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PAUL JAY: Welcome back to The Real News Network. We're in Penn Valley, Pennsylvania, with Edward
Edward is an American economist and media analyst, specialty in corporate and regulatory
issues as well as political economy. He's a professor emeritus of finance at the Wharton
School. He coauthored Manufacturing Consent with Noam Chomsky and The Politics of Genocide
with David Peterson. Thanks for joining us.
EDWARD S. HERMAN: Glad to be with you, Paul.
JAY: If you go back to the beginning of the 20th century and throughout the 20th century
and to today, there's this growing force/power of this kind of finance sector, the internexus
between the banks, the finance companies, and corporate America. Some people have characterized
it as the parasitical sector, where areas of speculation--and more money actually gets
made in speculation and derivatives than are made in investing in, you know, what's called
the traditional economy. And you get into the '80s and up until now, where the power
of this finance sector seems such that you can't even pass the most modest reform, like
simple position limits. You have an act, the Dodd–Frank Act, which is not so robust to
begin with, but even what might be in it that would mitigate some of what's--the excesses
that are going on that are actually threatening capitalism itself. You can't even pass real
regulations to enforce any of that. So where is this leading us to?
HERMAN: I don't know. We need some challenges from below. But the people below are really
quite disorganized at the moment and they're in disarray. We've been in a period in which
the power of finance and the power of big business in general globalizing extends into
politics more aggressively than it ever was, so it's able to stymie any changes. And what
it has been able to do is prevent a really serious reform, a serious set of reforms,
and actually get bailed out. In spite of the fact that the financial sector was heavily
responsible for the crisis, they get bailed out, and their victims are left sort of stranded.
And they're even allowed to merge. So you actually have had these too-big-to-fail banks
actually getting bigger--and even more serious state of not being able to fail without bringing
down the whole house. So the situation is actually maybe a little worse than it was
before the 2008 collapse.
And in the '30s, you had this collapse, but you then had a fairly serious reform effort.
There was fairly serious reform. The SEC was put into existence, the public utility holding
companies were somewhat--were dismantled, and you had more aggressive financial regulation
JAY: But why now? You can't pass the most meager reform for the sake of maintaining
capitalism. At least in the '30s you had people who saw, in terms of the interests of the
system, you'd better do something to mitigate this excesses. You can't even pass simple
HERMAN: I know. Well, the crisis were more--it was more severe then, directly severe. I mean,
the numbers unemployed in the 1933-34 was relatively worse than now, and it was a shocker,
and the exposures of the finagling and manipulation in the '20s was more aggressively done. You
had the Pecora Commission. And also I think the media were somewhat more democratic than
they are now. And right now you've got more centralized economic power, more centralized
And the political parties, you have a kind of set of vicious circles. The right wing
succeeded in getting a court that has worsened things with this Citizens United decision,
making it possible to pump even more corporate money into the political--what already was
really bad. So you have both parties, both parties now really dependent on big money.
And with the news, the way the media work, they're not going to engage in any fundamental
criticism. So it's very hard to break through this. It's a disease that feeds on itself.
JAY: One of the demands that we're hearing, even from someone apparently--I think it was
the Federal Bank of Dallas had a paper on this, but we've heard it in other places,
to break up the big banks so you don't have too-big-to-fail banks. And you hear a lot
of this, like, take back America, like, let's go back to some earlier stage of things. Can
we go back to breaking up banks? Does that really make a difference? Or do we have to
start envisioning something else in the future that people fight for?
HERMAN: Yeah, that's a toughie. But that was an amazing paper, to see it come out of the
Federal Reserve system, a paper that actually was calling for breaking up the banks. But
I can't see these banks being broken up. The government, the regulatory system, I don't--it
would be very--I think it would be a very difficult thing to get them broken up, just
to--even the mechanics of it and the financial effects. But then, I don't think there's any
political interest. The Occupiers in the various parks in the United States would be pleased
to try it, but they don't have the--not only not have the power, but implementing it would
be very difficult. So I don't think it's going to happen.
I'm a democratic socialist. I think those banks ought to be nationalized. That's what
should have happened in 2008. The government, they actually paid the money, and it's now
subsidizing them with these low interest rates. A very good case can be made for nationalization,
these banks, that--. It's a little belated, because it should have happened when they
were--essentially, failed. They were--they failed. They should have been taken over.
The FDIC should have taken them over. They should--and they should have--they should
We would still face a very difficult situation. Who would run them and on what basis? And
how would they relate to the underlying global corporate structure. It would be utterly chaotic.
