Michael Hudson is a Distinguished Research Professor of Economics at the University of Missouri, Kansas City. He is the author of The Bubble and Beyond and Finance Capitalism and its Discontents. His most recent book is titled Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.
CHRIS HEDGES: Hi, I'm Chris Hedges. Welcome to Days of Revolt. Today in a two-part series we're going to be discussing a great Ponzi scheme that not only defines not only the U.S. but the global economy, how we got there, in the first segment, and secondly, where we're going. And with me to discuss this issue is the economist Michael Hudson, author of Killing the Host: How Financial Parasites and Debt Destroy the Global Economy. A professor of economics who worked for many years on Wall Street, where you don’t succeed if you don’t grasp Marx's dictum that capitalism is about exploitation. And he is also, I should mention, the godson of Leon Trotsky.…Real News Network
Days of Revolt: How We Got to Junk Economics
Chris Hedges interviews Michael Hudson
Hmmm Michael Hudson describes interest as 'unearned income'-an interesting perspective.
ReplyDeleteBut private finance won't lend without a return so we can't tax it out like land rent.
How else could we structure private finance lending for capital development.Too end burndesome debt overheads and the economic tailspin/ instability created by the polarisation between the creditors and borrowers(1% vs 99%)
IMO Michael Hudson has a proper definition of what constitutes rent.
ReplyDeleteI thought the part about privatizing services and increasing rent costs as a way to add to gdp was interesting.
ReplyDeleteBecause I dont know exactly how GDP is calculated, it got me thinking about some other examples where the GDP numbers are skewed and not reflective of the real economy. How much GDP does the UK "lose" because the NHS is Govt owned and operated? I think I remember, reading that GDP is calculated at cost for Govt goods and services and is calculated using the sales price when its a private good. How much GDP would the US lose if we had universal free college or Medicare for all?
How else could we structure private finance lending for capital development.Too end burndesome debt overheads and the economic tailspin/ instability created by the polarisation between the creditors and borrowers(1% vs 99%)
ReplyDeleteIslamic finance.
IMO Michael Hudson has a proper definition of what constitutes rent.
ReplyDeleteHudson defines rent as "unearned income." A more precise definition is "financial or economic gains that is not produced by work."
In a capitalist system there are basically two ways to "earn income." The first is work and the second is risk. All economies operate with labor (work). The unique characteristic of capitalism is that finance is driven by risk. Under capitalism, financial gains from risk taking are "earned" by definition. So there is no land rent or financial rent as such, although there may be monopoly rent and crime-corruption. Conventional economics generally considers only monopoly rent and that is difficult to measure, so it is usually disregarded in other than egregious situations. Crime is illegal but everything else that is legal is "earned regardless of whether it is ethical.
Rent is under-investigated in conventional economics, and those who consider it are generally considered "Marxist."
Rent underlies Bernie Sanders economic message, but it is implicit. Progressive economics needs to make rent explicit and clear.
MMT needs to integrate more of Michael Hudson and make a deeper study of economic rent in my view. It was a great idea bringing him to UMKC, along with Bill Black, but now MMT needs to seize the opportunity with both of them. This needs to be put together in a clear package for popular consumption. Looks to me like it could become a best seller.
"How much GDP would the US lose if we had universal free college or Medicare for all?"
ReplyDeleteWe wouldnt lose any it would probably go up....
And as far as "FREE" nothing is "FREE".... people are still going to demand to be paid to do the work....
this is like Ramanan is trying to get the MMT-bots away from the "helicopter" metaphor... its not a "helicopter" and its not "free"....
In Canada, "earned income" is:
ReplyDeleteAll the money you earn. This includes any wages, salaries, tips, net earnings (if you're self-employed) and any other income received for personal services. Investment income, such as dividends and interest, is not counted as earned income. See also "Unearned Income."
https://www.superbrokers.ca/library/glossary/terms/unearned_income.php
ReplyDeleteTom hickey-I'm not sure I would even qualify land rents from monopoly titles as having anything to do with 'risk'.
