Today's Stories

December 12 / 14, 2008

Michael Hudson /
Jeffrey Sommers
The End of the Washington Consensus

December 11, 2008

Patrick Cockburn
Total Defeat for U.S. in Iraq

P. Sainath
After Mumbai

Vicken Cheterian
The Zarqawi Generation

Ray McGovern
Will Obama Buy Torture-Lite?

Dedrick Muhammad
Post-Racial Racism at the Post: the Undying Obsession with Black Family Values

Lee Sustar
Victory at Republic

Peter Morici
The Big Drag

Ayesha Ijaz Khan
Must They Hate Us So?

George Wuerthner
Another Subsidy to Big Timber?

Christopher Brauchli
Mr. Berg's Strange Obsession

Worthy Group of the Day
Animal Balance

December 10, 2008

Ismael Hossein-Zadeh
Whose Interests Will Shape Obama's Change?

Mary Lynn Cramer
The Multi-Trillion Dollar Question

Manuel Garcia, Jr.
Nuclear Weapons Obsolescence

Joshua Frank
Breaking the Stranglehold on Middle East News Coverage

Jack Ely
Stop Sobbing About Free Music Downloads: a Message to the Music Industry from the Lead Singer of the Kingsmen

Steve Conn
An Obama Public Works Program?

Lee Sustar
Republic Workers Target Bank of America

Glen Ford
The Die is Cast

Stephen Lendman
The Persecution of Syed Fahad Hashmi

Nadia Hijab
The Face of America

Dave Lindorff
We All Need a Union

Website of the Day
This One's For You, Senator Dodd

December 9, 2008

Mike Whitney
Card Check

Fawzia Afzal-Khan
Us vs. Them

Ghada Karmi
The UN Resolution That Time Forgot

Dave Lindorff
A Car Dealer Explains Why the Bailout is a Raw Deal

Steve Breyman
Notes on a Green Economy: Managing Stuff in the 21st Century

Lee Sustar /
Nicole Colson
Raising the Stakes at Republic

Rev. William E. Alberts
God of Our Fathers

Martha Rosenberg
Bill Richardson: Secretary of Bloodsports

Sam Husseini
How Holbrooke Lied His Way Into a War

David Macaray
The UAW in Peril

Website of the Day
This Toxic Life

December 8, 2008

Steve Early
Is Obama Backing Off a Crucial Pledge to Labor?

Michael Hudson
Obama's Favoritism: Wall Street, Not the Auto Industry

Patrick Cockburn
Talking to a Lashkar Militant

Diane Farsetta
An Officer and a Conflicted Man: McCaffery, the Pentagon and Fleishman-Hillard

Paul Craig Roberts
Chapters in Imperial Hypocrisy

Daniel Gross
The Chicago Sit-Down Strike

Saul Landau
To Bail or Not to Bail?

Harvey Wasserman
Why John Bryson is Unfit for Energy Secretary

Mike Ferner
The New Generation of "Non-Lethal" Weapons

Norman Solomon
The Silent Winter of Escalation

David Michael Green
The Other Foot

Website of the Day
The Remains of Detroit

December 5 / 7, 2008

Alexander Cockburn
Honeymoans From the Left

Brian Cloughley
Shambles in Afghanistan

Paul Craig Roberts
Muslim Revolution: How Washington Arrogance Helped Drive the Mumbai Attacks

Liaquat Ali Khan
Mumbai and the Kashmir Tinderbox

Farzana Versey
Mumbai's Charge of the Lightweight Brigade

Peter Lee
Pakistan Nears the Breaking Point

Peter Morici
Slouching Toward a Depression?

Ralph Nader /
Toby Heaps
Junk Cap-and-Trade

Yinon Cohen /
Neve Gordon
Obama Could End the Israeli-Palestinian Conflict: Will He Meet the Challenge?

Wajahat Ali
Perverse Justice: the Holy Land Foundation Convictions

Johnny Barber
Aswad's Story: Illegal Detention and the Declaration of Human Rights

Alan Farago
Fallout from the Pass-Through Economy

Jeremy Scahill
Obama Doesn't Plan to End Occupation of Iraq

Mike Whitney
Powergrab in Ottawa

Ranjit Hoskote
Jahiliyya Versus Jihad

Carl Finamore
Thank God I'm an Atheist! (Or Boy is Bill O'Reilly in for a Big Surprise)

Marjorie Cohn
Obama and Women's Rights

Norm Kent
Tommy Chong, the Unanticipated Warrior

Missy Beattie
What Lies Ahead

Binoy Kampmark
Committing Suicide On-Line: the Briggs Case

David Macaray
The Best and the Brightest Redux: Too Many Brains, Not Enough Humility

Nancy Stohlman
Relational Activism

Ron Jacobs
Irreverent Politics Then and Now

David Yearsley
Thematics From the Golden Past

Lorenzo Wolff
Troubled Songs of Home and War

Poets' Basement
Orloski: The Door Opener

Website of the Weekend
In Prison My Whole Life

December 4, 2008

Ece Temelkuran
Inside the Ergenekon Case

Ralph Nader
Turning Crisis into Opportunity: Who Will Seize the Moment?

