This is a deeply dissident economics work that will cause you to re-evaluate many, if not most, of the economic assumptions you hold--including implicit assumptions you aren't even aware of. It exposes the two great ruses of modern orthodox economics: first, the egregious linguistic control used to set debate parameters; and second, the disturbing amount of sophistry and pseudo-logic behind much of economic thinking.
Author Michael Hudson borrows the structure of Ambrose Bierce's classic work The Devil's Dictionary, as he goes right through the alphabet of economic terms and concepts, describing precisely how they are used (or mis-used, as the case usually is) to mislead us.
Please note that if you can name, define and even invert the meaning of economic terms and concepts, you hold power that the vast majority of people can't even see, much less resist. Thus, when the architects of our economy exercise covert linguistic control by:
* inverting the term "free-market capitalism", using it to describe a system of crony capitalism,
* using the phrase "free trade" to describe a set of policies that produce decidedly unfree results like destroying your nation's jobs and manufacturing base,
* use the term "wealth creation" when you're actually describing "asset inflation funded by debt pyramiding,"
...they can easily dictate all aspects of political and economic debate. Worse, they control your very perceptions, to their benefit and at your expense! The author memorably calls this "weaving a cloak of semantic invisibility" around reality. This is obviously a foundational component of control: of people, of entire economies, of where wealth flows and who gets most of it. Ultimately, it is the foundation of State power.
Reading this book involves repetition: many of the terms show up more than once in various contexts or under various letters of the alphabet. One would think this would make the reading experience tiresome, but on the contrary, it's useful! Over the course of the book you develop more and more command of the terms themselves, as well a deeper ability to perceive the various ways these terms can be deployed linguistically and dialectically.
One of the key ideas author Michael Hudson drives home over and over again is the concept of "rentier economics." Note that as an economy becomes increasingly financialized and where everything becomes more and more dependent on leverage and debt financing, large financial intermediaries (bankers, brokers, insurers, asset managers, etc.) get to capture a larger and larger economic "rake" off the top of the economy. Think of it like the house rake at a casino poker table, except that it grows larger and larger over time to suck more and more wealth from the game itself. This rake unfortunately comes at the expense of workers and producers, and it leads to higher prices and higher expenses for everyone.
Also, Hudson hates neoliberalism with the heat of a thousand suns, largely because neoliberals cloak their oligarchic policies in social justice-y, working class-friendly rhetoric, fooling earnest but credulous voters to support exactly the wrong things.
Finally, if you're willing to meta-read this book, it becomes a how-to guide to beat the game of modern economic life, in the same way a perceptive meta-reader of Marx's Capital indirectly learns the steps needed to move up into the industrial (or investor) class. The author explains the game behind the game; it's up to us as readers to see things the way they really are and adjust.
Nowadays we live in the most propagandized world there's ever been, thus I'm all the more glad to read any writer who will help me see through the filters around me, who will help me see through methods of framing and paradigm-shaping that might cause me to misperceive. You don't often find a book that does this, and I am grateful to Michael Hudson for helping me think more deeply and perceive my world more accurately.
3) Much like the term "liberal" has been inverted from what it was ("classical liberals" looked more like what we'd call libertarians today) into what "liberal" means today (basically a garden-variety centrist Democrat today), many economic terms have been similarly inverted or warped from their historical meanings.
[For the love of God do not read any further! You'd be a fool even to skim a few of the bolded bullet points.]
Notes:
1) On the rentier financial class ("rent extractors"), and how we've changed economic vocabulary to depict the rentier class "as productive rather than predatory." Likewise "free markets" are really only free for rentiers!
2) Interesting comment about Adam Smith believing the landed aristocracy should not be able to dominate tax policy (see photo); this is precisely what we are facing right now, we have an aristocracy running our government and our major corporations that is doing the same thing to today's society.
4) "Libertarian mascots": This is an interesting way to think about libertarianism: essentially libertarians support a system where the government is too weak to limit the power of Wall Street or Cantillon-type elites to dictate policy on behalf of the rentier class. Very interesting way to think about it.
5) Also on the idea that a rentier elite system keeps the people in a state of "debt dependency" where people must take on large debt or expense loads to obtain access to housing, education, medical care and other basic needs, this is a central idea of a type of debt serfdom, or as Hudson will later put it, "debt peonage."
6) "It is dangerous to be right in matters where established men are wrong." --Voltaire
See for example the dangers of disagreeing with economic orthodoxy in the academic world: you will never get tenure anywhere. Or see also the grave dangers of disagreeing with medical orthodoxy over the past few years.
7) Which is more "real": the economy of production and consumption, or the claims of finance and property on that economy? Again, an interesting way to put it.
8) The classical distinction between earned and unearned income. Note that Adam Smith criticized rentiers, "The classical economists fought against the vested rentier interests that survived from the post-Roman law codes and subsequent warlord feudalism."
9) I'm noting how, as I read, my brain is trying to pigeonhole this guy politically: it's difficult to do, he's criticizing the entire political spectrum. He's pro-socialist in certain aspects but pro-individual liberty in others, and what I respect most of all about him is how pro-"true and accurate use of words and definitions" he is!
10) "Hypocognizant democracy": it is in the direct interests of our elites that we become dumber and less perceptive as a people. [I would even go so far as to argue that it's better (from the elite's perspective) that we're drugged, distracted, hooked on media, or porn, or pharmaceuticals, whatever.] Note also that in addition to a hypocognizant populace we have innumeracy (math illiteracy) which is "a precondition for widespread failure to understand" reality.
11) On the Sapir-Whorf hypothesis of linguistics: vocabulary and semantics of language shape the way in which we conceptualize reality.
12) Hypocognition: "a condition in which 'the words or language that need to exist to frame an idea in a way which can lead to persuasive communication is either non-existent or ineffective.'" An example here would be modern libertarians "lacking appropriate economic concepts to understand what is making people poorer... in a system of debt peonage."
13) Current economic vocabulary has been "weaving a cloak of semantic invisibility around the phenomena of rentier parasitism."
14) Consider a simple thought experiment the author gives where Greece has debt typically bearing interest rates above the economy's rate of growth (let's say 5% interest rates and 1-2% GDP growth) then eventually all growth and national income will be taken by creditors. [But note also how interesting it is to think of this in an inflationary environment where that debt--especially if it's at a fixed coupon--suddenly represents extraction of value from the rentier class, as inflation eats away the value of those future dollars. It makes me wonder what the result of this process will be under a period of monetary repression like we had in the USA post WWII where interest rates were held below inflation rates for an extended time, punishing rentier savers. So who actually gets repressed the worst? Likely either way the rich make out fine because they own most of the assets!]
15) The author considers a democracy that lacks proper economic understanding to be an oxymoron, a people fooled by its own elites.
16) "Winston Smith has replaced Adam Smith." (see photo) This page states the central metaphor of this book.
17) "People who believe in absurdities commit atrocities." --Voltaire
18) The false paradigm ("pretend opposition") of free markets against serfdom/communism; using Edward Bernays-type propaganda mechanisms to create group psychology and engineer consent; note how Bernays played a role in "naming" Guatemala's democratically elected president Jacobo Árbenz as a "communist" which provided justification for the US to oust him; this is a good example of the mechanism of applying word abuse along with group psychology manipulation. Note further that a similar thing was done by Paul Wolfowitz in a propaganda campaign against Saddam Hussein to justify invading Iraq. We sure do return to the same toolbox here in the USA...
19) Michael Hudson can't stand Hayek: he thinks Hayek was fooled by this very mechanism (!) in his book The Road to Serfdom; Hayek frames communism and socialism as intrusions on free markets, but in reality he was supporting "free markets" only in the sense of a system of rentier extraction/"rake" of wealth, which literally led to a creation of a type of serfdom for non-elite classes in the form of debt peonage. Super interesting to rethink Hayek in this way!
