The Unz Review • An Alternative Media Selection
A Collection of Interesting, Important, and Controversial Perspectives Largely Excluded from the American Mainstream Media
 
Email This Page to Someone

 Remember My Information



=>
Topics Filter?
American Military Ancient Near East Australia Banking Industry Banks China Coronavirus Debt Deregulation Dollar Donald Trump Economic Theory Economics EU Euro Eurozone Federal Reserve Financial Bailout Financial Crisis Financial Debt Financial Sector Financial Times Foreign Policy Greece History Housing Iceland Ideology IMF Land Latvia Max Keiser Neoliberalism Obama Privatization Radio Interviews Real Estate Rentier Russia Tax Cuts The Insiders Economic Dictionary TV Ukraine Wall Street Washington Consensus 2016 Election 2020 Election Al Jazeera American Debt American Media Ancient Greece Ancient Rome Argentina Austerity Baltics Banking Banking System Barack Obama Ben Bernanke Bernie Sanders Brazil Brexit BRICs Britain Bubble & Beyond Bush Capitalism Chicago School Chile China/America Chinese Classical Antiquity Classical Economics Communism Consumer Debt Counterpunch Cuba Currency Speculation Debt Jubilee Deficits Deflation Democracy Now! Democratic Party Democrats Dictatorship Economic History Empire Employment Energy Event FAZ Finance Financial Bubbles FIRE Free Market Free Trade Geo-Politics Germany Global Warming Globalization Gold Gordon Brown Government Spending Government Surveillance Great Recession Henry George Hillary Clinton Imperialism Income Tax Inequality Inflation Infrastructure Interest Iran Iraq Israel Israel Lobby Italy Jeff Sommers Joe Biden Joseph Stiglitz Killing The Host Labor Latin America Lehman Brothers Leon Trotsky Markets Marx Marxism Medicine Michael Hudson Middle East MMT Modern Money Theory Money Supply National Debt NATO Neocons Nobel Prize Norway Oil Oil Industry One Percent Panama Papers Paul Krugman Paul Samuelson Pinochet Poland Political Correctness Ponzi Scheme Poverty Prizatization Productivity Property Tax Protectionism Public Enterprise Qassem Soleimani Radio Radio Interview Renegade Economists Republican Party Shanghai Cooperation Organisation Simon Patten Social Security Socialism Student Debt Switzerland Syria Syriza Tax Taxes Technology Terrorism Thorstein Veblen Trade Surplus TTIP Unemployment Unions USA Veblen Venezuela Vladimir Putin Working Class World Bank YouTube
Nothing found
 TeasersMichael Hudson Blogview

Bookmark Toggle AllToCAdd to LibraryRemove from Library • BShow CommentNext New CommentNext New ReplyRead More
ReplyAgree/Disagree/Etc. More... This Commenter This Thread Hide Thread Display All Comments
AgreeDisagreeThanksLOLTroll
These buttons register your public Agreement, Disagreement, Thanks, LOL, or Troll with the selected comment. They are ONLY available to recent, frequent commenters who have saved their Name+Email using the 'Remember My Information' checkbox, and may also ONLY be used three times during any eight hour period.
Ignore Commenter Follow Commenter

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 48th 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.

 
• Category: Economics, Ideology • Tags: Banking Industry, Coronavirus, Joe Biden 
Presentation at the Oxford Economics Society

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.”

 
The rentier resurgence and takeover

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 19th-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.

 
• Category: Economics • Tags: Banking Industry, Finance, Wall Street 

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)
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)
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.”

 
• Category: Economics • Tags: Banking Industry, Rentier, Wall Street 

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.

 
• Category: Economics • Tags: Banking Industry, Coronavirus, Wall Street 

Allied with landlords and monopolists, the finance sector is extracting economic rents from the economy that’s impoverishing US government, industry and labor says Michael Hudson discussing the chokehold of pro-finance, pro-rentier capitalism reaching into the present COVID-19 crisis.

TRANSCRIPT

LYNN FRIES: Hello and welcome. I’m Lynn Fries producer of Global Political Economy or GPEnewsdocs. I am delighted to have Michael Hudson joining us today. He will be discussing how under a neoliberal shift from industrial to finance capitalism, today’s most pressing economic conflict is not simply between labor and employers. It is a conflict in which rentier interests have the upper hand over labor, industry and government together. This is the political economy in which the COVID-19 economic shock is playing out with dire consequences.

