Better in their words…

As many readers will already know, Wolff and Hudson are Marxian economists. In this exchange with yesterday they address the crisis of the Anglo-Zionist Empire, the desperate straits that the Empire finds itself in. They focus on quite recent events, such as: Trump’s UN speech and Bessent’s plan to bail out Argentina, Korea’s pushback, but they also go into at least some of the roots of the crisis. I did leave out Wolff’s closing rant in which he psychologized Western economic history (in addition to more cosmetic editing). Plenty of food for thought, overall, as we also wait to learn what the major US military confab is all about.

Of course they’re both strong advocates of socialism. Read it with an open mind. I see issues with their rosy picture, but their critique is powerful, too.

Richard Wolff & Michael Hudson: Does Trump Even Realize? – Bessent Pushes EU to the BRINK

Nima: Let me start with you, Richard, and what has happened with the case of the conflict in Ukraine? It doesn’t seem that Donald Trump is offering anything good for Europe. Here is what Scott Bessent said about how Europe can facilitate the process of–if he considers negotiations or defeat for Europe or destroying Europe in the case of Ukraine–here is what he said:

Bessent: Testing the Europeans, and the European resolve needs to stiffen. They need to put everything on the table in terms of economic sanctions. As I told my European counterparts about two weeks ago, all I hear from you is that Putin wants to march into Warsaw. The one thing I’m sure of, Putin’s not marching into Boston. But, having said that, the Poles are great allies. Before they had to be told to, they were already spending 5% of GDP [on defense]. The Polish economy is one of the great success stories since the Berlin Wall came down. When The Wall came down the Polish economy and the Ukraine economy were the same size. Polish economy is three times larger now. If the Ukraine economy were the size of the Polish economy, Ukraine would be financing their own war effort right now and I doubt Putin would have come in.

Nima: Yeah. Before going to your comment, Richard, look at this graph. It shows that the car manufacturer Porsche in Germany was excluded from the DAX index due to a collapse in the company’s shares. I don’t know what [the Trump administration has] to offer to Europe unless destroying their economy. It doesn’t seem that they’re trying to help them. They’re trying to complicate the situation of Europe. Your take on what’s going on in the mind of the administration. Do they have anything substantial in their mind?

Wolff: Well, I’m reacting partly to the nearly incoherent statements of Mr. Bessent. Where he comes from and how he does his statistical work would make anyone who knows these things wonder. Poland has not had a war. To compare the Polish economy today with what it was 10 years ago to take into account where the Ukraine economy is today–Ukraine has been made into a military operation. It was a decision of NATO to move east and to make a confrontation with Russia in the Ukraine. Everything was devoted to making Ukraine into a military force. And it was assumed, wrongly, that the military force built up in Ukraine–in a way that had no comparable investment in Poland at all–so now Ukraine has been destroyed for the last three years with a massive program of economic underdevelopment. Not development. It’s a comparison of a country three years into a war with a country that has had no war, it’s childish. It’s the use of statistics to make a point.

Mr. Bessent’s point is very much like most of Mr. Trump’s points, which is that the war in Ukraine–from the American point of view–is no longer worth the effort. The pressure is on to use those resources in other ways to make America great again. That’s an enormously expensive project that hasn’t shown much yield so far, but involved a man achieving the president’s office–a man who promised to the American people to end the war in a few days or a few hours. Okay, here we are eight or nine months later. He’s ended nothing. He’s made an endless array of efforts. They have come to nothing. The Russians continue to move slowly and methodically westward. Ukraine is losing. It’s pretty clear, if you measure it by all the usual standards and you try to get reasonable statistics. That’s the conclusion. Not just mine, but most of the world that watches all of this. And Mr. Trump has said, most of the time, ‘I’m out. You Europeans should take care of this.You should spend the money. You should give them the weapons. I’ll make you a deal. I’ll keep giving you weapons.’ Although it’s very unclear whether he meant to give them any more than he has always given Western Europe. He insists on them paying for them, which is a sign of, how shall I put it? Lack of enthusiasm. He doesn’t want to pay for it. The Europeans with the Americans couldn’t defeat the Russians. The idea that the Europeans without the Americans are going to do it is childishly stupid. So, that’s out. So, what have we got?