ReplyDelete"Islamic Finance"-so essentially Equity financing
I like the idea of equity shares which revert to the entrepreneur/borrower once principal and possibly a mark up fee has been repaid.
It still sounds as though a public/community lending infrastructure should be set up i.e. public/community local banks.
I wonder what Neil Wilson thinks of Michael Hudsons perspective.Wilson considers interest to be a necessary tax on industry and an entirely earnt income
Matt-
ReplyDeleteYou must not have read my comment very closely. There is a difference in the way things are counted in the GDP accounts whether they are Govt or private entities. which in turn leads to examples where privatizing certain previously free (monetary cost at point of use) leads to higher looking GDP and productivity all due counting private rents and not counting Govt goods the same way.
Interesting idea, which I dont know enough about as Im not an expert in GDP accounting rules and operations. However, your comment didnt really address my point.
@ intake
ReplyDeleteI am not defending the capitalist view but merely expressing it. I do think it is correct analysis of capitalism but I don't think that means that there is no rent involved, as defenders of capitalism claim. Feudal lords had similar arguments justifying their outsized share, too.
The whole feudal system depended on titles. We now think of titles are ranks. But they were titles to land use authorized by the monarch.
Similarly, finance is at the basis of capitalism. We now think of capitalism as beginning with industry but the conditions for industry were prepared by finance and this involved risk assumption mostly by bankers. Since then bankers and financiers have been dominant.
The story goes that there is no alternative. But that is a story.
Tom and intajake,
ReplyDeleteIslamic financing is just regular financing but spun in a way that it *appears* there isn't interest but equity. It's interest at one remove, with the intermediate step being something that looks like equity but suddenly becomes interest!
I once met an Islamic financing "banker" and by the end of talking to him I was convinced it was all a fraud or sleight of hand. It's going to become one of the great, if not the greatest, 21st century fraudulent financing innovations, and it's going gangbusters. If anyone can convince me it's not fraudulent, I'm all ears. It's a bad magic trick, and like all magic tricks it requires a gullible audience who believes what they're seeing. Like all fraudulent finance, it'll collapse. In the meantime invest every penny you have in Islamic banks, they're going to make massive returns!
There's a growing middle class across the Islamic world and many would like to ensure that they're not involved in the sin of usury (as traditionally defined). And they've been spun this great fraud and it seems to be working. These "Islamic" banks are popping up absolutely everywhere. Finance always seems to be one fraudulent step ahead, and this new fraud is a beauty!
If anyone can convince me it's not fraudulent, I'm all ears.
ReplyDeleteWhere’s a good non-emotional explanation of it?
MRW, A good explanation of why its fraudulent? It isn't helpful for me to say that I've just read stuff whenever I've found it in papers, magazines and people on threads. By the way, when I say fraudulent I mostly mean that it disguises what it really is and therefore is fraudulently advertising itself as something that it clearly isn't, although I'd also add that these people are still bankers and banking is replete with criminal fraud. At the end of the day, all someone needs to be passed as "Islamic banking" is a "scholar" who will give you the requisite fatwa. And as we all know, since religion is almost as corrupt as banking itself it's not difficult to bribe a clergyman to say whatever you want them to say, somewhat like the credit rating agencies. Instead of actuaries and risk management specialists who are willing to be bought off, all you need is an Islamic cleric or Mullah or whatever.
ReplyDeleteThe best thing is to corner one of these people and watch as their carefully crafted propaganda falls apart. Anyway, I just did a quick Google search and the following interesting stuff comes up:
http://news.bbc.co.uk/1/hi/business/8401421.stm
http://www.islamic-finance.com/item100_f.htm
http://www.firstpost.com/business/islamic-banking-is-a-myth-rbi-is-right-to-reject-it-532733.html
The argument then becomes, well, it's irrelevant that conmen are pretending to be offering a usury free banking. It is theoretically possible to have such a laudable policy of usury free banking and it is achievable (not least because a man in the sky says its possible and desirable, lest Satan sodomises you with a molten hot spike in hell). Well, that's possible but these huge financial companies operating mainly out of the corrupt Gulf states wouldn't want to be involved in it because it isn't profitable. All you are then demanding and trying to recreate is not for profit credit unions or something like it. Well, fine, call it that then! The patina of "Islamic" is the selling point to the devout and the naive when all they're being sold is a fraud.