Harry Browne
The Bush-Obama National Security Strategy

Eamonn Fingleton
The American Car Industry: a Riposte to the Knockers

Conn Hallinan
The Syria Attack

Mike Whitney
Fiasco in Somalia: Another CIA Cock-Up

Stewart J. Lawrence
Obama and Latinos: Richardson, Alone, is Not Enough

Paul Fitzgerald /
Elizabeth Gould
Message to Obama: Stop Killing Afghanis

Karyn Strickler
Show Us the Green, Before We Show You the Money

Jennifer Matsui
Obama-Cola: the Great National Temperance Beverage

Website of the Day
"He Ain't Got Laid in a Month of Sundays..."

December 3, 2008

Andrew Cockburn
What's Wrong with the U.S. Military

Sheldon Rampton
Mormon Homophobia: Up Close and Personal

Robert Weissman
Nationalize GM

Yifat Susskind
From Mumbai to Washington

William Blum
The Obama Bummer: Vote First, Ask Questions Later

Alan Singer
The Ghost of the Defunct Economist

David Macaray
Trampled Under Foot at Wal-Mart

Martha Rosenberg
Born With a Statin Deficiency? Line Forms to the Left!

Mats Svensson
The Crimes Have No Period of Limitations

Website of the Day
Why Bill Richardson's Nomination Should be Opposed

December 2, 2008

Jeremy Scahill
Obama's Kettle of Hawks

Paul Craig Roberts
The New Arms Race

Ayesha Ijaz Khan
The Mumbai Terror Attacks: Is Pakistan to Blame?

Sarah Anderson /
John Cavanagh
Skewed Priorities: How the Bailout Dwarfs Spending on Other Global Crises

William Blum
The Mythology of the War on Terrorism

John Ross
Mexico's Drug War Goes Down in Flames

Dave Lindorff
A Tale of Two Terror Attacks

Nicola Nasser
A Peace Process That Makes Peace Impossible

Steve Conn
Operation Redskin Removal

Robert Bryce
Coal Hard Facts

Website of the Day
Country, Funk, Soul

December 1, 2008

Patrick Cockburn
From Baghdad to Mumbai, by Way of Pakistan

Damien Millet /
Eric Toussaint
Obama's Economic Team: Records of Failure

Vijay Prashad
The Fires in South Asia

Deepak Tripathi
Obama's Foreign Crises

Joshua Frank
Madam Secretary Clinton and the Middle East

P. Sainath
The Unlikely Martyrdom of Free Market Jihad

Alan Farago
The Right's War on Regulators

Binoy Kampmark
Sydney's Ball and Chain

Chris Genovali
Silent Fall

David Michael Green
Hope You Die Before You Get Old

Stephen Martin
The Chinese are Coming, the Chinese are Coming!

Website of the Day
Robert Rubin: Coward, Liar or Both?

November 28-30, 2008

Alexander Cockburn
In Time of Trouble

Mike Whitney
The Obama "Dream Team": Rubin Clones and Other Fakers

Ted Honderich
What is the Meaning of Obama's Election?

Tom Kerr
Preserving Filthy Lucre (Or Becoming My Dad)

Mike Ely
The Conquest of New England

David Yearsley
Hymns of the Conquest

Deepak Tripathi
Uproar in Police-State Britain

Sonja Karkar
Gaza's Death Throes

Ramzy Baroud
Salvation in a News Broadcast

Robert Weitzel
Israel's Settlement on Capitol Hill

Robert Roth
Can We Create a Movement for Change?

Carlos Fierro
Obama and the End of Racism?

