Vrettos: 1. We’re waiting to see how the rhetoric of the new Biden administration will play out in actual policies.

Hudson: Biden’s long political career has been right-wing. He’s the senator from Delaware, the country’s most pro-corporate state – which is why most U.S. corporations are incorporated there. As such, he represents the banking and credit-card industry. He sponsored the regressive bankruptcy “reform” written and put into his hands by the credit-card companies. As a budget hawk, he’s rejected MMT, and also “Medicare for all” as if it is too expensive for the government to afford – thereby making the private sector afford to pay 18% of US GDP for health-insurance monopolies.

Hardly by surprise, Biden has chosen cabinet members as corporate lobbyists, including the new Secretary of Defense. And on February 9 he invited Jamie Dimon and other business leaders to the White House and asked them what they recommended. These billionaires said that they didn’t need $1.400, so why should anyone else? They pretended that spending money might cause inflation – yet we are in the midst of debt deflation and falling disposable income for most families.

Biden’s prejudices are why the Democratic National Committee pushed him as their candidate over Sanders, and why Rep. Jim Clyburn made his pharmaceutical industry backers happy by pushing Biden over the top in South Carolina, delivering the black vote in that state’s big primary.

What amazes me is the ability to attract this vote despite the degree to which Biden has sponsored legislation that hurts blacks and other minorities: his cutbacks in welfare spending, his anti-crime laws falling mainly on the black community, his bankruptcy laws, and of course his denial of universal public medical care to that part of the population with the highest death rates, shortest lifespans and worst medical care.

He has tried to cover up this history by appointing Neera Tanden as head of the budget, claiming that she’s a progressive presumably simply because she’s non-white. Yet she’s a leading opponent of Bernie Sanders’ Medicare for All proposals.

In our polarized economy, wages have stagnated since 1971 – home ownership rates have fallen as foreclosures, evictions and homelessness have jumped dramatically during the 2020-2021 Covid pandemic.

The big decline in home ownership was the result of Obama’s double-crossing his campaign promises by bailing out the banks and leaving all the junk-mortgage debts and other fraudulent loans on the books. This led to foreclosures and evictions of about 9 million American families, most of them Hispanic and black. Home ownership rates plunged from 68 to 61 percent of the population (an enormous and rapid 10% drop).

The covid epidemic is leading to enormous arrears mounting up – for renters and for mortgage debtors. Evictions have been suspended by moratoriums that expire in March or April, and unpaid mortgages have been added onto later due dates (with appropriate penalties making this remunerative for the banks).

So the question is whether Biden can outdo Obama in reducing U.S. home ownership rates by another 10% — say, to just 56% of the population.

Let’s look at what could be done – today and a decade ago. Obama and Biden COULD have written down the junk mortgages to realistic market prices (and thrown the mortgage brokers and bankers in jail for fraud). Instead, they supported the fraudsters against the voters who had been promised “hope and change.” Most of the millions of foreclosed homes were bought by absentee owners and turned into rental property. Companies such as Blackstone were major players. The evicted families entered the rent market – and U.S. rent charges have soared. So consumer income has been spent much more on real estate, finance and insurance than for goods and services.

It’s most severe and unstable at the bottom of the housing market where tenants who have lost jobs have amassed $11 billion in rental arrears — a broader measure which includes all delinquent renters puts the number at $53 billion.

There are two kinds of results. The first will be an enormous accrual of back-rent debts and mortgage arrears to be paid off. For commercial businesses such as restaurants, these arrears are so large that they probably will choose to go out of business rather than paying all the profits for the next few years to their landlords.

Unless these debts are written down, most of the population is too debt-strapped to buy goods and services. So corporate profits can come only from rising prices, or getting government subsidy,

A second result is going to be a rise in homelessness in many cities. Entire camps of evictees will be forming in tents, perhaps in the major parks – or on the subways as in the past.

Many properties will be sold – yet housing prices are still rising.

What are some of the specific racial effects of this housing and job crisis, what’s been the Bidden administration’s response so far and how does this relate to your own work on racial reparations measures?

The low rates of black home ownership reflect a vicious history of red-lining. Limiting the areas where non-whites can buy has gone together with charging much higher interest rates than white buyers receive.