20) I also can't help but think about how we now have a medical elite that imposes healthcare recommendations or interventions on us, extending the Stockholm syndrome economic dependency that people have with their extractive elites to now include a type of medicalized Stockholm syndrome too. When you have 20+% of your population on psych meds and nearly everybody on at least some med or another, you wonder how deep this goes.
Here's where the dictionary part of the book begins:
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21) The author makes a minor error with the Worldcom fraud: it wasn't a mark to model problem but rather capitalizing costs that should have been expensed, thus they dramatically overstated earnings over a period of years.
22) Interesting history of American economic thought: evolving from tariff-protected industrial growth in the 1800s; then evolving to free trade once the US had achieved world industrial and financial dominance; then imposing "free trade" on other countries, which was to the US's obvious advantage for the first three-quarters of the 20th (after which it became much to our disadvantage!). Once you're dominant you can use free trade in other countries to make them dependent; the irony is that other countries should really follow the 1800s US model and be protectionist!
23) Alienation of modern labor: how there's no connection between what we do for work and the results of our labor, while all excess value is appropriated by the corporation (or the state); thwarting what Thorstein Veblen called the "instinct of workmanship."
24) As If argument: "The simplest way to distract attention from how economics are unfair is to treat economic theory as a purely abstract logical exercise. A parallel universe is presented as a set of assumptions. As in novels, the key is to get observers to suspend disbelief." [Holy cow this is exactly what is so irritating to me about most economic arguments.]
25) Asset price inflation: most bank credit money is spent on assets, not on goods and services; a small proportion of bank lending goes to consumer goods, but banks mainly land against assets in place: real estate, bonds and stocks. Thus windfall gains/capital gains are typically inflated by debt leverage, and "Assets are worth as much as banks will lend new buyers."
26) Disagree here on asset price inflation: "A related financial phenomenon contributing to asset-price inflation is the corporate practice of borrowing more while using earnings for stock buybacks and higher dividend payouts to raise short-term stock prices." The statement is true but misleading, largely because stock price movement is affected tremendously by the incremental buyer and seller, and the world is littered with the corpses of companies that levered up to buy back stock but then went to zero because of overleverage. So this is actually not a good example of asset price inflation, except perhaps in a very narrow example of the extreme short-term!
27) The author takes issue with Carl Menger's The Origin of Money, calling it in anachronistic fable, claiming instead that "money was developed by cost accountants in bronze age Mesopotamian temples and palaces, mainly as a means of denominating debts."
28) Hudson has an issue with Austrian School economists too: calling it "playing the victim" theory; claiming the Austrian School emerged as a reaction against socialist reforms that were in Hudson's view actually beneficial.
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29) On bad debt: "Exploitative loans beyond the reasonable ability of borrowers to pay should be forgiven."
30) Per Hudson, when the government runs a surplus this is a drag on the economy. "Governments create money and spend it into the economy by running budget deficits."
31) Banksterism: the regulatory-captured banking system that siphons off income for itself with depositor clients and the government bearing the downside if the bank fails (I'm not sure Hudson realizes how much bank owners/stockholders lost during the 2008 crisis though. They were the ones who got the downside, the depositors were made 100% whole and the gov't actually made quite a lot of money via TARP loans and other programs to lend emergency capital to banks.)
32) Hudson argues that barter was not a nascent or preliminary stage in money creation but rather it emerges in the breakdown stage of financialization, "for instance as the Roman empire dissolved into the dark ages." He claims that the example of barter is given to evade thinking about money as a form of debt, the idea is more that all exchange is treated as a form of barter without requiring a "discussion of how money payments lead to debt buildups that end up crashing the monetary system." [Note that this is totally inconsistent with almost all the reading I've done on monetary history]
33) You can tell Hudson has read his Karl Marx: "The bourgeois aim is to live without working, by accumulating enough wealth to live off interest, rent or capital gains. This fantasy sounds appealing, but for most people the hope of rising into the rentier or capitalist class through hard work and saving is illusory and reflects a loss of class consciousness." [I'd also argue that the early retirement movement would like a word with Mr. Hudson about his claim that this "bourgeois aim" is a "fantasy"!]
34) "Mainstream business cycle theory fails to explain the exponential buildup of debt from one recovery to the next, and hence fails to see the ultimate crisis." But...when is this ultimate crisis then going to happen?
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35) On the shifting definition of capital: capital as means of production; or in Marxist terms, "industrial capital" which is wealth used to employ wage labor (as distinct from rents and interest); or "finance capital" which are rentier claims on means of production. "[Finance capital's] dynamics tend to strip the means of production via interest-bearing debt and other financial claims in excess of the ability to pay out of current income and production." This is an aspect of the "rake" of a financialized economy off of productive assets and people/workers.
36) On US-centric "global finance capital" and its nation-state "client oligarchies," basically these are elites in other countries who extract wealth from their country/people and then moved that wealth offshore (either to the United States or to tax havens); labor emigration typically accompanies capital flight as well: see Argentina which lost a million workers in 2002-2003.
37) [This book reads a lot like Marx's Capital, in the sense that it reveals certain rules of the game, certain aspects of the meta-game that are not visible or perceived by most of the participants in the system. As such it is a bit of a guidebook for how to beat the game. And when I say "game" here I mean the real game of chess rather than the checkers game that's usually put in front of us like "lease this car" or "you can borrow this much for a mortgage for this house"... these are the moves offered to us, but there's a chess game going on around us that establishes the overall system that encourages us to enter debt peonage or whatever. The chess game/meta-game solution is to acquire assets, avoid debt peonage, scrape together your own stake of capital and become as sophisticated an investor as you can, etc.]
38) "In an economy of asset price inflation the objective of investors and speculators is to buy real estate, stocks and bonds whose price is being inflated by debt leveraging. The arbitrage strategy is simply to borrow at a lower interest rate than the rate at which prices are rising." [Here again he gives away another key to the game.]
39) The author distinguishes between the term "capitalism" and the concept of "rentier economics" which is either a pre- or post-capitalist term; today of course capitalism is generally thought of as including rentier-type extraction. See also "casino capitalism" which characterizes the finance sector as capturing a type of "rake" off of the game.
40) On the sophistry of economic models that typically start from a policy conclusion (like wanting free trade) and then reason backwards to define a set of economic relationships that would lead logically to the desire conclusion; this creates an illusion of causality and can also be used to depict alternative policies as causing "bad" results. The author is making a few interesting points here: you can therefore reason backwards from the policy implications of any economic model and then deduce whose interests it would promote, even if the academic supporters of those interests are unaware of the implications and believe it's all purely objective and scientific.
41) Often economist theoreticians ignore (or are blind to) broad economy-wide dynamics of their conclusions/theories; see for example how free trade theory leaves out any account of structural problems like chronic trade deficits, food dependency, emigration, losing domestic political autonomy to international financial institutions, etc. This of course "helps" keep the people likewise blind to these ultimate results, as well as help hide which interest groups gain from these ultimate results. Hmmmm.
42) Hudson cites the Chicago School's central hypocrisy: they claim that government central planning has no positive role, but effectively get central planning anyway: it's just done in corporate and financial centers in the bureaucracies of large companies and large capital allocators. [This is actually technically true, quite sobering to think about, especially in the post-modern era of monstrously large multinational companies. I guess at least these players have some skin in the game (there's a profit motive, their capital is at risk), thus these things enforce efficiency and a lack of waste that you'd likely see in government central planning. But the central hypocrisy certainly has some weight to it.]