David Macaray
How to Kill a Union

David Rosen
A New Sexual Agenda

James Cockcroft
Indigenous People Rising

Stan Cox
The Most Disappointing Gift

Steve Conn
Talking Turkey About College Basketball

Stephen Martin
The Electromagnetic Pulse and Economic Warfare

Richard Rhames
Busty Bimbettes, Bombs and Brand Obama

Kim Nicolini
Women as Products and Cannibalistic Achievers

Lorenzo Wolff
A Battle Cry for the Confused and Vulnerable

Poets' Basement
Woods, Harrison and Corseri

November 27, 2008

Tariq Ali
The Assault on Mumbai

Steve Hendricks
Thanksgiving We Can Believe In: Justice in Indian Country

Ralph Nader
Open Up Those Corporate Tax Returns

John Walsh
The Root Cause of the Crisis of 2008

Dave Lindorff
The Department of Homeland Lunacy

Christopher Brauchli
Thanks A Lot, Mr. Meese: How Alberto Gonzales Learned to Get You to Pay for His Legal Bills

Matthew Koehler
Giving Thanks for Burned Forests

Website of the Day
John Trudell: "Crazy Horse We Hear What You Say"

November 26, 2008

Michael Hudson
The Obama Letdown

Alan Farago
Bailouts and the New Math

Stanley Heller
Don't Bail Them Out, Take Them Over

Kevin Zeese
The Real Cost of the Bailout

Steve Conn
Now It Can Be Told (Except in North Carolina)

Ray McGovern
Kafka and Uighurs at Guantánamo

Ron Jacobs
King George is Gone: Now It's Time to Organize

Eric Walberg
Obama's Odious Entourage

Martha Rosenberg
Pay No Attention to That Turkey Being Slaughtered (Or How Sarah Palin Created a Whole New Generation of Vegetarians)

Matt Siegfried
Back to the Future With Barack

Website of the Day
"Every Time I've Compromised, I've Lost"

November 25, 2008

James Abourezk
Of Arrogance, Bailouts and the Big Three

Ralph Nader
Don't Suppress Carter

Patrick Irelan
PBS Reports for Big Oil on Venezuela

John Ross
Obama in Bedlam

Fred Gardner
Dr. Goodwin and the Infinite Con

Dan LaBotz
The Auto Crisis: a Big Caravan to Washington?

Tom Barry
Napolitano and Immigration Policy

Norman Solomon
The Ideology of No Ideology

Richard Morse
Memo From Haiti: Where the Culture of Corruption Meets the Corruption of Culture

Chris Strohm
The Missing Rules of Engagement in Cyberwar

Website of the Day
Green vs. Green?

November 24, 2008

Mike Whitney
You Ain't Seen Nothing Yet

Pam Martens
The Rise and Fall of Citigroup

Laray Polk
Bush's Library: the Kurds, Oil and Missing Records

David Ker Thomson
American Friends: With Friends Like These, Who Needs Canadians?

Uri Avnery
Likud Rising

Joe Mowrey
Deprivation and Desperation in Gaza

Ramzi Kysia
An Administration in Search of a Progressive: the Team Obama Should Have Picked

Kevin Zeese
The Causes of the Auto Crisis

Dave Lindorff
Rescuing the Blob: Idiots and Bailouts

David Macaray
Seven Reasons You Should Join a Union

Howard Lisnoff
Inaugurations Past and Present

Website of the Day
I Hate the Beatles

November 21 / 23, 2008

Alexander Cockburn
The Honeymoon is Looking a Bit Wan

Michael Hudson
Paulson's Cascade of Lies

Mike Whitney
Time to Move to Plan B ... If There is One

Barbara Rose Johnston /
Holly M. Barker
Cautionary Tales From a Nuclear War Zone

Serge Halimi
The Gloom of Empire: Downhill All the Way

Alan Farago
The Suburbs March On

Ralph Nader
Changing With Retreads: the Third Clinton Administration

Saul Landau
When Old Axioms Don't Apply

Robert Bryce
From LBJ to Obama: the End of Texas Dominance

Shannon May
Ecological Crisis and Eco-Villages in China

Binoy Kampmark
The End of the Yugo

Jack Ely
The Fate of the West's Wild Horses

Ramzy Baroud
The Rights of Women in War Zones

Missy Beattie
Why Vote, Anyway?

Larry Portis
Women Soldiers Serving in (and Barely Surviving) the Israeli Army

James McEnteer
Colombia's Laboratory of Failure

Christopher Brauchli
A Tale of Two Whales

David Yearsley
Real Swords, Fire and Don Giovanni

Adam Engel
Power Down

Ron Jacobs
The Continuing Saga of the White Album

Lorenzo Wolff
Honky Tonk Heroes: When Country Got Real

Poets' Basement
Raza Ali Hasan

Website of the Weekend
Lips and Fingers

November 20, 2008

P. Sainath
The Jurassic Auto and Idea Park

Brian McKenna
How Dow Chemical Defies Homeland Security and Risks Another 9/11

Paul Craig Roberts
What Uncle Sam Has to Say to His Creditors

Andy Worthington
How Guanántamo Can be Closed

Peter Lee
India Doubles Down in Afghanistan ... Maybe

Dr. Eyad al-Serraj
At the Erez Crossing

Sen. Russ Feingold
The Bush Pardons

Lance Selfa
Who Made the New Deal?