Housing is the basic criterion for joining the middle class. And for a century, blacks were excluded, not only by banks but from the government mortgage-insurance programs dating from FDR’s reforms in the 1930s. That’s what made black buyers “more risky” and hence charged higher interest rates.

I grew up in Hyde Park, in Chicago. The University of Chicago and its property management companies were among the worst abusers. For them, a “free market” meant a market free of blacks. But in the late 1950s they saw that they could do “block busting,” that is, selling a home in a white neighborhood to a black buyer. This panicked the neighboring owners, who sold their homes. The buyers were largely the speculators, who flipped them to black buyers at marked-up prices.

That happened on my block, on 48^th and Dorchester, a block from where Obama has bought his home. Once a few houses had changed hands, Mayor Daley condemned the block. My house was torn down, as were others, and the land is not gentrified.

To put the issue in perspective, think of the situation in 1945. That is when the great increase in middle-class wealth – today’s middle-class net worth – took off. It was limited to white people, because they were the only people who qualified for the great increase in net worth created by the house-price boom over the past 75 years.

The norm was that banks limited their mortgages to a level that would absorb up to 25% of a buyer’s salary. The buyer would get a self-amortizing mortgage, to be paid off in 30 years free and clear. This limit on debt leveraging kept housing affordable.

You and I have spoken about the issue of black reparations before. It’s very hard to pay reparations for slavery, because the enslaved families have died long ago. The reparations need to be paid to the living – and after all, it’s the living blacks who remain injured.

There is one way to make the black population economically as resilient as the white population has been. That is to give it the same deal that created most white middle-class wealth. The government should buy or build homes – private homes, just like white neighborhoods, not public housing. They should offer buyers the same deal that was given in 1945. Any black family would be given a home, with a mortgage of 25% of the household head’s income, to be amortized over 30 years.

Oscar Brisset:

Welcome to the first event of the Oxford Economics Society for this academic year. I’m Oscar, the Co-President of our society, and I’m glad to welcome you back for another term of exciting discussions. Although we were hoping last term to be back in-person by January, due to the worsening Covid-19 situation in the UK our events this term are going to remain online, so that everyone at home can still participate.

A new year calls for new resolutions, and our society’s resolution for 2021 is to increase the diversity of economic topics discussed. To give you an idea, we’ll be hosting a presentation on Decolonising Economics and its role in Emerging Markets by Dr. Ingrid Kvangraven, the executive board member of Diversifying and Decolonising Economics. We’ll be hosting Prof. Randall Wray, a strong proponent of the much-discussed modern monetary theory, who was also as I just discovered, professor at the University of Missouri-Kansas City, like our guest today. We’ll also be hosting a presentation on the Young Scholars Initiative run by the Institute of New Economic Thinking at Oxford, a community some of you will definitely be interested in joining that brings together more than 15,000 young economists from around the world. Finally, we’ll be organizing a moderated discussion with the FT’s Chief Economics commentator Martin Wolf, and many other events of course.

To start us off, we are proud to host Michael Hudson, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, former balance-of-payments economist at Chase Manhattan, and an economic advisor to governments worldwide, including Iceland, Latvia and China, on finance and tax law. Now, nearly 50 years after the original publication of “Super Imperialism“, Professor Hudson will be discussing “Changes in Super Imperialism: The position of the USA & China in our Global Economic System”. How has the rise of China and the Covid-19 pandemic affected the USA’s capacity to control financial flows? How will the USA modify its behaviour as a result?

The talk will last 45 minutes, with 15 minutes of questions at the end. Make sure to send in your questions throughout the talk through our Pigeonhole page. The link should be in the description of this event. If you would like to re-watch our events, they’ll be posted to our YouTube channel afterwards.

Thank you for joining us, Professor Hudson…

Prof Hudson:

It’s good to be here. Thank you for inviting me, especially since you mentioned people that I’ve known for a long time. Randall Wray, both of us are now at the Levy Institute and working in other places, and Martin Wolf I’ve been friends with.

The reason that I’m writing a new version of Super Imperialism is that I was asked to by China, and I thought, “As long as they want to bring out a new translation and basically an update of the book, I might as well do it in English too.” I bought the rights back from Pluto and in about two or three months I will be reissuing the English language edition. The context for de-dollarization today by China, Russia and other countries is basically “How do you make an alternative to an international financial order that really was designed from the beginning to benefit the United States in its own self-interest?”