43) "The poor man has as much right to sleep under a bridge as a rich man." --Anatole France, French poet. Hudson uses this ironic and bitter quote to argue that even though there's free choice in economic "freedom," the inflation of property prices and equity prices by debt leveraging in the mortgage industry, the increase in the price of education and healthcare, etc., still takes out of peoples' hands the ability to "choose" your economic fate. Hudson goes even further to claim that it is a form of "blaming the victim for not being sufficiently affluent." I have to admit he has a point here.
44) John Bates Clark: Hudson describes Clark as an apologist for the rentier class, claiming he whitewashed real estate, banking and monopolies, making it as if the rentier class plays a productive role, obviously Hudson himself believes the precise opposite.
45) Money quote here: "Today's civilization stands at a crossroads similar to that of Rome in its violent civil war between creditors and debtors from 133 to 29 BC, giving way to a Dark Age of mass poverty under concentrated proto-feudal property ownership. Once again, a clash within "Western" civilization is occurring over whether a creditor oligarchy will reduce vast populations to peonage. This seems to be an eternal problem of all civilizations."
46) On class consciousness, and how today identity-based classes (e.g., LGBTQ++) are used to conflate and confuse the "real" class consciousness which begins and ends with economic classes. This way the 1% or the financial class can continue it's "rake" against a divided, confused and fractious class of "everybody else." [Super interesting! You can't promote your class or organize any group self-interest if you don't know who you are and especially if you see enemies among people who really should be your allies.]
47) Client Oligarchy: co-opting the ruling class of countries to serve US and European finance capital.
48) The clean slate or jubilee concept: Sumerian/Babylonian and later Judaic concepts of annulling debts from time to time to prevent the long term transfer of wealth to a creditor class.
49) [!!!] Even the word "consumer" is a manipulated misnomer according to Hudson: it's a "euphemism for wage-earner viewed in terms of 'free choice' on how to spend wages--without reference to having to work for a living. Most consumers are obliged to be debtors merely to survive... But the word 'consumer' implies that paying debt service, housing costs and similar charges is like buying the commodities that labor produces, not paying compulsory tribute to rentiers." Further, consumer demand is a "patronizing euphemism to promote the idea that the 'consumer is king' with the power to 'demand' what they want, telling producers what to sell--as if advertisers and mass market producers do not shape consumer tastes with a take-it-or-leave-it choice." Heavy. "The available residual [of consumer spending] shrinks as the economy succumbs to debt deflation."
50) The author is likely too optimistic about the nature of ancient public works like the Pyramids and various monuments, as if they were built by happy corvée labor rather than slave labor...
51) On how individual "little criminals" can't afford legal or political protection: see the quote from St. Augustine from a pirate captured by Alexander the Great: "Because I do it with little ship only, I am called a thief; you, doing it with a great navy, are called an emperor." Hence the phrase "too big to jail."
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52) More on debt cancellations: debt jubilees were for personal debts, not trade debts; they date back to the 3rd millennium BC; Sumeria, Egypt, Solon's reforms in Greece, Judaism's Mosaic Law, and even Jesus' announcement of the Jubilee Year in Luke chapter 4; the ultimate example in modern times was the 1948 Allied Monetary Reform which wiped out domestic debts in Germany (note that this was popular on sort of a Godwin's Law level as well, because most of this cancelled debt was owed to former Nazis!), which helped instigate the post WWII German economic miracle. Also worth noting the hypocrisy/irony that the German-dominated European Union decided not to forgive Greek debts in 2015, forcing the country into austerity. [Note also we're basically going to create a debt jubilee event in a certain form by inflation: we'll inflate away the value of debts in the coming years which is in some ways a type of jubilee, reducing the burden on debtors with unfortunate side effect of having asset values significantly increase.]
53) [One thing this book makes you realize, indirectly, is the fact that there has to be inflation, there can't not be, because you need to inflate away the debt, there's really no way out other than that. As individuals participating in this system we have to be aware of this an plan accordingly.]
54) On debt drag: as an example, when Greece's debt soared to 100% of GDP, a 5% interest rate would mean that the economy must hand 5% of GDP each year to bond holders/debt holders; if an economy grows only at 1-2% then this higher interest rate will eat more and more into the economy, leaving less and less income left over to be spent on products and services.
55) Another interesting money quote: "The essence of subordinating democratic politics to today's oligarchic policies is to draw up two columns: column A listing what voters say they want, and column B listing what campaign contributors and lobbyists want. The rhetorical trick is to wrap each covert commitment in oligarchic column B in a positive label tested on focus groups made up of people from column A." The author cites Barack Obama as an example: "His political language was populist while his actual policies were oligarchic and aimed to prevent the changes that his supporters wanted."
56) Note also Aristotle's theory of the three-stage political cycle, "democracy is the stage preceding oligarchy, into which it tends to evolve."
57) Debt peonage euphemized as "democratization of credit": "As of 2015, US government agencies guarantee mortgages absorbing up to 43% of family income. Student debt may absorb another 10% or so. The result is debt peonage on a widening scale, euphemized as an opportunity to join the middle class by buying a home and an education by mortgaging one's future income." [Goddamn.]
58) Note the idea of creating dependency on many levels [you could even call this a kind of fractal]: we see international dependencies (example: client states of the United States, like throughout Latin America), we see dependencies on the individual and a family level (as people enter government-encourage or oligarchy-encouraged debt peonage); if people fall through the cracks and really lose to the system they enter yet another form of dependency: of direct government support. Either way there's always a "rake off" of their productive capacity in the form of interest. (Note the international dependence is furthered still more with the dollar hegemony system as the United States gets another "rake" in a way as the reserve asset holder, see Mitterand's highly justified complaint of the dollar's "exorbitant privilege.")
59) Interesting also to think about depreciation in the case of commercial real estate: the author is totally correct saying commercial buildings have ongoing maintenance and repairs which are expensed and therefore pre-tax/tax deductible but also there's an additional depreciation expense representing wear and tear; further, the replacement cost of buildings tends to rise and the value of the underlying land site also rises, so this is sort of a double windfall of over-depreciation.
60) On diminishing returns, as a useful concept that does exist in reality but is an oversimplification. Note that there are clearly instances of increasing returns to scale, not all returns are diminishing; there is much more complexity in most systems. Economists will assume diminishing returns to have an explanatory mechanism, this is what David Ricardo and Thomas Malthus both did for example.
61) Another striking notion about how business/rentier expenses are handled far more favorably than individual personal expenses: a business can deduct all its operating expenses, but an individual cannot deduct any of his basic life expenses. "If tax policy treated labor like capital, only after this net after-expense income would be taxed. Basically living expenses are the household equivalent of business operating costs--and businesses are able to deduct all their operating costs (and more!) From their taxable income. Taxing personal income as measured before netting out these basic expenses such as businesses are allowed to deduct imposes a much heavier burden on labor, adding to its cost of living--while shifting the tax burden off the rentier sector." [It gets worse if you think about it: a household's net pay has a rake-off of all taxes, social security, interest, fees, insurance, and many other things that make up the household "nut"--and almost none of these expense are "deductible" as they are for a business. Obviously to beat the game you have to think about your household finances as a type of business, but it has structural disadvantages as we can see from these examples.]
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62) On education preserving the status quo: "School is the advertising agency which makes you believe that you need the society as it is." --Ivan Illich [Note that this is the author of the tremendously useful book Medical Nemesis: The Expropriation of Health, another book that makes the reader think differently, and deeply, about a subject that touches all of us.]
63) Hudson views the efficient market hypothesis as a political term (!) with the aim of freeing the economy from government regulation. I never thought of looking at this phrase in that way! "The practical effect is to leave the economy steered by banks, monopolists and other rentiers."