Michael Hudson is a research professor of Economics at the University of Missouri, Kansas City, and research associate at the Levy Economics Institute of Bard College. A prolific author, Michael Hudson’s latest book is …and forgives them their debts: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year. Welcome, Michael.

MICHAEL HUDSON: Good to be here, Lynn

FRIES: Michael, It has been argued that every successful economy has been a mixed economy, where the public sector places checks and balances on private sector power; specifically on the financial sector’s power to indebt society in ways that impoverish it. Yet this kind of role for the public sector is being vilified under finance capitalism. So, what is your take on that?

HUDSON: Well ever since the Bronze Age you had the temples and the palaces providing basic needs. Because if you leave this to the private sector, then you’re going to have a situation where the private supplier has a chokehold on the economy and can say: your money or your life.

There are certain things that governments are supposed to supply and which industrial capitalism wanted government to supply. Because they didn’t want employers or their employees to have to pay for them. These are a number of things. Governments obviously have to supply military defense. You can’t leave that private people but also healthcare, for instance. The conservative party in England, Benjamin Disraeli said: health is everything; we have to spend on health.

And you don’t want to, in principle, make money off crime. But in America we’re privatizing the penal system, the jail system. So you have increasing pressure on government, on governors, to arrest people, put them in jail especially on drug use, where you can employ them at 10 cents an hour. And lease them out to companies as low priced labor.

But most of all, government is supposed to provide the infrastructure: the transportation, the communication, the telephone system. And the idea is that if you leave like cable TV to private suppliers, they are natural monopolies. The idea throughout history from classical Greece and Rome, medieval times in Europe is that natural monopolies should be in the public domain.

Because you don’t want to provide opportunities for monopoly rent. Because monopoly rent, like land rent and natural resource rent, is not a necessary cost to production. You want the necessary cost of production to be the material costs and normal profit. Because obviously you need people to have some incentive to do things. But the incentive is supposed to be normal profit, not super profits, not just a free lunch.

And so if you let transportation become privatized, then it is going to cost the workforce much more money to get to work and to get to a job. If you let the oil industry be privatized and the profits from the natural resource, and that’s the patrimony of mineral rights, oil and gas is all going to go to the private financial sector not to be used as the tax base.

And if you have the land rent, essentially if the government, for instance, in New York City, they spent let’s say a billion dollars on extending the second Avenue subway line up along the wealthy Upper East Side. That increased land values for landlords all by about twice the amount by about $2 billion. Because people now we’re closer to the subway station, they didn’t have to walk. They had better transport. All of this increase in land prices could have financed the extension of the subway and still been able to lower the subway fares for the rest of new Yorkers. Instead, the city let the landlords keep all of the gains in land value. And they just raised the income taxes and went into debt to pay for the subway.

So, you have a privatization of wealth that is not created by landlords, not created by individuals. Certainly the oil companies don’t create the oil in the ground. And the mining companies don’t create the mineral resources. All of these things are given away freely. The United States lets forestry logging companies and mining companies get whatever they can take from the public domain for free instead of getting the results of this publicly owned land to finance the public budget.

Taxes in the United States could be drastically reduced on wages and on profits, if you would just tax the unearned monopoly rent, the economic rent that is not necessary for production.

So, if you look at what Adam Smith wrote, John Stuart Mill, all of the classical economists said: this is how capitalism is going to evolve. Because if the government doesn’t have to levy an income and profits tax and just the rent tax, then it’s going to be a low-cost economy. And the more socialized and the more mixed an economy is the lower the cost structure is going to be and the more competitive it will be. And so it will force other countries to de-financialize and to free themselves from their rentier class. Free themselves from their absentee landlord class, free themselves from, you know, the foreign mining class and essentially be low cost economies, low tax economies as a result. Well, that was their idea of a free market.

And the neoliberals have essentially tried to take control of the minds of economics students and how people think about the economy to say: No, no a free market is free to make as much as you want. A free market is free from taxation on rent. A free market is where it doesn’t matter how you make your income. Anybody can just keep whatever they make, no matter how they make it whether it’s by predatory exploitative means or un-exploitative means.

So you’ve had a whole transformation of how populations understand how the economy works. So that, they don’t understand how to solve and re-industrialize the economy And they don’t even understand how they’re being painted into a financial debt corner as a result of debt deflation.