This issue was discussed after WWI when the intergovernmental debt system broke down into Allied debts and German reparations. It was discussed again at the 1930s when the United States sort of scuttled the London Economic Conference of 1933, and it was especially discussed in 1945 in December, in parliament. In the House of Commons, the British parliamentarians were discussing, “Do we want to accept the terms of the British loan?” which ended up being 3.75 billion USD, written down from what Keynes had wanted, or “Do we want to go it alone?”

It was the Conservative pro-empire Members of Parliament that wanted to reject the loan. Churchill wanted at least to abstain, but there was no alternative. In 1945 and again in 1971 when America moved off gold, in every case the alternative seemed to be anarchy. The U.S. strategy was to say, either you accept U.S. rules that favored the United States – in the beginning creditor rules, but debtor rules after 1971, and essentially gave it control of the world economy – or you go it alone and risk anarchy.

Britain was not able to go it alone in 1945. I did not include the parliamentary discussion in the first version of Super Imperialism, but I’ve included that discussion in the new version, because Britain said very clearly: “The United States basically wants to absorb the British Empire and the Sterling area into the Dollar area on its own terms and leave us almost broke. What can we do about it?” Both parties said: “We see that the United States is treating us, its ally in WWII, as a defeated party.” They came right out and said that. “But we don’t have an alternative because we can’t go alone. We have to rely on the United States.”

Let me review what the U.S. strategy is, and what’s led to major changes over time. Dollar supremacy was established after World War I by America’s creditor position. Something very novel happened after. In every previous war, for instance the Napoleonic wars and the earlier wars England had been involved with, the allies had forgiven all of their mutual debts at the end of the war. There was something that the British called “shared sacrifice”, and the idea was “We’re going to have a clean slate after the war.”

Tis idea goes all the way back to Babylonia in the second millennium BC. Throughout history there was a debt cancellation. There was no carryover of war debts after victory was achieved, because the idea was that if you leave war debts in place, that’s going to bankrupt the allies that you had during the war. It’s also going to bankrupt the defeated countries, and leave them no choice except to fight back.

The laws of Hammurabi showed this. His whole dynasty showed this. My book on Forgive Them Their Debts is a whole history of debt cancellations. But the United States broke this practice after WWI and said: “The debts have to be paid.” The amazing thing is that Europe went along with it. It had a pro-creditor ideology. It believed in the sanctity of debt, and was not going to question that because there was a guiding assumption – which is erroneous – that all debts somehow can be paid if only countries will either devalue or transform their economy, or impose austerity.

Keynes had a long debate with the anti-German Jacques Rueff of France and the American-Swede Bertil Ohlin. Keynes explained that there was no way that debtor countries like the allies or Germany could pay their debts to the creditor unless the creditor is willing to buy their exports, to provide them with the foreign exchange to pay. That debate obviously he won in reality, but that assumption was rejected by the United States, and continues to be rejected by the International Monetary Fund today. The junk economics that was brought in after World War One to consolidate the American position was: “Of course you can pay: simply destroy your economy and let us take you over, and sell out all of your industry and raw materials out to us, and that will enable you to pay.” That’s what the American demanded. It’s what the creditor demand has always been. Essentially you have to be willing to destroy your economy in order to pay your debts.

Keynes said this was crazy and he was right, but Europe went along with it and said, “Yes, we are willing to destroy our economies; we are willing to create the resentment for World War II rather than question the assumption that all the debts have to be paid.”

Summary[1a]

Marx and many of his less radical contemporary reformers saw the historical role of industrial capitalism as being to clear away the legacy of feudalism – the landlords, bankers and monopolists extracting economic rent without producing real value. But that reform movement failed. Today, the Finance, Insurance and Real Estate (FIRE) sector has regained control of government, creating neo-rentier economies.

The aim of this post-industrial finance capitalism is the opposite of that of industrial capitalism as known to 19^th-century economists: It seeks wealth primarily through the extraction of economic rent not industrial capital formation. Tax favoritism for real estate, privatization of oil and mineral extraction, banking and infrastructure monopolies add to the cost of living and doing business. Labor is being exploited increasingly by bank debt, student debt, credit-card debt, while housing and other prices are inflated on credit, leaving less income to spend on goods and services as economies suffer debt deflation.