64) [The regulatory capture of financial and banking regulators that the author talks about in the post-2008 crisis has now happened in the pharmaceutical regulatory sector, and likely many other sectors.]
65) The use of the concept of "equilibrium" as yet another political term, effectively, with the purpose of status quo maintenance; hand-waving it into economic theory it becomes tautological idea to teach that the status quo is self-stabilizing; one can think about death as a "state of equilibrium," the moment a man falls to his death he is now at a new equilibrium! An alternative mental model, see Steve Keen's concept of complex instability. Another way to think about this is to grasp that economies are self-reinforcing, they have a positive feedback aspect, and as those positive feedback loops become disruptive, political decisions are then forced onto the system. But then economists tend to deem this an externality which is exogenous to equilibrium models! Again this is both self-serving and tautological. "Although economists define their discipline as allocating scarce resources among competing ends, when resources really get scarce they call it a crisis and turn matters over to the politicians."
66) On the nature of exploitation/coercion: "Classical exploitation of industrial labor reflects coercion and dependency--the worker's need to get a job to survive. But labor is being exploited increasingly in post-industrial ways, by financial and kindred rent-extracting charges imposed from outside the production process. Most such exploitation occurs via the FIRE sector (finance, insurance and real estate) in the form of interest and fees for access to credit, medical insurance and other compulsory payments to healthcare monopolies, and access charges to obtain housing (rent or mortgage interest)." "An illusion is fostered that instead of setting them along the road to debt peonage, buying real estate or an education on credit makes them capitalists in miniature in a financialized economy."
67) The idea of a rentier economy with rentier overhead imposed by interest expense and other creditor-related payments that have nothing to do with production and consumption: this is an idea Thorstein Veblen called "vested interests extracting land rent, natural resource and monopoly rent, interest and financial fees."
68) "Extremist: a term of invective applied by beneficiaries of inequality and polarization to reality-based critics who explain that economic dynamics are exponential and tend to polarize societies to inequitable and unsustainable extremes."
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69) Another good quote from the author: "[Finance's] rising extraction of interest and fees is an externality eating into the circulation of income between producers and consumers." [One takeaway in this era would be to try and find "toll takers" like this as investments: e.g.: MA, V, banks, non-bank financials, etc.]
70) Quibble on page 98: "Bank lending was deregulated under Alan Greenspan's chairmanship, fueling a financial bubble that gained momentum after 1992..." it's actually Congress that did this specific deregulation, not the Fed... Hudson here makes it sound like the central bank did everything wrong--even the things it didn't do...
71) Finance capitalism stages, (see photo): Stage 3 as "a kind of neo-feudalism."
72) "Financial engineering": while it's true there are many examples of companies over-borrowing to do buybacks and raise their share price, it's clear that this guy has never run a real company or dealt with issues like deciding proper capital structure, proper capital allocation, etc., all of which would involve decisions based on fiduciary obligations to shareholders and other stakeholders, balancing this with the stock price, the cash flow dynamics of the underlying business, etc. Sometimes your stock price is objectively undervalued and the right thing to do if you have excess capital is to buy it back from willing sellers.
73) A good working definition of neo-feudalism here: "Financializing real estate has shifted economic control from the hereditary landed aristocracies to bankers. Instead of serfs paying part of the crops to the landlord (and supplying labor days each month), the population at large is now obliged to go into debt to buy homes, and even to get an education."
74) FIRE sector (finance, insurance and real estate) activity as an extractive, zero-sum activity that should actually be subtracted from GDP (!) not added to GDP.
75) Flat tax ideology: on the first-order, yes, this benefits the rich (the income rich), but also keep in mind graduated tax rates prevent the formation of new rich, thus graduated tax rates keep the oligarchy more stable and protected.
76) On Milton Friedman failing to see that most bank financing went to buy real estate, stocks and bonds, thus he missed asset price inflation as part of his monetarist theory, oversimplifying the role of money supply in consumer price inflation and commodity price inflation. Hudson sees him as another neoliberal.
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77) It is ironic how we cancelled Germany's war debts after WWII (a debt jubilee which, per Hudson, freed Germany from tremendous dent overhead and unleashed the German economic miracle) but yet Germany wouldn't do the same for Greece during the Euro crisis...
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78) See Henry George and Thorstein Veblen on discussion of land rents and the nature of development; which "interested parties" benefit from it (usually real estate speculators with the idea of increasing the value of land). The nuance here is who should be taxed for this increase in value? Usually taxpayers pay for public improvements like subway line extensions, but it's the landowners or land speculators near that new subway station who get all the value increase, and with no commensurate tax on that value increase.
79) Hypocognizant: this is a glorious, beautiful term, from American linguist George Lakoff, referring to people with a lack of terminology or vocabulary who are therefore unable to think in a critical way about events. For example if you control the meaning of terms or control what terms are used in a given dialectic you can have much more control over a population that thinks they're doing one thing when they're doing another. Thus we have modern so-called democracies where the people consider themselves "free" while they're literally on a road to debt serfdom/debt peonage, because they believe this is how a free market naturally works. Super interesting, this is a helpful meta-thought to chew over in other domains too.
80) [Hudson really reads as an unapologetic socialist, he's a real believer thinking socialism would be "fair," and likely not realizing that it would just create yet another 1% that's even more entrenched than in the existing system we have. Too often people justify socialism, and even communism, saying "oh it's just not yet been done correctly yet." There's no possible way to use any of the historical examples that were total flops as falsifying examples of the ideology, no way. That said, Hudson makes a whole lot of really good points about the illusory free market, the allegedly freedom-based system that we have today.]
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81) Idiot savant: as opposed to the type of "useful idiot" who is a "full idiot," this is a type of useful idiot who is a "learned" idiot, like an academic or a econometrician; a good example here would be a "client academic" who lives off government grants and ends up teaching/defending the status quo. [Note that we've certainly seen client academics involved in maintaining a pharmaceutical hegemony in recent years!]
82) On whether consumer debt is due to people being impatient (wanting to consume now rather than saving money and deferring consumption until later) or due to the fact that consumers have no choice: they'll starve if they don't borrow to eat now.
83) On different forms of imperialism: military conquest, colonization (for example Britain's colonial system), and now modern imperialism--which is largely financial, and which uses mechanisms like the IMF or the World Bank to impose conditions like austerity on debtor countries. Think of this modern form of imperialism as a financial conquest without the military overhead (!) where you share your gains with a local client oligarchy in control of that country. Also you can enforce this imperialism with "regime change" when one of these countries starts to act up, joins a rival currency bloc or financial system (see for example what happened to Libya, Syria, Iran, Iraq, etc.).
84) The author talks about economic rents required for access to the preconditions for production as opposed to actual access to the means of production. You can purchase a business or a factory or whatever, but you also have to pay up front for preconditions like access to credit, patents, regulatory or governmental permissions, etc.). Per the author this "creates a rent-wracked economy" where economic rents are required to either keep people out of business formation or to produce a type of wealth creation that is extracted, as well as something that acts as a barrier to growth in production and prosperity. [In my view, these crisscrossing regulatory and "rake" barriers to entry are a foundational part of modern neo-mercantilism. It definitely gets you to think!]
85) See also the author's darkly sardonic way to think about the invisible hand concept from Adam Smith; think about the other kind of invisible hands out there: managers engaged in insider-dealing, large producers colluding, powerful interest groups extracting favors from government via mechanisms like regulatory capture, etc. The author quotes Baudelaire: "The devil wins at the point he convinces people that he doesn't exist." Thus they have "wrapped a cloak of invisibility around rent extraction" and institutions like The Chicago School consider this to be "rational markets."