Ray McGovern
Keeping Gates

Benjamin G. Davis
Ending Torture; Prosecuting the Torturers

Tracy McLellan
Obama's Crony Democracy: the Return of Tom Daschle

Website of the Day
Finally, a Victory for Palestinians

November 19, 2008

M. Shahid Alam
Obama and the Politics of Race and Religion in America

Mario A. Murillo
Holder, Chiquita and Colombian Death Squads

Martine Boulard
Escaping the Dollar's Shadow

Robin D. G. Kelley
Will Obama be the First "Freedom" Democrat?

Behrooz Ghamari-Tabrizi
Obama and the Iron Cage

Jonathan Cook
Who Will Stop the Settlers?

Steve Conn
Spare Change or No Change at All

George Wuerthner
The NYT and the Beetles of Mass Destruction

Michael Winship
This Just in From Middle Earth

Stephen Martin
The Other Side of the Pleasure-Dome

Website of the Day
An Important Holiday Message From Kristen Johnston

November 18, 2008

Chellis Glendinning
Cheering for Morgan Stanley

George C. Wilson
Perils of Pakistan: Will It Prove to be Obama's Cambodia?

Franklin Lamb
Who Will Evict Israel from Lebanon: Hezbollah or the UN?

Bill and Kathleen Christison
The Irresponsibility of Appointing Hillary Clinton Secretary of State

Roger Burbach
Orchestrating a Civic Coup in Bolivia: How Bush Tried to Bring Down Morales

John Ross
Drilling vs. Direct Democracy in Mexico

Wajahat Ali
Is Obama the Muslim World's Superman?

Damien Millet /
Eric Toussaint
What Really Happened in Washington? The G20 and the Inconsistent Script

Marc Gardner
When Mooning is a Sex Crime

Eric Walberg
Courting the Bear: a New Era for Russian/Western Relations?

Wendy Williams
The Bottled Water Con

Website of the Day
Where's Zappa When We Need Him?

November 17, 2008

Michael Hudson
Bankers Shake Down Congress and the G-20

Paul Craig Roberts
When It's a Clear Day and You Can't See GM

Mike Whitney
Busted in Washington

Steve Conn
Where is Nader Country 2008? Mapping the Nader Votes

Andy Worthington
Closing Guantánamo: Advice for Obama

Jonathan Cook
The Real Goal of Israel's Blockade of Gaza: "They Are All Hamas"

Rannie Amiri
Dual Loyalties Will Doom Obama

David Macaray
Bailing Out the Automakers

David Michael Green
Twelve Victories

Charles Modiano
Sports Illustrated and Sexism: Tokenism or a New Day?

Website of the Day
The South Sea Bubble

November 14 / 16, 2008

Alexander Cockburn
Heading for the First Hundred Days

Jeffrey St. Clair
How Bill Clinton Doomed the Spotted Owl: a Cautionary Tale for Greens in the Age of Obama

Mike Whitney
Paulson the Bungler

Sasan Fayazmanesh
RIP: the Experts, 1929-2008

Moshe Adler
Keynes: China's Greatest Export?

Anthony DiMaggio
Transcending Race?

Jean Bricmont
Cats, Dogs and Creationism

Sheldon Rampton
The Eisenstadt Hoax: a Real Life Example of a "Fake Fake"

Douglas Valentine
Let the Trials Begin!

Joseph Nevins /
Timothy Dunn
Barricading the Border

Tom Barry
Rahm Emanuel's Political Pragmatism on Immigration

Ron Jacobs
Che Guevara Meets Trashman: the Genius of Spain Rodriguez

Larry Portis
The State of the Israeli State

Mary Lynn Cramer Obama's Brain Trust: Seems Like Old Times

Sherry Wolf
The Myth of the Black/Gay Divide

Peter Cervantes-Gautschi
Secretary of Greed: How Larry Summers Championed Wall Street by Impoverishing the Mexican People

Jacob Hornberger
The Conservative Malaise: Hey, Brother, Can You Spare Some Habeas Corpus?

