Webster G. Tarpley
March 1, 2010
Is the United States now inexorably fated to follow the Soviet Union on the path leading to social breakdown, internal collapse, secessionism, and general chaos? This question is objectively now on the agenda. And not surprisingly, a gaggle of foundation-funded professors and other experts, led by that notorious British reactionary Niall Ferguson, are gloating in Schadenfreude and jubilation that the United States is now irrevocably doomed to imperial implosion, based largely on Paul Kennedy’s dangerous half-truth about imperial overstretch. And not only that: Niall Ferguson appears to be preparing the ground for some kind of massive bear raid against the US dollar emanating from London, some kind of a speculative thunderbolt capable of bringing the US breakdown crisis to a fast-track culmination.
The answer presented here to the question posed in the title is that, while the gravity of the US crisis is undeniable, it would be criminal stupidity to assert that we are dealing with some kind of irresistible cycle of US national decline. Quite the contrary: the historical experience of the New Deal, if properly evaluated, reliably indicates a broad array of economic reform measures which are immediately available to lead the US and the world out of the current crisis. The challenge to all serious American thinkers is to specify the needed components of a general US return to a regulated and dirigistic New Deal economic model, and to make these measures intelligible to the vast majority of the US population, and to agitate effectively for their implementation. (Need we point out that both Obama’s corporatist Democratic Party and the right-wing radical Republican Party are hysterically hostile to the New Deal?) Analysts who imagine that their role is to produce ever more dazzling or bombastic rhetorical invectives against the Wall Street collapse we see all around us are simply irrelevant at this point. Every real intellectual leader needs to have an answer ready for the question, “What is your program for overcoming the current world economic depression? Where are your solutions?” Those who do not deal in such answers can no longer be taken seriously.
Standard Tombstone for Empires: Died of Oligarchy
The notion of imperial overstretch, first coined by Paul Kennedy two decades ago, is now often used to obscure the real causes of decline when the discussion of these might hit too close to home for certain vested interests in today’s world. Reactionary historians have a decided preference for explaining the collapse of the empires of the past based on military defeat and foreign invasion. This allows them to project their own militarism and xenophobia back into the past, and above all allows them to ignore the kinds of destructive socioeconomic changes in the direction of oligarchy, neo-feudalism, and plutocracy, as well as Malthusianism, which can be observed as factors in imperial decline. If they are willing to discuss such factors at all, they prefer to focus on monetary aggregates such as national debt, while giving scant consideration to such really decisive issues as technological progress or retrogression, the state of the industrial base, the standard of living, the situation of the family farm, the productivity of agriculture, and a series of related considerations which we can label real economics as expressed in terms of tangible physical wealth or hard commodity production — as distinct from the paper wealth derived from finance, banking, usury, and speculative bubbles. As we go further back in the past, the specific forms of some of these factors change, but their essence remains remarkably similar.
In other words, empires fall in reality because of internal decay. Such decay is usually a matter of agricultural and industrial decline, technological and scientific stagnation, and the misery and of the broad majority of the population — typically, the crushing of the middle class of farmers and producers. The work of destruction thus accomplished can proceed for a long time. A foreign invasion, catastrophic military defeat, or a financial panic is merely the moment in which the prevailing decadent state of affairs is dramatically revealed and the general complacency of the ruling elite shattered. The barbarian invasions of the fourth and fifth centuries A.D. did not doom the Roman empire by themselves, but unmasked the critical weaknesses which had been building up for centuries.
Neo-Feudalism Corrosive to Great States
The most prevalent cause of imperial decline and collapse is the growth of oligarchy, which in our time has often taken the form of neo-feudalism. In the fall of the Roman Empire, a central role was played by a secular tendency towards hyperinflation during the final phase. Under Diocletian and thereafter, technological innovation was strangled by regulations which forbade changes in the property of any guild – the equivalent of today’s green jobs craze. Trade never fully recovered from the crisis of the third century A.D., and the cities went into decline. As law and order deteriorated, regional powers emerged through civil war and barbarian invasion and became formidable enough to ignore any central authority. Ordinary members of the population had to seek protection under local potentates, soon to be called barons, who offered military defense in exchange for serfdom. Before too long, these arrangements took the form of the manorial system of the dark ages, which went hand in hand with a precipitous collapse of the population in Western Europe and the general decline in the level of civilization.