Well, we’ve got the contradiction of Mr. Trump’s speech at the UN earlier this week. In that speech, he sounds like he is going to work with the Europeans in the war in Ukraine. It sounds like he’s changed his position. And he did talk with Mr. Zelensky. And if you talk with Mr. Zelensky, you’re in another universe anyway. So, I don’t know. I don’t think I can answer your question without knowing more about what’s going on in Mr. Trump’s increasingly bizarre expressions as to which way policy is going. So my fear is that the underlying reality–I think–is that Mr. Trump has for a long time been mostly persuaded by the people around him, both Neocons and non-Neocons, that the big problem for the United States is China, not Russia. They have learned this lesson and the combination of it not going well in Ukraine and the need to pivot to China means that you don’t want to do what is happening–namely, strengthening the bonds between Russia and China. You would want to weaken them. And attacking Russia is not a way to do that. Attacking Russia teaches Russia how important its alliance with China really is.

So, I’m left with this temporary conclusion until I get more evidence, that the United States is a declining empire–and a declining empire with ever fewer options regarding what to do about its decline. It refuses to admit the decline. It refuses to engage in a search for the best policies to manage its decline–so it hurts the fewest people, so it takes the longest time. Whatever your goals would be, it doesn’t do that. Well, what else does it do? It tells itself its great problem is China. But what what are you going to do about it? And the answer is, they don’t know what to do. So suddenly Mr. Bessent is talking billions of dollars to salvage the almost hopeless efforts of Mr. Milei in Argentina, whose situation is collapsing, or to ransom Mr. Bolsonaro, and so on. These are ad hoc adjustments, jerking this way and that, and then at the same time taking steps that, I have to tell you, are producing anxiety around the world that the government may shut down and that the Republicans are threatening to fire everybody in the federal government in the event that that happens.

In the past these kinds of threats would be ignored, but we now have a government that is in a desperate situation. And I understand the desperation. The national debt is out of control. In the 1970 it was a few hundred billion dollars. Today it’s $37 trillion. That’s craziness. This is a government sitting on a mountain of debt. It knows it. It can’t continue. Liz Truss lost her prime ministership in England because she tried to borrow money and the market said we’re not lending you any more. The United States knows it’s approaching. That’s it. What is it going to do? Well, you see an irrational, desperate act. You send Elon Musk in to fire half the people. That’s not an efficiency move. No efficiency expert would justify that. That’s just saving money as best you can. And tariffs are a way of raising some money as best you can, while you still are an important market. But the long run effects of this, they’re terrible. They’re very, very dangerous policy. Other countries, as I believe we’re going to discuss, are now figuring out how to reduce their relationship to the United States, because it is becoming unstable and dangerous to depend on this country. What have you done to your decline? You’ve actually accelerated it. And that’s a sign when desperate people do things, they discover and you try to point out to them, you’re making it worse, not better.

Anecdotally—and it may seem like a small example—but I listened to a video last night that described how the tariff’s are driving American guitar manufacturers to the wall, slashing their profit margins.

