Saturday, September 19, 2009

Why did the NDP concede the high ground to the Liberals?

For three quarters of a century Canadian social democrats have been working to make their movement and party into a major political force in Canada, a force that can actually compete effectively for power in Ottawa.

Never have the conditions for the NDP to move to major party status been more favourable than they are today. (Don’t quote polls to me. They’ve been all over the place, and pre-election polls aren’t worth a pitcher of warm spit.)

The Harper government is wretchedly unpopular with a majority of Canadians. It is hanging on to its right-wing base, but cannot grow beyond that. The Liberals are led by a man whose instinctual response to every issue is to turn to the right. A believer in the benign character of the American Empire, he’s done this for years on Afghanistan. He did it on the coalition when he walked away from the chance to install a progressive government last January with himself at the helm. And over the past year, he’s repeatedly failed to come up with sweeping new ideas to cope with the economic crisis and to offer a platform that addresses the needs of Canadians. When he walked away from the coalition and supported the Harper government in return for the issuing of a few report cards, Ignatieff made it evident that he offers Canadians nothing new.

Meanwhile, over the past year, Jack Layton grew in political stature. His role in launching the coalition was masterful. It was Ignatieff who abandoned this progressive initiative not Jack Layton. As the months went by the NDP was making itself the real alternative to Stephen Harper. It was the right approach and it was working. (It’s true that a much more public assault on the failed economics of neo-liberalism would have helped.)

The move this week to vote confidence in the government was wrong-headed. The NDP has abandoned the high ground to the Liberals on the central question of who is leading the fight against the Harper government. From now on, the Liberals will vote against the government at every turn in parliament, and the NDP will have to prop up the Conservatives until the changes to EI it favours are passed into law. (Gilles Duceppe has announced that the Conservatives won’t be able to count on him for future votes.)

By the time the next opportunity to defeat the government comes along in the winter or spring, the Ignatieff Liberals will be rhetorically entrenched on the high ground----substantively they offer nothing----while the NDP is reduced to a minor player whose job is to sustain the Harperites who loath social democrats.

The coming months are going to be difficult ones for Canadian families and communities as the rate of unemployment rises and the bite of the economic crisis is more deeply felt.

The Harper government is set to lose the next election. Had the NDP stuck to its role as the unwavering opponent of the Conservatives, the party could have gained enormously. More important, the party could have offered the country the prospect of real change.

Friday, September 18, 2009

Jack and Gilles Went up the Hill

Anyone who has regard for the Canadian political tradition or the great things we have done together in the past as a nation should avert his or her glance today as the NDP and the Bloc vote to keep the Harper government in office on a confidence motion.

There is no glory on this day for anyone. All four parties in the House gain and lose from what is happening in Ottawa.

The Harper government gets to stay in office, having thrown a few crumbs on the table to win the support of the NDP and the Bloc. The Conservatives who relish their take-no-prisoners approach to governing are tall in the saddle. What they have lost is the ability to frighten Canadians with the terrors of last autumn’s failed attempt to create a Liberal-NDP coalition government with the backing of the Bloc. Now it is Stephen Harper who is being kept in office by the socialists and the separatists, the very political forces he earlier portrayed as unfit to have a say in governing the country.

Michael Ignatieff is a winner because his bluff paid off. The Liberals are now free to vote against the government on every confidence motion. They have succeeded in shifting the burden of determining the fate of the government to the two other opposition parties. While the Liberals may be the major victors in this week’s brawl, that doesn’t reverse the remarkable shrinkage Ignatieff’s stature has undergone over the past year. Once thought of as a sparkling intellectual, a second Pierre Trudeau, the Liberal leader bumbled his way into and out of the coalition, gave his support to the Harper government in return for a few report cards, and spent the summer who knows where.

Jack Layton delayed another trip to the polls, which may have been his short-term aim. He has lost his position as the stalwart opponent of a deeply reactionary government. Principle gave way to expediency. Chiding the Liberals for their previous votes of confidence in Stephen Harper doesn’t amount to much if the NDP backs the government when it really counts.

For the Bloc Quebecois to vote confidence in a government that excoriated their movement and party as having no right to a role in running the country shouts the message that all Gilles Duceppe and his MPs care about is saving their seats. Quebecois who were furious about Harper’s demagogic campaign to de-legitimize their members of parliament can only shake their heads in disgust.

Jack fell down and broke his crown and Gilles came tumbling after.

Canadians grow cynical as they watch. Last year, a smaller proportion of Canadians than Americans voted in their countries’ respective elections, and that was unprecedented. At a time when Canadians need political leadership to cope with a broken economic system, they get this.

Monday, September 14, 2009

One Year Into The Financial Maelstrom

(Today, U.S. President Barack Obama went to Wall Street to make the case for regulatory reform to govern the operations of the U.S. financial system. This post deals with the financial crisis and its role in the general economic malaise. It is an excerpt from my upcoming book, Beyond the Bubble: Imagining a New Canadian Economy, to be published in a few weeks by Between the Lines Publishing.)

In sharp contrast to the Great Depression of the 1930s when the United States was the world’s leading creditor nation, the U.S. is now the greatest debtor in the world. This places enormous constraints on the course the United States can pursue to cope with the economic crisis and with the broader foreign challenges that confront it.

Two forms of debt are particularly important to the external position of the United States: the U.S. government deficit and debt; and the U.S. current account deficit.

First, let’s look at the effects of the U.S. government debt, which presently amounts to $11 trillion and is set to soar much higher. The Obama administration’s economic recovery plan is driving the U.S. government’s annual deficit from $410 billion at the beginning 2008 to well over a trillion dollars a year. The administration projects that trillion dollar deficits will persist for years to come. The U.S. federal debt is financed in part by securities held by U.S. government accounts, among the most important, the Federal Employees Retirement Funds, and the Federal Old-Age and Survivors Insurance Trust Fund. At the beginning of 2008, 55 per cent of the debt was held the “public”, meaning those who purchased U.S. treasury bonds. Forty-five per cent of these “public” purchasers were made by foreigners, two-thirds of that total by foreign central banks. By far the most important of the central banks in making these purchases were those of China and Japan. When to the central banks of China and Japan are added to other purchasers from these two countries, about 47 per cent of the purchases by foreigners is accounted for. In total, foreigners have been financing about 25 per cent of the gigantic U.S. National Debt, a percentage that the Obama agenda could drive much higher.

