to Asia.

The next step in this was the rise of the high-speed internet. Because that made it possible to also offshore tradable professional skills, such as software engineering, research, design -- the kinds of jobs that American college graduates formerly could look forward to. These could now be moved abroad with the work sent in via the Internet.

Interviewer: Let me interject there. That's an obvious move. But if we look at American history, America was able to compete with high wages and high labor for 200 years without necessarily offshoring its manufacturing capability and could complete with high labor costs.

By arbitraging let's say labor, for example, wouldn't the economic planners in Washington know that they would create an imbalance? There would be no purchasing power corresponding to those low wages to come back and clear any products that came in, without inflating loans and debt as the [contrary]. And ultimately that would hollow out an economy. That had to be a known effect. Yes or no?

Roberts: No, there's no evidence that it was known. In fact, it's still denied. In fact, quite vigorously denied because the offshoring of jobs is interpreted as the operation of free trade. And therefore the claims are made that it is mutually beneficial and the United States is benefiting from the offshoring of these jobs.

Interviewer: But the fallacy, of course, is free trade theory assumes not moving capital, for example, along with a free trade concept. Once you undermine your own economy, all bets are off as to the benefits of free trade. I think Gomery conclusively proved that.

Roberts: Yes, that's true. Free trade theory is problematic even in its own terms. And it's also true that free trade theory requires that a country seek its comparative advantage at home, finds out where its comparative advantage is at home. And therefore that implies the capital stays home employed in the sectors in which it has comparative advantage.

Offshoring is the pursuit of absolute advantage or lowest factor cost, not
comparative advantage. Corporations are looking for the lowest factor cost. This is not the free trade model. But it is misinterpreted as free trade by the economics profession.

Interviewer: Who should know better?

Roberts: They should know better. But they don't. Or maybe they're shills for the offshoreing corporations.

Interviewer: Let me give you a scenario. Of course, Henry George was a free trader. But he was a free trader in a world that had comparabilities. One country didn't have a demonstrable intellectual advantage or material advantage over another. And you could get away with.

I'm a restricted free trader, basically because of the problem you pointed out. But let's assume that this occurred and America is being hollowed out and jobs are being arbitraged away. I'm a New York guy. I'm an investment banker. I'm a Washington guy. I'm a military guy. I'm a Boston guy. I'm a technology guy. Those three cities are kind of the nexus of a very interesting compilation of power, wealth, money, brains.

And if I look at us as kind of an island that basically trades with the world as arbitrages factors all over the world, for us this is not so bad, what you've pointed out. The rest of the country may suffer, may become a north Argentina. But for the big guys in these areas, why should they worry about the things you point out and the things I agree with? Any comments on that?

Roberts: Well, for the CEOs themselves, it's in their interest, because their interest, generally speaking, is short-term. I don't think there are very many public corporations of which the CEO comes into the office at a young age and stays there for 10 or 20 or 30 years. Most of them come in when they're about 60, and they have a few years in which to really make their fortune before they retire.

And so for them, if you can drop your labor cost by offshoring your jobs, your profits go up. And therefore your bonus, which is much larger than your salary, goes up. And so you can maximize your income by offshoring the jobs.

Now, as you have already noted earlier in our conversation, the aggregate effect over time is to destroy the American consumer market. Because the people who were working for, say, a textile manufacturer, making maybe $35,000-$40,000, when their jobs are offshored they end up working as retail clerks for $16,000 a year. And the reduction in their income essentially kills off any discretionary spending.

Interviewer: Well, if I can borrow, if I can borrow the difference, if monetary authorities are accommodative, allow me to inflate mortgage demand, credit card demand, I can defer the devastating effects for maybe 30 or 40 years, which I think occurred. Would you agree that that's the case?

Roberts: No, it can't defer that long. This policy of substituting consumer debt for the absence of growth in consumer income is what Alan Greenspan used when he saw that there wasn't any growth in real median family income. And therefore there was nothing to drive the economy. That is when Greenspan as Fed chairman initiated the credit expansion that
substituted the growth in consumer debt for the missing growth in consumer income.

So that's how in the early part of this new century, early part of the 21st century, they were able to keep consumer demand growing and to keep some growth in the economy. But very quickly, of course, debt reached its limit. People can't acquire debt indefinitely when their income's not growing. And when the ability of people to acquire any more debt ran out, the bubble broke.