FRIES: Talk more about the aims of finance in this private sector-public sector mixed economy.

HUDSON: The financial sector essentially is of the 1% or the 10% that holds the rest of the economy in debt. The financial sector makes its money by getting the rest of the economy indebted to itself and making money off asset price gains. In the past, the financial sector made its money by getting interest. But now, with almost zero interest what it’s after is capital gains because capital gains basically are either untaxed or taxed at very, very low rates.

So, the financial sector essentially makes its money not by being part of the production and consumption economy but by siphoning off as much money from the production and consumption economy as it can for real estate, for insurance and for debt service and banking services. The insurance, of course, would include the health insurance.

 
• Category: Economics • Tags: Banking Industry, Wall Street 
A Conversation with Michael Hudson and Pepe Escobar

Alanna: So, let’s formally start. Once we start to record Ibrahim is going to introduce the Henry George school and welcome everybody then I’m going to introduce from the bios; Michael and Pepe and then Michael will start with rent and rent seeking those who have comments or questions could put that in chat and then we’ll go to the chat at some point.

Ibrahima: Welcome, my name is Ibrahima Drame and I’m the director of education at the Henry George school of Social Science it’s a great honor to have you with us today for this joint webinar co-organized with the International Union for Land Value Taxation with two great thinkers, professor Michael Hudson and Pepe Escobar to discuss rent and rent seeking. I’d like to thank Michael and Pepe for kindly accepting to share their insights and of course our good friend Alanna Hartzok co-founder of Earth Right Institute, she will be moderating this session.

So, before I hand it over to Alanna, I’d like to ask all attendees to keep their microphones muted until we open the Q & A in the meantime you are free to use the chat and please do so responsibly. Alanna please go ahead and introduce our speakers.

Alanna: Okay yes thank you so much to Michael and Pepe for joining us and having this conversation I know that you two have admired each other’s work and writings for many many years so this is your first time to actually, talk together so I’m going to introduce you both from your bios.

Michael Hudson is an American economist professor of economics at the university of Missouri Kansas City and a researcher at the Levy Economics Institute at Bard College he’s a former wall street analyst political consultant commentator and journalist. He identifies himself as a classical economist. Michael is the author of J is for Junk Economics, Killing the Host, the Bubble and Beyond, Super Imperialism subtitled the Economic Strategy of American Empire, Trade Development and foreign debt and the myth of aid among others his books have been published translated into Japanese, Chinese, German, Spanish and Russian.

Pepe Escobar, born in brazil is a correspondent editor at large at Asia Times and columnist for consortium news Washington dc and strategic culture Moscow since the mid-1980s he’s lived and worked as a foreign correspondent in London Paris, Milan los Angeles, Singapore Bangkok. He has extensively covered Pakistan Afghanistan, Central Asia to China, Iran, Iraq and the wider middle east pepe is the author of Globalistan – How the Globalized world is dissolving into liquid war red zone blues, A Snapshot of Baghdad during the surge he was contributing editor to the empire and the crescent and tuto in 03:09 vendita in italy and his last two books are empire of chaos and 2030. Pepe is also associated with the Paris-based European academy of geopolitics when not on the road he lives between Sao Paulo, Paris and Bangkok so we’ll have Michael begin now then he’s going to describe what uh the meaning is of rent and rent seeking and we’ll just take it from there please put comments and questions in chat thank you let’s go.

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.

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% of the U S economy grew by $1 trillion. It’s been a windfall for the 1%. The stock market is way up, the bond market is up, he 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 its own 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 and 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% of the average worker’s paycheck. There’s a 15% 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%. 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 the mixed economy that made America rich. 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 more to afford high financialized and privatized costs of living.

All of this has been transformed over the last hundred years. And we’ve moved away from the 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. 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?

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.

 

Steve Keen and Michael Hudson have both been arguing for a debt jubilee for some time. Now, as COVID-19 hits the poorest hardest, and leaves those with money better off than before, is this the right time to write off debt? Can the economy recover without it? After all, its stagnated since the 2008 global financial crisis. If you were to have a debt jubilee, how would you do it. Steve and Michael have different ideas about how it should be implemented. They explain their thinking to Phil Dobbie on this week’s free edition of the Debunking Economics podcast.

