Putting an End to the Rent Economy — Vlado Plaga interviews Michael Hudson

Interview with Vlado Plaga in the German magazine FAIRCONOMY, September 2017.

VP: You are advocating a revival of classical economics. What did the classical economists understand by a free economy?

MH: They all defined a free economy as one that is free from land rent, free from unearned income. Many also said that a free economy had to be free from private banking. They advocated full taxation of economic rent. Today’s idea of free market economics is the diametric opposite. In an Orwellian doublethink language, a free market now means an economy free for rent extractors, free for predators to make money, and essentially free for financial and corporate crime.

Good one.

Counterpunch
Putting an End to the Rent Economy

Vlado Plaga interviews Michael Hudson, 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 Guest Professor at Peking University

Scott Fullwiler — link to my twitter storm from Monday on Trump's proposals for reducing interest on national debt

Here's a link to my twitter storm from Monday on Trump's proposals for reducing interest on national debt https://t.co/265JO9Wewl

— Scott Fullwiler (@stf18) May 11, 2016

Art Shipman — This is cost

We like to say, "It's the demand, stupid." Art makes a good case that it's the cost.

The New Arthurian Economics
This is cost

The Arthurian

See also Arthur F. Shipman, The New Arthurian Economics, 16. January 2009 at MPRA.

Yves Smith — Cash or Copyright or Real Creativity?

Yet another important, counterintuitive finding…at least if you think that people respond only or mainly to economic incentives. Not to give the punchline away, but the success of open source software from a technical standpoint is one supporting datapoint. Can readers think of others? 

By Dan Hunter, Dean, Swinburne Law School at Swinburne University of Technology. Originally published at The Conversation

Naked Capitalism
Cash or Copyright or Real Creativity?
Yves Smith

Yet another important, counterintuitive finding…at least if you think that people respond only or mainly to economic incentives. 

The interests aspect of value as interest is much broader than economic interests. Value is also a broader concept than interest in many ethics and value theories, and psychological and sociological studies of motivation bear this out. Human being are not only more complicated psychologically and socially than self-interest alone can account for, but also more complex and interrelated.

This relates to the rather complex concept of human freedom. There are three key aspects of freedom. The first is freedom from constraint and limitation. The second is freedom to choose and to express oneself. The third is freedom for self- determination and self-actualization. Rights are linked to these three aspects of freedom.

While all are integral aspects of human freedom, freedom for is perhaps most significant for both creativity and also political self-determination.

Most significantly, freedom is fundamental to the spiritual or metaphysical dimension in contrast to the physical and material. Therefore, it is a moral category rather than simply a descriptive one. Freedom is not explained entirely by observations about its manifestation in life. It is a potential that underlies human complexity and is the basis for development and innovation.

Yves asks for example. One in particular comes to mind, since it is paradigmatic. A friend was a "starving artist" until she was discovered by a prominent gallery owner who successfully sold many of her paintings. But after some time, she realized that her creativity was being undermined by the process. 

First, she was required to schmooze with the patrons at shows, which was not her thing. She didn't like selling herself and felt that her work should stand by itself. But that was part of the deal in getting promoted.

Secondly and more importantly, she got tired of painting the same style and want to switch, but the gallery owner balked. Why kill the goose that lays the golden egg, he wondered. Her answer was that she either kill the goose or kill her creativity.

So she is not as well off as she might have been, but she is happier and producing more innovative work, following her muse regardless of where it leads financially.

Most really creative people have known haven't given a rat's ass about money. Some became wealthy in spite of it. Others didn't, but most were happy and self-fulfilled anyway. On the other hand, some give up and either sell out or get a job, while others are bummed that the world doesn't appreciate them sufficiently. But that's often not about the money but lack of recognition.

Of course, this is not say that creativity and finanical interest are either never related or mutually exclusive. Financial interest can inhibit or kill creativity, and absence of financial interest is not a necessary condition for high creativity. Entrepreneurs are often highly creative people as are designers, engineers and advertising people, for example. And most successful firms innovate by introducing new products and expanding line, as well as re-inventing themselves with changing conditions.

Tim Johnson — Reciprocity and the difference between usury and interest

History of interest in relation to usury and risk compensation. A bit wonkish, but important in that it relates to the debate over inequality. It's also interesting from the historical perspective on the development of finance.

We can interpret interest in two ways, as a means of "growing" ones wealth, which would be usurious in the Scholastic sense, or as a compensation. If it is a compensation the wealth is not expected to grow, that is, Piketty's whole argument becomes somewhat meaningless.