The real estate market collapsed. And the economy really hasn't done anything since. So it's a short-term step you can use, to substitute debt for the lack of growth in real income.

Interviewer: I think that's clear, but again, I'm a New York, Boston, and Washington guy. We're military. We're finance. We're technology. We're international. Why should I worry about the lack of purchasing power in the hinterlands -- I'm being the devil's advocate here -- since I'm insulated, I think, from that?

My money's ready to go anywhere. I'm ready to travel to London, Frankfurt, Berlin, any place, and get away from the effects of, let's say, a downsizing of the American middle and working class. And where were the middle class and working people politically in stopping or seeing or avoiding this, in effect, catastrophe?

Roberts: Well, first of all, you can't escape it. This eventually comes back to you in the dollar's loss in value. Because if your economy isn't growing, but your debt is, and you're having to issue more debt to finance the federal budget, but you also have to issue more debt in order to keep the banks that are too big to fail from failing -- and so the world is flooded with the issue of more dollars and debt.

But not with an increase in the real output of American goods and services that match the growth in the supply of dollars and the supply of debt. The pressure then builds on the dollar itself. The pressure builds on its exchange value and it builds on its role as reserve currency.

Because the rest of the world has been accumulating dollars since the end
of World War II, the world has a tremendous amount of dollars. And when they see what looks to be no end in the supply of new dollars that are not matched by the output of goods and services, they say, "What is happening to the value of our dollar-based assets? And do we want to keep acquiring them?"

And you see then the countries will hold back purchasing U.S. Treasury bonds, looking for alternative stores of value, such as gold. We see the enormous accumulation of gold now in Asia. We see a pressure on the dollar from the rising price of gold. You know, during the 21st century we've seen an enormous increase in the price of gold, peaking in 2011, since then driven down by orchestrated short sales of futures contracts.

The Federal Reserve realizes that the rising price of gold is a threat to the dollar and to the Fed's policy of quantitative easing. And therefore they suppress the rising price of gold by selling naked shorts. The bullion banks dump massive amounts of futures contracts in the market in the quietest trading periods. When there's actually no trading going on, they come in and dump huge quantities of contracts and drive down the price. And then that triggers stop-loss orders, it results in margin calls, and more sales. And this is the way they've controlled the price of gold since 2011.

Interviewer: You would argue that a reserve currency is a sine qua non of American staying power. And I think we would fight to maintain the dollar as a reserve currency, because what would our alternative? As long as we keep the reserve currency and payments for oil in the American dollar, we could probably do this indefinitely. What do you think?

Roberts: No, because the world is moving way from the dollar. We see the formation of BRICS -- Brazil, Russia,, India, China, South Africa. That's about half of the world's population. And they're forming up their own banks, their own reserve systems. They're going to transact their foreign trade with one another without using dollars.

And we've seen the energy deal that Russia and China recently came to terms on in which there will be no dollar use in the sale of Russian energy to China. So we see increasingly countries moving away from using the dollar to settle their trade accounts. And the United States is driving them away from its dollar payments system by the use of sanctions.

The only reason the United States can sanction a country is because of the dollar payment system. If the country is not part of the dollar payment system, it can't be sanctioned. And we see that the Russian response to the huffing and puffing in Washington about sanctions on Russia was to arrange a deal with China -- the biggest energy deal of all time -- that has no dollar role.

I think this is going to increase. The dollar is in trouble. And I think that the
abuse of the dollar's reserve currency role by Washington by threatening
countries, imposing sanctions, seizing their assets is causing countries to
arrange other ways to settle international accounts. Look what Washington
recently did to the big French bank. Washington stole $9 billion from the bank because the bank financed economic activities in countries disapproved by Washington. Washington is now doing the same thing to the big bank in Germany, Commerzbank. Washington really is creating opposition to itself among its European puppet states.

Interviewer: Why did American policymakers allow it to reach this point? They could have brought back American manufacturing. They could have changed tax laws to encourage it. They could have stopped it. They could have made all the offshore corporations like Apple, who have hordes of cash offshore -- they could have forced all of that back. And forced manufacturing, the source of wealth and jobs for most people, back in
the home territory, if they wanted to, I believe. Your comment on that.

