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My Interview With Noam Chomsky on the Economy

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Professor Noam Chomsky has influenced my thinking more than any single person on earth. His speeches, interviews, articles, and books have profoundly changed the way I see the world, and I feel forever indebted to him for his contributions to human knowledge.

The MIT linguistic professor is regarded as the world's leading intellectual for good reason. His encyclopedic knowledge of political, philosophical and economic issues is simply breathtaking, and his ability to break complex subjects down to their rawest essentials is a form of high art. Although regarded as an intellectual, Chomsky is highly suspicious of the term, a symptom of his deep hostility to concentrated power and elitism. Chomsky has spent a lifetime standing up to power, and confronting conventional wisdom with moral force and penetrating intelligence. He uses his position of privilege to speak for those less fortunate than him, and has routinely spoken out against the actions of his own government when it was not popular or even dangerous to do so.

Chomsky has made such huge contributions to progressive thought that it is unlikely it would be anywhere without him. His analysis of the modern corporate state system and mass media has provided a template for younger generations to fight more effectively against it, and a legion of followers have followed in his footsteps to take up the cause. For many, Noam Chomsky is the symbol of resistance, an inspiration to millions without power or influence and a glimpse at what real intellectualism should be about.

I spoke with Professor Chomsky about an array of topics, from the bailout and the presidential elections to the legacy of George Bush.

BC: What are your thoughts on the current economic crisis and the bail out bill that passed in the Senate?

NC: The crisis is real, it's not manufactured. Exactly how serious it is, one doesn't know. Some of the most credible specialists like Nuriel Rabbini who have a very good record of accurate prediction think it's an extremely serious crisis and that the system might just freeze up. There is also a good deal of controversy about whether the current proposal will do more than put a band aid on a serious problem. Now there are alternatives, constructive alternatives. And they are being proposed, I mean, you can find them in the literature, but they are not on the agenda. It's interesting, I mean the public is strongly opposed to the bailout, you can see that in the behavior of Congress, the House of Representatives where the Representatives come up for election in November voted it down, despite the enormous pressure. The Senate, which is kind of a millionaires club, where only a third of them come up for election, they passed it overwhelmingly. So the House did respond to a populist revolt. Superficially that looks like a sign of a functioning democracy, but that's only superficial. I mean even a dictatorship, when the public is rioting, the government will respond. In this case, the public's reaction was resorting to shouting 'No'.

In a democracy, in a functioning democracy, what would be happening is that popular organizations, unions, political groupings, others would be developing their programs, putting them forth, insisting that their representatives implement those programs. And there are possible programs that might make a difference, but none of this is happening. And the reason this isn't happening is because there is no functioning democracy. The role of the public is restricted to shouting, 'No'. The bill passed in the House because the alternative was quite dire, but it doesn't mean it was a good proposal, or by any means the best proposal.

I mean there are serious problems, and they have deep roots. The immediate problems were caused by the housing bubble that Alan Greenspan had permitted to explode. They could have controlled it on the basis of the kind of lunatic belief in free market fundamentalism. So they allowed this bubble to explode and the houses were way beyond their trend line, the actual realistic price. They've been collapsing, but they've got a long way to go. The Bush economy, which was like the Reagan economy, is very fragile, and is based on debt -- lenders from abroad, and also consumer spending which is debt driven. Consumer spending was largely based on inflated house prices, essentially collateral, and as the house prices collapse, so does the basis for consumer spending, then the economy collapses because its not a well functioning real economy.

All this goes back more deeply to the financial liberalization back in the 1970s. Now financial liberalization is just a catastrophe waiting to happen, and there are very well understood reasons for that. Markets have built in inefficiencies, serious inefficiencies which are well known. One of them is that transactions in a market do not take into account what are called 'externalities', so if you and I make some sort of a deal , say you sell me a car, we may make an arrangement that is good for us, but we don't take into account the costs for others. And there are costs, traffic jams, pollution, the price of gas, and so on. They may seem small, but they're not. They add up and they can be quite large. In the case of financial institutions, they are very large. A financial institution has the task of taking risks, and if it's a well run institution, say Goldman Sachs, it tries to cover the potential losses to itself, but only to itself. It does not take into account what is called systemic risk, the effects of its failure on the whole system. So that means risk taking is what's called 'under priced' -- you are not really taking into account the risks, the real risks when you look after only yourself, and that means there is a lot more risk taking than an efficient system would permit. And that's bound to lead to crisis, and it has ever since financial liberalization was initiated back in the 70's. There has been an increase in both the regularity and the scale of financial crises, and now a major one has hit and come home. So it was predicted and predictable, and it's now serious.

BC: Does the nationalization of Fannie Mae and Freddy Mac and the enormous bailout on Wall Street represent an end to Laissez Faire capitalism?

NC: It's not an end to Laissez Faire capitalism because it never existed! The nationalization is very dramatic right now, its all over the front pages, but the fundamental principle that the public takes the risks and pays the costs while profit is privatized, that principle which we are seeing dramatically right now, that's a basic principle for the whole economy. I mean, the whole advanced economy is based on that principle. The state sector of the economy, which is dynamic and the source of much of the innovation and development that underlies the advanced economy, that is the system in which the public pays the cost and takes the risks, and profits are ultimately privatized. Take say, computers and the internet. They were pretty much in the state system for decades before they were handed over to a private enterprise to make profit from, and virtually everything you look at in the advanced economy and the cutting edge economy works like that. I mean there is now talk in the press, commentators talk about the socialization of risk and cost and privatization of profit, but they are talking about it as if it is something new, and a blow to laissez faire capitalism. It's not new. That's the way the system works, and has worked for centuries.

To read the rest of the interview on the Bush Administration's extremism, the history of torture and Barack Obama, click here.

Ben Cohen is the editor of www.thedailybanter.com and a contributing writer to www.espn.com. He can be reached at thedailybanter@gmail.com