Between them, the central banks of China and Japan hold over a trillion dollars worth of the U.S. securities used to finance the U.S. national debt They don’t buy them because they regard them as a good investment. Quite the contrary. They buy them to save the United States from the crippling consequences of its own internal weakness. This, they do, not as an act of generosity, but to safeguard their vitally important export markets in the U.S. and to prevent a global economic collapse.

Suppose the Chinese and Japanese central banks, along with about eight or ten other central banks, decided to reduce their purchases of U.S. Treasury bonds. The consequence would be a sharp decline in the value of the U.S. dollar against other currencies. A lower dollar would lead to a very substantial reduction of U.S. imports. Keeping exports flowing into the vast American market is what motivates Asian central bankers to buy trillions of dollars worth of U.S. Treasury bonds.

There is a limit to this willingness to serve as lenders for the deeply indebted Americans, however. The biggest money makers in China are foreign multi nationals that set up shop in that country to avail themselves of a highly productive and relatively inexpensive labour force. Those multi-nationals are earning a far higher return on their invested capital in China than the Chinese central bank makes sustaining the U.S. dollar through its purchases of U.S. Treasury Bonds. In March 2009, the Chinese central bank issued a clear warning that it was tiring of playing such a pivotal role in propping up the U.S. dollar. Zhou Xiaochuan, the governor of the People’s Bank of China, suggested that the time had come to consider replacing the dollar as a global reserve currency with a new currency made up of a basket of currencies to include the Euro, Yen, Pound and Dollar. Zhou proposed that the International Monetary Fund increase the use of “Special Drawing Rights”, a notional currency already used by the IMF. Not surprisingly, both President Barack Obama and U.S. Treasury Secretary Timothy Geithner rejected the Chinese idea and predicted that the dollar would remain the world’s dominant reserve currency for a long time to come.

The Obama administration will need to sell vastly more (the dollar total could more than double) Treasury Bonds to Asian and other central bankers. This will have two effects. First, it will substantially increase the downward pressure on the American dollar against other currencies. A renewed fall in the value of the U.S. dollar will serve as yet another disincentive in the path of central bankers and private investors buying up the bonds. Buying bonds denominated in a falling currency is a money loser, especially if the interest rates on the bonds are low. To sweeten the pot, the interest rates on U.S. Treasury Bonds will have to be substantially raised, both to slow the decline in the U.S. dollar and to increase the return to the buyers of the bonds.

This, of course, creates yet another problem for the United States. Higher interest rates on American bonds make the cost of financing the rapidly expanding U.S. national debt ever more dauntingly stratospheric. Thus, borrowing immensely more from foreigners to finance the administration’s stimulus program is an exercise that can only be described as fraught. The more expensive the cost of borrowing, the less effective will be the U.S. recovery program.

In principle, there is a way to reduce the volume of additional foreign borrowing. This would be to dramatically reduce the income and wealth gaps between the rich and the rest of the American population, in part by imposing much higher income and wealth taxes on the very affluent. While in theory, this could work, in practice this would necessitate such an enormous shift in the American socio-economic system that it is inconceivable under present circumstance. It remains only a theoretical possibility to be noted. The continuing dependence of the United States on foreign borrowing, and thus on the need to tie much of the world into an American centred geo-political system is rooted in the marked inequality that exists in the United States itself.

Adding to the problem is the current account deficit of the United States, which was running at an annual rate of $-673 billion in the spring of 2009. (The current account includes the trade in commodities, tourism, and the trade in services, including profits, dividends, and interest payments between the United States and all other countries over the course of a year.) To finance its gigantic current account deficit, which amounts to just under five per cent of the U.S. Gross Domestic Product of $14.3 trillion, the U.S. is forced to engage in immense foreign borrowing. This can take a number of forms. One of the most important is the inflow of investments by foreigners to acquire assets in the United States. During the 1990s, these inflows were occurring at a time when the U.S. was on the cutting edge of the global technological revolution. It was the age of the boom. Following the crash in 2000, though, much of the flow of new foreign equity into the United States halted. Indeed, over the next few years, if the U.S. dollar should drop significantly against other currencies, foreign investment inflows into the United States would likely be aimed at the acquisition, on the cheap, of American economic assets. This is hardly a prospect that the U.S. government and corporate sector can view with equanimity.

For any country to have a perennial current account deficit that runs at just under five per cent of its GDP is a perilous exercise. For any country other than the United States to do it is unthinkable. The U.S., as those who believe that America can go on doing this indefinitely insist, has a special role in the global system which allows it the privilege of greater indebtedness than other countries. Among other reasons for this is the fact that the U.S. dollar remains the reserve currency of the world. This means that when the U.S. government borrows money abroad it does so in its own currency, so that even if that currency depreciates against other currencies, Washington does not have to assume the additional cost this would impose on other borrowing governments.

The merit of this argument has declined as the prospects for the further depreciation of the U.S. dollar have increased. The burden to be borne by foreign central banks has simply grown dangerously large and it is about to become more enormous still.

The U.S. current account deficit---the extent to which the United States spends more abroad than it earns abroad---creates a paradoxical relationship for the U.S. with other countries. On the one hand, there is the vast American market on which China, Japan and other countries, including Canada, depend so much for the profitability of the enterprises based on their soil. (Manufacturing companies, because of the economies of scale they achieve as their sales and volume of production increase---as the ratio of fixed to variable costs falls---make as much as half of their profits on the last fifteen or twenty per cent of their sales.)

It helps to picture the size of the U.S. market for foreigners this way: each year the U.S. offers to foreign suppliers a market more than half the size of the entire Canadian market as a consequence of its deficit. This additional market exists on top of what the U.S. market could offer foreigners if Americans sold abroad as much as they bought. The paradox is that foreigners have to pay dearly to keep this market open and available to them. The bigger the U.S. current account deficit, the more lucrative it is to foreigners. But the bigger the U.S. current account deficit, the more burdensome is the weight of the unprofitable U.S. Treasury Bonds foreigners must buy to keep that market open.

There is an inherent instability at work here. It is the kind of arrangement that could only exist in the relationship between a declining empire, or hegemon, and its clients. When the United States was a rising empire---as it was even in the dark days of the Great Depression in the 1930s---it creditor status, its superior productive plant and ultimately its unexcelled military potential, ensured its ability to invest abroad on its own terms and to dictate its trade arrangements with other countries. Indeed, in the last days of the Second World War, in 1944, the United States, along with its allies established the rudiments of the post-war economic system at Bretton Woods, New Hampshire, placing itself at the centre.