Hudson: I agree with the way that Richard’s framed the issue. The big picture is the United States is desperate because none of its plans are working. They’re backfiring. And Trump is always saying that his motto is, never admit defeat, always claim that you’ve won. And when you look at his United Nations speech–everyone’s still pondering over his long rambling speech–you can see how bizarre it was. He tried to say that Ukraine’s winning, not Russia–as if Putin’s decision not to make his military operation more than a special military operation to protect the Russian speakers really was a failure of his ability to capture Kiev. That was never his plan at all. Look at what Russia has achieved by going slow. For one, it has taken the last two years to completely exhaust Europe’s and America’s armaments. There are no more missiles, no more tanks except for a skeleton crew of all this. So you have a bizarre situation in which NATO’s talking about land war and Bessent is talking about Russia invading Poland. Nobody’s going to invade Poland because, as we’ve discussed before, no advanced, complex, industrial nation, not to mention a nation subject to voters, is going to sacrifice millions of people by trying to mount an invasion. The war is going to be fought with missiles. Europe is almost out of them. America is almost out of them. Russia is not out of them. Russia has gained strength steadily during the whole course of the war. So it’s in a dominant position. And I think Trump realizes this. As Richard said, Trump is saying to Europe, you’re on your own. The battlefield is not really Ukraine. Russia is not fighting Ukraine right now except marginally. It’s fighting NATO. It’s NATO that is supplying Ukraine with the missiles to attack the Russian refineries to try to prevent it from refining and exporting more oil, and it’s the United States and MI6 satellite bases in Wiesbaden, Germany, and other places that are guiding all of this. So, it’s really the European NATO war against Russia.

I’m not sure that Trump really intends or even has any idea of how to confront China, which continues to be the focus of the Neocons. The fact is that Trump’s trying to fight a war on five or six fronts at the same time. And the only thing that I can make out of the news is we’re in a kind of interregnum, right now. It’s as if all of the guns have been loaded and they’re all ready to fire and we’re just waiting for the trip wire to occur–and the trip wires are all over the place. You have the US plans for a regime change in Venezuela. It’s trying to goad Venezuela into somehow protecting its fishing boats that the United States is attacking. The US is putting an armada of ships there as if to say, ‘We’re going to have our special operations guys invade you and decapitate you. What are you going to do about it?’Will Venezuela be as patient as Russia is and not take the bait? In Europe you have Estonia trying to claim that Russia is attacking its property by using the Baltic for its ships and the Baltic has some oil platforms that Estonia claims are its own and is making bizarre claims that Russia is attacking it and it wants to attack Russian shipping. If it does that, what will Russia do? Is it trying to goad Russia into bombing the Estonian ports and the Estonian navy, two ships or whatever? it’s anarchy.

You have another front in the Near East, where not only is Israel expanding into Syria, Lebanon and even Cyprus, but you have the whole Syrian destabilization there. In Korea and Japan, it’s not a military crisis there but it’s an economic crisis. The United States demanded $550 billion from Japan and this is such an outrageous demand for tribute that Japan has not signed the deal yet. There seems to be a political reaction in Japan and in Korea. Trump is trying to say, ‘Well, Korea, if you give us $350 billion then it’ll seem perfectly normal that we should impose tribute on Japan.’ The Korean officials have said, ‘There is no way in which we are going to agree with this demand for tribute. If we did have the $350 billion, which we don’t, because we don’t have the foreign reserves that Japan has ,that are four times as large as those of Korea, then we’d certainly support our own industry and support our own labor. And it’s it’s cheaper to pay the tariff for the transition period than to give you $350 billion and you get to keep all the money and use it as a slush fund.’

So the South Koreans sent their foreign minister to China and I’m sure they’re talking to North Korea to say, ‘Isn’t there some kind of a deal that we can make with you, our Asian neighbors, so that we can gradually disengage from the US market? It’s beyond our ability to pay Trump’s demands for tribute. Can’t we make some kind of an arrangement integrating with you?’ Well, you know that’s going to have military implications. China’s going to say, ‘Of course we’d love to have you as a member of our group, maybe even join the BIRCS. You’ll have to get rid of the US military bases. You’ll have to essentially change your foreign policy and end the whole Cold War [that’s been in effect since the Korean War ceasefire]. You’ll have to assert your independence and then of course you’ll be in a position to make an arrangement with us.’

