Noam Chomsky Speaks On What ChatGPT Is Really Good For

• by: C.J. Polychroniou

Noam Chomsky

The subset of artificial intelligence known as Large Language Models can’t tell us anything about human language learning, but it excels at misleading the uninformed.

Artificial intelligence (AI) is sweeping the world. It is transforming every walk of life and raising in the process major ethical concerns for society and the future of humanity. ChatGPT, which is dominating social media, is an AI-powered chatbot developed by OpenAI. It is a subset of machine learning and relies on what is called Large Language Models that can generate human-like responses. The potential application for such technology is indeed enormous, which is why there are already calls to regulate AI like ChatGPT.

Can AI outsmart humans? Does it pose public threats? Indeed, can AI become an existential threat? The world’s preeminent linguist Noam Chomsky, and one of the most esteemed public intellectuals of all time, whose intellectual stature has been compared to that of Galileo, Newton, and Descartes, tackles these nagging questions in the interview that follows.

C. J. Polychroniou: As a scientific discipline, artificial intelligence (AI) dates back to the 1950s, but over the last couple of decades it has been making inroads into all sort of fields, including banking, insurance, auto manufacturing, music, and defense. In fact, the use of AI techniques has been shown in some instance to surpass human capabilities, such as in a game of chess. Are machines likely to become smarter than humans?

Noam Chomsky: Just to clarify terminology, the term “machine” here means program, basically a theory written in a notation that can be executed by a computer–and an unusual kind of theory in interesting ways that we can put aside here.

We can make a rough distinction between pure engineering and science. There is no sharp boundary, but it’s a useful first approximation. Pure engineering seeks to produce a product that may be of some use. Science seeks understanding. If the topic is human intelligence, or cognitive capacities of other organisms, science seeks understanding of these biological systems.

As I understand them, the founders of AI–Alan Turing, Herbert Simon, Marvin Minsky, and others–regarded it as science, part of the then-emerging cognitive sciences, making use of new technologies and discoveries in the mathematical theory of computation to advance understanding. Over the years those concerns have faded and have largely been displaced by an engineering orientation. The earlier concerns are now commonly dismissed, sometimes condescendingly, as GOFAI–good old-fashioned AI.

Continuing with the question, is it likely that programs will be devised that surpass human capabilities? We have to be careful about the word “capabilities,” for reasons to which I’ll return. But if we take the term to refer to human performance, then the answer is: definitely yes. In fact, they have long existed: the calculator in a laptop, for example. It can far exceed what humans can do, if only because of lack of time and memory. For closed systems like chess, it was well understood in the ‘50s that sooner or later, with the advance of massive computing capacities and a long period of preparation, a program could be devised to defeat a grandmaster who is playing with a bound on memory and time. The achievement years later was pretty much PR for IBM. Many biological organisms surpass human cognitive capacities in much deeper ways. The desert ants in my backyard have minuscule brains, but far exceed human navigational capacities, in principle, not just performance. There is no Great Chain of Being with humans at the top.

The products of AI engineering are being used in many fields, for better or for worse. Even simple and familiar ones can be quite useful: in the language area, programs like autofill, live transcription, google translate, among others. With vastly greater computing power and more sophisticated programming, there should be other useful applications, in the sciences as well. There already have been some: Assisting in the study of protein folding is one recent case where massive and rapid search technology has helped scientists to deal with a critical and recalcitrant problem.

Engineering projects can be useful, or harmful. Both questions arise in the case of engineering AI. Current work with Large Language Models (LLMs), including chatbots, provides tools for disinformation, defamation, and misleading the uninformed. The threats are enhanced when they are combined with artificial images and replication of voice. With different concerns in mind, tens of thousands of AI researchers have recently called for a moratorium on development because of potential dangers they perceive.

As always, possible benefits of technology have to be weighed against potential costs.

Quite different questions arise when we turn to AI and science. Here caution is necessary because of exorbitant and reckless claims, often amplified in the media. To clarify the issues, let’s consider cases, some hypothetical, some real.

I mentioned insect navigation, which is an astonishing achievement. Insect scientists have made much progress in studying how it is achieved, though the neurophysiology, a very difficult matter, remains elusive, along with evolution of the systems. The same is true of the amazing feats of birds and sea turtles that travel thousands of miles and unerringly return to the place of origin.

Suppose Tom Jones, a proponent of engineering AI, comes along and says: “Your work has all been refuted. The problem is solved. Commercial airline pilots achieve the same or even better results all the time.”