J
86) Junk bonds: Hudson makes an interesting point that with 50% income tax rates typical for corporations in the eighties there was an incentive for companies to lever up and have more and more interest expense (rather than say for example dividend expense, since dividends were paid after tax). Interest is pre-tax, this contributed to a lot of the leveraged buyouts, a lot of the issuance of debt and a sharp rise in general debt levels through the 80s.
87) On weaponizing mainstream economic thought for class warfare purposes: quoting Marx: Economics "was no longer a question of whether this or that theorem was true, but whether it was useful to capital or harmful, expedient or inexpedient." [In a nutshell: if you internalize Marx's quote here you'll have a much deeper understanding of the metagame in economics, in fact a much deeper understanding of the basic underlying structure of all of modern life.]
K
88) On Keynes being against the harsh peace after WWI; also finding that Say's Law stopped working during the Depression (Say's Law basically claims, counterintuitively, that production is a source of demand, thus I guess this period was like a type of liquidity trap).
L
89) Labor Capitalism: arguing Thatcherism and Pinochetism gave individual investors the illusion of being owners. Far from being owners, there were small, passive (meaning they had no control premium over enterprises they invested in, were outmatched by large players), etc.
M
90) Hudson considers Malthus to be an "economic spokesman for the landlord class." Also, Malthusian theories on population and wage growth (that they'd offset each other) were wrong: people had fewer children as incomes went up.
91) Hudson thinks of marginal theory and marginal utility theory as components of a status quo, an intellectual framework where there are no stochastic leaps, no wholesale changes of state, etc. Basically an intellectual edifice to maintain the status quo.
92) Fascinating comments on Marx as "the last great classical political economist" who "defined the historical task of industrial capitalism to be to maximize efficiency and free economies from the unnecessary costs of production inherited from feudalism. That was the class war of his day, by the industrial bourgeoisie against landlords and bankers who extracted groundrent and interest at the expense of industrial profits. Marx said that a further political revolution would be needed to socialize property ownership, freeing labor from industrial capital."
93) More on Marx: "Extending the scope of economic reform to the social and cultural sphere, Marx described alienation as separating wage workers from their status as human beings in control of their lives, working conditions and product, and also over their relationship with others..."
94) "Yet more than any other economist of his time, Marx showed (in Vol. III of Capital) that the tendency of interest-bearing debt to grow exponentially led to financial crises. These crises exacerbated the underlying inability of labor to buy the goods it produced. Since World War II the global economy has lapsed into a financialized neo-rentier economy that neither Marx nor his contemporaries were so pessimistic as to forecast."
95) [At times the author lurches into cynicism that's hard to read... because it's so ineluctably true!] "Being in the middle income tax brackets is different from 'class' as traditionally understood, e.g., the working class living on wages or the capitalist class making profits. Wage-earners able to borrow enough to buy a home on credit are encouraged to think of themselves as 'consumers' rather than as debtors. They are tempted with dreams of becoming capitalists in miniature, as if having a bank account, a pension fund and perhaps a mutual fund qualifies them as members of the financial class instead of being just wage-earners. ...part of the middle class mentality is the illusion of rising to some higher status... In popular language, to be middle class means earning enough to buy a home and to get a college education. This involves going into debt, taking out a student loan whose charges may absorb between 10% and as much as half the graduate's income. The next step toward middle-class debt peonage is to buy a home with a mortgage. US housing agencies now guarantee home loans whose mortgage payments absorb up to 43% of the applicant's income. Credit card debt and Auto or appliance debt absorbed yet more as wage earners seek a middle class lifestyle. Banks depict such debt as offering an opportunity to rise in status--by which they really mean a rise in consumption levels. But what really is the key is that most of what workers may earn in wages or salaries is paid to the FIRE (finance, insurance and real estate) sector, especially for housing and better neighborhoods as they move up the social ladder--which turns out to be a debt ladder." [A great key to life would be to read that paragraph four or five times and do the EXACT opposite.]
96) On military spending, specifically the ideas of Seymour Melman in his book Pentagon Capitalism, the aim of the military industrial institution is to maximize cost. See cost-plus contractual profits.
97) John Stuart Mill and his 1848 book Principles of Political Economy, as a halfway house between Ricardo's critique of landlord groundrent and Karl Marx's socialism. Today we have "capital lords" or "money lords" instead of "landlords."
98) Hyman Minsky, pioneer of Modern Monetary Theory; three stages of the financial cycle of debt leveraging:
1) hedge phase: where borrowers are able to pay interest as well as principal (such as 30-year self amortizing mortgage); see the period from the 40s to the 70s.
2) the interest-only phase: where debtors are only able to pay interest (around the era of the great financial crisis)
3) the ponzi phase: where debtors need to borrow the interest as it accrues, adding onto the debt exponentially. See the Latin America crisis in the 70s and 80s and possibly this era right now in the United States.
Note that a "Minsky Moment" occurs when there's a financial crisis as debts grow too far beyond the ability to pay.
99) See also Hudson's idea of an idealized mixed economy where the public and private sectors coexist like spiral strands of DNA, with checks and balances to avoid the extremes of totalitarian societies or neoliberal regimes.
100) MMT: Modern Monetary Theory, which views money and credit as a public utility; as (modern) money is a legal creation, not a commodity like gold or silver; creating it costs central banks nothing, and governments "give" money value by accepting it in payment for taxes and fees. The argument is that this money creation does not necessarily lead to inflation if the economy is not running at capacity, likewise bank money creation typically is only created to finance the purchase of real estate, stocks and bonds and thus does fuel asset price inflation. "That is a major difference between public and private money creation." [It is interesting how MMT gets certain things right but certain other things wrong; it seems delusional to think that money creation wouldn't cause inflation, though, regardless of who does it or why or what the circumstances are: just the fact that the money supply is diluted by the creating of more is literally debasement of the money stocks that we collectively held before. MMT seems to blindly ignore this obvious truth.]
101) Money illusion: the illusion that you're better off as wages rise even though prices also rise; likewise that because asset values rise, you're therefore "wealthier." Note that wage inflation benefits the 99% while asset inflation benefits the 1%, while raising the amount of debt the 99% has to take on to buy an asset like a home.
102) "Money manager capitalism": Hyman Minsky's term for a shifting of economic planning to Wall Street.
N
103) A handy working definition of neo-feudalism right here: in medieval feudalism, the seizure of land and natural resources was done by military conquest. Today it's achieved by financial means, using debt leverage, foreclosure and privatization. Feudalism monopolized access to land for housing and food in order to force the serf population to work for subsistence, today the system works with debt peonage. The oligarchy is a rentier oligarchy rather than a landed aristocracy.
104) Another legit money quote here, as Hudson sardonically refers to Nobel economics prizes always going to status quo economists, and then citing a quote from Paul Samuelson where Samuelson lets the mask slip: "In pointing out the consequences of a set of abstract assumptions, one need not be committed unduly as to the relation between reality and these assumptions." In a nutshell this is precisely why economics should never be taken seriously and it should be assumed to be ideological before anything else. Hudson says: "No prizes have been given to explain the reality of the international economy polarizing between creditor and debtor nations... No prizes are given for explaining financial polarization or the rise of a rent extraction and other predatory economic activity."
105) On Thorstein Veblen's idea of idiot savant students, a pseudo-educated elite who are smart but smart about all the wrong things, or worse, who don't really even know what to be smart about. [Kind of like a country of useful midwits who can't help but de facto enforce the status quo.]
P
106) The idea of a parasitic "rentier class" as well as a monopolist class with a system of extracting economic rents from an economy, Note also here that the host does not know that the parasite actually is a parasite.