Lance Selfa
The Center-Right Nation Con

Benjamin Dangl
Vermont Against General Dynamics

Seth Sandronsky
Lifelines in Hard Times

Russell Mokhiber
Time to Give the Friends of Big Coal the Boot

Allan Stellar
Nuke a Gay Whale for the Navy

Kelly Overton
Get Thee to a Shelter: the Obamas and the Million-Mutt March

Martha Rosenberg
Why Mink are Cheering the Economic Crisis

Richard Rhames
Palling Around with Ray the Plumber

David Yearsley
How I Played Hooky from "High School Musical 3"

Lorenzo Wolff
Zach is Back: Songs of Hurt, Rage and Resistance

Poets' Basement
Gibbons, Ford and Buknatski

Website of the Weekend
The Eyes Have It

November 13, 2008

Pam Martens
The Two Trillion DollarBlack Hole

Vijay Prashad
Guilt by Participation: Sonal Shah's Membership Has Expired

Patrick Cockburn
Who is Paying for the Iraqi National Intelligence Service?

Jonathan Cook
The Withering Palestinian Economy

Ralph Nader
Obama and the Rogue Regime

Bill Quigley
McCain Owes America an Apology

Lee Sustar
Bailing Out the Big Three

Omar Barghouti
Boycotting Israeli Settlement Products

Steve Conn
More Alaska Fun

Howard Lisnoff
The Last Bastion of Hate

Jeff Cohen
What Indy Media Heroes Can Teach Us

Website of the Day
Who are the Obamagelicals?

November 12, 2008

Johanna Berrigan
Scattered Families: the Iraq Refugee Crisis

Steve Conn
The Big Mystery Election in Alaska

Patrick Bond
Against Volcker

Bokar Ture /
Dedrick Muhammad
Remembering a Black Radical in a Barack Obama America

Alan Farago
The Hispanic Vote in South Florida: Not Dyed Blue Yet

Dave Lindorff
Rescuing Joe Lieberman

Karl Grossman
Break Up Big Oil: Tyranny in the Tank

David Macaray
An Obama Litmus Test: Will Labor Have a Seat at the Table?

George Wuerthner
Act Now to Save America's Public Forests

Susie Day
Heavy Weather

Website of the Day
Does the Planet Have a Future? an Interview with Derrick Jensen

Weekend Edition
December 12 / 14, 2008

What is to be Done?

The End of the Washington Consensus

By MICHAEL HUDSON and JEFFREY SOMMERS

Wall Street’s financial meltdown marks the end of an era. What has ended is the credibility of the Washington Consensus – open markets to foreign investors and tight money austerity programs (high interest rates and credit cutbacks) to “cure” balance-of-payments deficits, domestic budget deficits and price inflation. On the negative side, this model has failed to produce the prosperity it promises. Raising interest rates and dismantling protective tariffs and subsidies worsen rather than help the trade and payments balance, aggravate rather than reduce domestic budget deficits, and raise prices. The reason? Interest is a cost of doing business while foreign trade dependency and currency depreciation raise import prices.

But even more striking is the positive side of what can be done as an alternative to the Washington Consensus. The $700 billion U.S. Treasury bailout of Wall Street’s bad loans on October 3 shows that the United States has no intention of applying this model to its own economy. Austerity and “fiscal responsibility” are for other countries. America acts ruthlessly in its own economic interest at any given moment of time. It freely spends more than it earns, flooding the global economy with what has now risen to $4 trillion in U.S. government debt to foreign central banks.

This amount is unpayable, given the chronic U.S. trade deficit and overseas military spending. But it does pose an interesting problem: why can’t other countries do the same thing? Is today’s policy asymmetry a fact of nature, or is it merely voluntary and the result of ignorance (spurred by an intensive globalist ideological propaganda program, to be sure)? Does India, for instance, need to privatize its state-owned banks as earlier was planned, or is it right to pull back? More to the point, have the neoliberal programs imposed on the former Soviet Union succeeded in “Americanizing” their economies and raising production capacity and living standards as promised? Or, was it all a dream, indeed, a nightmare?

The three Baltic countries, for instance – Latvia, Estonia and Lithuania – have long been praised in the Western press as great success stories. The World Bank classifies them among the most “business friendly” countries, and their real estate prices have soared, fueled by foreign-currency mortgages from neighboring Scandinavian banks. Their industry has been dismantled, their agriculture is in ruins, their male population below the age of 35 is emigrating. But real estate prices added to the net worth on their national balance sheets for nearly a decade. Has a new “moment of truth” arrived? Just because the Soviet economic system culminated in bureaucratic kleptocracy, has the neoliberal model really been so much better? Most important of all, was there a better alternative all along?