Today’s New Cold War is a fight to internationalize this rentier capitalism by globally privatizing and financializing transportation, education, health care, prisons and policing, the post office and communications, and other sectors that formerly were kept in the public domain of European and American economies so as to keep their costs low and minimize their cost structure.

In the Western economies such privatizations have reversed the drive of industrial capitalism to minimize socially unnecessary costs of production and distribution. In addition to monopoly prices for privatized services, financial managers are cannibalizing industry by debt leveraging and high dividend payouts to increase stock prices.

Today’s neo-rentier economies obtain wealth mainly by rent seeking, while financialization capitalizes real estate and monopoly rent into bank loans, stocks and bonds. Debt leveraging to bid up prices and create capital gains on credit for this “virtual wealth” has been fueled by central bank Quantitative Easing since 2009.

Financial engineering is replacing industrial engineering. Over 90 percent of recent U.S. corporate income has been earmarked to raise the companies’ stock prices by being paid out as dividends to stockholders or spent on stock buyback programs. Many companies even borrow to buy up their own shares, raising their debt/equity ratios.

Households and industry are becoming debt-strapped, owing rent and debt service to the Finance, Insurance and Real Estate (FIRE) sector. This rentier overhead leaves less wage and profit income available to spend on goods and services, bringing to a close the 75-year U.S. and European expansion since World War II ended in 1945.

These rentier dynamics are the opposite of what Marx described as industrial capitalism’s laws of motion. German banking was indeed financing heavy industry under Bismarck, in association with the Reichsbank and military. But elsewhere, bank lending rarely has financed new tangible means of production. What promised to be a democratic and ultimately socialist dynamic has relapsed back toward feudalism and debt peonage, with the financial class today playing the role that the landlord class did in post-medieval times.

Marx’s view of the historical destiny of capitalism: to free economies from feudalism

The industrial capitalism that Marx described in Volume I of Capital is being dismantled. He saw the historical destiny of capitalism to be to free economies from the legacy of feudalism: a hereditary warlord class imposing tributary land rent, and usurious banking. He thought that as industrial capitalism evolved toward more enlightened management, and indeed toward socialism, it would replace predatory “usurious” finance, cutting away the economically and socially unnecessary rentier income, land rent and financial interest and related fees for unproductive credit. Adam Smith, David Ricardo, John Stuart Mill, Joseph Proudhon and their fellow classical economists had analyzed these phenomena, and Marx summarized their discussion in Volumes II and III of Capital and his parallel Theories of Surplus Value dealing with economic rent and the mathematics of compound interest, which causes debt to grow exponentially at a higher rate than the rest of the economy.

However, Marx devoted Volume I of Capital to industrial capitalism’s most obvious characteristic: the drive to make profits by investing in means of production to employ wage labor to produce goods and services to sell at a markup over what labor was paid. Analyzing surplus value by adjusting profit rates to take account of outlays for plant, equipment and materials (the “organic composition of capital”), Marx described a circular flow in which capitalist employers pay wages to their workers and invest their profits in plant and equipment with the surplus not paid to employees.

Finance capitalism has eroded this core circulation between labor and industrial capital. Much of the midwestern United States has been turning into a rust belt. Instead of the financial sector evolving to fund capital investment in manufacturing, industry is being financialized. Making economic gains financially, primarily by debt leverage, far outstrips making profits by hiring employees to produce goods and services.

Capitalism’s alliance of banks with industry to promote democratic political reform

The capitalism of Marx’s day still contained many survivals from feudalism, most notably a hereditary landlord class living off the land rents, most of which were spent unproductively on servants and luxuries, not to make a profit. These rents had originated in a tax. Twenty years after the Norman Conquest, William the Conquer had ordered compilation of the Domesday Book in 1086 to calculate the yield that could be extracted as taxes from the English land that he and his companions had seized. As a result of King John’s overbearing fiscal demands, the Revolt of the Barons (1215-17) and their Magna Carta enabled the leading warlords to obtain much of this rent for themselves. Marx explained that industrial capitalism was politically radical in seeking to free itself from the burden of having to support this privileged landlord class, receiving income with no basis in cost value or enterprise of its own.