Magic, Maths, and Money — The Relationship between Science and Finance
Reciprocity and the difference between usury and interest
Tim Johnson | Lecturer in Financial Mathematics at Heriot-Watt University, Edinburgh

The Arthurian — How does it get from this balance sheet to that one?

Accounting deals with balance sheets.
Economics deals with forces that change balance sheets....

Today, there is only about four cents of circulating money for every dollar of debt. Four cents. No wonder debt seems a burden today.

Every dollar of that debt corresponds to a dollar of money that was newly created when the debt was created. The debt still exists. So where is the other 96 cents?

A lot of it went into savings and other financial assets, and out of circulation.

There's a big focus these days on income inequality. Here's the root of the problem: Some people are earning interest and others are paying interest on more and more and more of the money in our economy.It's a mad house! A mad house!

The graph shows there's only four cents left, with which to pay the interest and principal on a dollar of debt and still do everything else we need money for.

And paying off a dollar of debt reduces that four cents by a dollar.

The New Arthurian Economics
How does it get from this balance sheet to that one?
The Arthurian

200 Years Ago, Tom Jefferson Agreed With Warren Mosler: The Natural Rate of Interest On State Currency Creation Is Zero

   (Commentary posted by Roger Erickson)

Plus, both realized that public currency creation was always a pledge of future taxes not yet collected. However, Jefferson didn't seem to realize that a commodity peg for public credit was not only unnecessary, but highly constraining. He also didn't bother noting that a GROWING POPULATION OR ECONOMY would never even desire to claw back all previously created currency, by excessive taxation. (Not unless we wanted all citizens to have zero liquidity, all the time - a condition NOT conducive to policy agility.)

STATAL MONEY (by Ezra Pound)

 In 1816 Thomas Jefferson made a basic statement that has NOT been properly digested, let alone brought into perspective with various "modern proposals" for special improvements of the present damned and destructive "system" or money racket. The reader had better FRAME Jefferson's statement:-

"And if the national bills issued be bottomed (as is indispensable) on pledges of specific taxes for their redemption within certain and moderate epochs, and be of proper denominations for circulation, no interest on them would be necessary or just, because they would answer to every one of the purposes of metallic money withdrawn and replaced by them." Jefferson to Crawford, 1816.

The Natural Rate of Interest is Zero

see also, "Economics of Human Energy"

Now We've Heard Everything - Some Think That The Fed Needs A Bailout

   (Commentary posted by Roger Erickson.)



OMG! Yes, Maude, it's true. This raises the most dire spectre of all!!! The USA itself could run out of fiat! If that were to happen, who would be left to bail us out? Who and what would they have to defraud next, to make it look real? The US Constitution? Please, let's not take the idiocy that far.

As stimulus tab rises for Fed, worries grow it may require a bailout

Just when you thought the level of discussion could not sink further.

LA Times: "The Fed's bond-buying binge could put the central bank's finances at risk if interest rates were to rise sharply, critics warn."

Seriously? In a prominent US newspaper? With a straight face?

You couldn't make this stuff up! What's next? Bail needs an out? In case systemic fraud were to rise sharply? Coupled with an increase in ignorance about fiat currency operations? It could happen, you know.

So who are the geniuses espousing this view?

James D. Hamilton, an economics professor at UC San Diego."It's really pretty cut-and-dried as far as the arithmetic goes: If you buy bonds and interest rates go up, you're going to take a capital loss on those bonds. The more they buy, the bigger their balance sheet, the bigger the loss they're going to face."

Sounds like the organ responsible for generating his logic DID dry up! No intellectual capital left.

Rep. Mick Mulvaney, R-SC. "The Fed stands to lose a lot of money, and by a lot of money, I mean hundreds of billions of dollars. It is not hyperbole to suggest the next big bailout could be of the Federal Reserve."

Ooh! He means it. There's a lot of fiat involved in denominating Public Initiative. Somebody get his train of thought a track to run on. It's chugging, but obviously derailed.

Et tu, Ben Bernanke? "The bottom line is that for any reasonable interest rate path, this is going to end up being a profitable policy for the taxpayer" says spineless, pandering Ben, as he sinks further into the political quicksand.

Sounds like Ben Bernanke is the one bailing out! Seems he pines for his cushy job at Princeton, where he can just go back to writing his little papers, not responsible for even pretending to counter the Erble Logic that is leading his nation astray. Ben prefers to sit in a comfortable deck chair and play his violin, as the ship goes down? With a stiff drink? Anyone noticed if he's been drinking more lately? Maybe he's planning to move to Switzerland too, or the Cayman Islands.