That's part of why I'm a pessimist. But I certainly would--if I had the power, and especially
back in 2008, I would definitely have tried to nationalize those banks and then move on
JAY: So where do you think we're at in terms of the global economic crisis? You know, we're
hearing in the elections the unemployment is going down a bit in the United States.
How does the outlook, for you, look?
HERMAN: The outlook does not look good. The economy is in really very poor shape. It's
improved a little bit the last year. But almost all the gains of that improvement had gone
to the upper 10 percent, and especially the upper 1 percent of income, so it keeps feeding
on the power. If you look at and read--the newspapers tell us that the markets are very
good for expensive real estate in New York and for fancy cars and yachts and things like
that--the upper 1 percent or 5 percent are doing very well. But that enhances their political
And I think that maybe the most important fact of the economics of the last 20 years
is the increasing inequality of income and wealth distribution. From 2000 to the present,
lower 90 percent, average income has actually fallen. So you've got increasing inequality.
Now, what does that mean? It means more centralized power. But it means more people down below
are unhappy and suffering.
So they--what I'm waiting for is for the revolutionary outrage on the--not just from me, but for
all those vast numbers who are getting screwed. But, again, the pessimist in me tells me the
trouble is they don't seem to see who the hell is doing it. They do resent the big banks,
but they've been channeled to resent the government, as if it's just government, you know, and
the big debt, the great debt.
In fact, the growth of the debt has come about because of the increasing inequality. It's
been a mechanism, I mean, the huge Bush tax cuts, and the increase in the size of the
military budget and the military-industrial complex, and tax losses through tax subsidies.
So a good chunk of it, the debt increase, is a function of what I would call class warfare.
It's also an instrument of class warfare, this whole business of the debt and the threat
of the debt, because what the power structure is using it for is to justify cutting expenditures
more. And you look at this, these proposals of--the Republican proposals just passed involve
more tax cuts for the upper income brackets and very large expenditure cuts over time
for ordinary citizens. The military, of course, is protected.
JAY: But if you keep sucking money out of the majority of people's pockets into fewer
and fewer hands--and it seems to be becoming more and more unfettered, that process--doesn't
that lead to crash? Like, eventually, you know, the lack of purchasing power has got
to just paralyze things.
HERMAN: Yeah, there could--and, in fact, it's true in Europe, too. I mean, you've got this
unbelievable--not only this false economics about the [incompr.] debt increase in the
threat of the debt increase, but you have this incredible turnabout of official economic
thought in Europe and the United States that you need therefore to shrink budgets to deal
with the situation, where you've got significant unemployment and threaten more unemployment.
So you have austerity.
And in Europe it's absolutely crazy. It's as if John Maynard Keynes had never lived,
and the Keynesian revolution, which brought with it simple truths--we lived on those simple
truths. Even the military Keynesianism was based--involved Keynesian thought. I mean,
we had--the economy was bolstered for years by government expenditures through the approved
machinery, namely buying guns. Yeah.
JAY: Yeah, it's okay, stimulus from the government's okay if you're buying aircraft carriers.
HERMAN: Yeah, or if you cut taxes. It's an ominous picture. You would think that with
this increasing inequality, where it feeds on itself because of the greater power of
the top 1 percent, you'd think [incompr.] to be an economic crisis there wouldn't be
enough demand. And that's what people like Paul Krugman keep saying, too.
JAY: So what should people do? What should they fight for?
HERMAN: I think they should fight for getting in politicians that are going to tax the people
who ought to be taxed, and regulate intensively, break up the big banks, socialize the big
banks, but then also, if I had--could do it, decentralize the system even more. I mean,
the media are concentrating steadily. I think this is horrifying. And so protecting the
neutrality of the internet and actually breaking up some of these big media conglomerates,
I think that would be a really good thing. Of course, also strengthening and making honest
public radio and television. As it is, they're pathetic. The right wing has cowed them and
made them not really independent.
I would do a lot, give them funds for a long period [incompr.] have to reverse our treatment
of public radio and television. But there had been plans in the past about creating
a big fund, maybe taxing the networks, who get airspace free. They should be heavily
taxed. These are worth a lot of money. They're getting a free loan. They should be taxed
heavily, and those funds should be put in to fund an independent media on some basis.
There are lots of discussions of that. But I think that would be really a very good thing.
Our media system is really bad. It's really tied-in. That's why it's been very difficult
to get this done. But if I was the dictator, it would be done.
JAY: Well, I guess I'm not for dictatorship. But on this particular point? Thanks for joining
us. Thank you for joining us on The Real News Network. And speaking of funding independent
media, there's a donate button over here, because if you don't do that, we can't do