107) Planned economy: what's interesting here is how the author does not argue that planned economies are good or bad at all, instead he argues that there is some degree of planning happening in every type of economy no matter what, and the point is who is doing the planning and what its aims will be; one can centralize from the government's perspective, sure, but in our era planning is done by financial managers and large government-approved (neo-mercantilist) corporations. Hudson argues that this system is at least a centralized as government planning, but with aims that are overtly extractive. This is very interesting.
108) Pay to play politics: where wealthy 1%-ers can easily give campaign funds to approved politicians while keeping the election discussion away from underlying economic fairness by focusing on identity politics,... This is a great point: everyone's angry about everything while our politicians and regulatory bodies are totally captured by large corporations!
109) Hudson gets you thinking about privatization using a very different lens: the assumption of privatization is that the private sector will automatically and definitively do something more efficiently and more competently than the government can do it, and therefore any fees they charge are therefore justified or reasonable--whatever the market is willing to pay. Obviously this is not necessarily true. In fact, I'd argue that in a Fourth Turning-type environment we are see large companies behaving far more incompetently, thus it's not clear that privatization enables better, cheaper or more efficient service. The view that privatization was "better" probably was much more true prior to the current fourth turning: you can see lots of examples in the 70s and 80s (and even 90s) when countries would privatize their national phone companies, for example, and service would dramatically improve, prices would drop, phone availability would accelerate to 100% penetration, etc., while also producing excess capital, profits and dividends for shareholders. This was my standard mental model for why you usually want to privatize; perhaps it is no longer true like it was before.
110) The word "progress" is linguistically interesting: if we assume sort of an End of History type model of progress (things keep getting better and better over time) then debts that build up over time are never actually paid off, they're just outgrown... and as a result you end up under an oligarchy because of the exponential compounding of rentier profits on top of the real economy. The "rake" just grows and grows and grows. Hudson argues that without periodic debt cancellations, debt jubilees, "economies evolve into oligarchies, which depict their takeovers as 'progress' and thus as morally justified on the ground of its seeming inevitability." This is quite interesting.
R
111) Here's a good example of how the author sees, everywhere, support for his arguments, even when the actual example indicates the opposite: Here he talks about New Jersey cutting funding to a new (and quite unnecessary) tunnel to New York as a "race to the bottom" event. "New Jersey's economy and employment likewise suffered when it cut taxes instead of modernizing its transportation and tunnels to New York City." Wait: in what way does New Jersey help itself by making it easier for its citizens to go to New York City to work, pay taxes, spend money in NYC to entertain, etc? The author should see how New York should be happy to pay for such a tunnel because it means more money and taxes are spent by New Jerseyans in New York, therefore New York should have to bear that cost! NJ wasn't racing to the bottom by nixing this tunnel, it was intelligently serving its own interests.
112) On measuring real wages instead of nominal wages: note that while this shows wages have been stagnant since the 1970s, it actually fails to show the whole picture, how bad things really are, because asset prices have gone up, so homeowners have to pay a rising proportion of their household budget for finance costs, real estate costs, insurance costs, etc. Thus after covering their monthly living expense "nut" with stagnant wages people are way worse off. [Obviously an insight here is get the fuck out of debt, don't overinsure, and be smart about your real estate purchases/your housing arrangements.]
113) The author defines "deregulation" as to "relinquish planning power to the financial sector." I guess would define deregulation as "to create conditions so that there's more possibility of consumer-friendly competition in a market."
114) Regulatory capture: this is an incredibly important problem right now in late-stage capitalism: we see a long history in the defense industry of "revolving door regulators" going to and from industry to the regulatory body, and everybody knows about and agrees that this happens. But see also how we are seeing this in many other industries, most notably in securities regulation and banking, and now most dangerously in heavy regulatory capture across the pharmaceutical industry. The idea here is that oligarchic or vested interests are protected more and more with regulatory capture, at the expense of the people.
115) An interesting blurb here about the Rosetta Stone, where nobody ever talks about the ideology behind what was written on it (it addressed a cancellation of taxes and other debts by the 13-year-old Pharaoh Ptolemy V in 196 BC), they only talk about its linguistic function helping to decipher Egyptian hieroglyphs.
S
116) Dialectic with socialism: today's socialism is state socialism or socialism for the wealthy; "corporatism" or "neofeudalism" would be more accurate terms because they support a rentier oligarchy, see for example Obamacare's "socialized medicine" which per Hudson was a "public giveaway to the financial and health insurance sectors and pharmaceutical monopolies."
117) Hudson's discussion of the Laffer Curve (where he says that it "pretends that the deeper taxes are cut, the more tax revenue can be collected"): Note that this is kind of misleading: the idea really is that there's an optimal rate that maximizes tax collections. It gives the reader the impression that Hudson never chose work based on his tax situation, or that he never really had money.
T
118) Here's a good articulation of the modern monetary theorist's definition of money. "Levying taxes is what gives national value to money, by governments accepting it in payment of taxes and fees." [This is one, albeit a rather limited, definition of money.]
119) On the supposed shifting of taxation from finance and property to income: the author blames Thatcher and Reagan for shifting taxes from the finance sector onto labor, but this strikes me as willfully inaccurate: Reagan actually lowered marginal tax rates quite significantly--and more counterintuitively tax collections from income went up a lot as a result within just a few years as people economically responded to these lower rates. I think this is a category error the author makes: he forgets that tax rates on income were substantially higher in the 70s, 60s and 50s.
120) Likewise the author is projecting his own views onto Thatcher's famous dictum that "there is no such thing as society"... It's actually not an antisocial or alienating quote at all (as Hudson claims), Thatcher was making a point about how human relationships exist on a Dunbar's number level, not at a nation-state level, and "society" has a terrible scale problem. Our attempts to solve many social problems at vast national scale have failed miserably (healthcare and education are two blatant examples), and if anything this has made us more atomized and alienated than ever. If you actually listen to Thatcher's speech containing this saying, you will understand a significantly different context than Hudson projects.
121) "Voters are told that a market designed and controlled by the One Percent is a natural outgrowth of free markets, despite the fact that the middle class and industry are shrinking as a result of increasing debt overhead that concentrates property and financial wealth in the hands of the One Percent." [This basically is the cover excuse for modern neofeudalism, and in this case the author really nails it.]
122) This author absolutely loves state-based money, and as I've seen in some of the podcasts and interviews he's done he loathes Bitcoin. Wild that he can't see the Cantillon Effect or monetary debasement as huge components of his mechanisms of the "rake" of the rentier-based system!
123) Another thing that's kind of amusing, the author blames neoliberals for sophistry, but then goes on to argue that free marketers claim that no regulation nor oversight is ever necessary and "equilibrium will occur automatically," which is itself sophistry and a textbook strawman argument.
124) I also wonder if the author actually ever really read Hayek's book The Road to Serfdom. He certainly has not taken away from that book the conclusions that I drew from it!
125) That said this author is way ahead of his time in seeing a lot of the power grabs pulled off by the ECB, the EU, and the IMF, both during and after the Great Financial Crisis and certainly his book is predictive in seeing things like the creeping medical centralization/totalitarianism of the past few years.
126) "The tragedy of the commons" is an interesting phrase: one interpretation of it is "land owned by everyone is owned by no one and taken care of by no one" thus it is a saying that implicitly advocates for private ownership which would do a better job of taking care of said land. However there are certainly instances where privatization of an asset can lead to stripping of that asset. So this is a valid question: what really is the tragedy of the commons--and in whose hands is it more tragic? Like many things, it depends: you can think of examples and contra-examples here.