You’re having the same fight in Central Africa that has driven out France and Belgium, the colonial powers, and the US is mobilizing its al-Qaeda to do to South Africa what it had al-Qaeda do to Iraq and Syria–whose al-Qaeda leader was just welcomed with Mr. Trump in the UN meeting as now a foreign dignitary. Everything is up for grabs on 10 fronts at once. The effect is to let the whole rest of the world know that the US is desperate to see what can it get. The only region that it’s been able to conquer economically remains Europe. The rest of the world says, there must be a better deal that we can make. I think that’s what is shaping the the whole world for the rest of this year. But the United States has only one response: to create a military crisis. The trip wires are set all over the rest of the world on all of these fronts. It’s anarchy and nobody can forecast what’s happening because there isn’t a strategy behind this crisis. When a country is in a crisis and is collapsing, it really doesn’t have a strategy. When it’s de-industrialized, when it’s become a debtor power, when it’s become desperate. All it can do is mount an ad hoc response, as Richard has mentioned. So, we’re living in a short-term ad hoc response. All we can do is say, well, here’s the logic of the situation. It’s an illogical situation to begin with.

Nima: Richard, before going to your comment, here is what Reuters reported that the Trump administration is preparing to redirect $1.8 billion dollars in foreign aid toward America First priorities in the Western Hemisphere. The plan allocates $400 million to several objectives: illegal immigrants, China’s growing influence in critical minerals, and artificial intelligence. And, last but not least, is what Washington calls the Marxist anti-American regimes of Venezuela, Cuba, Bolivia, and Nicaragua.

Wolff: I want to remind people why it makes sense to understand the United States as engaged in a desperate theatrical response to world problems. When the war in Ukraine began February of 2022, Mr. Biden and many of his top officials went on record, and no major American officials disagreed, that this war would be short, that the ruble would become rubble, that the Russian economy couldn’t possibly sustain this and would collapse, and that it might even be possible to imagine regime change in Russia. Bye-bye, Mr. Putin. And maybe divide Russia up into many little countries like the rest of Eastern Europe. Those were our leaders. The people in power now did not disagree with that assessment. They seconded it. Why is anyone believing the current story? ‘Russia’s exhausted. Russia can’t continue.’ We know that that was wrong. The ruble is worth roughly what it was now before the war started. It hasn’t collapsed–nothing like it. The Russian economy has, according to GDP, United Nations data, has grown faster than the United States’s economy for every year of the war. It turns out the war in Russia has a stimulative effect the way they’ve managed it. I’m not saying they’ve managed it beautifully in every regard, but as an economic venture, they’ve done with the war what the United States did with World War II. Use it to get out of the depression, to grow faster than they could in the 1930s, which they did. And the Russians have done that also. You can pretend that this isn’t so, but it is. And if you pretend it isn’t, if you think you can just tell us another story–Russia’s exhausted, and we don’t remember three years ago when you told us that you knew what would happen and it’s all wrong–then you’re the crazy person, not us.

And now about, ‘We can win the war!’ Mr. Zelensky says Russia is a very serious opponent, very well armed. It has been well armed since the Soviet times, which means at least half a century of military priority. And they were already a reasonably rich country. Let’s review American wars. [Vietnam, Afghanistan] We didn’t win in Iraq and we’re not winning in Ukraine. … We don’t win wars. We lose them. We don’t mind, because it’s a stimulus to our economy that we can’t afford to do without. But if it is that for us, then it can play that role for Russia, which it is doing, and shouldn’t surprise anyone.

Now, let me turn for a moment to this thorny question of Europe. Michael keeps reminding us, quite rightly, of the decision the Europeans made to stop buying oil and gas from Russia as part of the great sanctions program. Russia’s doing fine. Europe is a disaster. So bad that the United States, seeing that its problem is China, now looks upon the Europeans as at worst a drain on resources and at best a source of tribute to help confront China. This puts Europe into an unbelievable decline. Look, it was a declining part of the world economy. Anyway, the empires were lost a century ago or half a century ago and they don’t know what to do. They’ve been outflanked by the United States on one end and by the Chinese and the BRICS on the other. So Europe is in a decline and the politicians have to explain that to their people.Do they dare say our capitalists haven’t been able to keep up with the competitors in US and China? They dare not do that. Their capitalists are what keep European leaders in office. So that’s out. Who are they going to blame? Themselves? Never happened.