Hope that help, the overly emotional John Adams!
Healthcare spending is already in GDP... if you increase access by providing xfer payments for even more people, then GDP will go UP...
ReplyDeleteArent you a "single payer" person?
Well that means that you go to the doctor, and then the govt pays the doctor based on a fee schedule for services provided, not a bunch of insurance firms pay but now the govt pays via xfer payments to the providers a la Medicare/Medicaid....
GDP goes up...
Its like you are asking what happens to a firm's sales if they get more paying customers.... sales go up...
John, no I mean just an explanation. I don’t know what it is. Can’t judge fraudulent without knowing what it’s either supposed to be or as claimed
ReplyDeleteMatt, this is 100% OT to this thread, but since I’ve got you here, you should listen to this: Stephen Cohen, Russian Analyst and husband of publisher/editor of The Nation (!), praising Trump. (John Batchelor Show this week-WABC Radio AM)
ReplyDelete"NATO & Russia After the Brussels Attack"
http://embeds.audioboom.com/publishing/playlist/v4?bg_fill_col=%23ecefef&boo_content_type=channel&data_for_content_type=4002274&image_option=small&link_color=%2358d1eb&player_theme=light&src=https%3A%2F%2Fapi.audioboom.com%2Fchannels%2F4002274%2Faudio_clips%3Finclude_child_channels%3D1#NATO%20&%20Russia%20After%20the%20Brussels%20Attack.%20Stephen%20F.%20Cohen.%20NYU,%20Princeton%20University,%20EastWestAccord.com.
MRW,
ReplyDeleteApologies. Islamic banking is essentially interest free mortgages, personal and business loans, etc. Interest/usury is deemed a sin, just as it was in Europe until a few hundred years ago: the Roman Catholic Church, which was the only Church at the time before the various splits and founding of Protestantism, found a way of accommodating itself to this new world, and presumably made a lot of money itself out of this newfound accommodation of money, finance and banking.
Anyway, the Islamic bank stays in business by allegedly taking a cut in the profits rather than charging interest. There is also the aspect that the so-called Islamic bank will not make investments in anything unholy: alcohol, pornography, and all the other stuff Islam finds offensive, which may make it difficult anything to invest in anything. That's the size of it, and as I said it's nothing more than a scam to make money off people's religiosity.
If people want ethical banking, they should support the Post Office, not for profit credit unions and local banks, etc. They don't. They want their cake and to eat it too. They're known as hypocrites. I prefer to be charitable and call them naive and ignorant of the world they live in.
"Crime is illegal but everything else that is legal is "earned regardless of whether it is ethical."
ReplyDeleteTom is there something unethical about someone saving a portion of their earned income to invest and generate 'rental income' from fixed income investments, or income real estate properties, to provide for themselves when they become too old to work?
ReplyDeleteTom is there something unethical about someone saving a portion of their earned income to invest and generate 'rental income' from fixed income investments, or income real estate properties, to provide for themselves when they become too old to work
The reference is to Wall street "financial innovation" in a broad sense. Holder said that they could not make a case for fraud that they considered prosecutable, even though the behavior that led to the still ongoing GFC involved conflicts of interest and other agency issues at the very least. But the standard in finance is caveat emptor.
But in addition to that there is question of using leverage in addition to drawing on savings for investment. Many people have thought that this is an ethical issue both for the borrower and the lender.
WRT to rent from "financial investment," the present argument is that capital gains (unearned income = rent) should be taxed less than ordinary income (work = earned income) because it contributes to capital formation and capitalism is dependent on capital formation for growth, which is equated with increasing distributed prosperity because "trickle down."
ReplyDelete"But in addition to that there is question of using leverage in addition to drawing on savings for investment. Many people have thought that this is an ethical issue both for the borrower and the lender."