If even bothering to respond, we’d laugh.

Read more

Understanding The Controversy And Legality Of ‘Overseas Police Stations’

• by: John P. Ruehl

John P. Ruehl

The centers have highlighted China’s growing influence, as well as the increasing legal complexity of managing citizens and dual citizens in Chinese diaspora communities.

The apprehension of two men in New York on April 16, 2023, marked the first known U.S. arrests in connection with Chinese overseas police stations. Both men were working in a building in Manhattan’s Chinatown rented by the America ChangLe Association, a charity that had its tax-exempt status revoked in May 2022. More Chinese police stations are believed to be operating across the U.S.—though, like in other countries, not all their locations are known.

While foreign intelligence agencies conduct extensive espionage operations in other countries, domestic law enforcement agencies are also occasionally active abroad. The FBI trained many Latin American police units throughout the Cold War and has been covertly active in the region for decades. In 2020, Russia also offered to send a police force to Belarus during mass protests against Belarusian President Alexander Lukashenko, who blamed the West for trying to foment a color revolution.

However, the scale of China’s international program and the scope of its responsibilities is notable. Run primarily by ethnic Chinese residents, the main concern of these stations appears to be managing the more than 10.5 million Chinese citizens living overseas, and to a lesser extent the 35 to 60 million people in the Chinese diaspora. The considerable size of Chinese overseas communities has allowed Beijing to field an extensive global presence through these stations.

China’s first known use of these stations occurred in 2004 with the establishment of the Community and Police Cooperation Center in Johannesburg, following several attacks on Chinese citizens and businesses. The center opened with the blessing of the South African government, and more than a dozen have since opened in the country. As in other countries, they help Chinese citizens obtain documents, assist in criminal matters, integrate into the country, as well as offer “security, fire, and ambulance teams.” The Chinese government maintains that they are not police stations but instead function as “service centers.”

Two reports, released in September and December 2022 by the human rights organization Safeguard Defenders, indicated that there are now more than 100 overseas Chinese stations active in more than 50 countries. Managed by China’s Ministry of Public Security, the stations are operated by police agencies from three Chinese provinces (Jiangsu, Zhejiang, and Fujian) and are divided into centers, which are greater in scale, and liaisons, which have a lower profile but are more numerous.

Though the stations had previously drawn little attention, the reports have made Western countries far more wary of them in the context of intensifying geopolitical tensions with China over the last few years. There are also fears that the stations act as part of China’s United Front system to build political, economic, and cultural connections to influence other countries.

The stations have also brought increased Western attention due to their role in convincing Chinese citizens to return to China to face legal charges. Now known as Operation Fox Hunt, Safeguard Defenders estimates that from April 2021 to July 2022, 230,000 Chinese citizens were persuaded or coerced into returning to China, with China’s Ministry of Public Security itself stating that 210,000 citizens returned in 2021. Western officials had already criticized China for abusing Interpol’s Red Notice system to arrest and extradite citizens abroad for political purposes, while Operation Fox Hunt has allowed Chinese officials to bypass Interpol and deal directly with its own citizens. Read more

After Years Of Attacking Protesters, Sudan’s Army And Paramilitary RSF Turn On Each Other

• by: Pavan Kulkarni & Prasanth Radhakrishnan

List of cities in Sudan – Map Wikipedia

More than 500 people have been killed and 4,000 injured since fighting broke out between the Sudanese Armed Forces (SAF) and the paramilitary Rapid Support Forces (RSF) on April 15.

Groups such as the Sudan Doctors Union are worried the fighting could escalate after the evacuation of foreign nationals. Thousands have already fled the country. Over 69 percent of the hospitals in and around the conflict zones are inoperable. There is a severe shortage of medicine, food, water, and electricity.

The fighting is the latest in a series of political convulsions since massive pro-democracy protests overthrew long-time dictator Omar al-Bashir in April 2019. Army chief General Abdel-Fattah Burhan, who is the chair of the ruling military junta, and his deputy and RSF head, General Mohamed Hamdan Dagalo, aka Hemeti, were key members of Bashir’s regime. The RSF was formed out of janjaweed militias who were responsible for mass killings in Darfur during Bashir’s reign.