Roberts: Well, first of all, they have to recognize the problem. And they don't. You know, I wrote this book -- "Failure of Laissez Faire Capitalism and Economic Dissolution of the West" -- and I laid it all out. The book has never been reviewed in an economics journal or in the mainstream media.
It's reviewed all over the place on the internet, Amazon, but nobody in
Washington has contacted me to say, "Wow, this is a serious problem. What can we do about it?" Instead, the economics profession pretends that no such thing has happened. So you can say either economists are completely stupid or they speak for interest groups that benefit from offshoring.

Interviewer: Let's stop it right there. I assume that our government policy planners are not stupid at all. And our corporations are not stupid.

Roberts: They are. I can tell you. I was among them for 25 years. They're stupid.

Interviewer: Well, generally speaking.

Roberts: They're completely stupid in this sense. They're not stupid in terms of serving their own interests and helping private interest groups look that look after them when they leave government service. They're very clever in those ways. But in terms of thinking about the longevity of the country and the success through time of the country, they really have no
incentive to do that.

Interviewer: That's the point. And I would argue, I'm an investment banker in New York. I'm your 60-years-old guy. I'm making a lot of money. My money's international. I'm everywhere. I own corporations all over the world. I'm not wedded to a particular country. I know I'm going to die in 20 years. I'm living it up now. Why should I care about anybody or anything when I've got my pile now? In a way, it's kind of the attitude. Why would I care, and who's going to make me care?

Roberts: [laughs] You have described the attitude. And, you know, it developed, over the course of my lifetime. When I was in university we were taught that a corporation had responsibilities to shareholders. But it also had responsibilities to its employees, to its customers, and to its local communities. And that the function of a CEO was to balance all of these responsibilities.

Interviewer: I grew up in that same era.

Roberts: But by 1990, if not before, the argument is corporations are only responsible to the shareholders and bear no other responsibility. None to communities. None to the employees. And none to the customers. They're responsible to the shareholders, and therefore they must always focus on increasing shareholders' return on investment.

And Wall Street enforces this with the threat, "If you don't move offshore to China and get your profits up, we're going to finance a takeover of your company." So even the executives that didn't want to desert their communities were forced to by the threat of takeovers. So the whole attitude of the executives changed and no longer recognized any
responsibility other than the bottom line. So if I can close down all my factories and send all the manufacturing abroad and become a factory-less manufacturer, I can make more money for myself and for shareholders. Apple, for example, sells manufactured products but does not make the products itself. It outsources the production of the ...

Interviewer: Yes, absolutely.

Roberts: And so we now have this new concept of factory-less manufacturers. And what they're trying to do in Washington right now is to redefine Apple's outsourced offshored output as U.S. manufacturing.

Interviewer: Oh, my god. Okay.

Roberts: Using redefinition the government can boost the share of manufacturing in the US economy and boost manufacturing employment, because then all of Apple's employees become manufacturing employees, even though Apple doesn't have a factory. And all of Apple's exports, say of iPhones to Europe, they become counted as American exports. And the Apple computers and iPhones that come into the United States are no longer counted as imports. They become U.S. manufacturing.

Interviewer: But that, of course, is contrary to all accounting. All accounting in history for GNP calculations. It's an absurdity on the face of it. You just don't do that. It's worse than hedonic pricing.

Roberts: Our government does what it wants to do.

Interviewer: Well, I can understand why. But all the benefits of ...

Interviewer: But all the benefits of the labor --

Roberts: Many economists have defended it. And domestic manufacturers are attacking it.

Interviewer: Then that begs the question, what were the American people doing during this 30-year period where this was occurring and their own best interests basically were being sacrificed? Where were they?

Roberts: People were told that, first of all, "Oh, you may be hurting, but overall you are] benefiting." Free trade always hurts a few people but the general impact is increased overall welfare. So more people are benefitting than the few of you that are hurting. This was how Americans were conditioned to accept their demise.

Interviewer: Well, the income statistics belie that. The distribution of income is direct evidence that that's not true.

Roberts: Well, I'm not saying it's true. I'm just saying what they were told. Now, of course, people aren't statisticians. They don't know how to go find the evidence. But this is what the mainstream media tells them. And then the next thing they were told is, "Well, it's just a retraining issue." But of course, any professional tradable professional skill can be offshored as well. So Americans were fed one line after the other. Michael Porter at Harvard he came out with this big study and claimed that it showed that the United States was benefiting greatly from jobs offshoring.

Interviewer: He's simply wrong.