ReplyDeleteUsing leverage in the fixed income markets usually involves borrowing short term to lend long term in a normal positive sloping yield curve. Aside from assessing and taking on credit risk, borrowing short & lending long is a fundamental way that banks make money. Borrowing short and lending long in the Treasury market for example is also fundamentally identical to the risk associated with going long a treasury futures contract, which is a highly leveraged financial instrument.
The list of associated derivatives markets is way too long to go into here, but I would argue that all of it is a by product the USD being a fiat currency. Why was there no financial futures markets in the 1950s and 1960s? Simple answer is that there was not enough interest rate volatility to support the types of derivatives market trading infrastructure that exists today.
If financial futures are speculative, they are only made so owing to the inherent instability of discretionary central bank monetary policy with a fiat currency. Note that financial futures and other derivatives are also economically necessary as hedging tools amid the volatility of financial markets with a fiat currency.
The above is description of finance in capitalism. The assertion is that capitalism requires these instruments as tools.
ReplyDeleteThe counterargument is that capitalism is inherently immoral (unjust) because it doesn't allocate gains and distribute wealth based on work. Money makes money instead of work making money.
Here's Lincoln:
ReplyDeleteIt is not needed nor fitting here that a general argument should be made in favor of popular institutions, but there is one point, with its connections, not so hackneyed as most others, to which I ask a brief attention. It is the effort to place capital on an equal footing with, if not above, labor in the structure of government. It is assumed that labor is available only in connection with capital; that nobody labors unless somebody else, owning capital, somehow by the use of it induces him to labor. This assumed, it is next considered whether it is best that capital shall hire laborers, and thus induce them to work by their own consent, or buy them and drive them to it without their consent. Having proceeded so far, it is naturally concluded that all laborers are either hired laborers or what we call slaves. And further, it is assumed that whoever is once a hired laborer is fixed in that condition for life.
Now there is no such relation between capital and labor as assumed, nor is there any such thing as a free man being fixed for life in the condition of a hired laborer. Both these assumptions are false, and all inferences from them are groundless.
Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration. Capital has its rights, which are as worthy of protection as any other rights. Nor is it denied that there is, and probably always will be, a relation between labor and capital producing mutual benefits. The error is in assuming that the whole labor of community exists within that relation. A few men own capital, and that few avoid labor themselves, and with their capital hire or buy another few to labor for them. A large majority belong to neither class–neither work for others nor have others working for them. In most of the Southern States a majority of the whole people of all colors are neither slaves nor masters, while in the Northern a large majority are neither hirers nor hired. Men, with their families–wives, sons, and daughters–work for themselves on their farms, in their houses, and in their shops, taking the whole product to themselves, and asking no favors of capital on the one hand nor of hired laborers or slaves on the other. It is not forgotten that a considerable number of persons mingle their own labor with capital; that is, they labor with their own hands and also buy or hire others to labor for them; but this is only a mixed and not a distinct class. No principle stated is disturbed by the existence of this mixed class.
Again, as has already been said, there is not of necessity any such thing as the free hired laborer being fixed to that condition for life. Many independent men everywhere in these States a few years back in their lives were hired laborers. The prudent, penniless beginner in the world labors for wages awhile, saves a surplus with which to buy tools or land for himself, then labors on his own account another while, and at length hires another new beginner to help him. This is the just and generous and prosperous system which opens the way to all, gives hope to all, and consequent energy and progress and improvement of condition to all. No men living are more worthy to be trusted than those who toil up from poverty; none less inclined to take or touch aught which they have not honestly earned. Let them beware of surrendering a political power which they already possess, and which if surrendered will surely be used to close the door of advancement against such as they and to fix new disabilities and burdens upon them till all of liberty shall be lost.
First Annual Message
December 3, 1861
BTW, Bill Black and other have documented the criminal and unethical behavior that drove the financial sector to the GFC. There is one other factor that I have not seen mentioned but seems obvious in driving risky and irrational behavior — cocaine.
ReplyDelete"BTW, Bill Black and other have documented the criminal and unethical behavior that drove the financial sector to the GFC."
ReplyDeleteTom - What dose the reference to GFC mean?
Global Financial Crisis
ReplyDelete