In the China of the Han Dynasty, similar changes were at work. Large latifundists emerged who were powerful enough to ignore the imperial authority even as they enslaved and otherwise subjugated peasants using issues like debt as powerful weapons. With the fall of the Han, Chinese civilization broke up into several petty states amidst a general decline in the attained level of civilization.
One of the last chances to save Rome from stagnation and decline came perhaps during the era of the Gracchi brothers between 150 and 125 BC, after the victory in the Punic wars against Carthage. This was the point where large-scale gang slavery on agricultural latifundia began to be introduced in places like Sicily. The Gracchi saw that agricultural slavery would destroy the basis of the Roman army, which relied on the independent small farmer or assiduus for its recruits. When the land reform they proposed was defeated by the assassination of both brothers, the gradual decline of the Roman Empire became almost inescapable. A similar point of inflection can be seen in the Han Empire of China in the reforms attempted by Wang Man, who was in power in the first years of the Common Era. When Wang Man’s reforms were frustrated, the Han Empire may well have passed the point of no return. The theme system of the Byzantine Empire and the equal-field system of the Tang dynasty both represented attempts to avoid yet another relapse into conditions which we today would call neo-feudal.
We may be living through a similar decisive phase today. The imperatives of our time are to shut down the zombie banks, to tax speculative transactions with the Tobin tax, to outlaw foreclosures, to nationalize the central banks, to issue 0% government-generated loans for massive infrastructural development, to preserve and expand the social safety net of health, education, and welfare, and to re-establish a coherent and orderly world monetary system devoted to the rapid expansion of world trade. If these reforms cannot be implemented in time, the civilization we see around us may indeed go the way of Rome and the Han.
Critical Role of the Middle Class
Since the first prototype of the modern state emerged under Giangaleazzo Visconti of Milan in the years before 1399, the most productive social layer in modern society and at the same time the basis of the modern state is the middle class. When the middle class is crushed, be it by the robber barons of the Middle Ages or by the private military firms and Wall Street predators of the present era, the entire society is in trouble. The era since about 1970 has been marked by the immiseration of the middle class in the United States, followed by Europe, Japan, and Russia, with the US fall in the overall standard of living amounting to a loss of about two thirds of the level attained under Lyndon B. Johnson. What is left is a super-rich elite of financial derivatives speculators who are the sole beneficiaries of the current system, and the mass of super-exploited wage workers, with very little left of the middle class in between. This social structure of elite and mass is the most essential feature of an empire, and also fulfills Machiavelli’s definition of corruption, which he defined as a wide disparity between the very rich and the very poor.
This phenomenon has gone hand in hand with the systematic demolition of the US industrial base, with declining rates of industrial employment and industrial production per capita. About 7% of the US work force is now in industrial production, down from about 40% at the end of World War II. This is translated into a weakening of the nation-state, especially in regard to logistics. The application of technology to the process of production has stagnated, while the pace of scientific discovery has slowed. The principal innovations of recent years, such as computer based on silicon chips, the human genome, and the laser, are all based on scientific breakthroughs that are traceable back to the 1950s or 1960s.
The grim litany cited by the gravediggers of modern civilization from the USSR to the US today is made up of the slogans of deregulation, privatization, the demonization of government, the demolition of the state sector, free trade, free markets, union busting, market fetishism, the negation of economic rights, and the general race to the bottom. These neo-feudal ideas have been popularized by the monetarist and neoliberal Mount Pelerin Society through the Austrian school of von Hayek and von Mises, appropriately dumbed down to the level of an American MBA by Milton Friedman and his Chicago Boys. Thatcher and Reagan campaigned on these primitive slogans. These reactionary ideas have been popularized by right-wing extremist radio talk show hosts, producing an intellectual current of predatory right-wing anarchism in the society as a whole. These forces are undeterred by Alan Greenspan’s recent confession that his previous Ayn Rand-style devotion to market fetishism as the answer to all policy questions was now in crisis, based on the US-UK banking panic of 2008.
On a world scale, the most important enforcer of these ideas has been the International Monetary Fund (plus associated central banks) with its now-discredited Washington Consensus. The IMF is an institution utterly devoid of success stories. From Bolivia to Poland and Russia, the typical shock therapy of the IMF has destroyed the sovereignty and the economic viability of its victims. There are no exceptions. All around the world today, IMF Diktats are being increasingly rejected in favor of a Beijing Consensus based on mutual advantage, real economic development, and the respect for national sovereignty.