TRANSCRIPT:

PHIL: It is obvious COVID-19 and our response to it is having a devastating impact on the world economy. And perhaps the biggest impact will be the rising rich poor gap, with the poor findning themselves deeper and deeper in debt and with the rich coming out of it better off than they went into it. Particularly if they’re holding lots of shares. So, why is this happening? And is it time to revisit the idea of a debt moratorium – we’ll talk to two people who think that yes, the time is right. One is Steve Keen, of course … after all, this is is his podcast … but we’re joined by Michael Hudson as well today .. and I’m Phil Dobbie, this is the Debunking Economics podcast, welcome along.

Steve has, of course, been talking about a modern-day debt jubilee for some time – we’ve talked about it on the podcast before, but not for some time. And with COVID-19 changing just about everything, it’s time to revisit the idea. And who better to talk about it with than Michael Hudson, Professor of Economics at the University of Missouri–Kansas City, and author of many books, including “Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy” … if ever there was a title that says it all, that’s it …

Michael, when you talk of debt, particularly right now, people’s first thoughts go to public sector debt, because so much has been racked up paying for furloughing schemes and the like. The main topic of conversation seems to be, how do we pay that back? Not concerns over private or household debt, the fact that, in the UK for example, government gross debt at the end of October was 107% of GDP. Every day the media is asking, how do we pay this back? That’s more in the mindset of people than the debts that individuals are carrying, isn’t it?

MICHAEL: Well, this is the result of a lot of propaganda. The point is that government debt doesn’t have to be paid back. It’s not supposed to be normally because if you pay, it back then you destroy the money supply and also the government simply won’t pay. When the United States runs at deficit usually, foreign central banks end up holding it and the US says, ‘well, you know, we can just write our IOUs’. And imagine if individuals could go to the store and you would pay for your groceries by writing an IOU, and buy a car, and buy things with IOUs and say, ‘well, you can just use my IOUs to pay among yourselves and use it as money’. Well, obviously, everybody would be in a much happier world that way. But that’s not how it happens. The private IOUs have to get paid and they have to get paid by somehow either earning the money ,or more often losing your home or losing your assets to pay. But governments can simply print the money, so government that can never in run a risk of nonpayment as long as it’s in it’s own currency.

PHIL: So, this is the idea behind modern monetary theory isn’t it, which for some reason just hasn’t got traction. I mean, there’s a lot of people talking about it. And yet governments and banks, the world over seemed to ignore it.

MICHAEL: That’s because the condition of being appointed to a central bank in the government is that you’re working for the financial interest of the banks, not for the government. The banks would love governments to borrow from the banks in the financial sector and pay them interest because then they get to tell the government what to do. If the government can just print its own money then it can decide what voters wanted to do and of course, that would be democracy and that it’s not exactly what the vested interests are for.

STEVE: But it’s also the accounting and I’ve got to take my hat off to Stephanie Kelton for making a best seller out of an argument over what is fundamentally issues of accounting. Because when you take a look at how the government actually creates money right now, it creates it by simply running a deficit. When it creates a deficit it spends into the private sector and increases the amount of money in peoples bank accounts.

When you tax you do the opposite, you take money out of their bank accounts. Now when you spend to put money in somebody’s bank account you have to deposit into their account, which is on the liability side of the banking sector’s balance sheet and then that is shown as an increase in the reserves on the asset side of the bank’s balance sheet, so the gap between the spending, which creates money and tax which destroys it, first of all adds money to the deposit account, which is on the liability side of the banking sector and, secondly, at the same time, it has to add to the reserves. So the increase in money is created by the deficit, which is what we get in our bank accounts, but the increase in reserves is also created in exactly the same act and that gives banks reserves, which either don’t earn interest or in some crazy countries like Switzerland actually give you a negative rate of interest so that’s where the money is created by running a deficit.

And when it comes to the government debt that’s the government issuing bonds to cover the gap, to cover the deficit. But what that means is the private banks are being offered, ‘do you want to help your money in an account with reserves at the central bank that earn you zero interest or even worse, negative interest? Or would you like to buy these Treasury bonds that earn you only 1% or 2% interest per annum?’ I’ll take the Treasury bonds, thanks very much.

PHIL: For a while, though they didn’t issue bonds. The Bank of England actually allowed the UK Treasury (the intention was that it would be issued as well as bonds down the track), but it was sort of like a short-term reaction to the crisis. We’ll just we’ll just let you run an overdraft in effect.