We expect the post-Soviet economies to go the way of Iceland, having taken on foreign debt with no visible means of paying it off via exports (the same situation in which the United States finds itself), or even further asset sales. Emigrants’ remittances are becoming a mainstay of their balance of payments, reflecting their economic shrinkage at the hands of neoliberal “reformers” and the free-market international dependency that the Washington Consensus promotes. So, just as this crisis has led the U.S. government to shift gears, is it time for foreign countries to seek to become more in the character of “mixed economies”? This has been the route taken by every successful economy in history, after all. Total private-sector markets (in practice, markets run by the banks and money managers) have shown themselves to be just as destructive, wasteful and corrupt and, indeed, centrally planned as those of totally “statist” governments from Stalin’s Russia to Hitler’s Germany. Is the political pendulum about to swing back more toward a better public-private balance?

Washington’s idealized picture of how free markets operate (as if such a thing ever existed) promised that countries outside the United States would get rich faster, approaching U.S.-style living standards if they let global investors buy their key industries and basic infrastructure. For half a century, this neoliberal model has been a hypocritical exercise in poor policy at best, and deception at worst, to convince other economies to impose self-destructive financial and tax policies, enabling U.S. investors to swoop in and buy their key assets at distress prices. (And for the U.S. economy to pay for these investment outflows in the form of more and more U.S. Treasury IOUs, yielding a low or even negative return when denominated in hard currencies.)

The neoliberal global system never was open in practice. America never imposed on itself the kind of shock therapy that President Clinton’s Treasury Secretary (and now Obama’s advisor) Robert Rubin promoted in Russia and the rest of the former Soviet bloc, from the Baltic countries in the northwest to Central Asia in the southeast. Just the opposite! Despite the fact that America’s own balance of trade and payments is soaring, consumer prices are rising and financial and property markets are plunging, there are no calls among its power elite to let the system self-correct. The Treasury is subsidizing America’s financial markets so as to save its financial class (minus some sacrificial lambs) and support its asset prices. Interest rates are being lowered to re-inflate asset prices, not raised to stabilize the dollar or slow domestic price inflation.

The policy implications go far beyond the United States itself. If the United States can create so much credit so quickly and so freely – and if Europe can follow suit, as it has done in recent days – why can’t all countries do this? Why can’t they get rich by following that path that the United States actually has taken, rather than merely doing what its economic diplomats tell them to do with sweet self-serving rhetoric? U.S. experience itself provides the major reason why the free market, run by financial institutions allocating credit, is a myth, a false map of reality to substitute for actual gunboats in getting other countries to open their asset markets to U.S. investors and food markets to U.S. farmers.

By contrast, the financial and trade model that U.S. oligarchs and their allies are promoting is a double standard. Most notoriously, when the 1997 Asian financial crisis broke out, the IMF demanded that foreign governments sell out their banks and industry at fire-sale prices to foreigners. U.S. vulture capital firms were especially aggressive in grabbing Asian and other global assets. But the U.S. financial bailout stands in sharp contrast to what Washington Consensus institutions imposed on other countries. There is no intention of letting foreign investors buy into the commanding U.S. heights, except at exorbitant prices. And for industry, the United States has once more violated international trade rules by offering special bailout money and subsidies to its own Big Three U.S. automakers (General Motors, Ford and Chrysler) but not to foreign-owned automakers in the United States. In thus favoring its own national industry and taking punitive measures to injure foreign-owned investments, the United States is once again providing an object lesson in nationalistic economic policy.

Most important, the U.S. bailout provides a model that is far preferable to the Washington Consensus-for-export. It shows that countries do not need to borrow credit from foreign banks at all. The government could have created its own money and credit system rather than leaving foreign creditors to accrue interest charges that now represent a permanent and seemingly irreversible balance-of-payments drain. The United States has shown that any country can monetize its own credit, at least domestic credit. A large part of the problem for Third World and post-Soviet economies is that they never experienced the successful model of managerial capitalism that predated the neoliberal model, advocated since the 1980s by Washington.

The managerial model of capitalism, predominating during the post-World War II period until the 1980s (with antecedents in 18th-century British mercantilism and 19th-century American protectionism), delivered high growth. Postwar planners, such as John Maynard Keynes in England and Harry Dexter White in the United States, favored production over finance. As Winston Churchill quipped, “nations typically do the right thing [pause], after exhausting all other options.” But it took two world wars, interspersed by an economic depression triggered by debts in excess of the ability to pay, to give the final nudge required to promote manufacturing over finance and finally do “the right thing.”