Marvin Goodfriend, an economics professor at Carnegie Mellon University's Tepper School of Business. [Finally! Surely we can expect a bit more from people grounded in business, not just nominal economics?]

"In the short term, it's a money-maker. The borrowing cost is cheap right now. Those borrowing costs are going to rise."

Ok, guess not. Another hope dashed. Move along folks, no situational awareness to see here.

The last word goes to the venerable LA Times. "When interest rates begin rising, the Fed will have to pay a higher rate on bank excess reserves. That will eat into the Fed's bottom line."

Let me get this straight. The Federal Reserve, accountant to the Treasury of the USA, denominator of a growing nation's purely nominal records of Public Initiative ... has a bottom line of nominal? Perhaps in nom only? Where'd this come from? How do we turn out citizens like this with no remaining connection to reality? Is our education system now completely nominal as well? Real situational awareness is considered purely nominal?

The article goes on to quote the least authority of recent times, Peter Schiff. I won't bother dipping into his meandering path, as his skiff sails further beyond the bounds of reason. Maybe he'll drop off his imagined horizon someday.

Too bad the US electorate doesn't set a bottom line in situational awareness. We could use a threshold defining a minimal, survivable level for an informed electorate right about now. Our economists are advising us to tighten the nominal noose we've placed around our own economy's real neck. Even if this is just some eco-erotic game for economists, please stop now, before it's too late for everyone?

Since assisted suicide is illegal, surely citizens could plausibly arrest all orthodox economists, for promoting and abetting economist_assisted_national_suicide?

Daniel Little — Hirschman on the passions

Albert Hirschman is an important social theorist, generally classified as an economist, who often placed the varieties and sources of action at the center of his writings. (Here is an appreciation of Hirschman by Cass Sunstein in the New York Review of Books; link.) This interest in the actor is particularly evident in Hirschman's book, The Passions and the Interests (1977) -- with an interesting twist. The book is a contribution to the history of ideas rather than contemporary social theory. Hirschman wants to know how the pursuit of personal gain came to be viewed as the central human virtue, the foundational assumption of much of the social sciences, and the foundation of the liberal ideal of society. And implicitly, he wants to know if we can arrive at a more adequate theory of the good society by reconsidering some of those assumptions....

One way of characterizing Hirschman's leading intuition in this book is the question of whether different kinds of society reflect different mentalities at the level of the ordinary actors within them. Is there a "spirit" of capitalism, a characteristic set of motives and ways of thinking that its denizens possess? Is this spirit different from those associated with feudalism or the socioeconomic system of the ancient world? And how would various passions be linked to various features of the social order?

Understanding Society
Hirschman on the passions
Daniel Little | Chancellor, University of Michigan at Dearborn

How Much Debt Can We Bear?

In a recent Bloomberg post, I argued that small federal budget deficits were infinitely sustainable. That seemed to give a lot of people an intellectual heart attack. It really shouldn't. This is basic stuff.

To prove it, I built a simulator which allows you to plug in a few basic inputs -- the original debt, the annual rate of inflation, the annual real interest rate, the total or primary deficit as a share of GDP, and the annual rate of real GDP growth -- and it will plot back for you the trajectory of debt for the next 100 years.

I even included two optional features, one that assigns a penalty on real GDP growth if there is a high debt-to-GDP ratio, and another that boosts GDP according to the deficit.

You can play with the model online here. Download an Excel spreadsheet version here. I hope this is a useful tool for people who want to think about government debt. (Please, if you adjust the online settings, which I encourage you to do, set it back when you are done.)

A few thoughts which come from the model:

Evan Soltas | economics & thought
How Much Debt Can We Bear?

Steve Randy Waldman — There’s no such thing as base money anymore

I’ve no grand ideological point to make here. But I think a lot of debate and commentary on monetary issues hasn’t caught up with the fact that we have permanently entered a brave new world in which there is no opportunity cost to holding money rather than safe short-term debt, whether we are at the zero bound or not.

Interfluidity
There’s no such thing as base money anymore
Steve Randy Waldman

That is a grand ideological point, and the bankers don't want it drawn for fear it will undercut the rationale for the interest subsidy.

Federal Reserve Paid The U.S. $76.9 Billion In 2011

Read it at The Huffington Post
Federal Reserve Paid The U.S. $76.9 Billion In 2011, The Second-Highest Amount In U.S. History
by Martin Crutsinger

Gee, Ben should be the most highly compensated CEO on the logic of conventional wisdom.

That's almost $77,000,000,000 that non-government did not receive in net financial assets from government injection of interest, arguably affecting nominal aggregate demand adversely.