STEVE: And that effectively is what the bonds actually do, because normally when the government spends, it’s effectively creating negative equity for itself, which creates positive equity of the rest of society, and I’m looking at a set of double entry balance book sheets here to make this argument, so it’s a bit airy fairy for anybody hearing just the verbal side of things. But when the government spends more than it gets back in taxation, it wears that on its own overall government assets and government liabilities. Now, one of the government assets, of course, is its bank account at the central bank and, if that government didn’t issue bonds and out of that account the government spent more than a got back in taxation indefinitely, you would end up with a negative balance in its deposit account. Now, lots of us in the in the private sector end up with that as well and it’s called an overdraft.

 
• Category: Economics • Tags: Debt Jubilee 

Trump’s economic policies have not addressed the fundamental forces that have gutted industrial jobs under the administrations of both parties, says economist Michael Hudson ontheAnalysis.news podcast with Paul Jay.

Transcript

TRANSCRIPT Edited for Clarity

Paul Jay: Hi, I’m Paul Jay and welcome to theAnalysis.news podcast. Please don’t forget, at the top of the webpage, and there’s a donate button.

Donald Trump has tried very hard to make this election about his pre-pandemic economic record, which is supposed to be a success story. Of course, he ignores the fact the cyclical upswing of the economy started during the last Obama years.

But what Trump tries to trumpet is his approach to trade with China. He claims his tariffs and remarkable negotiating skills have brought hundreds of thousands of jobs back to the United States.

Well, the Wall Street Journal reported on October 26 that, quote, “President Trump’s trade war against China didn’t achieve the central objective of reversing a U.S. decline in manufacturing, economic data show, despite tariffs on hundreds of billions of dollars of Chinese goods to discourage imports. The tariffs did succeed in reducing the trade deficit with China in 2019. Still, the overall U.S. trade imbalance was bigger than ever that year and has continued climbing, soaring to a record 84 billion dollars in August as U.S. importers shifted to cheaper sources of goods from Vietnam, Mexico, and other countries.

The trade deficit with China also has risen amid the pandemic and is back to where it was at the start of the Trump administration. Another goal reassuring of U.S. factory production hasn’t happened either. Job growth in manufacturing started to slow in July 2018, and manufacturing production peaked in December 2018. Manufacturing job growth began to slow when the trade wars started and had nearly stopped growing before the pandemic”.

A little further down, the article continues, the annual change in manufacturing tariffs are, quote, “are having the effect of bringing manufacturing jobs back to the U.S. U.S. Trade Representative Robert Lighthizer said in an interview, citing statistics that show a net gain of 400,000 U.S. manufacturing jobs from November 2016 until March 2020, when the pandemic forced widespread factory closures. However, about 75 percent of the increase in manufacturing jobs occurred before the first tranche of tariffs took effect against China in July 2018. With annual growth in manufacturing, jobs peaked and then began to decline. By early 2020 even before the pandemic reached the U.S., manufacturing jobs had stalled out, and factories shed workers in four of the six months through March,” end quote. So why is there so little industrial growth despite all of Trump’s rhetoric?

Well, now joining us to help answer that question is Michael Hudson. He’s an economist, a professor of economics at the University of Missouri, Kansas City, and a researcher at the Levy Economics Institute at Bard College. He’s also a former Wall Street analyst, a political consultant, a commentator, and a journalist. Thanks very much for joining us, Michael.

Michael Hudson Well, it’s good to be back with you.

Paul Jay So Trump made all kinds of promises and is still blowing his horn about this issue of returning jobs and the rebirth of American industrial manufacturing. But he hasn’t succeeded. Why? And there are some bigger reasons for that, aren’t there?

Michael Hudson Well, we’ve talked about these bigger reasons for quite a few years now. And my point is that the economy’s been in a slow crash. The reason is that to become an industrial economy, you have to lower the cost of living and lower the cost of doing business. That’s what the whole fight of classical economics was all about. But the economy has become more and more financialized and polarized. It’s impossible to cut costs.