Burhan and Hemeti took over de facto control after Bashir’s fall and were responsible for the massacre of more than 100 protesters who were demanding civilian rule at a sit-in in Khartoum in June 2019. In its aftermath, they negotiated with right-wing parties in the Forces for Freedom and Change (FFC) coalition and inaugurated a civilian-military transitional government in August.

While this government had a civilian Prime Minister, Abdalla Hamdok, defense, police, and foreign policy were under the control of the army, with Burhan heading a ‘Sovereignty Council.’ The army controls a substantial chunk of the economy while the RSF has gorged on the mineral wealth of Darfur.

The transitional arrangement was supposed to pave the way for civilian rule. Instead, in October 2021, Burhan and Hemeti took complete control in a coup.

Throughout the years since the coup, protesters took to the streets, often in the hundreds of thousands, refusing any compromise with the junta and demanding genuine democracy and civilian control of the military. The protests were spearheaded by the Resistance Committees (RCs), a network of over 5,000 neighborhood organizations. Left forces, including the Sudanese Communist Party, were a key force too. Over 120 people were killed in the attacks on demonstrations in the months following the October 2021 coup.

Disregarding popular sentiment against any negotiations with the junta, the international community—the UN, U.S., UK, European Union, African Union, and the regional Intergovernmental Authority on Development—supported renewed talks between the junta and the FFC.

This negotiation led to the Framework Agreement in December 2022, which was to be concluded with a final political agreement that would have led to the formation of another joint government with civilians on April 11, 2023.

This plan did not materialize as the SAF and RSF turned on each other after disagreeing over the timespan for the integration of the latter into the former.

The Sudanese Communist Party has reiterated its rejection of any compromise with the junta. It maintains that international support for another power-sharing compromise after the October coup served to legitimize the junta, which eventually led to this infighting.

Author Bio:
This article was produced in partnership by Peoples Dispatch and Globetrotter.

Pavan Kulkarni and Prasanth Radhakrishnan are journalists with Peoples Dispatch and Newsclick.

Source: Globetrotter

Gilbert Achcar On The New Cold War

• by: C.J. Polychroniou

Gilbert Achcar – Photo: Wikimedia Commons 

The risk of a new Cold War has greatly increased in recent times, not only because of Russia’s invasion of Ukraine but also because the US has acknowledged China as a superpower rival that needs to be contained. This is the version about current international affairs that one encounters among mainstream analysts. However, Lebanese socialist scholar Gilbert Achcar claims that this interpretation of interstate relations in today’s world is a misrepresentation of the evolution of global politics since the official end of the period known as the Cold War, which lasted from 1947-1991, and rests on a confusing notion around the issue of a “new Cold War.” Indeed, in the interview that follows, Achcar argues that a New Cold War has been underway since the late 1990s and we are now at a stage where it could get hot.

Gilbert Achcar is professor of development studies and international relations at the School of Oriental and African Studies, University of London.  He is the author of many books, including The People Want: A Radical Exploration of the Arab Uprising; The Clash of Barbarisms: The Making of the New World Disorder; Perilous Power: The Middle East and U.S. Foreign Policy (co-authored with Noam Chomsky), and Marxism, Orientalism, Cosmopolitanism. His latest book, which was just released, is The New Cold War: The United States, Russia and China from Kosovo to Ukraine (Haymarket Books 2023).

C. J. Polychroniou: Russia’s invasion of Ukraine and its partnership with China have led many commentators to speak of the beginning of a New Cold War.  However, in your newly released book The New Cold War: The United States, Russia, and China from Kosovo to Ukraine, you argue that a new geopolitical East-West divide, and thus the emergence of a New Cold War, can be traced back to the late 1990s, and specifically to the Kosovo war. Let’s start with your understanding of the term “cold war” because I can see many objecting to your interpretation of the interaction of states in the global interstate system prior to Russia’s invasion of Ukraine.

Gilbert Achcar: There is a lot of confusion indeed around the issue of a new cold war. The uses of the expression did not start proliferating now, but since 2014 regarding US relations with Russia and since Trump for those with China. The range of opinions remained the same though, between those who believe that we’re in the thick of it, those who believe that it has only started now with the invasion of Ukraine, and those who are still warning of it as a potential outcome! What is right in all this, however, is that the notion of “cold war” is not conflated with the ideological and systemic opposition that existed between the Soviet-led and the US-led blocs. The origins of the expression “cold war” and of the notion of a New Cold War are both discussed in detail in my book.