Europe really has two choices. They could blame the United States. They could, but that’s no more doable than blaming their own capitalists. They still depend on the United States. So, there’s only one candidate left. Russia. Make an enormous noise about the danger of Russia. We have to rearm because of Russia. We have to cut back social welfare because of Russia. We have to decline because Russia. What we’re watching in Europe is a kind of replication of the American Cold War after World War II. Everything is blamed on Russia–to excuse, in the case of the United States, the building up of the American Empire, and in the case of Europe hiding the decline and its causes from its own people. That’s all that’s going on. The rest is just noise.

All right, last point I want to make. The crisis for the United States has to do in one way with something which I know will scare people, but I don’t know how you can avoid it. A declining empire that once was dominant economically, politically, and militarily, and ideologically. It’s losing it economically. We already know that China and the BRICS is a much larger economic wealth unit in the world economy than the United States and the G7. The two lines crossed in the year 2020 and the gap has gotten larger every year for the last five years. So economically the United States is no longer dominant. Politically it isn’t either. You know how you can see that? The votes in the UN are lopsided. It’s 120 countries on one side and the United States and a few others on the other more and more. You can’t control the countries in Latin America you listed.

The political control of the United States is shrinking ideologically.Western private capitalism which used to be the ideological cover. We are the globalizing force of the world. The private enterprise of bringing the world together, bringing prosperity. Nobody believes that anymore. You had 50 years of the globalization hype as the ideological framework for the country’s success. But the losers from all of that–above all, here in the United States–have transformed the domestic politics here to support a Trump in office who expresses the anger and rage of those who lost from globalization. In large parts of the United States, calling someone a globalist has the same political force that used to go with the word ‘communist.’ Politically, that’s the framework. It doesn’t work. The United States’ endorsement and funding of Israel in Gaza–what position are Americans in? In favor of freedom? What, the freedom of all those people in Gaza to die? What freedom are you talking about?

And then the ultimate irony, which we’re going to be talking about, I predict in the months ahead on this program. In recent weeks, the United States government took a 10% position in the Intel Corporation with an option for another 5%. That’s state capitalism. You know what that is? That’s the United States copying the Chinese, who have a huge state enterprise sector. Roughly half the Chinese economy is state enterprise. Intel is now a state enterprise.If the workers at Intel go on strike, will Mr. Trump, who is the major shareholder now, call in ICE to take care of that problem? Mr. Trump blocked the sale of certain computer chips to China. Nvidia and AMD, two major producers of those chips, explained to Mr. Trump that the Chinese are major users of chips because they are an enormous economy and the BRICS is even bigger. We can’t make a profit if we can’t sell chips to them. Everything we did was based on that. Oh, Mr. Trump said, ‘Okay, cancel the order, but you must give me, the government, 15% of the revenue you get from selling chips to the Chinese.’ That’s the deal we have now. Okay? That’s the sincerest form of flattery that the Chinese economy could ask for.

The Americans without admitting it, without talking about it, are copying. And it’s easy to see the reason why. The IMF currently estimates the United States economy will have about 1.5% GDP growth in 2025, down from the two plus it had promised earlier. China is estimating 5%. India 7% which were their numbers last year. You can’t sustain the delusions of the United States when the rest of the world–your adversaries India, China, in the BRICS–are growing three times faster than you are. I recently saw a map of Africa and the map compared 2010 to today. 15 years ago the United States was the major trading partner for most of the countries. That role has been completely switched. Now for most of the countries of Africa the major trading partner is China. How many signs on the wall do we need to present to a reasonable person to understand where the world is going?