Roberts: I attacked -- of course he's wrong. I attacked the study. And they replied to it. And I replied to that. But they simply ignore anything that doesn't suit them. We had Matthew Slaughter. He was on the Council of Economic Advisors for President Bush. He came out with a study that proved that offshoring jobs increased American jobs.

Now, the way he proved this was he did not control for the fact that transnational corporations were buying up other corporations and adding existing jobs to their workforce. He counted the existing jobs as new jobs resulting from offshoring. He also didn't control for the fact that some companies that had never before conducted affairs overseas started doing that.

So he counted those existing jobs as jobs created by offshoring. So in other words, it was a bogus study. Economists do these things constantly. There are more bogus studies made than you can expose. And so why do they do that? Well, my supposition is that corporate grants to departments is a very important --

Interviewer: Oh, absolutely.

Roberts: -- part of academic life. And so they get the money. They serve the masters who provide money. And they're rewarded with the grants to the departments. They're rewarded with speaking fees, speaking engagements. Some of them even get put on corporate boards. And so they have become spokesmen for a policy that is destroying the country.

Interviewer: Let me interject there. I mean, the American people can look at American history for a guide as to the correct course of action. If I go back to the time of Alexander Hamilton, he makes the observations that no agricultural country can ever be a first-rate country. So he simply advocates manufacturing, even if it's inefficient in the homeland, and put up tariffs against manufacturing coming in. And America does this. And it goes from a nothing country in 1800, to by 1870, it's the leading manufacturing country in the world. And it does it by growing its own manufacturing, growing its own skills, learning by doing. Of course, it had a fortunate benefit of being a country safe from invasion and a wide-open frontier, so that labor, if you pushed it down too far, could move west on you, forcing wages to be relatively high.

And it created a virtuous cycle of higher wages; lower rents, because you could move away from it; autonomous manufacturing because you're keeping everybody out. And in the course of 70 years, you create an industrial colossus. Why would you violate those rules now, unless it was for reasons of nationalism or country doesn't count anymore in international reckoning?

Roberts: Well, I wouldn't. But I didn't have any say about it. And you see, actually, what happened was new to history. There never before had been an opportunity to find massive supplies of labor at a tiny fraction of the cost of domestic labor. For example, when this offshoring of jobs began, U.S. manufacturing workers were making maybe $25 an hour. And the American corporations could hire the Chinese at 25 cents an hour. And look at the difference. You can see the leverage that does to profits.

Interviewer: Okay, but I would argue... Look at Germany. Germany competes very well with labor higher than ours and sells to China and all over.

Roberts: Offshoring had nothing to do with competing. It's true the United States did not need to offshore in order to be competitive. Because the United States had the technology and the capital and the business knowhow. And China and India did not have those things, until the American corporations gave them to them. So offshoring was not a response to competitiveness. There was no danger to American competitiveness. It was purely greed. It was purely the drive for higher profits.

Interviewer: Why didn't the Germans do that then?

Roberts: I think because the unions there are much stronger and that they -- the whole attitude of the country is different. And I don't think they went through the redefinition of what the manager's responsibility is. I don't think the German manager has been shorn of his obligation to the labor force --

Interviewer: True. That's true.

Roberts: -- to the customers, to the communities, as they were here. So it was the rise of this notion that nobody has a claim on the corporation except the owners. And whatever happens to anybody else, as long as it benefits the owners, then the manager is doing what he's supposed to do. I don't think that has permeated the rest of the world. Though it's beginning to.

Interviewer: I agree that's a fair statement. In France, Germany, Sweden, Norway, and so forth. All this being said, what possibilities do the average American person have to rekindle a decent standard of living?

Roberts: None. Because they can't effect anything by voting.

Interviewer: That's true.

Roberts: And so we've seen that over and over. Despite all the hopes of the election of Obama, all hopes were disappointed. Nothing changed. Whether it's a Democrat or Republican, they serve the same interest groups.

Interviewer: Yes. Okay.

Roberts: Six powerful private interest groups run the country. They determine the laws that Congress passes, the bills that the president signs. Their campaign contributions determine who's in office. Not our votes. So the six groups, they are the people to whom the government is responsible. It's not responsible to the voters. It's responsible to Wall Street. To the military security complex, of which President Dwight Eisenhower warned us long ago. [1960] The government is responsible to agribusiness. You can see this totally. I mean, Monsanto --

Interviewer: Monsanto, yes.