Finance was made subordinate to industrial development and full employment. When this economic philosophy reached its peak in the early 1960s, the financial sector accounted for only 2 per cent of U.S. corporate profits. Today, it is 40 per cent! Carrying charges on America’s exponentially growing debt are diverting income away from purchasing goods and services to pay creditors, who use the money mainly to lend out afresh to borrowers to bid up real estate prices and stock prices. Tangible capital investment is financed almost entirely out of retained corporate earnings – and these too are being diverted to pay interest on soaring industrial debt. The result is debt deflation – a shrinkage of spending power as the economic surplus is “financialized,” a new word, only recently added to the world’s economic vocabulary.

Since the 1980s, the U.S. tax system has promoted rent seeking and speculation on credit to ride the wave of asset-price inflation. This strategy increased balance sheets as long as asset prices rose faster than debts (that is, until last year). But it did not add to industrial capacity. And meanwhile, tax cuts caused the national debt to soar, prompting U.S. Vice President Dick Cheney to comment, “Reagan proved deficits don’t matter.”

On the international front, the larger the U.S. trade and payments deficit, the more dollars were pumped into foreign hands. Their central banks recycled them back to the U.S. economy in the form of purchases of Treasury bonds and, when the interest rates fell almost to zero, securitized mortgage packages. Current Treasury Secretary Henry Paulson assured Chinese and other foreign investors that the government would stand behind Fannie Mae and Freddie Mac as privatized mortgage-packaging agencies, guaranteeing a $5.2 trillion supply of mortgages. This matched in size the U.S. public debt in private hands.

Meanwhile, the Treasury cut special deals with the Saudis to recycle their oil revenues into investments in Citibank and other U.S. financial institutions – investments, on which they have lost many tens of billions of dollars. To cap matters, pricing world oil in dollars kept the U.S. currency stronger than underlying economic fundamentals justified. The U.S. economy paid for its imports with government debt never intended to be repaid, even if it could be (which it can’t at today’s $4 trillion level, cited earlier). The American economy, thus, has seen its trade deficit and asset prices rise in accordance with economic laws that no other nation can emulate, topped by the ability to run freely into international debt without limit.

Managerial capitalism mobilized rising corporate net worth and equity value to build up in the real economy. But since the 1980s, a new breed of financial managers has pledged assets as collateral for new loans to buy back corporate stock and even to pay out as dividends. This has pushed up corporate stock prices and, with them, the value of stock options that corporate managers give themselves. But it has not spurred tangible capital formation.

A real estate bubble in all countries has been fueled by rising mortgage debt. To buy a new home, buyers must take on a lifetime of debt. This has made many employees afraid to go on strike or even to press for better working conditions, because they are “one check away from homelessness,” or mortgage foreclosure. Meanwhile, companies have been outsourcing and downsizing their labor force, eliminating benefits, imposing longer hours, and bringing more women and children into the workforce.

Today’s “new economy” is based not on new technology and capital investment, as former Fed chairman Alan Greenspan trumpeted in the late 1990s, but on price inflation generating capital gains (mainly in land prices, as land is still the largest asset in the U.S. and other industrial economies). The economic surplus is absorbed by debt service payments (and higher priced health care), not investment in production or in sharing productivity gains with labor and professionals. Wages and living standards are stagnant for most people, as the economy tries to get rich by “the miracle of compound interest,” while capital gains emanating from the financial sector provide a foundation for new credit to bid up asset prices, all the more in a seemingly perpetual motion credit-and-debt machine. But the effect has been for the richest 1 per cent of the population to increase its share of interest extraction, dividends and capital gains from 37 per cent ten years ago to 57 per cent five years ago, and nearly 70 per cent today. Savings remain high, but only the wealthiest 10 per cent are saving – and this money is being lent out to the bottom 90 per cent, so no net saving is occurring.

Internationally, too, the global economy has polarized rather than converged. Just as independence arrived for many Third World countries only after their former European colonial powers had put in place inequitable land tenure patterns (latifundia, owned by domestic oligarchies) and export-oriented production, so independence for the post-Soviet countries from Russia arrived after managerial capitalism had given way to a neoliberal model that viewed “wealth creation” simply as rising prices for real estate, stocks and bonds. Western advisors and former emigrants descended to convince these countries to play the same game that other countries were playing – except that real estate debt for many of these countries was denominated in foreign currency, as no domestic banking tradition had been developed. This became increasingly dangerous for economies that did not put in place sufficient export capacity to cover the price of imports and the mounting volume of foreign-currency debt attached to their real estate. And nearly all the post-Soviet countries ran structural trade deficit, as production patterns were disrupted with the breakup of the U.S.S.R.