The United States can be likened to a ballerina. When she is young she makes difficult feats look easy. When she is aging she has to settle for making easy moves look difficult.

At what point will foreigners conclude that the game is not worth the candle, that financing the foundering U.S. is more trouble than it’s worth? Since so many factors are at play, including the stresses so evident in the U.S. effort to sustain its geo-strategic position in the world, no precise answer can be given to this exceptionally important question. What is abundantly clear, however, is that the Asian powers and the Europeans could adopt economic strategies in which the role of the U.S. as a market of necessity (much more for the Asians than the Europeans) becomes far less important than it is today.

Every winter, government and business high-flyers from around the world flock to Davos, Switzerland to pontificate about the state of the world economy. In January 2009, the World Economic Forum at Davos was unusually subdued. Those who ran the global economy were not receiving high kudos from anyone about the job they had been doing.

A major topic at Davos in 2009 was how the Obama administration was going to raise the $819 billion it was seeking to finance its stimulus package. Unprecedented borrowing of capital from foreigners would be needed to fund the program. Experts at Davos warned that American borrowing could push up interest rates, generate inflation, and drive down the value of the American dollar against other currencies. While some might wonder about the risk of inflation in a global setting where the deflation, its opposite, posed the greater peril, the question of where the capital would come from was on many minds. Alan S. Blinder, a Princeton University economist and former vice-chairman of the Federal Reserve in Washington told the New York Times: “At some point, there may be so much Treasury debt that investors may start wondering if they are overloaded in dollar assets.” Another concern raised as Davos, a concern expressed many times about U.S. borrowing in recent years, is that it has the effect of making it extremely difficult for poorer countries to borrow the capital they urgently require. Ernesto Zedillo, the former Mexican president who was in office during his country’s financial crisis in 1994 warned that “the U.S. needs to show some proof they have a plan to get out of the fiscal problem. We, as developing countries, need to know we won’t be crowded out of the capital markets, which is already happening.”

While much of the focus, and rightly so, has been on U.S. public debt and on the gargantuan U.S. current account deficit, the level of American private debt is equally alarming, and has enormous implications for the prospects for economic recovery in the United States. In 1960, the household debt of Americans stood at a level that was equivalent to fifty per cent of the U.S. GDP. By 1980, that level had grown to sixty per cent of U.S. GDP. Since 1980, the level of household debt in the United States has taken off to unprecedented levels. By 2004, the average American was spending $1.04 for every $1.00 he or she earned. By the end of that year consumer debt alone (not all of household debt) had reached an amount equivalent to 85.7 per cent of U.S. GDP.

There are various ways of analyzing the shocking rise of U.S. private debt. Some see it as a cultural phenomenon, the consequence of the inability of contemporary Americans to defer gratification. Others attribute sky high consumer debt to the mass marketing of credit cards and the goods and travel that flow from them. Campaigns to win over young Americans to credit card use have been especially effective. Between 1990 and 2003, the number of Americans holding credit cards jumped from 82 million to 144 million. A fundamental cause of the rising of personal indebtedness has to do with the way the incomes of most Americans have stagnated since 1980, as we have seen. An economy in which the mass of the population enjoys rises in real incomes is one in which the market for goods and service expands rapidly. On the other hand, an economy in which incomes for the majority are stagnant is one in which there are real barriers in the way of market expansion. Just as financial institutions found ways to expand the markets for their activities by promoting mortgages and home purchases to millions of people who could not afford them, these institutions were enormously successful in enticing tens of millions of Americans to spend today, building up massive debts for the future.

But now the time has come to pay the piper.

That is now no easy task. Now that Humpty Dumpty has fallen, even the vigour, intelligence and dedication of Barack Obama may not be enough to put him back together again. The problem is that the crash in the United States occurred when the financial institutions, with the full support of Washington, had used up every method they could think of to grind more profits for themselves out of the system. What they had created was an arrangement with distinct similarities to a gigantic Ponzi scheme. A full-fledged Ponzi scheme exists when a financier like Bernie Madoff takes the money of investors, promises them a high rate of return, and then pays them dividends, not drawn from profits, but from the capital invested by the next group of investors. While U.S. financiers had not created a pyramid scheme along the lines of Madoff, they had erected a system that was constructed on vast layers of debt, as we have seen. If the economy stopped moving forward, a crash, when it came, would create vicious cycles involving all those layers of debt.

That is what happened with the crash of 1929. When the market fell, it forced all those who had made investments on margin to sell off positions they held to pay off the margin calls they had to meet. This pulled the market down much further. The system was running in reverse. The same thing has happened with the crash of 2008. The ways that leverage was exercised in the 21st century were much more arcane and technologically advanced than the old method of stock purchases on margin of the 1920s. But through a slew of derivatives and other financial instruments, the same result was achieved. With the investment of let’s say one million dollars, high rollers, whether individuals or enormous financial firms, were able to achieve the leverage of an investment of as much as thirty million dollars. Such leverages yielded huge profits. But once the crash came, it halted the whole machine. Individuals and enormous companies such as AIG were unable to cover their positions. Left exposed, they plunged into bankruptcy. Too big to fail, Washington rushed in to save the giants, the mastodons. First the Bush administration and then the Obama administration tried desperately to put Humpty Dumpty back together again.

The problem with Humpty Dumpty, the financial sector of the American economy, is that while Washington believed it was too big to be allowed to fail, it had actually grown too big to succeed.

Over the past quarter century, an extraordinary shift has occurred in the make up of the U.S. economy. As late as the early 1980s, manufacturing accounted for close to 20 per cent of the American economy, while the financial sector (commercial banking, investment banking, insurance firms and other financial firms) generated 12 to 14 per cent of GDP. By the eve of the 2008 crash, manufacturing had shrunk to 12 per cent of GDP while finance had swollen to account for 20 to 21 per cent of GDP.

For over one fifth of the economic output of a major nation---we are not talking about the Cayman Islands or even Switzerland---to be accounted for by finance is a shocking phenomenon. Considering the allure finance had acquired in the English speaking countries by the eve of the crash, it is not surprising that analysts rarely step back to consider what this really means. In theory at least, finance is not a benign phenomenon in and of itself. It is a means to an end. The proper and most efficacious raising and investing of capital is supposed to open the way for the production of goods and services that are actually useful to, or desired by, people. Manufactured goods, food, houses, education, medical care, entertainment, a host of other services, and transportation are useful to people.