Roberts: You can't even get labeling of genetically modified food. You can't even get the labeling because of the power of Monsanto. And then when states do it, like Vermont, Monsanto steps in with lawsuits. Then we have, of course, the extractive industries, mining, energy, energy.
Look at the fracking that's going on. In my opinion, the external or social cost of fracking is greater than the value of the oil and gas.

Interviewer: Mmm-hm. The externalities.

Roberts: Fracking pollutes the water tables, the surface water, the underground water. We don't know what are the other consequences along with the disruption of underground structures. Earthquakes.

Interviewer: But again, consistent with the current thesis, if I can get my money out now and I can move it someplace else, I'm not going to worry about it. Is the current zeitgeist, I would argue. What happens if China, Russia, they create their own blocs and their own insularity? And American influence somehow is shut down from those areas. And it has to back up on the Americas for sustenance. How do you think that would play out? The capital has to go somewhere. The purchasing power of, let's say, North and South America are basically devastated.

Where do you go if you can't ultimately go to China and Russia and India,
because they built up their own [unintelligible] structures and their own reserve currency? Where does that leave the financiers and ordinary people? Where can they go?

Roberts: That remains to be seen. They may not be able to go much of anywhere. If you look at the new rules that the IRS is laying down -- what do they call it -- FATCA, the US Foreign Account Tax Compliance Act. Where any foreign financial institution that has any American deposit has such enormous compliance costs that many of them are saying, "We don't want any dollar deposits."

My son was in graduate school in England and could not find an English bank that would accept his account. Finally the university had to persuade a bank to provide banking for its foreign students. So these new regulations that are already in effect, but they start biting very hard
next July -- July of 2015 -- because that's when the huge fines and the
impositions begin on foreign institutions who don't comply with all of the
compliance costs of having dollar accounts.

So we're creating a situation where these people with the money can't take it anywhere because of the money laws imposed by Washington. The main support system today of the dollar is that Japan and the EU are American puppet states, and so we can prevail on Japan and the EU to inflate the Yen and the Euro, to keep the pressure off the dollar.

Well, how long can we do that before the adverse consequences on Japan and the EU of inflating their own currencies to cover up the inflation of the American currency? At some point they can't do this forever. They don't benefit and they're simply having to serve their imperial master. So at
some point that stops.

Interviewer: Let's assume we control the oil and energy and we can price that to buy our way through this problem. Your comments on that.

Roberts: We don't control the oil and energy. The Russians have tremendous, uh, energy reserve. We don't control the energy reserves in Iraq or Saudi Arabia. Or Venezuela. South America is essentially getting ready to leave the American payments system as indicated by the recent BRICS conference in Brazil. South American countries were there, with Russia and China.

People are tired of American bullying. United States gave up diplomacy a long time ago. Washington has no diplomacy. It has threats and coercion.
"Do as we say, or we'll bomb you into the Stone Age." "Do as we say, or we'll impose sanctions. Do as we say, or we'll invade." This is not diplomacy. And it's created angry responses all over the world to
Washington. People are looking for ways to get away from Washington. So now we see two very strong, powerful countries -- Russia and China -- forming up to offer the rest of the world a different kind of leadership.

And that's the big change that's going on. That's what's going to affect
everybody. Look at Putin, he doesn't say, "Do as I say, or I'll bomb you into the Stone Age." He says, "I'm here for you. We can work out something to our mutual benefit. I'm here for you." He says it over and over and over. And the Chinese are learning this.

And so what you see rising is a different kind of leadership to Washington's
leadership, that is far superior and much preferred by everybody else in the
world. So it's going to be a challenge for Washington to hold onto its European puppets, to its Canadian puppet, to its Australian and New Zealand puppets, and to its Japanese and Korean puppets.

Because the pull of this superior form of leadership that's arising in Russia and China is going to pull the whole world with them. And you can see it already in Germany. We have been beating up Germany -- and France as well. We've been beating up Germany and France to agree to much stronger sanctions on Russia.

The sanctions we have now are meaningless. They sanctioned individual Russians. And they don't have any effect because any member of the Russian government is not permitted to have foreign bank accounts. So Washington's sanctions affect nothing. But Washington keeps pressuring the Germans and the French to go along with real sanctions. And the Germany industry says, "No. We've got 6,000 German companies doing business with Russia. What's going to become of those companies? To the hundreds of thousands of workers?"