Basically, a “cold war” is a situation in which a country maintains a state of preparation for war without being (yet) engaged in a “hot war.” In other words, the arms race is what made the Cold War be called as such, and I have explained since the late 1990s how the United States had decided to maintain a level of military expenditure based on the scenario of a war simultaneously waged against Russia and China. This decision was related to other provocative stances by Washington, which led me to identify the beginning of what I called the New Cold War in 1999. What happened since could only confirm this diagnosis, and it is rather amusing that today, when the world is as close to a very hot world war as it has ever been since 1945, some are still reluctant to call a spade a spade!

CJP: Who is the real enemy for Washington at the time you situate the genesis of the New Cold War, and why is the war in Kosovo such a dramatic turning point in the post-Cold War world?

GA: There were a lot of comments after the demise of the USSR about Washington’s need to invent a new global enemy. Some believed that “terrorism” had solved the problem, but “terrorism” is in no way the kind of “peer competitor” that Washington needs to secure the allegiance of its Cold War allies, which Zbigniew Brzezinski famously called its “vassals.” By basing its actual behavior on the assumption that both Russia and China were potential enemies, the United States has recreated tensions with Russia—and created new ones with China, after cooperating with it against the USSR during the last 15 years of the Cold War.

The Kosovo war was decisive because it shattered any illusions Moscow and Beijing might have had about the “new world order” promised by George Bush Sr. in 1990, when he was preparing for the first US-led war on Iraq conducted in the name of international law and sanctioned by a UN Security Council resolution that Moscow approved and on which Beijing abstained. Bush Sr.—in a famous speech delivered, by an irony of history, on September 11, 1990—had promised that, from then on, the world would be “quite different from the one we’ve known: a world where the rule of law supplants the rule of the jungle.” Moscow and Beijing hoped that the UN would henceforth play the role for which it had been initially designed, thus giving them a veto right about the use of force in international relations. Likewise, Bill Clinton’s administration had assured Moscow that NATO’s enlargement to Poland, Hungary and the Czech Republic was not intended against Russia. And yet, the same year 1999 when that enlargement was sealed is the year when NATO launched its first war ever, the Kosovo war, circumventing the UNSC and thus violating international law. Read more

Is Politics All In The Mind?

• by: Eric Laursen

Eric Laursen – Photo: LinkedIn

Political partisanship has a neurobiological basis, a new study shows. It is predicted by the way our brains process basic political words or concepts.

Do conservative and liberal brains work differently? What once might have been a semi-serious topic for kitchen-table discussions of political differences has burgeoned into a lively area of research for neural scientists. Increased ability to observe brain structure and function makes this possible, but the motivation comes from the sharply more partisan political landscape of the past few decades. Communication and cooperation between parties are essential to the functioning of government and society; if political polarization arises or becomes embedded in our brain’s deep wiring, understanding how becomes a matter of great importance.

A recent study exploring this timely area comes from the Carney Institute for Brain Science at Brown University and takes off from previous research showing that polarization isn’t simply a matter of two political camps consuming information from different sources; exposure to opposing perspectives can actually reinforce cognitive biases, suggesting that these have a neurobiological origin.

The researchers—Daantje de Bruin, Jeroen M. van Baar, Pedro L. Rodríguez, and Oriel FeldmanHall—hypothesized that like-minded partisans interpret events the same way because they represent and experience political content similarly as well. In other recent studies, political allies demonstrated synchronized neural dynamics when they consumed the same political content, but that doesn’t explain what drives the similarity. The Brown researchers trace it back to something more basic: the “semantic representations” our brains create to express similarities and organize knowledge. Polarization is triggered not by how the two sides in the abortion debate argue their position, but by individuals’ emotional response to the word “abortion” itself, and the associations it carries for them: all of which occur in the brain, and specifically, the striatum and amygdala, the “regions involved in encoding value and emotional content.”

The researchers’ objective was to determine whether a shared representation of political words in the brain predicts a shared ideological affinity. They recruited 44 individuals, evenly split between liberals and conservatives, to perform two exercises: one reading, the other watching videos while undergoing functional magnetic resonance imaging (fMRI), which measures brain activity by detecting changes associated with blood flow. The first exercise was behavioral—taking place outside the brain—and the other was neural—taking place inside the brain.

In the first exercise, participants were presented with 60 words, including “abortion,” “addiction,” “American,” “health care,” “police,” “immigration,” and “welfare,” mixed with a series of animals and objects, and asked to press a button to indicate whether each word was political or nonpolitical. They then sorted each word based on its semantic or associational similarity, producing clusters around hot-button topics like immigration and abortion and politically loaded concepts like Americanness.