On its own, finance is not. Only as a means to an end does it have value in any meaningful sense of the word. In a great and powerful country such as the United States, once the world’s leading industrial nation, when manufacturing steadily shrinks and finance expands remorselessly, as a proportion of GDP, we have to ask ourselves what is really going on.

One thing that has been going on is that a few people have been vastly enriched by the immense profits that have been juiced out of the engorged financial sector. These are the people who have now become notorious, in the aftermath of the crash, for their sky-high salaries, advantageous stock options and gargantuan bonuses. As finance has become a huge industry unto itself, more and more of the “best and the brightest” among the young have eschewed engineering, medicine, scientific research and other fields to go into “money”.

On campuses across North America, universities have responded to the rise of “money” as an industry by establishing schools of business whose function is to turn out graduates ready and eager to work in the financial sector. Money has been sexy; manufacturing has been old-hat. At business schools, a very particular school of economics has dominated the curriculum. Students are taught how to apply neo-classical economics in the setting of contemporary globalization. In the world-view as they receive it, free trade is benign, as is the right to invest anywhere in the world, and to shift investments freely from country to country. Protectionism is negative, as are government interference in economic decision making, and militant trade unionism. Other schools of economics get short shrift at business schools, and such schools are not enamored with having their students take courses from departments on campus where neo-classical economics is more thoroughly critiqued. It is not an exaggeration to say that the economics taught to business students in North America fits hand and glove with the economic practices that have been found so wanting in the aftermath of the crash of 2008.

Of more immediate concern is whether the Obama administration remains hooked on a finance-centred conception of the economy. Over the past couple of decades, as finance has grown ever larger as a proportion of the GDP, financial institutions have evolved a plethora of instruments, more or less arcane, whose purpose is to invite investors to heighten the risk, or the pleasure, that flows from their investments. Securitization, credit default swaps and derivatives in many shapes and sizes were the products on the market from which investors were able to choose. Securitization is a process which creates instruments that enable those who have lent money to sell the loans---credit card debts, sub prime mortgages, car loans, etc.---to those who wish to purchase these instruments as investments. The idea, of course, was to spread risk widely, so that investors could assume a portion of the risk, while making a healthy return when times were good. “Banks used securitization to increase their risk,” wrote Paul Krugman in the New York Times “not reduce it, and in the process they made the economy more, not less, vulnerable to financial disruption. Sooner or later, things were bound to go wrong, and eventually they did. Bear Stearns failed; Lehman failed; but most of all, securitization failed.” In October 2008, Columbia University economics professor Joseph Stiglitz quipped to a congressional committee in Washington that “securitization was based on the premise that a fool was born every minute.” The problem with securitization, as with other exotic instruments was that while the spreading of risk allowed financial institutions to do yet more lending to increase their risk, when the market plummeted the investments under the securitization label blew up, became toxic, and helped drag their holders toward bankruptcy.

Credit default swaps were another Alice in Wonderland creation that apparently provided protection for investors, but actually vanished into inutility the moment the insurance they supposedly provided was actually needed. As the name suggests, credit default swaps involve a deal between two parties, a swap, in which one party is buying protection and the other party is selling protection. They are betting on whether a particular company will default on its bonds. The first party is buying protection so that if the company does default within a specified period of time, it will collect a large payment from the party selling the protection. The second party, the seller, receives payments for assuming the risk. Thus the purchaser of the credit default swap is acquiring what looks like an insurance policy, protection which covers it so that it can go out and make other risky investments without the appearance of having a balance sheet that involves too much risk. The seller, on the other hand, collects money for selling protection on let’s say a risky bond in the sub prime mortgage market. In recent years, according to some estimates, hundreds of trillions of dollars (yes, that read trillions) of these credit swaps have been made. The numbers involved are absurdly large. For comparison, the U.S. GDP is about $14 trillion.

In the run up to the great crash of 2008, Credit default swaps were traded in the creation of an ever higher fantasy skyscraper. When the sub prime mortgage market, among others, imploded, the entities that had sold credit default swaps suddenly discovered that the assets they held on them were reduced to rubble. In March 2008, when Moody’s downgraded the ratings of Bear Stearns, Bear----the party in $13 billion in credit default swap trades---imploded and was acquired for next to nothing by J.P. Morgan.

No one knows how huge the bill could be for the collapse of the credit default gambit? That’s because with hundreds of trillions of notional dollars gambled in the various forms of exotic financial instruments including credit default swaps, it is next to impossible to calculate the price tag for a potential collapse of all this. The Bank for International Settlements (BIS), an international organization of central banks based in Basel, Switzerland, took a crack at calculating the potential risk making use of 2007 data. The BIS estimated the notional value of the whole at $596 trillion dollars, divided among interest rate derivatives ($393 trillion), credit default swaps ($58 trillion), and currency derivatives ($56 trillion), with the rest allocated to other categories. The BIS calculated that the net risk from all of this was $14.5 trillion, and the gross credit exposure was $3.256 trillion.

The utility of such calculations is questionable. What we learn from this sort of abstract exercise is the vastness of these shadowy transactions, which can and do have implications for the real world. To make sense of this, it is necessary to understand the motivation that underlies the proliferation of exotic financial instruments and more broadly what caused their emergence. This takes us back to the discussion in the previous chapter about the predominance of the neo-liberal Anglo-American model in the world. Holding down the growth in real wages and salaries has limited the expansion of the market for goods and services. In response, the financial sector has proliferated enormously, the motivation being the rapacious quest for new sources of profits. In our time, capitalism has cannibalized itself. The financial sector has grown ever larger as a proportion of U.S. GDP, not to produce useful goods and services, but to squeeze ever more out of the existing economic pie.

Pushing out sub-prime mortgages to people who often could not afford them, and credit cards to millions of people who have maxed out their cards, as well as financial products to heighten the leverage of investors have all been ways for finance to juice out more profits for itself. Most of that has involved various forms of borrowing against the future. Today’s capitalism, swollen with debts that will take many years to reduce or write off, has fouled its own future, ensuring lean years ahead.