127) Traumatized worker syndrome: if you keep people's fears for their job security high, then they won't advocate for higher wages, they won't go on strike or unionize, etc. [Another example of using this book as a guide to beat the game: we can conclude here that if you are dealing from weakness in the labor market you are fucked. You want to find situations where you are dealing from strength, either as an individual or as a collective.]
128) Two economies: Hudson looks at two distinct systems (see photo): the real economy of production and consumption, as well as wages and industrial profits, that fall under the circular flow or Say's Law, and then the FIRE sector (finance, insurance and real estate) which pulls rent from the real economy. Since the '80s (according to Hudson) banks tend to lend mainly for investments or real estate rather than to the real economy, which leads to an inflation of prices for real estate, stocks and bonds (asset price inflation), which produces financialized wealth or "fictive wealth." The FIRE sector has a "rake" that it pulls off of the real economy, and Hudson thinks of it as a sort of parasite that enriches the wealthy rentier class at the expense of workers and the "real" economy.
U
129) Interesting entry here under utility theory, which is sort of a BS "homo economicus" argument (meaning that it's based on assumptions that people are perfectly rational all the time). Utility theory claims that for any commodity, each additional unit at some point gives you diminishing satisfaction. This is true for things like toothpaste and cars but, as Hudson rightly claims, it's certainly not true when it comes to wealth! Hence the author's term wealth addiction.
V
130) On confusing value with price: Hudson claims that modern economics conflates the two, and any sophisticated investor would agree with this instantly. See also Labor Theory of Value as an analytic tool to isolate economic rents from value produced by labor: remember however that Marx made basic math errors in creating this way of thinking about value.
W
131) Washington consensus: a highly useful term for the neo-colonialism that the USA imposes on countries throughout the world (and not just developing countries, although they tend to be the easiest targets). Any country that wants to coexist with the United States has to do so financially by living under a petro-dollar system imposed by either the IMF or World Bank as direct agents of the US and European dominant economies. This neo-colonialism comes also via direct political or military force as well: see recent examples like Iraq or Libya, as well as examples from decades ago of countries in Latin America that experienced "regime change" thanks to direct US involvement in their affairs.
132) Who/Whom: recall Lenin's famous dictum "kto, kogo" addressing the class struggle and pondering who will overtake whom: Hudson looks at this dictum today in the context of the 99% being overtaken by the 1%: to Hudson, this is the key who/whom relationship in the modern era. Again, this goes to the extractive "house rake" relationship between debtors and creditors.
X,Y
133) X and Y Axes: mocking the fact that economics is taught by isolating variables and looking at one at a time, essentially it laughably oversimplifies reality and encourages "two-dimensional flat-earth thinking" according to Hudson. Likewise the term "ceteris paribus" legitimizes this oversimplification, claiming all else equal when nothing is ever equal in this way in the real world.
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[Finally, the book concludes with a collection of brief essays, some more interesting than others. My notes follow each essay title.]
134) "The 22 most pervasive economic myths of our time"
This essay further grooves the ideas from the dictionary/alphabetized portion of the book. You'll get a good does of MMT theory here as a bonus. Note that these are "myths" so each statement is false per the author.
1) the national income and product accounts NIPA show how fortunes are built up
2) all income is earned, reflecting the recipient's contribution to production (obviously Hudson doesn't consider rentier income to be earned nor does he consider it really all that valuable for society)
3) there is no such thing as unearned income (on counting finance, insurance and real estate "rents" as part of GDP rather than as transfer payments extracted from the real economy's production and earnings)
4) economic rent is earned, and is simply another form of industrial profit (as opposed to what Hudson believes: that economic rent is private tax or a "rent extraction privilege")
5) the public sector is deadweight, and government activity is unnecessary overhead. The inference of this myth is that public spending should be minimized. (By contrast, Hudson believes that public infrastructure should be a factor of production, and its role is to lower the economy's cost of living by subsidizing things like transportation, communication and healthcare, and keeping them out of the hands of privatizers or rent extractors. Quite an interesting notion honestly, that does not have a place anywhere in modern Dem/Repub conversation)
6) any activity that makes money is part of "the market." The resulting status quo is morally justified as being simply "how the world works."
7) capital gains are not income, and hence should not be subject to income tax or contributions to fund social security.
8) most debts can be paid without polarizing the economy and concentrating wealth in the hands of creditors. (Hudson disagrees and believes that debts mount at compounding interest, thus they automatically outrun the economy's ability to pay, producing foreclosures, debt peonage, privatization etc.)
9) privatization is more efficient than public ownership and management (Hudson believes that "public investment in infrastructure has been the major category of capital formation since time immemorial" and that its purpose is "to help the private sector function more profitably, not make a profit.")
10) employee stock ownership programs and pension funds, along with personal saving via mutual funds, are elevating workers to the status of "capitalists-in-miniature." (The author believes that this is a problem simply because the top 10% owns most stock [but I don't see why that would be any different from any other pareto-based system]. He also sees this as a method to inflate equity prices)
11) social security should be pre-funded by its beneficiaries. Progressive income taxes should be abolished in favor of a flat tax--just one tax rate for everyone (Hudson makes an interesting point here, citing the US income tax when legalized in 1913 was only directed at the wealthiest layers of population and only at rentiers, I had no idea about this.)
12) voters get what they vote for. It is their fault that public policy does not serve their needs (Hudson has a great point here, where elections are not really democracy, it's really a system of pseudo-democracy--especially now. Both party's candidates are selected in advance, the only opposition is approved opposition etc.)
13) The 2008 financial crisis was one of temporary illiquidity, not insolvency resulting from reckless and fraudulent lending. [This is actually a dumb one, nobody believes this, thus this is not actually a myth.]
14) increasing the money supply inflates the general price level. This makes debts easier to pay out of rising wages and incomes. [This is also dumb: it's obvious that increasing the money supply increases price levels, just think about the dilution. MMT theory is literally being disproved as we speak right now. However Hudson is correct that the money more or less only went into the banking system, it wasn't directed as effectively to the individual as it should have been.]
15) cutting real estate taxes makes housing less costly for homeowners [on one level this also sounds dumb: obviously homeownership costs would be lower if real estate taxes were lower, but he does make a point that whatever income is left over would probably get scooped up as interest on mortgage debt to pay for even more house. This is a bit of a questionable myth]
16) higher real estate taxes make housing more costly, while cutting those taxes helps make housing more affordable. [This is literally a repeat of the prior myth! Again this is sort of sophistry because it presumes that whatever money is left over from not paying taxes would automatically get spent by being capitalized into a bank loan.]
17) government budget deficits are bad, balanced budgets are good, and budget surplus is even better! [This is a myth to a point, my problem here is that MMTers seem to always fail to see the "to a point" part]
18) cutbacks in public spending will bring the government's budget into balance, restoring stability.
19) [the longest winded myth so far] providing social services freely or below cost "distorts" the self-regulating market. All goods and services should be paid for by their users at however much "the market" will bear. As Margaret Thatcher said, "there is no such thing as society," only the interests of asset owners and their bankers." [This is transparent sophistry and strawmanning, no one is saying that it should be whatever the market will bear for everything and Margaret Thatcher's discussion of "there is no such thing as society" had nothing to do with the interest of asset owners and bankers nor of what services should be provided by the government or not. This is a bit of a whiff by the author]
20) deregulating the financial sector will free it from paperwork and enable it to pass the cost savings on to its customers. [This is true to an extent but also not true beyond a certain point of deregulation, because the industry will likely become predatory as Hudson correctly argues earlier in the book]
21) markets return to balance if instability disrupts activity. Business cycles are cured by the economy's automatic stabilizers, so there is no need for government regulation or intervention from "outside" the market. [Again this is a strawman argument: no one is saying that there are automatic stabilizers in the economy, and no one is denying that there isn't a business cycle, it's just that the government behavior tends to be procyclical, meaning they tend to make cycles and give them more amplitude, not less. Even a cursory examination of government economic interventions over the course of the last several decades reveals near-constant examples of this.]