The Anglo-American system is of course based on the axiom that the ruling elite of society should be represented by the financiers and their retainers. In the case of the former Union of Soviet Socialist Republics, the relevant form of oligarchy was the Soviet nomenklatura, the ruling elite of party, army, KGB, and government. The problems of the Soviet economy can be summed up first of all as a lack of hard and soft infrastructure, which were chronically underfunded because planning targets gave priority to heavy industry and war production. The other problem was that communist ideology ruled out the existence of small and medium industry. These types of startup firms, typically a high-tech company built around a discovery or innovation, proved invaluable in the US experience for transferring the spinoffs of military research and development into the realm of profitable civilian production.
Gorbachev’s perestroika was based on deregulation followed by nomenklatura privatization. Instead of converting the outmoded Gosplan system of central planning down to the last bolt to a system of modern indicative planning along the lines successfully employed in France, Japan (with the MITI), and the Taiwan experience, Gorbachev simply removed all central planning and let the entire system find its own path to the bottom. The suicide of the Soviet bloc came in particular when the Council for Mutual Economic Assistance (CMEA or COMECON) switched from administrative prices to the world market prices determined by Wall Street and City of London speculators.
The 1980s golden youth of this nomenklatura, people like Chubais and the late Yegor Gaidar, became fanatical followers of the IMF model. The results was a highly destructive shock therapy masterminded by Jeffrey Sachs and Anders Aslund during the chaotic Yeltsin era. The results of this criminal exercise in destruction were a decline in industrial production of 56%, and of agricultural production by about one half, combined with the hyperinflation of 1300% in 1994. This uncanny ability to combine depression with hyperinflation is one of the hallmarks of the crackpot and lunatic Austrian and Chicago schools of economic mystification. Russia has been laboriously climbing out of this abyss ever since.
The total deficit of United States infrastructure must now be somewhere between $5 trillion and $10 trillion. The causes of the current economic depression ought to be very clear. They had little to do with government spending per se, and everything to do with the deregulation and privatization. Fannie Mae and Freddie Mac worked fine as long as they were maintained as government institutions. Fannie Mae was however privatized in 1968 as part of the leading edge of the Austrian assault. Hedge funds are by their very nature deregulated, since they escape the scrutiny of the Securities and Exchange Commission. Derivatives were banned between 1936 and 1982, and did not fully emerge from the gray area until 1999. Within less than a decade, the world derivatives bubble had attained $1.5 quadrillion in notional value. These developments opened the door to the single most costly and most characteristic episode of the 2008 banking panic which detonated the current depression — the bankruptcy of the AIG financial products hedge fund based in London. This dubious entity, operating in a British regulatory environment which can only be considered an obscene joke, manage to issue about $3 trillion in credit default swaps — more than the total gross domestic product of France. The US taxpayer has up to now been forced to shell out more than $180 billion for AIG alone, making this case the single most costly bailout operation carried out by the US government so far. If there had been no hedge funds and no derivatives, and no British deregulated environment, these losses could not have occurred. QED: the immediate cause of the banking panic of 2008 can be found in the poisonous fruits of deregulation and privatization. To avoid future depressions and to get out of the present one, it is imperative that the rollback of all deregulation and privatization measures begin immediately.
Obama’s fascist corporate state, typified in the health bill, is the final phase of neo-feudalist development. Here powerful neo-feudal private interests commandeer the apparatus of the state and use it for their own sinister purposes – an exercise FDR branded as the essence of fascism, and which Jane Hamsher of Firedoglake has correctly recognized today.. Obama’s health plan is not a government takeover of the health care system; it is the takeover of the government by the predatory Wall Street insurance companies and Big Pharma, whose interests are kept paramount throughout. The US federal government and the IRS are now dragooned as a debt collection agency for the insurance companies under the unconstitutional individual mandate (an invention of the reactionary Republican Grassley). The regulatory functions of the federal government are perverted to exclude for all time cheaper prescription drugs from Canada, the EU, and Japan, where standards are higher than they are here. Medicare is banned from haggling with Big Pharma to get the prices down. This is the triumph of neo-feudalist predatory interest over the modern state, and it must be rolled back.