As is the case in its most extreme form with a Ponzi scheme, the cannibalizing of the economy by financial institutions has shifted the economic engine into reverse. Now that the time has come to cope with the debts, both the toxic and the more salubrious ones, the impact of the activities of financial institutions has been to put the brakes on the economy for coming years. The same thing happened with the financial meltdown of 1929, when the world of buying on margin imploded. That time the Dow Jones did not reach October 1929 levels until 1954.

Just over two months after Obama was sworn into office, the United States seethed with populist rage. Storm clouds were forming ever since the bailouts of financial firms began in the fall of 2008 while the Bush administration remained in office. What caused the maelstrom to burst were payments of bonuses totaling $165 million to executives of the American International Group (AIG) in March 2009, in the wake of Washington’s massive bailout of AIG which amounted to more than $170 billion. Everywhere across the country, ordinary Americans were furious. With rising anxiety, they had numbly accepted the vast Wall Street bailouts, and the talk of trillions more dollars needed to get the financial sector and the auto industry back in business. But the idea of the people who had presided over the AIG plunge into toxicity receiving handouts of a million dollars each, and in some cases more, blew the lid off.

I was in California when the hurricane hit. On television, on the front pages of papers in small and large cities, in conversations in cafes, the fury was everywhere. CNN covered a busload of working people, some of them political activists, going on a tour of the palatial homes owned by AIG executives, to deliver the message to the doorstep that they were angry. They were met by security guards who halted them and so delivered the message to the Pinkerton police. CNN titled the segment “The Lives of the Rich and Shameless.”

American populism extends from left to right. As has been the case for decades, when it rears its head, populism can be anti-capitalist one moment, then racist the next. It can demand fairness for all one day, and then can recoil in fury against the guy next door who is living on the dole. During the Great Depression of the 1930s, populism showed up under the banner of the Congress of Industrial Organizations (CIO), with its drive to unionize industrial workers, that of Louisiana’s Huey Long, as well as that of the fascistic Father Charles Coughlin. And Coughlin was adept at sounding radical as when he urged his audience to “attack and overpower the enemy of financial slavery.”

In the United Kingdom, when banks crashed in the autumn of 2008, the government of Gordon Brown did not hesitate to nationalize them. Pumping capital into these banks was accompanied by government control and public equity. If the banks returned to profitability while they remained in the hands of the crown, the public would earn a return on its investment. In the United States, the ideological recoil from the very idea of nationalizing banks was much stronger. It amounted to a violation against the very shibboleths on which American capitalism rested, a step that was to be avoided unless there was absolutely no alternative. The Obama administration, as New York Times columnist Paul Krugman observed, appeared “to be tying itself in knots” to avoid having taxpayers take ownership in return for their rescue of banks. The dilemma Krugman noted was that “bank stocks are worth so little these days---Citigroup and Bank of America have a combined market value of only $52 billion---that the ownership wouldn’t be partial: pumping in enough taxpayer money to make the banks sound would, in effect, turn them into publicly owned enterprises.”

The problem for Obama was that many of his top officials were deeply involved with Wall Street. Treasury Secretary Timothy Geithner, to name one prominent case, was a Wall Street enabler for years. Mentored by Clinton era Treasury Secretaries, Robert Rubin and Lawrence Summers, Geithner was named president of the Federal Reserve Bank of New York in 2003. He was critically involved in the sale of Bear Stearns, in the bailout of AIG and the decision to let Lehman Brothers go down. He was the principal architect of the Obama administration’s move to partner up with the private sector to buy up the toxic assets of Wall Street financial firms.

While right-wing populist ranters such as Rush Limbaugh salivate about the evils of big government, there is nothing big financial firms and other top corporations love more than handouts of tax dollars to them. The Obama administration’s policy toward the financial sector, in his first months in office, was to shovel out the money while leaving the private bankers in charge. The president was so afraid of nationalizing the banks that he was willing to run the risk of putting Wall Street back in the driver’s seat while leaving the tax payers stuck with a mountain of bad debts.

As soon as George W. Bush was out of the White House and Barack Obama in, the Republicans turned their guns on the size of the stimulus package being proposed and on the danger of government control of the economy. Even in the last months of the Bush administration, the White House had to rely on the Democrats to push through its bailouts of the financial sector. Out of power in the executive branch and both houses of Congress, the Republicans became the defenders of tax cuts, new tax incentives to lure buyers back into the housing market, smaller government, and warning Americans of the perils of socialism.

In the New York Times, columnist Frank Rich wrote: “The Republicans do have one idea, of course, but it’s hardly fresh: more and bigger tax cuts, particularly for business and the well-off. That’s the sum of their ‘alternative’ stimulus plan. Obama has tried to accommodate this panacea, perhaps to a fault. Mainstream economists in both parties believe that tax cuts in the stimulus package will deliver far less bang for the buck than, say infrastructure spending. The tax-cut stimulus embraced a year ago by the G.O.P. induced next-to-no consumer spending as Americans merely banked the savings or paid down debt.”

Even in opposition, the political right, which speaks for much of American business, has had a very significant impact on the national debate. In a country where socialism is a dirty word and free enterprise is a deity, the Obama administration has bent over backwards to avoid the appearance of promoting a government takeover of the U.S. banking system.

In January 2009 as the Obama administration weighed the idea of an immense new bailout of the banking system, Treasury Secretary Timothy Geithner declared that “we have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system.”

Barack Obama’s much touted promise to transcend the partisan divide forced his administration to cut $80 billion from his economic stimulus package. The cuts came in plans to spend money on school construction, on aid to the unemployed to maintain their health care and in the provision of food stamps, among other things. In return for these cuts to his plan, the president failed to win the support of a single Republican in the House of Representatives, and wound up with the backing of only a handful of Republican Senators.

Potential public backlash against the stimulus package and especially against additional measures to bail out financial institutions posed yet more risks for the administration. The Bush administration’s $700 billion bailout of the financial sector in the autumn of 2008---half of which had been paid out under the Troubled Asset Relief Program (TARP) by the time Obama took office---was deeply unpopular with the American people. As President Barack Obama sought to win public and Congressional support for his stimulus package, he struck out at the practice of handing out huge bonuses to executives at Wall Street firms that were surviving on infusions of public money. The announcement that in 2008, the worst year since the Great Depression for Wall Street, firms handed out over $18 billion in executive bonuses brought the issue to a head. Obama said that at a time when the economy was faltering and Washington was spending billions to keep Wall Street firms afloat, such bonus were “shameful.” In an interview with NBC Nightly News, the president said that “if taxpayers are helping you, then you have certain responsibilities to not be living high on the hog.”