The second exercise asked the participants to watch three videos, two of which were included in the analysis: a neutrally worded PBS NewsHour report on abortion legislation, and a politically contentious clip from the 2016 vice-presidential debate between Democrat Tim Kaine and Republican Mike Pence. The fMRI data revealed a close connection between individuals’ ideological bent and the patterns of activity in the striatum when they heard the words “immigration” and “American,” for example. Conservatives shared one pattern of neural activity when processing the word “abortion,” and liberals exhibited another.

Those who showed greater “temporal synchronization of neural states” in response to particular words were likely to have demonstrated a similar political slant in the reading exercise as well. This dovetailed with a previous study which found that conservatives associated abortion with terms like “right to life,” “murder,” and “personhood,” while liberals associated them with “freedom to choose,” “women’s rights,” and “personal autonomy,” among others.

Polarization appears to involve a third area of the brain as well. When participants in the Brown study viewed the segment of the vice-presidential debate on immigration, ideologically like-minded individuals exhibited similar neural activity not just in areas of the brain concerned with value and emotional content, but also in the dorsomedial prefrontal cortex (dmPFC), which is where mentalizing—the process by which we form a sense of self—takes place. According to the researchers, this means that the affective experiences taking place in the striatum and amygdala, shaped by our ideologies, help determine our most basic sense of who we are.

What the researchers found especially telling was that the results were the same regardless of context. One of the best-known theories of political polarization argues that it results from constant exposure to the same sources of information and opinion; once we engage with a particular set of news or social media outlets, we find ourselves in an echo chamber or informational community that binds us ever more tightly. In theory, exposure to other sources, or different framing of the issues, can reduce partisanship and allows us to process information more dispassionately.

The Brown study suggests this is not the case. In the reading exercise, the words were presented with no context at all; in the video-watching exercise, one of the clips was nonpartisan, the other highly partisan. And yet, the participants grouped the words and responded to them neurologically in the same way. Shared semantic representation, in other words, was the determining factor in both exercises. Or, to put it more simply, “political polarization is driven by how individuals emotionally experience and come to value political information,” the researchers conclude. A word like “immigration” carries the same emotional weight for political partisans, no matter how or where we encounter it.

Some words or issues elicit a stronger reaction than others, depending on the current political climate. The strongest polarized response in the Brown study came from the word “immigration,” for example, with “abortion” a close second and “police” trailing. Individuals who made the same associations with immigration in the reading exercise tended to have the same response to the word in the amygdala. The researchers chalk this up to the fact that they collected their data in early 2019, just a few months after the Trump administration proposed the Build the Wall, Enforce the Law Act, which made immigration the hot-button political topic of the moment. Had they carried out their research later, the Black Lives Matter movement or the Supreme Court’s decision to abandon Roe v. Wade might have produced a different result.

These differences in response underscore an important cautionary point, the researchers say: that political content is complex “and typically ignited in naturalistic conditions” such as watching TV or engaging with social media. Many factors come into play in determining our response when we are bombarded with a constant stream of stimulation involving highly emotional issues. But the Brown study suggests that three factors are most important: semantic representation of key words or concepts; how we segment that information into meaningful units (like immigration or abortion); and the blood flow responses, captured by fMRI, that they trigger.

This does not mean that conservative and liberal brains are different; the process of polarization works the same way no matter how one identifies politically. What the Brown study reveals instead is how deeply our brains absorb semantic representations, and how powerfully they shape our political ideology through our neural processes. If we want to restore civility and cooperation between political parties, our task is more complex than finding the right frame in which to discuss the issues.

Author Bio:

Eric Laursen is an independent journalist, historian, and activist. He is the author of The People’s Pension, The Duty to Stand Aside, The Operating System, and the forthcoming Polymath: The Life and Professions of Dr. Alex Comfort, Author of The Joy of Sex. His work has appeared in a wide variety of publications, including In These Times, the Nation, and the Arkansas Review. He lives in Buckland, Massachusetts.

Source: Independent Media Institute
Credit Line: This article was produced by Human Bridges, a project of the Independent Media Institute.

Regulation Won’t End Bank Crises. We Must Put Shadow Banks Under Public Control

• by: C.J. Polychroniou

Costas Lapavitsas – Photo: SOAS University of London

Regulations designed by banks to shield their interests will never be enough to halt banking crises, an economist warns.