So that leaves the military, and the war in Ukraine raises a lot of questions that Michael summarized. The notion that Russia has any reason to invade the rest of Europe? It has less reason now than ever before. And Russia has not had a habit of invading Europe. It’s the other way around. Napoleon, World War I, Hitler and the Great invasions went the other way, from west to east. This is a dangerous game. A declining empire in a desperate situation looking to its military to solve the problem and doing that after you’ve just lost five wars against much less capable opponents than Russia is. That verges on the crazy.

Hudson: I think Richard is quite right to provide a sense of proportion by comparing the United States and Europe’s decline to China’s industrial takeoff. Why are the US and European declining? Why are they de-industrializing? Well, we’ve talked before about part of the reason. Their economies have been financialized. What we’re seeing in the US and Europe isn’t what industrial capitalism set out to be in the 19th century in the United States, in Germany, in Britain, in all these countries. Capitalism turned to an increasing role of government investment and regulation. They wanted to have a government strong enough to take on the rent seeking powers, to end the landed aristocracies’ control of the government through the house of lords or upper houses of European governments. They wanted governments to be strong enough to take natural monopolies into the public domain and make education, health care, transportation, communications all public. The idea was to end the whole concept of feudal privileges for real estate, for monopolies, and even for banking that had been inherited and to essentially lower the cost of production that employers had to pay.

What happened was that the finance sector joined with the real estate sector in fighting back against all this after World War One. Even before the Austrian school of economics there was a whole class reaction for the last hundred years, and what that’s done is basically an attack on government power so that if the government doesn’t do the planning you’re going to leave Wall Street and the wealthy, both the vested interests, to do the planning–and that’s just what’s happened. Look at what Trump is doing today. American foreign policy is not simply opposing Russia, opposing China–what the Biden administration called autocracies instead of democracies. The “autocracies” are where the living standards are going up. “Autocracies” are where labor is being upgraded and not oppressed. The “democracies” are Ukraine and the client oligarchies that the United States has supported. So you’ve seen Trump first of all supporting Bolsonaro in Brazil, who was rightly thrown in jail for trying to replace Lula as president and the whole corrupt oligarchic reaction against Lula’s reform. Right now, Bessent is trying to support Argentina with this crazy 20 billion dollar loan on top of all of the IMF loans. America is doing everything it can to support libertarian craziness of just dismantling the government in favor of a financial oligarchythat runs Argentina. And the same thing with Venezuela–to be replaced with a Brazilian or Argentine or Pinochet type client military oligarchy under US control.

The beginning of this next paragraph may seem controversial, but if you think about it, who has been empowered under Trump? Tech lords and hedge fund owners. Oligarchs. Well, OK—widows of casino operators, too.

At home we have the same thing. Trump is trying to promote a libertarian attack on government. That’s what MAGA is. Well, why is China succeeding? It’s succeeding by doing just what the industrial capitalist countries set out to do in the 19th century. You could call it industrial socialism because capitalism was expected to evolve into socialism. That’s what seemed natural–into a mixed economy with a government strong enough to keep what used to be rent extracting classes–the landlord class and especially the banking class–put it in the public domain. China has kept banking in the public domain. So the Chinese credit creation and money creation isn’t created to enable Chinese to make corporate takeovers. Not lending money to corporations to borrow money to bid up their stock prices with stock buybacks or to simply pay out as dividends. They’re actually following an industrial policy. That’s really what is behind the US attack on China, Russia, and potentially the whole BRICS if they should decide they don’t want finance capitalism in its libertarian form. ‘We don’t want to dismantle government. We want to use government as a means of promoting industrial capital investment, to subsidize it to provide basic infrastructure that we need to grow, to essentially run the economy by industrial engineers and say, what does the economy need? How can the government promote it by tax policy and other policy?’

