Wall Street’s War Against the Cities:
From Naked Capitalism:
Wall Street’s War Against the Cities: Why Bondholders Can’t – and Shouldn’t – be Paid
By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, a research associate at the Levy Economics Institute of Bard College, and author of “The Bubble and Beyond,” which is available on Amazon.
The pace of Wall Street’s war against the 99% is quickening in preparation for the kill. Having demonized public employees for being scheduled to receive pensions on their lifetime employment service, bondholders are insisting on getting the money instead. It is the same austerity philosophy that has been forced on Greece and Spain – and the same that is prompting President Obama and Mitt Romney to urge scaling back Social Security and Medicare.
Unlike the U.S. federal government, most states and cities have constitutions that prevent them from running budget deficits. This means that when they cut property taxes, they either must borrow from the wealthy, or cut back employment and public services.
For many years they borrowed, paying tax-exempt interest to wealthy bondholders. But carrying charges on these have mounted to a point where they now look risky as the economy sinks into debt deflation. Cities are defaulting from California to Alabama. They cannot reverse course and restore taxes on property owners without causing more mortgage defaults and abandonments. Something has to give – so cities are scaling back public spending, downsizing their school systems and police forces, and selling off their assets to pay bondholders.
This has become the main cause of America’s rising unemployment, helping drive down consumer demand in a Keynesian nightmare. Less obvious are the devastating cuts occurring in health care, job training and other services, while tuition rates for public colleges and “participation fees” at high schools are soaring. School systems are crumbling like our roads as teachers are jettisoned on a scale not seen since the Great Depression.
Yet Wall Street strategists view this state and local budget squeeze as a godsend. As Rahm Emanuel has put matters, a crisis is too good an opportunity to waste – and the fiscal crisis gives creditors financial leverage to push through anti-labor policies and privatization grabs. The ground is being prepared for a neoliberal “cure”: cutting back pensions and health care, defaulting on pension promises to labor, and selling off the public sector, letting the new proprietors to put up tollbooths on everything from roads to schools. The new term of the moment is “rent extraction.”
So having caused the fiscal crisis, the legacy of decades of property tax cuts financed by going deeper into debt are now to be paid for by leasing or selling off public assets. Chicago has leased its Skyway for 99 years to toll-collectors, and its parking meters for 75 years. Mayor Emanuel has hired J.P.Morgan Asset Management to give “advice” on how to sell privatizers the right to charge user fees for previously free or subsidized public services. It is the modern American equivalent of England’s Enclosure Movements of the 16th to 18th century.
Read more at Naked Capitalism
Ah, couple of comments.
First, the majority of cities have no prospect of default or of selling off assets.
Second, the author fails to mention decades of corruption and mismanagement in places like Detroit and Wayne County Michigan (the Obama administration reinforced federal law enforcement due to the number of public corruption investigations and prosecutions).
Problem yes. Vast dark conspiracy? Not so much.
“Unlike the U.S. federal government, most states and cities have constitutions that prevent them from running budget deficits. This means that when they cut property taxes, they either must borrow from the wealthy, or cut back employment and public services. “
Umm….hang on a minute here. If they’re not allowed to run deficits then they’re not allowed to borrow to run services then, are they? For that’s what a deficit is, borrowing to run the services.
Munis are only allowed to borrow to invest in specific projects aren’t they? Replacing the sewers, building schools, that sort of thing. They’re not allowed to issue general revenue bonds which finance current spending….for they’re not allowed to run deficits.
I think I’ve got that right….and if I have I think I’ll take anything else the author has to say on the subject as being ill informed.
“Having demonized public employees for being scheduled to receive pensions on their lifetime employment service, [municipal] bondholders are insisting on getting the money instead.”
This is EXACTLY what Romney wanted to happen in the “Let Detroit fail” bankruptcy proceedings he wanted to see, and it’s exactly his main criticism of the Obama administration’s handling of the GM and Chrysler bankruptcies. He’s furious that the union workers were allowed to keep some of the benefits that they had contracted for as compensation over the years, while the companies’ bondholders—y’know; the vaunted capitalist risk-takers—were “dissed.”
I’ve been dismayed that the Obama campaign hasn’t made a big deal of this. It really IS a big deal, I think.
Obama hasn’t made a big deal of it because Obama is no friend to labor. He has not learned, or educated himself on the roll of labor in society.
Actually it’s more like the corrupt privatization of the Old Regime in pre-revolutionary France. Rather than collect taxes from farmers or workers, the government sold the right to collect taxes to wealthy individuals, many of whom were executed by the mob when the French finally got tired of the privatizers.
If you go back a thousand years, you can see how feudalism developed as government posts were turned into property. In early Frankish days and through the Carolingians, the central government collected taxes and appointed nobles to run certain regions, but these were just high level government jobs, lucrative as they were. By 1000, however, more and more of these posts were sold or permanently granted as private property and the feudal system took over.
Whenever I hear about The Road to Serfdom, I always consider the title ironic, like To Serve Man.
Prof. Worstall, money is fungible, or don’t you teach that?