Recent bank failures in the U.S. have raised the prospect of yet another financial crisis and brought about renewed calls for stricter bank regulations rules. Yet, key questions remain: Why have banking crises become an essential feature of contemporary capitalism? Are strict bank regulations in a capitalist society really the answer to a problem caused by capitalist financial institutions themselves? What should be done to tackle the problem at its root? Internationally renowned Marxist economist Costas Lapavitsas sheds light on these issues in an exclusive interview for Truthout.

Lapavitsas is professor of economics at the School of Oriental and African Studies University of London, and author of numerous books, including Against the Troika: Crisis and Austerity in the Eurozone (with Heiner Flassbeck); The Left Case Against the EU; The Cost of Living Crisis (and how to get out of it) (written with James Meadway and Doud Nicholls); and The State of Capitalism: Economy, Society, and Hegemony (with the EReNSEP Writing Collective).

C.J. Polychroniou: Recent bank failures have revived fears for a repeat of the global financial crisis of the late 2000s. Do we need to look back to the 2007-09 financial meltdown to understand the current banking crisis?

Costas Lapavitsas: The current financial crisis has some common features with that of 2007-09 but is also significantly different. For one thing, it is not nearly as big, though it still has some way to go as I will explain below. More significantly, the turmoil of 2007-09 was a systemic crisis of financialized capitalism, which had expanded aggressively during the previous two decades. What is currently taking place is a crisis of financialized capitalism that is now past its peak.

In the 2010s, financialization continued but without its earlier dynamism. It now relies entirely on the state, while the balance in finance has shifted away from commercial banks and toward shadow banks, i.e., financial institutions that are different from commercial banks because they do not hold deposits used as money. The current crisis has not yet brought into play the shadow banks. We will have a better idea of how serious it is when their condition becomes clearer.

In a little more detail, the crisis of 2007-09 came after an enormous housing bubble spurred by the Federal Reserve drastically lowering the rate of interest in 2001. The speculative mechanisms relied heavily on shadow banks that operated in housing and real estate markets. They securitized mortgage debt by borrowing heavily in the open markets as well as from commercial banks to securitize. Together with commercial banks, they moved aggressively into the subprime mortgage business, securitizing mortgages pushed on poor working people in the inner-city areas of the U.S.

Securitization was profitable primarily because the speculators earned fees and commissions. But the process was extraordinarily risky because mortgages taken by the poorest section of the U.S. working class were mixed with mortgages taken by others to create synthetic financial assets traded as securities in open markets. Great volumes of funds flowed between the U.S. and Western Europe as European banks also took part in the action.

The burst of the bubble that began in 2007 threatened to destroy the entire U.S. banking system. Finance was rescued because the U.S. Treasury made available to it hundreds of billions of tax dollars at the worst moment of the crisis in 2008, while the Federal Reserve supplied banks with enormous volumes of liquidity. Without the support of the state, capitalist accumulation in the U.S. would have ground to a halt, and the world economy would have been thrown into complete disarray. The cost, needless to say, was borne largely by house-owners, mortgage holders, workers and the poor.

But state intervention in 2009 and beyond did not change the structures of financialization. Rather, it protected the key interests benefiting from the growth of finance since the early 1980s. States in the core countries of the world economy adopted austerity throughout the 2010s, worsening the provision of health and education, and exacerbating poverty. At the same time, central banks continued to provide vast quantities of liquidity to the economy in the form of quantitative easing that typically involved creating fiat money.

In the 2010s, the biggest central banks — the Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of England — became truly enormous institutions through quantitative easing. At present, the largest money markets of the world economy, through which private financial institutions and large multinationals obtain liquidity, are practically incapable of operating without extensive central bank support. Through their vast intervention, central banks brought interest rates to extraordinarily low levels throughout the 2010s, an unprecedented development in the history of capitalism.

And yet, despite state intervention, capitalist accumulation at the core of the world economy remained historically feeble. In the 2010s, growth was at its weakest in decades, while average profitability floundered along. Fixed capital investment remained relatively low, and productivity growth was very poor. The engine of capitalist accumulation ran on fumes after 2007-9, and the result was the growth of “zombie firms” across core countries that were able to survive only because interest rates remained low for such a long time.