On February 4, President Obama and Treasury Secretary Timothy Geithner announced that at firms receiving significant funds from Washington, executive compensation would be capped at $500,000 a year. To put this sum in perspective, Obama’s annual salary as President of the United States is $400,000. But to top Wall Street CEOs, half a million dollars a year is a chump change. In 2007, the top guns at Wall Street Firms were compensated at a much more stratospheric level. John Thain of Merrill Lynch took home $83 million; Lloyd Blankfein of Goldman Sachs, $54 million; Kenneth Chenault of American Express, $51.7 million; and John Mack of Morgan Stanley, $41.7 million.

To the average American, half a million dollars sounded like a great deal of money. To those used to the lives lived by top corporate executives it was a meager ration. James Reda, the founder and managing director of James F. Reda and Associates, a compensation consulting firm thought the pay cap would not work. “That is pretty draconian---$500,000 is not a lot of money,” he said “particularly if there is no bonus.” Reda said that few large companies pay their top executives such puny salaries and that it would be “really tough to get people to staff” corporations if they have to apply such a cap.

Reda was among those warning that top executive talent would flee to firms not being bailed out by Washington and therefore, not subject to such a miserably low salary cap.

The question of compensation has always been a tricky one in the United States. According to the American Dream, earning an enormous income and acquiring great wealth are among the rewards that are possible for anyone with the drive, the imagination and the luck to make it. Nothing should ever stand in the way of this dream being fulfilled according to the American creed. But with the crash of Wall Street’s titanic firms, CEOs and top executives of the bailed out firms became the butt of the harsh populist humour of Americans.

It is a cardinal error to believe that the United States will sustain its present role at the centre of the global economy and that it can continue the virtually unlimited access to foreign borrowing it has enjoyed in recent decades.

Although this has not been widely acknowledged in public discourse, the United States will have to navigate a wrenching economic transition. One cost that is virtually certain to accompany this is a falling standard of living for the American people.

Sunday, September 13, 2009

The NDP: On the Eve of the Campaign

Jack Layton could be forgiven for thinking that leading a federal political party is all about fighting election campaigns and recovering from them. He is about to lead the NDP into its fourth election in just over five years. Over this difficult half decade, Layton has shown himself to be a formidable political leader, improving the standing of his party in each election, and growing in stature with Canadians.

The former Toronto city councilor inherited a party with only 13 seats in the House of Commons and took the NDP to 19, 29 and 37 seats in the three campaigns he has fought. When Layton became leader, the NDP was widely dismissed as a party that didn’t matter any more, with little political clout and with ideas that were stuck in the past.

Now no one dismisses the NDP as a force in national politics. The Conservatives heap abuse on it as a socialist rabble with which no respectable party would associate, all the while hoping it takes enough votes from the Liberals to keep Stephen Harper in power. The Liberals fear the NDP as an alternative to which voters could migrate, as they did so massively in Nova Scotia’s recent provincial election. While Michael Ignatieff assures business that he is safe, he has to keep a wary eye over his left shoulder to make sure that voters don’t start thinking that it’s time for a progressive like Jack to be prime minister.

What does the NDP aspire to in the upcoming campaign? More votes and more seats, naturally. The NDP has always been as assiduous in its pursuit of votes as any party. And the federal party prizes each seat it wins as a jewel in the crown. For the last couple of decades, the party has been run by pros who read polls, earn their living working for the party, in its offices or on the Hill. Not surprisingly, they can’t stand people they perceive as windbag ideologues who are always harping about socialism. These hard-boiled potatoes (hard-asses is a term I would not use although my dictionary says it’s a perfectly respectable label for people who narrow mindedly and meticulously adhere to their agenda) want social democrats to support the party and lay off the verbiage. I agree with one side of that equation. Every social democrat who is able should contribute money, put a sign on the lawn or in the window and canvass a poll in the election this fall.

But let’s not forget the other side. Socialism and social democracy did not spring forth from the mouths of ideologues. The reason tens of thousands of Canadians have worked for fundamental changes for the past three quarters of a century is because capitalism is a system that rewards the rich at the expense everyone else.

As we mark the first anniversary of the Great Crash of 2008, that ought to be more clear than ever. Humpty Dumpty had a great fall. The neo-liberal socio-economic model on which both the Conservatives and the Liberals have staked their fortunes, has failed.

Social democrats should not be talking about putting Humpty Dumpty back together again. They should be promoting a vision of a new economy, constructed around the needs and aspirations of people, a vision that respects the environment. That’s not an ideological need. It’s a human requirement. It’s why the CCF and later the NDP were founded in the first place.

We got a very good reminder last week about why Canadian social democrats should not remake themselves as American Democrats. Barack Obama is as good a liberal as you will find. But in his speech to Congress, he dismissed the Canadian health care option and tied his vision of reform to the promotion of competition among health care providers. Without a powerful social democratic movement and party, Canadians would never have moved beyond that gully into which American liberals repeatedly fall.

The hard-boiled ones might be surprised to discover that a very large number of Canadians now are ready to consider a fundamental alternative to a failed system.

Saturday, September 12, 2009

Michael Ignatieff is Mackenzie King

William Lyon Mackenzie King, the politician who served as prime minister for longer than any other mortal, over 21 years, has returned to offer his services to Canadians once again, this time in the guise of Michael Ignatieff. Perhaps the word “mortal” is ill chosen. WLMK believed in reincarnation and never did anything without consulting a sooth-sayer. He would only enter or leave the House of Commons when the hands of the clock were in a special alignment to one another. His diaries are full of conversations he had with the dead, whether his mother, Sir Wilfrid Laurier, or Franklin Roosevelt.

Clever of Mackenzie King to return as Michael Ignatieff, a man who spent most of his working life outside Canada. (For much of the First World War, King was in the U.S., organizing company unions in Colorado for the richest man in the world, John D. Rockefeller.) Ignatieff has encouraged Canadians to think of him as an amalgam of Wilfrid Laurier, Pierre Trudeau and Barack Obama. King wanted to be thought of as combining the best of Laurier, which caused Laurier’s widow to come close to swooning in horror at the Liberal convention of 1919, and his grandfather, William Lyon Mackenzie, first mayor of Toronto and the leader of an armed rebellion against the British crown.