The French are saying the same thing. "What? We can't sell the helicopter
carriers to Russia that we have a contract for? What are we going to do with the workers in those industries?" And so the pressure from within the countries counter Washington's pressure of the European governments.
The pressure is coming up now from the grassroots.

Washington's European puppets are having a hard time being the imperial
governor for Washington's interests. And so what you see happening is the
stress on Washington's European empire. It may break apart. It's entirely
possible. This is why Putin has been anything but provocative in the Ukraine. This is the reason he hasn't sent in the Russian army to deal with the idiots that we stuck in power in Kiev. It's because he's telling Europe, "Look, that's what they do. This is what I do. Let's talk. Let's work it out. Why are you hurting yourself? You don't deserve an imperial master who does nothing for you."

So this is what's happened now. This is the challenge. In my opinion, having spent a quarter of a century in Washington, at the top, Washington has insufficient humility to be able to deal with the challenge. Washington is wallowing in hubris and arrogance. They think that they are the final arbiter, the exceptional, indispensable people. That tells everybody else that they're underlings. People everywhere in the world are tired of hearing that they're underlings.
Interviewer: I'm not arguing with you, because I essentially agree with your analysis. American tax policy: Probably the easiest way for Americans to effect any change if change is possible. There could be some quick fixes, tax wise. Do you agree that they could turn things around if they approached it through tax policy?

Roberts: Who is "they"?

Interviewer: The American people.

Roberts: You're assuming there is power independently of the interest groups to which the government answers. And the government has no such power. Yes, if I was a dictator, I could very easily fix the offshoring problem. I would simply stop taxing corporations the way they're taxed. I would tax them according to where they produce their product.
So, if they produce at home, they'd have a very low tax rate. If they produce abroad, they would have a very high tax rate.

I can offset the labor cost advantage of producing abroad with the taxes. But Washington can't do that, because the corporations are opposed to it.
Washington can't do something that corporations won't accept. So how are they going to force the corporations to do what the corporations don't want, when the corporations control the political contributions and have the lobbies that fund politicians and write legislation? Wall Street also backs up the corporations. Wall Street likes the higher profits that come from the offshored production.

Interviewer: I really can't argue with you, because I totally agree with your viewpoint. It's a viewpoint that's I think pretty well supported and agreed upon by many people. Of course, we do not push the levers of power. And nothing may be able to be done for the average American in this situation.

But again, these corporations and the offshoring, where can they eventually land? If they milk it here, where do they go with the money once that's done? It's not like you can continue to run forever There may be nowhere to go. Furthermore, you know, if what we face is collapse --
it may be slow, may be sudden -- then what happens to all these offshore
entities? They're simply seized by the host countries. So what these
corporations have done is to make themselves very vulnerable.

Why does China need them any longer? It has the technology and the business know-how. China probably has more capital than anybody else. China is not indebted like the US, so China is in a powerful position. And the United States is in a weak position. And instead of pulling in its horns
and trying to rebuild its base, the US is going pell-mell ahead in the same way, alienating people while piling up debt. Now, as you know, the first quarter GDP came in almost three percent negative. They've made an effort to blame this on the weather. But, of course, Canada has even worse weather, and they had positive first-quarter growth. So what if the second quarter comes negative? They'll try to hide it. But if it's too big to be hidden and we have two negative quarters, that means a recession.

Well, what does this mean then about quantitative easing? It didn't produce a recovery. The most massive money creation and the most massive debt creation in American history had no impact. What is the consequence of this? If the economy relapses into a recession, how much larger does the deficit become. The rest of the world is looking at this. What do they see? Unrestrained growth in dollars and debt. If the rest of the world dumps dollars, we could see a very quick reduction in American standard of living.

Roberts: So I think we'll just have to wait and see.

Interviewer: See how it plays out.

Roberts: How it plays out. Now, if you get in bad enough crisis, then interest groups can be pushed aside and changes made.

Interviewer: Well, with that, let's end it. It was great. Thank you.

Roberts: I appreciate this opportunity for discussion.

[goodbyes; off-camera discussion]


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Dr. Roberts was Assistant Secretary of the US Treasury for Economic Policy in the Reagan Administration. He was associate editor and columnist with the Wall Street Journal, columnist for Business Week and the Scripps Howard News Service. He is a contributing editor to Gerald Celente's Trends Journal. He has had numerous university appointments. His books, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is available (more...)

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