State intervention, however, allowed finance to recover in the 2010s, even though there was no bubble remotely similar to that of the 2000s. Commercial banks retreated in relative terms and had fewer opportunities for profits as the speculative mechanism of mortgage securitization was broken. The real beneficiaries of the 2010s were shadow banks, particularly the huge investment funds that came to dominate financial markets.

These are portfolio holders — asset speculators — who seek cheap funding to buy stocks and shares in the hope of profiting from price increases, dividends and interest payments. Three of these funds currently control more that 25 percent of the entire equity capital of the U.S. This concentration of property is, again, a development without precedent in the history of capitalism.

In sum, the decade that followed 2007-9 witnessed financialization go past its peak as a historical trend, while accumulation remained weak, profitability failed to rise systematically, and there was no clear alternative direction for the world economy. This highly unstable configuration was shaken hard by COVID-19, which struck the already weakened side of production by forcing closures of firms, sending workers home, and disrupting global production chains.

We saw massive state intervention during the 2007-09 financial meltdown and no less so during the COVID-19 pandemic. Indeed, it seems that the capitalist state will always be around to bail out the financial sector, primarily thanks to the tools employed by the central banks, but it seems that crises never disappear.

Indeed, an even more extraordinary bout of state intervention compared to the preceding decade took place in 2020-21. Central banks created truly phenomenal volumes of liquidity by accelerating the quantitative easing policies practiced since 2007-09. They loaded up on public and private debt and drove interest rates practically to zero. The balance sheet of the Federal Reserve reached $9 trillion, more than a third of U.S. GDP. States also increased fiscal expenditure to support aggregate demand and prevent unemployment from escalating. In 2020, the ratio of public debt to GDP in the U.S. exceeded 130 percent, the same level as in the Second World War.

Gigantic state intervention in 2020-21 prevented catastrophe but it did not resolve the underlying problem: that is, the weakness of accumulation. And so, it gave to the turmoil a new and more complex form that is already appearing as the current banking crisis.

Enormous state borrowing in 2020-21 created conditions for a bubble in public bonds. Both commercial banks and shadow banks took advantage of near-zero interest rates and abundant liquidity to buy government bonds and other financial assets on the assumption that interest rates would remain low and thus bond prices would stay high. Commercial banks also avidly expanded credit in 2020-21 as money became practically free. Private indebtedness grew rapidly.

This preposterous financial jamboree at a time when real accumulation was in deep trouble could not but end up in major trouble. The weakness of supply at a time when demand was strongly supported by the state led to inflation, which accelerated rapidly in 2022, approaching 10 percent in core countries. Big businesses took advantage of rising prices to maintain their profit margins, not least by speculating through further tightening supply. Wages lagged behind, and so workers’ real income declined. What took place in 2022 was a gigantic transfer of income from workers to capitalists through the acceleration of inflation.

Speaking of inflation, doesn’t it actually threaten the foundations of financialized capitalism?

Inflation threatens the very foundations of financialized capitalism. Big businesses can take advantage of it to raise their profits for a period, but the financial interest and lenders in general are threatened since inflation eats into the capital of lenders and disrupts their activities. The ruling elite of contemporary capitalism knows of only two methods to suppress it: first, keep wages down, thus lowering workers’ real income and, second, raise interest rates. In 2022, interest rates escalated rapidly from near zero to more than 4 percent at the core of the world economy.

The trouble was that raising interest rates completely disrupted the speculative business models adopted by financial institutions in 2020-21. It soon became clear that commercial banks — such as Silicon Valley Bank (SVB), which had bought government bonds and other assets using cheap liquidity — were effectively bankrupt. The rise of interest rates, on the one hand, destroyed their profitability by increasing the cost of liquidity and, on the other, created a hole in commercial bank assets by ending the bubble in government bonds and bringing their prices down.

For the moment, intervention by the U.S. government, again committing public credit, has prevented the worst. But it is unlikely that this will be the end of the crisis. The reason is that the speculative drive into bonds permeated the financial system in 2020-21. If interest rates stay at the current high levels to bring inflation down, the possible losses on the holdings of bonds and other financial assets might be in the hundreds of billions of dollars.

Where do these losses lie? The probability is that shadow banks as well as commercial banks are facing huge holes in their balance sheets. If this is true, the crisis has every chance of proving equally severe to 2007-9. We will only know as time goes by and the dirt comes to the surface through further shocks.

Today, just like during the 2007-09 financial meltdown, there are calls for stricter bank regulation rules. This is a rather tiresome refrain, isn’t it?