You mentioned the pandemic. Health care now absorbs 18 percent of the GDP. If you look at the other costs, if you’re a wage earner, 15 percent of your income right off the bat goes to Social Security and medical insurance. You have regular taxes, anywhere from about 20 percent. You have mortgage debt that is up to about 40-43 percent of average income. At least that’s what the U.S government is willing to guarantee when bankers make a loan. You have other loans; you have student debt to pay for an education in order to get a job, you have automobile debt to get to the job.

Paul Jay Add credit card debt to that.

Michael Hudson Absolutely. Credit card debts have been stable. As people are falling further and more into arrears, their interest rate jumps from about 18 percent to 29 percent or more. So the same amount of debt now absorbs a much larger part of your income. So the result of all this is that if American workers in the industry got all of their food, all of their clothes, all of their transportation, everything, all of the physical goods and services they use for free, they still couldn’t compete.

In fact, if they just had to pay their wage withholding for Social Security, medical care, and overall health insurance alone, that is larger than the wage levels in Asia where we’re importing things from. So the fact is that the United States has made itself uncompetitive because of this idea that, well, if one wants to get rich and the way to get rich is to go further and further into debt to buy houses that are rising in price. But as houses rise in price, then you have to pay more and more debt service or more and more rents to the people who buy the same houses on debt.

The result is that America is priced out of the market. Well, this is what Ricardo talked about in his free-trade theory way back in 1817. He said that industrial capitalism was not going to be able to take off in England if British workers had to pay rising rents as food prices rose behind the agricultural tariffs that England had. And there was a 30-year fight to finally repeal the agricultural tariffs, the corn laws. Ricardo said, if you don’t stop the economy from having to pay the rentier class at that time, the landlords, then you’re going to have the Armageddon of capitalism. You’re going to have the day of judgment that our rents are going to rise to take so much of the wage earners income and the industrialist’s income that there’s no room left for profit.

Basically, if you’re going to compete with other countries and try to sell or buy American goods instead of imports, then you’re going to have to pay enormously high costs to pay the rentier class, which is basically the one percent: the finance, insurance, real estate sector, and the fire sector. Instead of becoming an industrial economy, the United States has become a fire sector economy. And Trump has not done anything at all to reduce that. The economy is getting obviously sicker and sicker, once again. Medical costs are going up. The states and municipalities are broke. Small businesses have been going out of business. So, where is the demand going to be for domestic American manufacturing? And why would one pay for manufacturers with labor that cost 10 or 20 times than what it costs abroad? When you add up all of these rentier costs into the equation, it can’t be done.

 

Michael Hudson [intro/music] (00:02):

The money that you pay for debt service to a bank isn’t spent back into the economy. The bank bond holders are basically the 1% of the economy. They’re rich enough that they’re not going to take all this extra money they get to buy more goods and services. They’ll buy shitty trophy art, Andy Warhol junk.

Who is the dumbest economic Nobel Prize winner? [Paul Krugman?] Paul Krugman. That’s right. He was given a Nobel Prize for not understanding what money was. If he would have understood it, that would’ve excluded him from getting the Nobel Prize.

Geoff Ginter [intro/music] (01:26):

Now, let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro and Cheese with your host, Steve Grumbine.

Steve Grumbine (01:34):

All right. And this is Steve with Macro N Cheese. Today, we are bringing on none other than Michael Hudson. Michael Hudson is the president of the Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street financial analyst and distinguished research professor of economics at the University of Missouri-Kansas City, UMKC, and author of “J is for Junk Economics,” “Killing the Host,” “The Bubble and Beyond,” “Super Imperialism: The Economic Strategy of American Empire,” “Trade, Development and Foreign Debt,” and of “The Myth of Aid,” amongst many others. And without further ado, let me just say thank you so much for taking the time to be with us today, Michael.

Michael Hudson (02:18):

It’s good to be here. And I look forward to it.

Grumbine (02:21):

We’re in some very troubling times and one of the things that has jumped out at us, you’ve been a longterm proponent of having a debt jubilee, and as we’re watching the crushing economic conditions that are being brought around based on the pandemic and lots and lots and lots of malfeasance that has gone on forever, it seems like a debt jubilee might be the most important thing for regular people that we could even think of at this point. Can you tell us a little bit about what a debt jubilee is and your research behind that?

Hudson (03:00):

Well, what my research basically is about is that the debt has grown so rapidly for the private sector, that if you don’t write down the debt, if you insist that all the mortgage debt and credit card debt and student loan debt be paid, then you’re going to have almost a constant depression. It’s called debt deflation. And I described that in “The Bubble and Beyond” and “J is for Junk Economics.”