The United States says well that’s socialism. And I think one of the reasons that the opinion polls in the United States show that most Americans prefer the word socialism to capitalism is because it works. Are we going to have libertarian austerity run by the financial oligarchy that concentrates all the wealth in the hands of the 1% as Argentina does, as a Brazilian oligarchy behind Bolsonaro would like to do, as the United States would like to make Venezuela do, and as the United States tried to make Russia do after 1991 with its disastrous shock therapy of libertarian reforms? The United States still wants shock therapy over the entire world, which is why Trump has backed Milei in in Argentina with this crazy 20 billion bailout. Argentina said, ‘Well, can’t you buy our currency to support it so our oligarchy can jump ship and move all our money out?’ And I think Trump has said, ‘No, we’re not going to buy your currency–we’ll make you a dollar loan. You can use the dollars to support your currency, to support your capital flight like the International Monetary Fund is doing, but you’re going to owe us the dollars back.’ Our currency, not your currency, which is about to plunge as soon as the IMF stops its support. And the IMF only supports oligarchies. The IMF fights against socialism. The IMF fights against industrialization. The IMF fights against labor with its austerity plans. And that’s why the biggest IMF loan is to Ukraine to fight the war. And the second biggest IMF loan is to Argentina to promote this crazy carve up of cutting pensions, cutting social spending, just essentially cutting employment and causing the economic disaster which is going to lead to Milei losing the next election.

So quite right–the contrast that Richard points out is 1) successful industrial socialism emanating from China and the countries that it’s working with or 2) America’s austerity plan of financialization and support of the 1%, the same group, that layer of the population that Trump is supporting in the United States itself.

Wolff: If I could very quickly summarize the logic of what Michael has just said. The private capitalism that grew up in England, Europe, in the last 250 years, developed an ideology to celebrate itself: the organic intellectuals of that capitalism who said that private capitalism, private profit-seeking capitalists, would unify the world in the most efficient way, creating the greatest prosperity for the greatest number. Along the way, the honest idologues discovered that if you organize your society that way–if you hold all investment hostage to the profit principle–things won’t happen unless it’s profitable for a private investor to dispose of his or her capital to develop it. But the theory of externalities says that there all kinds of consequences that the private person doesn’t have to calculate, cannot calculate, because of all the ramifications of whether you build a bridge or not whether you build a factory or not. The people who build the factory are looking for private profit. But the society has to live with all the consequences.

It turns out that there are many ways to develop an economy that aren’t, or at least aren’t initially, profitable to anybody privately, but they are to the community. And so a rational person could say: ‘If there are things that would develop our economy but are not privately profitable and so they will not be done by a private capitalist, then we need an agency that will take advantage of those opportunities for the benefit of the community as a whole, including the capitalists.’ And that’s called the government, which can raise the money, that’s what taxes are for, and borrowing if it wants to engage in the projects that build the economy but are not privately profitable. Not initially, maybe not for 10, 15 years. And you know, in the West, despite the [libertarian] bull, we’ve known that. That’s why we build roads and highways and harbors and we subsidize the telephone company and many others. We even have a name for it: infrastructure.

That’s why the Chinese have the best rapid rail system in the world. That’s why the Chinese build out housing before people need it.That’s not a failure of the market. It’s an understanding that if we don’t want to have a rent explosion with all of the consequences that has–like we’re living through in the United States right now–then we have to do things that privately profit driven real estate builders won’t do. It’s a rational way of handling what we know from that theory of externalities. Now the proof is in the pudding. China’s economic development for the last 40 years has outperformed the United States every single year. That’s an astonishing record. If you didn’t know that, guess why?

Hudson: Well, when Richard talks about externalities, what he means is looking at the long run instead of the short run. The short run profits don’t try to really make profit so much. They’re after capital gains. They’re after financial gains, stock market prices going up, essentially by de-industrializing, by using profits to buy your stocks that pay dividends, not to reinvest in building new factories and employing more labor. And I guess that’s what Lao Tse the Chinese general meant. All tactics and no strategy is a way to lose. Long-term is a strategy, short-term are tactics. And all that the United States and our European economies are based on are short run short term tactics, not strategy. And they can’t acknowledge a strategy because to acknowledge a strategy is to acknowledge the role of government, which they call socialism. And that is placing a hopeless set of blinders on the West. China is free of those blinders.