The fresh crisis and the need for urgent state intervention to rescue finance have led indeed to the usual cries for tougher regulation, stronger capital requirements, harsher stress tests, and the like, to ensure that the banking system in the U.S. and elsewhere becomes “secure.” It cannot be overemphasized how much nonsense such talk is, especially after four decades of repeated banking crises across the world. This type of regulatory intervention does absolutely nothing to prevent crises — SVB would have passed all tests with flying colors shortly before it collapsed. This is regulation largely designed by the banks to protect the interests of the banks, not the public.

The financialization of capitalism has witnessed the sustained growth of a private financial system that penetrates every corner of social activity. Finance periodically engages in frenzies of speculation, only to rely on public support for its rescue. Commercial banks enjoy a privileged position in this respect because they create the money that people use in everyday life. Thus, they are able to make private profits, while socializing their losses. More prudential regulation will do absolutely nothing to improve the situation.

If bank regulations rules do not work, what’s the answer to banking crises which remain a constant feature of financialized capitalism and, potentially, threaten to bring down entire economies?

What should be done is indeed the critical question. Is the answer to let commercial banks fail, as some argue, replacing them with financial institutions that do not create money (essentially shadow banks)? These institutions would, presumably, provide the loans that capitalist firms — and possibly households — require in the form of financial assets to be traded in open markets. Meanwhile, the money that is necessary for economic life would be created directly by the central bank, perhaps by everyone holding an account directly with it. Prime candidates for that are central bank digital currencies, which are currently under consideration across the world.

There is nothing particularly novel about such proposals, it should be said, except for the new and modern-sounding digital currency. The notion that banks should be effectively turned into investment funds was originally proposed by the American economist Irving Fisher in the 1930s as the “Chicago Plan,” and it keeps reappearing in academic and policy circles. There are two fundamental problems with it.

First, commercial banks are extraordinarily flexible in generating the credit that is necessary for capitalist accumulation, while at the same time creating money. If they were replaced by investment funds that could not create money, the credit-generating capability of the financial system would suffer greatly. That would constrain productive accumulation, with everything this implies for workers’ employment, incomes, and so on. Financialization is already characterized by weak accumulation, and hobbling the creation of credit would make things worse.

Second, the notion that the central bank should be the sole provider of money after eliminating money created by private banks calls for the greatest caution. For the central bank to deliver this task properly, it would have to anticipate and preempt the pace of economic activity across the entire economy. In effect, it would have to become a planner on a grand scale. Furthermore, if the money created by the central bank is to be digital and provided on, say, the basis of blockchain technology, that would give to the central bank enormous capabilities to collect information about individual citizens across society. The planner would begin to acquire dictatorial powers. Be careful what you wish for.

Financialized capitalism already possesses enormously powerful central banks that are presumably “independent.” Reform in the interests of working people does not involve further strengthening of central banks. What is needed is wholesale intervention to create public banks that do not operate speculatively but are subject to effective regulation of interest rates and volumes of credit, while being imbued by a spirit of public service. At the same time, the enormously expanded shadow banks should be brought under control, and democratization should take place at the central bank. On this basis, the weakness of the productive sphere should be tackled head on through policies that shift the balance in favor of public property. That is the path to overturning the destructive financialized capitalism of our times.

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C.J. Polychroniou is a political scientist/political economist, author, and journalist who has taught and worked in numerous universities and research centers in Europe and the United States. Currently, his main research interests are in U.S. politics and the political economy of the United States, European economic integration, globalization, climate change and environmental economics, and the deconstruction of neoliberalism’s politico-economic project. He is a regular contributor to Truthout as well as a member of Truthout’s Public Intellectual Project. He has published scores of books and over 1,000 articles which have appeared in a variety of journals, magazines, newspapers and popular news websites. Many of his publications have been translated into a multitude of different languages, including Arabic, Chinese, Croatian, Dutch, French, German, Greek, Italian, Japanese, Portuguese, Russian, Spanish and Turkish. His latest books are Optimism Over Despair: Noam Chomsky On Capitalism, Empire, and Social Change (2017); Climate Crisis and the Global Green New Deal: The Political Economy of Saving the Planet (with Noam Chomsky and Robert Pollin as primary authors, 2020); The Precipice: Neoliberalism, the Pandemic, and the Urgent Need for Radical Change (an anthology of interviews with Noam Chomsky, 2021); and Economics and the Left: Interviews with Progressive Economists (2021).