King was deeply averse to change, though he often tried to appear sympathetic to those who fought for reform. Someday perhaps a few of the less radical ideas of the CCF could be implemented, he mused, but only in the fullness of time. Meanwhile, it was his self-appointed task, to remain at the helm holding together the contradictory elements of Canadian society, labour and capital, French and English, East and West.

A master of the fine art of letting the Conservatives destroy themselves, King staunchly avoided presenting anything new to Canadians especially during federal election campaigns. He was lucky in his opponents, sharp edged Tories such as Arthur Meighen and R.B. Bennett who were loathed by most Canadians. King’s job was to show up at the helm of a united party and to encourage Canadians to “throw the bums out” and later to keep them out. When he came back to power in 1935, he let the Depression and the reputation of “Iron Heel” Bennett do the job for him. Six years of economic misery had taught him nothing.

In the coming weeks, we will watch Michael Ignatieff present himself as a prime minister in waiting. He will offer reassuring sentiments to convince Canadians that he is civilized and vaguely progressive. There will be no new ideas, no green-shift, no reappraisal of the mission in Afghanistan, no plan to rebuild the Canadian economy and create jobs for Canadians. Ignatieff’s campaign will be all about presenting contrasts with the Iron-Heel Conservative of our time, Stephen Harper. Ignatieff will be a little friendlier to labour, a little more caring about pre-schoolers, a little nicer to Quebec, and a little more concerned about the environment than Harper. Meanwhile, he will tell business audiences that he will return the nation as swiftly as possible to fiscal probity, while keeping taxes low and spending tightly under control.

It remains to be seen how Canadians will respond to the Second Coming.

Friday, September 11, 2009

Why Stephen Harper is Going to Lose the Upcoming Election

Stephen Harper’s Conservative government will go down to defeat in the election that is almost certain to take place this fall for one very solid reason, his party is going to lose too many seats in Ontario and Quebec for it to hang on to power.

Whatever pretty pictures the prime minister and his ministers are trying to paint about the economy, Ontario is deeply in the grip of the recession, with an enormous number of people without jobs, families facing uncertainty and mounting debts, and communities watching key productive facilities shut down. Although the mainstream media doesn’t get it, there is a great deal of pain and anxiety out there as Ontario’s manufacturing sector is being brutally downsized. Ontario’s misery has spread far beyond the communities that have housed the major manufacturing plants and is felt right across the GTA.

Ontario is no mood to vote for a government that has never understood the basics of the province’s economy, a government that has repeatedly turned up its nose at the very idea of doing anything to help out. As soon as the writs are dropped, the sentiments of Ontarians will become clear even to those covering the campaign for the networks and the newspapers.

In Quebec, the prospects for the Conservatives are equally bleak. Last fall, faced with the prospect of a Liberal-NDP coalition government that would be supported on confidence votes by the Bloc, Stephen Harper mounted a hysterical attack on the very idea of a government being propped up by separatists, something he has done many times himself since taking office in 2006. Harper’s vitriol called into question the very legitimacy of the MPs Quebeckers have elected, treating these representatives as second-class beings who should have no say in the governing of the country.

Harper’s assault on Quebeckers re-opened the deepest wounds in Confederation. What he did has not been lost on the voters of Quebec who now see him as a political leader who has nothing but contempt for them. His party is doomed in Quebec this time.

In the 2008 election, the Conservatives won 51 seats in Ontario and 10 in Quebec. This time, Conservative seats will fall like bowling pins in Central Canada. Expect Conservative losses as well in British Columbia and New Brunswick.

Once the campaign gets underway, the colossal bone headedness of the Harper government is going to do it in. Consider for instance the record of Finance Minister Jim Flaherty who once said he couldn’t understand why businesses would want to locate in Ontario, his home province. This is the finance minister who nine days after last year’s federal election, on October 23, said this in a speech on the economy: “Our economic fundamentals are the envy of the G7. We run balanced budgets here…..As I say, other nations are envious of our situation.”

Here is how Flaherty concluded his speech: “Let me conclude by repeating that our economy has solid economic fundamentals, and Canadians can take some pride in that. I can assure you that our budget will remain balanced. We do have the strongest economic fundamentals in the G7. I can also assure you that our spending will be controlled.”

Today, the man who could not foresee a deficit, even after the stock market had crashed and the global economy was grinding to a halt, was forecasting a deficit for this year of just under $56 billion with large deficits ahead until the middle of the next decade.

Were it not for the utter weakness of his caucus, it is inexplicable that Stephen Harper would keep a proven incompetent like Flaherty at the helm of the Finance Department.

The Conservatives will do everything they can during the campaign to turn the spotlight away from their own appalling record. In the meantime, I wouldn’t be surprised to learn that they are trying to fashion a deal with the “separatists” to stave off their moment of reckoning.

(In future posts, I’ll look at the prospects of the other parties.)

Thursday, September 10, 2009

In Afghanistan: The War Grinds On

Seventy years ago today, September 10, 1939, Canada declared war on Nazi Germany. The declaration issued out of a special session of parliament nine days after the Nazi invasion of Poland and one week after Britain and France declared war on Germany. Later during the Second World War, there were further declarations of war against Fascist Italy and Japan. Those declarations of war, beginning with the one seventy years ago, marked an important marker in Canada’s achievement of sovereignty.

During the First World War, when Britain went to war against Germany in August 1914, there was no Canadian declaration of war. It was automatic. Canada as a dominion in the British Empire was at war when Britain was at war. Since the Second World War, there have been no further Canadian declarations of war. When the government of Louis St. Laurent took the country into the Korean War, his government simply announced that Canada would participate in what it called the “police action” in that country.

On Afghanistan, there have been two votes in the House of Commons, neither of them declarations of war, one in May 2006 that extended Canada’s mission there by two years and a second one in March 2008 that pledged that Canadian troops would stay in Kandahar until 2011.

With little thought of the potential consequences, the Chretien government declared in October 2001 that Canada would participate in Operation Apollo, the codename---derived from the U.S. moon landing project---for the mission of Canadian military units in support of the U.S. invasion of Afghanistan.

The current Afghan conflict has dragged on for nearly eight years. Before that a military struggle for control of the country was being waged by the Taliban government against the Northern Alliance. And before that, there were armed struggles among elements of the Mujahideen. And earlier still, there was the war of the Mujahideen, funded by the U.S., Saudi Arabia, Egypt and China, against the pro-Soviet regime in Kabul, and the Soviet Union’s occupying army.