Real estate and capital gains from asset-price inflation (not industrial capital formation) were promoted as the way to future prosperity in countries whose profits from manufacturing were low and wages were stagnant. The problem is this alchemy is not sustainable. An illusion of success could be maintained as long as Washington was flooding the globe with cheap money. This led Swedes and other Europeans to find capital gains by extending loans to feed neighboring countries from Iceland to Latvia, above all via their real estate markets. For some exporters (especially Russia), rising oil and metal export prices became the basis for capital outflows into Third World and post-Soviet financial markets. Some of the backwash, for example, flowed into the world’s burgeoning offshore banking and real estate sectors – only to stop abruptly when the real estate bubble burst.

In these circumstances, what is to be done? First, countries outside the United States need to recognize how dysfunctional the neoliberalized world economy has been made, and to decide which assumptions underlying the neoliberal model must be discarded. Its preferred tax and financial policies favor finance over industry and, hence, financial maneuvering and asset-price inflation over tangible capital formation. Its anti-labor austerity policies and un-taxing of real estate, stocks and bonds divert resources away from growth and rising living standards.

Likewise destructive are compound interest and capital gains over the long term. The real economy can grow only a few per cent a year at best. Therefore, it is mathematically impossible for compound interest to continue unabated and for capital gains to grow well in excess of the underlying rate of economic growth. Historically, economic crises wipe out these gains when they outpace real economic growth by too far a margin. The moral is that compound interest and hopes for capital gains cannot guarantee income for its retirees or continue attracting foreign capital. Over a period of a lifetime, financial investments may not deliver significant gains. For the United States, it took markets about twenty-five years, from 1929 to the mid-1950s, to recover their previous value.

Today’s desperate U.S. attempt to re-inflate post-crash prices cannot cure the bad-debt problem. Foreign attempts to do this will merely aid foreign bankers and financial investors, not the domestic economy. Countries need to invest in their real economy, to raise productivity and wages. Governments must punish speculation and capital gains that merely reflect asset-price inflation, not real value. Otherwise, the real economy’s productive powers and living standards will be impaired and, in the neoliberal model, loaded down with debt. Policies should encourage enterprise, not speculation. Investment seeks growing markets, which tend to be thwarted by macroeconomic targets such as low inflation and balanced budgets. We are not arguing that inflation and deficits can be ignored, but rather that inflation and deficits are not all created equally. Some variants hurt the economy, while others reflect healthy investment in real production. Distinguishing between the two effects is vital, if economies are to move forward to achieve self-dependency.

In sum, a much better economy can be created by rejecting Washington’s financial model of austerity programs, privatization selloffs and trade dependency, financed by foreign-currency credit. Prosperity cannot be achieved by creating a favorable climate for extractive foreign capital, or by tightening credit and balancing budgets, decade after decade. The United States itself has always rejected these policies, and foreign countries also must do this if they wish to follow the policies, by which America actually grew rich, not by what U.S. neoliberal advisors tell other countries to do to please U.S. banks and foreign investors.

Also to be rejected is the anti-labor neoliberal tax policy (heavy taxes on employees and employers, low or zero taxes on real estate, finance and capital gains) and anti-labor workplace policies, ranging from safety protection and health care to working conditions. The U.S. economy rose to dominance as a result of Progressive Era regulatory reforms prior to World War I, reinforced by popular New Deal reforms put in place in the Great Depression. Neoliberal economics was promoted as a means of undoing these reforms. By undoing them, the Washington Consensus would deny to foreign countries the development strategy that has best succeeded in creating thriving domestic markets, rising productivity, capital formation and living standards. The effect has been to decouple saving from tangible capital formation. They need to be re-coupled, and this can be achieved only by restoring the kind of mixed economy by which North America and Europe achieved their economic growth.

Michael Hudson is professor of Economics at the University of Missouri (Kansas City) and chief economic advisor to Rep. Dennis Kucinich. He has advised the U.S., Canadian, Mexican and Latvian governments, as well as the United Nations Institute for Training and Research (UNITAR). He is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002). He can be reached via his website, mh@michael-hudson.com.

Jeffrey Sommers is a professor at Raritan Valley College, NJ, visiting professor at the Stockholm School of Economics in Riga, former Fulbrighter to Latvia, and fellow at Boris Kagarlitsky’s Institute for Global Studies in Moscow. He can be reached at jsommers@sseriga.edu.lv.

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