Industrialists sought to win markets by cutting costs below those of their competitors. That aim required freeing the entire economy from the “faux frais” of production, socially unnecessary charges built into the cost of living and doing business. Classical economic rent was defined as the excess of price above intrinsic cost-value, the latter being ultimately reducible to labor costs. Productive labor was defined as that employed to create a profit, in contrast to the servants and retainers (coachmen, butlers, cooks, et al.) on whom landlords spent much of their rent.

The paradigmatic form of economic rent was the ground rent paid to Europe’s hereditary aristocracy. As John Stuart Mill explained, landlords reaped rents (and rising land prices) “in their sleep.” Ricardo had pointed out (in Chapter 2 of his 1817 Principles of Political Economy and Taxation) a kindred form of differential rent in natural-resource rent stemming from the ability of mines with high-quality orebodies to sell their lower-cost mineral output at prices set by high-cost mines. Finally, there was monopoly rent paid to owners at choke points in the economy where they could extract rents without a basis in any cost outlay. Such rents logically included financial interest, fees and penalties.

Michael Hudson and Pepe Escobar last month took a hard look at rent and rent-seeking at the Henry George School of Social Science.

Michael Hudson: Well, I’m honored to be here on the same show with Pepe and discuss our mutual concern. And I think you have to frame the whole issue that China is thriving, and the West has reached the end of the whole 75-year expansion it had since 1945.

So, there was an illusion that America is de-industrializing because of competition from China. And the reality is there is no way that America can re-industrialize and regain its export markets with the way that it’s organized today, financialized and privatized and if China didn’t exist. You’d still have the Rust Belt rusting out. You’d still have American industry not being able to compete abroad simply because the cost structure is so high in the United States.

Michael Hudson. (Wikimedia Commons)

The wealth is no longer made here by industrializing. It’s made financially, mainly by making capital gains. Rising prices for real estate or for stocks and for bonds. In the last nine months, since the coronavirus came here, the top 1 percent of the U.S. economy grew by $1 trillion. It’s been a windfall for the 1 percent. The stock market is way up, the bond market is up, the real estate market is up while the rest of the economy is going down. Despite the tariffs that Trump put on, Chinese imports, trade with China is going up because we’re just not producing materials.

America doesn’t make its own shoes. It doesn’t make some nuts and bolts or fasteners, it doesn’t make industrial things anymore because if money is to be made off an industrial company it’s to buy and sell the company, not to make loans to increase the company’s production. New York City, where I live, used to be an industrial city and, the industrial buildings, the mercantile buildings have all been gentrified into high-priced real estate and the result is that Americans have to pay so much money on education, rent, medical care that if they got all of their physical needs, their food, their clothing, all the goods and services for nothing, they still couldn’t compete with foreign labor because of all of the costs that they have to pay that are essentially called rent-seeking.

Housing in the United States now absorbs about 40 percent of the average worker’s paycheck. There’s 15 percent taken off the top of paychecks for pensions, Social Security and for Medicare. Further medical insurance adds more to the paycheck, income taxes and sales taxes add about another 10 percent. Then you have student loans and bank debt. So basically, the American worker can only spend about one third of his or her income on buying the goods and services they produce. All the rest goes into the FIRE sector — the finance, insurance and real estate sector — and other monopolies.

And essentially, we became what’s called a rent-seeking economy, not a productive economy. So, when people in Washington talk about American capitalism versus Chinese socialism this is confusing the issue. What kind of capitalism are we talking about?

America used to have industrial capitalism in the 19th century. That’s how it got richer originally but now it’s moved away from industrial capitalism towards finance capitalism. And what that means is that essentially the mixed economy that made America rich — where the government would invest in education and infrastructure and transportation and provide these at low costs so that the employers didn’t have to pay labor to afford high costs — all of this has been transformed over the last hundred years.

And we’ve moved away from the whole ethic of what was industrial capitalism. Before, the idea of capitalism in the 19th century from Adam Smith to Ricardo, to John Stuart Mill to Marx was very clear and Marx stated it quite clearly; capitalism was revolutionary. It was to get rid of the landlord class. It was to get rid of the rentier class. It was to get rid of the banking class essentially, and just bear all the costs that were unnecessary for production, because how did England and America and Germany gain their markets?