To date, 129 Canadian soldiers have died in Afghanistan, the most recent on September 6 were Maj. Yannick Pepin, 36, and Cpl. Jean-Francois Drouin, 21, killed in an armoured vehicle by a roadside bomb. Coalition fatalities now stand at 1374, of which the U.S. share is 821 and the British total 213. Despite the participation of a long list of NATO countries in the conflict, just under 85 per cent of the casualties have been suffered by Canada, the U.S. and Britain. On a per capita basis, the Canadian toll has been the heaviest.

Year after year, despite the verbal commitment of other NATO countries to the cause, the proportion of NATO deaths experienced by the “Big Three”, if we can call them that, remains almost exactly the same.

In truth, commitment to the NATO mission in Afghanistan is low in almost all NATO countries. In Canada, the U.S. and Britain relatively few people believe that the West will succeed in the conflict. An EKOS poll taken in July 2009, revealed that 54 per cent of Canadians opposed the country’s participation in the war in Afghanistan, while only 34 per cent were in support.

During the Second World War, despite important internal divisions over crucial issues such as conscription, and despite the vastly higher level of casualties, Canadians remained committed to the conflict, believing their own futures were vitally tied up with the outcome of the war.

While huge efforts have been made by the Harper government to convince Canadians that the war in Afghanistan is our first line of defence against terrorism directed at us, Canadians just don’t believe this. Unlike the Second World War, during which the causes of human freedom and a better world remained intact until the end, the Afghan war has cheapened and tarnished the values to which Canadians are committed.

Repeatedly, it has been indisputably clear that the government in Kabul to which we are allied is brutal, corrupt, tied to war lords, and drug dealers, and is not committed to a vision of human rights, women’s rights in particular, that is remotely congruent with our own. The recent presidential election in Afghanistan was rife with fraud. Some will respond that we should not try to impose our values on the people of Afghanistan or their government. I agree with that. But I see no reason why we should put our soldiers in harm’s way and spend billions of dollars in a conflict where the cause has little or nothing to do with the kind of world to which we aspire and in which our national interests are not at stake.

While Canada has claimed to be rebuilding Afghanistan, 90 per cent of the billions we have spent there has been on the military side of the mission.

Although the Second World War was many things---a transition to a new system of global power with the United States and the Soviet Union at the helm, a proving ground for the atomic bomb, a laboratory for industrial genocide---for Canadians and the other peoples of the allied powers, it was a war to halt the Nazis and fascists from imposing their racial and authoritarian doctrines on the world.

The war in Afghanistan is not about freedom and human rights. For the West, it is a conflict to shore up a border region in the American Empire, the kind of war the Romans fought on the Scottish border, or to hold back the barbarians on the frontiers of Gaul or in the Balkans. It is the kind of war, the British fought in many places, including Afghanistan, when they ran a global empire.

Canadians don’t belong in this fight.

Wednesday, September 09, 2009

The "Health" of the American Empire

As Barack Obama struggles against the forces of reaction and corporate greed to reform the American health care system, he is not merely seeking improved health care for tens of millions of Americans, he is fighting to make the American Empire affordable.

It made seem odd to juxtapose health care and the fate of the American Empire, but the two are joined at the hip.

The hopelessly inefficient American health care system is the most expensive in the world and as the American population ages it is becoming more costly by the hour.

In June, the Obama White House published the results of an analysis of the American health care system undertaken by the Council of Economic Advisors (CEA).

According to the CEA, health care expenditures in the United States now account for about 18 per cent of the country’s GDP. (That compares to about 10 per cent of GDP for health care in Canada.) If the U.S. were to remain on the same track, the CEA estimates that by 2040, 34 per cent of GDP would be accounted for by health care.

The implications for governments of such a scenario are immense. Almost half of current health care spending is covered by Federal, state, and local governments,” says the CEA. “If health care costs continue to grow at historical rates, Medicare and Medicaid spending (both Federal and state) will rise to nearly 15 percent of GDP in 2040. Of this increase, roughly one-quarter is estimated to be due to the aging of the population and other demographic effects, and three-quarters is due to rising health care costs.”

Absurd as it may seem, without health care reform, according to the CEA the number of Americans who have no health insurance would soar between now and 2040 from 46 million to 72 million. If the U.S. were to achieve the efficiencies realized in other countries, the CEA estimates that the United States could reduce its health care expenditures by thirty per cent or as much as five per cent of GDP. At present, that would amount to a saving of about $700 billion a year. In fact, if the U.S. moved to a single payer system of the kind that exists in Canada, the savings, once the new system was in place could be as high as one trillion dollars a year.

In addition to the vast potential savings, Americans would be healthier as a consequence of reforms that bring everyone into the system. And while that is a quality of life benefit of staggering proportions, it would also generate greater economic output from the American work force, not least because Americans would no longer have to make retaining health care benefits a major consideration when they consider switching jobs.

What does all this have to do with the “health” or sustainability of the American Empire?

When we add to the wasting of a trillion dollars annually to sustain an inefficient health care system the expenditure of a trillion dollars a year on defence related matters----including the defence budget, additional costs for the wars in Iraq and Afghanistan, interest payments on the costs of past wars, veterans affairs, nuclear weapons research, etc.---it becomes clear that the United States is drowning in a sea of waste and debt.

American indebtedness is at the heart of the current global economic crisis. To the wastage on health care and the vast spending on the military, we need to add the rising net indebtedness of Americans to the rest of the world which totals several trillion dollars. (It’s no surprise that China’s central bankers are wondering out loud about how long they can sustain their enormous purchases of U.S. Treasury bonds and whether the U.S. dollar can continue as the global reserve currency.) There is the soaring American national debt, being driven upwards from about $9 trillion by federal government deficits that will exceed one trillion dollars a year well into the future. There is the ten trillion dollar debt owed by Americans as individuals, not least on their credit cards.

When Barack Obama faces the angry mobs of the American right to take a few quite modest steps on the road to health care reform, he is fighting for the viability of the American socio-economic system and its capacity to sustain a global empire. While this is not a cause that is near and dear to my heart, it is crucial to understand the stakes in the game. What continually endangers the American system is the unwillingness of the rich and the affluent in the United States to pay anything like their fair share of taxes and to reform the system so that it is not, as in the case of health care, grossly inefficient. The American Empire would not be the first in history to expire because of the greed and political folly of the rich. The wealthy in Rome and France lost empires, and many of them their heads, as a consequence of their cupidity.