The problem is that as people owe more and more debt service, they have less and less to spend on goods and services and so they’re not able to buy what they produce, and so employment shrinks and the economy shrinks. And part of the problem is not simply the growth of debt, but what the debt is for, and in the textbooks debt is supposed to be for productive purposes. The myth is that it’s for building factories and means of production and increases everybody’s prosperity, but that’s not what debt’s about. That’s what maybe stock issues are about, but it’s not what debt is about.

80% of debt is issued in the form of mortgages and they’re lent to real estate and the effect of real estate debt – making credit, loosening the credit terms more and more, lending more and more against properties, higher proportions, lower down payment, lower amortization rates – is that property prices are inflated. Housing prices are inflated. Commercial real estate prices are inflated.

So debt is being created for all the wrong things. It’s been decoupled from the economy at large, and it’s being taken on for things that really used to be considered public services like education. Used to be that all economies provided schooling free as a public service because they realized that education is how you increase productivity. But now, more and more, education is just to get a job sort of like a union card.

By getting a degree is a kind of criteria, has to be gotten. And even worse, getting an education is sort of like buying a house, just like a house is worth whatever a bank is going to lend against it. And as banks lend more and more money to people to buy houses, they’re lending more and more money to finance education as education has been privatized. So what you have is that in order to get a job, you have to get an educational degree. It’s a criterion.

And that means you have to go into very heavy debt and you have to go so deeply into debt that you don’t have any income left to pledge to the bank, to get a mortgage loan, to buy a home of your own. And the whole problem just crowds out all other forms of spending. The same thing occurs with medical debt because public health is not a social service here.

There is no public health because it’s been privatized and it’s been privatized on terms where if you get sick, there’s a high probability if you’re not wealthy that you’re going to have to declare bankruptcy. Especially when I think half of Americans reported to the Federal Reserve that they can’t raise $400 in an emergency. Well, $400 won’t even cover the cost of getting a COVID test here in New York these days.

So you can imagine the problems that people have, especially when they lose the job. So people lose the job, if they’ve borrowed to buy a house, they’re falling into arrears. Already mortgage arrears have been rising in the last six months. If you’re a renter and you can’t pay the rent, you’re in danger of being evicted. And the problem of homelessness is looming for sometime in December or January.

So what I’ve discussed about a jubilee is that if you don’t write down the personal debts, I’m not talking about mortgage debts or business debts. The jubilee left all of the commercial business debts in place. They were only the personal debts. And the logic for that was if you don’t write down the personal debts, way back in antiquity and Judaic times, and even before in Mesopotamia, if you didn’t write down the debts of cultivators who couldn’t pay because of a flood or disease or whatever problems were caused during the planting season, then they’d fall into bondage to their creditors.

And if they fell into bondage, they couldn’t pay their taxes anymore. They’d owe their labor to the creditors, and they couldn’t work on corvee work to build basic public infrastructure, and they couldn’t serve in the army. So almost all the rulers of antiquity realized that if they didn’t write down the debt, number one, they’d create an oligarchy that would use its power to overthrow them, as occurred in Rome, or they’d find the population falling into bondage and next time they were attacked by another city, the population would go over to the side of the attackers who would promise to cancel the debts.

So that was the original jubilee. The jubilee today is basically writing down debts that can’t be paid without imposing bankruptcy and poverty on the population. Most of the attention has been paid to third world debt. And there’s a basic principle I think that should be written into international law: if a country cannot pay its foreign exchange debt without causing unemployment, without changing its society, without selling off its infrastructure, forfeiting it to creditors to pay the debt, then the debt’s considered a bad loan.

 
• Category: Economics • Tags: Banking Industry, Consumer Debt, Rentier 
Michael Hudson
About Michael Hudson

Michael Hudson is President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of The Bubble and Beyond (2012), Super-Imperialism: The Economic Strategy of American Empire (1968 & 2003), Trade, Development and Foreign Debt (1992 & 2009) and of The Myth of Aid (1971).

ISLET engages in research regarding domestic and international finance, national income and balance-sheet accounting with regard to real estate, and the economic history of the ancient Near East.

Michael acts as an economic advisor to governments worldwide including Iceland, Latvia and China on finance and tax law.