“We’ve moved away from the whole ethic of what was industrial capitalism.”

They gained their markets basically by the government picking up a lot of the costs of the economy. The government in America provided low-cost education, not student debt. It provided transportation at subsidized prices. It provided basic infrastructure at low cost. And so, government infrastructure was considered a fourth factor of production.

And if you read what the business schools in the late 19th century taught like Simon Patten at the Wharton School, it’s very much like socialism. In fact, it’s very much like what China is doing. And in fact, China is following in the last 30 or 40 years pretty much the same way of getting rich that America followed.

It had its government fund basic infrastructure. It provides low-cost education. It invests in high-speed railroads and airports, in the building of cities. So, the government bears most of the costs and, that means that employers don’t have to pay workers enough to pay a student loan debt. They don’t have to pay workers enough to pay enormous rent such as you have in the United States. They don’t have to pay workers to save for a pension fund, to pay the pension later on. And most of all the Chinese economy doesn’t really have to pay a banking class because banking is the most important public utility of all. Banking is what China has kept in the hands of government and Chinese banks don’t lend for the same reasons that American banks lend.

Shanghai’s Pudong district from The Bund. (CC0, Wikimedia Commons)

(When I said that China can pay lower wages than the U.S., what I meant was that China provides as public services many things that American workers have to pay out of their own pockets – such as health care, free education, subsidized education, and above all, much lower debt service.

When workers have to go into debt in order to live, they need much higher wages to keep solvent. When they have to pay for their own health insurance, they have to earn more. The same is true of education and student debt. So much of what Americans seem to be earning — more than workers in other countries — goes right through their hands to the FIRE sector. So, what seems to be “low wages” in China go a lot further than higher wages in the United States.)

Eighty percent of American bank loans are mortgage loans to real estate and the effect of loosening loan standards and increasing the market for real estate is to push up the cost of living, push up the cost of housing. So, Americans have to pay more and more money for their housing whether they’re renters or they’re buyers, in which case the rent is for paying mortgage interest.

So, all of this cost structure has been built into the economy. China’s been able pretty much, to avoid all of this, because its objective in banking is not to make a profit and interest, not to make capital gains and speculation. It creates money to fund actual means of production to build factories, to build research and development, to build transportation facilities, to build infrastructure. Banks in America don’t lend for that kind of thing.

“So, you have a diametric opposite philosophy of how to develop between the United States and China.”

Ross Welcome to Renegade Inc. However you look at it, 2020 was a train wreck. So as we look forward to 2021, we wanted to get political and economic insight from two friends of the show. Chris Williamson and Michael Hudson share their views on what we can look out for in the new year.

Ross Michael Hudson, fantastic to have you back at Renegade Inc.

Michael Hudson Good to be back, Ross.

Ross Michael, describe 2020 in one word.

Michael Hudson In one word? The pandemic, setting the stage for homelessness.

Ross Wow! what is the one thing? Because we focused hard on the negative throughout the year. What’s the one thing you think has been positive or been something that’s transpired from this pandemic which actually we should look at and think, you know what, that’s quite a good bit of advancement?

Michael Hudson Well, the pandemic’s been a bonanza for the stock market and for the wealthiest one percent. They’ve gained a trillion dollars since the start of the pandemic. Amazon stock is going through the roof. And with 70 percent of restaurants in New York City going bankrupt, this is made Doordash and other Internet firms make a fortune by essentially wiping out the restaurants, taking 30 percent of the receipts and the charge for the restaurant menu. Essentially, this puts most restaurants in America out of business.

That means that it’s a bonanza for the really big companies to pick up all the slack now that you’re wiping out the middle class. It’s a great prospect for private capital real estate companies like Blackstone, because they can buy a huge number of foreclosed properties and empty properties that can’t be rented out and Blackstone can pick up these homes that are defaulted on, buy them out, turn them into rental property and make a fortune by raising the cost of housing in the United States, all increasing the rent by the people who have lost the jobs. And it’s great prospects for the big restaurant chains, McDonald’s and the others. The big chains can survive, whereas the small individual restaurants have basically been driven out of business. So if you’re a billionaire, it’s been just a wonderful year.

Ross So we’re talking about the One Percent here as the late, great David Graeber termed?

Michael Hudson But if you look at Donald Trump, that is the economy. When he says the economy’s getting better, he means the One Percent is getting better. Is that what you’re talking about?

Ross But isn’t it the case in the US, your president and lots of others confuse the stock market and the real economy. We’re not in an industrial capitalist society in the US and the UK anymore. It’s a rentier financial capitalist society. And that confusion between the stock market doing well and the real economy, doing well. Actually, those two things are starkly different, aren’t they?

Michael Hudson Yes, of course. So if you say what’s been good, all the good is indeed for the rentier economy. All the good is for the stock market, for the absentee property owners, for the big chains, but not good for the 99 percent. They’re pretty much left behind.

Ross Is there going to be a lot of what is called jingle mail in the US, which is basically owner occupiers sending keys back, saying it is totally economically unviable for us to even consider reopening this restaurant, small business, whatever it might be?

Michael Hudson The only people who are going to voluntarily walk away from buildings are basically absentee owners of commercial buildings. There’s going to be a great shortage, a great downsizing, of our commercial properties, especially because so many businesses have gone out of business. Jingle mail was basically on private homeowners whose mortgage was far above the actual market value. The mortgages were not written down and so these were voluntarily walking away. But housing prices have gone up in the United States. So nobody’s going to want to voluntarily walk away from their home. If you’ve been unemployed, haven’t got a pay cheque and are not able to pay your mortgage, you’re going to want to stay there and put off eviction for just as long as you can. But if you’ve invested in a small office building that had a restaurant on the ground floor and its offices have now decided that everybody can work from home, we don’t need so much office space anymore. In that case the heavily mortgaged commercial owner may walk away. That’s going to affect primarily the smaller banks, the community banks that have made most of these small loans to small business owners. The big absentee owners have gone to the big banks, Chase and Citigroup etc. So you’re going to have a weakening of the small banks and the community banks and they’ll probably be absorbed into the larger banks as a result.

Ross What do you think was revealed in 2020 that we all intuitively knew but couldn’t actually see because it hadn’t crystallized?

Michael Hudson Well, it’s obvious that the economy never recovered from the Obama depression after he bailed out the banks, not the economy. So the question is, how long can the economy limp along without recovery?

Well, it’s obvious now that the debts can’t be paid, but the coronavirus only catalyzed that. It’s made it even clearer. So in a sense, the Biden administration is going to be picking up just where the Obama administration left off, namely with huge evictions. Obama evicted about 10 million families. Most of them were black and Hispanic, lower income families who were the victims of the chump mortgages. Biden’s going to start his administration by kicking out probably another five million families. Again, black and Hispanic families are going to be the big losers because they were the people who had the highest coronavirus or were the first to be laid off. So it’s going to begin with a large eviction.

This reverses the trend in homeownership going up to 2008. It’s been going down, and this is going to continue now. People somehow imagined that there was going to be a recovery, that somehow we could recover from the post 2008 breakdown. But now it’s obvious we can’t recover. You’re going to have the polarization of the economy that has been occurring for the last 12 years. It will simply accelerate.

Ross What do you think are the megatrends that we should be looking at in 2021? What do you think is the direction of travel, if you like, for so-called developed economies?

Michael Hudson Well, the big trend in any economy is the growth of debt, because the debt grows exponentially. The economy has painted itself into a debt corner. We can see that in real estate. We can see that for small business. There’s also almost no way to recover. The Federal Reserve has been printing quantitative easing to keep stock and bonds high. But for the real economy, the trend is polarization and lower employment.

The trend also is that state and local finances are broke, especially in the biggest cities, New York City, San Francisco and Los Angeles. They’re not getting income tax revenue from the unemployed or closed businesses. They’re not getting the real estate tax with so many defaults and mortgage arrears. In New York City there’s talk of cutting back the subways by 70 percent. People will be afraid to take the subways when they’re overcrowded with people with the virus. So you’re having a breakdown not only in state and local finances, but of public services that are state run – public transportation services, health services, education is being downsized. Everything that is funded out of state and local budgets is going to suffer.

And living standards are going to be very sharply downward as people realize how many services they got are dependent on public infrastructure.