22) the criterion of economic science is to demonstrate that economies tend to return to stability and an increasingly fair and equitable distribution of income and wealth. Models of polarization or atrophy have no simplistic mathematical resolution, and hence fall outside the definition of economic science proper. [This is interesting because I don't think anyone assumes stability or fairness in economics; certainly it's not observable in the system that we have today! Thus this isn't really a myth, it's actually true. But Hudson is correct in assuming that the media and the educational curriculum are under some degree of control from the political system in order to maintain this admittedly unfair status quo.]
135) "Recovering from misleading economic mythology"
* Another essay where the author describes a type of Kubler-Ross five stages of grief for dealing with when we take the proverbial red pill and discover the neoliberal illusion. " Today's economics discipline is near collapse, awaiting a new paradigm. "
* "Critics of neoliberalism are excluded from mainstream academic journals as neoliberals suppress any idea that alternative policies exist."
* Denial of the need to write down debts;
Anger and rage at different opinions;
Bargaining, as in extending and pretending that all debts can be paid--or we'll keep lending you more, Sadness [this is Hudson's version of the fourth stage, which is actually "despair" in the Kubler-Ross model proper], voters despair and give in to the financial takeover of the oligarchs and then voter rates fall which is "the modern political symptom of social sadness and surrender."
Finally: acceptance, "The lesson of history is that creditor elites will not acknowledge how destructive their mythology is... They turn their economies into gated communities like medieval manors, with hereditary ownership of the surrounding land and basic infrastructure, much as under feudal warlords. To accept this financial Dark age is the equivalent of passivity in the face of economic and demographic death." Heavy stuff here.
136) "Economics as Fraud"
* On how economics obscures reality by failing to "trace the course of wealth and income, who owns this wealth, how they obtain it, and who ends up owing how much to whom." [This would be a good one-sentence distillation of the entire book.[
* "Much as in literary criticism, the discipline's main criterion for theoretical excellence is the internal consistency of assumptions, not reality." [Yep.]
* "...the discipline's basic assumptions need not be based on reality." Hudson argues essentially that this lumps economics with astrology and the medieval sciences which are equally technical and even "mathematized" but built on equally false assumptions. (!!) Furthermore it's built around vocabulary that invariably serves certain interests "the strength of Marxism, and sociology in the tradition of Simon Patten and Thorstein Veblen, lies in their recognition that economic theorizing is a product of self-interest and policy pleading. ...perceiving class biases, Marx and Veblen viewed economic theory as apologetics for advocates of one policy or the other."
* Also essentially weaponizing the major statistical economic categories of today. [This is blatantly the case today with inflation statistics.]
* Also the so-called solution is a kind of quandary because if you forgive the debts then wealthy creditors get hurt, if you don't forgive the debts then it shrinks the real economy and leaves those debts in place, compounding exponentially over time. For an economy under the control of the elites it's not a quandary at all however, because most of their income is rentier income!
* Hudson makes a very good point that most financial claims are either someone else's liability, or they are equity that is priced on the margin, so if Jeff Bezos wanted to sell all of his Amazon he would crash the price, which would reduce his net worth.
* The central idea of fraudulent economics is ignoring "the inexorable tendency of debt to grow beyond the ability to be paid."
137) "Economic methodology is ideology, and implies policy"
* "To claim that [economics] is disinterested and scientific is to cover up its political motives." [I really do consider this an unappreciated aspect of economics, it's kind of like we don't see the water that we swim in, and I really didn't fully appreciate this, even though I knew there was political bias in much economic discussion, I never fully appreciated this until I learned about Bitcoin and understood the implicit assumptions and implicit value thievery that happened with inflationary Keynesian economics, and further that much of the debate around economics takes place with this as an axiomatic assumption that is tremendously in the interest of governments to hide from us, since they use inflation to thieve value from the people constantly.]
* [The who/whom way of thinking about things--again--is something way more powerful than I previously appreciated: think about the rentier class as a vested interest group (even though I'm also a rentier on some level!) and be honest about how the system benefits them--which is of course why we all want to try and be our own rentier at whatever level we can so that we exit a definitionally exploitative labor market system!]
* The other thing that's absolutely fascinating about this framework is to realize how easily it traps "would-be reformers into an anti-reform methodology" as the author aptly phrases it. Just think about all the ways that, say, Democratic party efforts to produce benefits and transfer payments to "the people" simply produce inflation which thieves away value from the people but without them knowing it, and worse inflates asset values such that rentiers and oligarchs and wealthy people get richer by the same mechanism! Super, super interesting and also depressing.
139) "Does economics deserve a Nobel prize?"
* This essay argues that economics is not a science, it's no more a science than psychology. "Can it be 'scientific' to promulgate theories that do not describe economic reality as it unfolds in its historical context, and which lead to economic imbalance when applied? Is economics really an applied science at all?" Hard to argue with the author here.
* The author describes Paul Samuelson's economic theories "as beautiful watch parts which, when assembled, make a watch that doesn't tell time accurately. The individual parts are perfect, but they're interaction is somehow not." Further he likens it to "award an engineer who designed a marvelous machine that either could not be built or whose purpose was unexplained."
140) "Hudson bubble model"
* On financialization: "the degree to which debt leverage rises as a proportion of asset valuations and, in the process, extracts a rising proportion of national income. This increases the power of banks and the one percent over labor and industry in seven ways:
1) inflating asset prices
2) increasing debt (typically owed to the wealthiest)
3) interest and carrying charges, which leave less income available for goods and services or investment and wages
4) debt leveraging which leads to insolvency and failure to meet pension obligations
5) financialization leads to fiscal crisis, shifting taxes on to labor and consumers and away from assets and rentier income
6) paying public debts and financing budget deficits by selling off the public domain, then taking public services into rent extraction opportunities (like when Chile privatized social security, etc)
7) non-prosecution of financial crime, the author sees this as a type of regulatory capture, likewise control of bankruptcy laws in order to favor creditors.
* The central idea here is that asset prices and interest expense go up faster than real wages over time.
* Likewise, financializing home ownership, education, pensions, etc., stripmines disposable income from the rest of us, people have to pay their monthly "nut" for mortgage/rent, pay other debts like student loans or credit cards or auto debt, also pay into forced savings in the form of pensions or social security taxes, also insurance costs and more taxation. All this adds up to an expense nut that makes life more and more expensive for anyone who's not already wealthy!
* Note also that financialization adds costs to everything in various ways: interest and debt charges are built into the break-even cost of living and of doing business, and a tax burden is shifted onto labor, companies need to meet their debt obligations first, thus that cost is imputed in the prices of what they produce.
141) "Author Interview: killing the host"
* A metaphor of biological parasitism in a financialized/debt-laden economy.
* We have John Bates Clark and other pro financial ideologues arguing that finance is not external to the economy, it's part of the economy! Thus when there's money siphoned off of the economy by the financial sector as interest fees or monopoly charges it's not actually siphoning it off, it's a vital part of the economy and it adds to GDP!
* Free markets also is a term that has been horribly reshaped, the classic idea was distinguishing between productive labor and non-productive labor like receiving ground rent or capital gains from rising land prices... today it is "freedom from taxation for rentiers"
* Attention here on Chile as an "experimental laboratory to impose the Chicago school's economic model of what we now called neoliberalism."
* Also "Aristotle talked about this more than 2,000 years ago. He said that democracy is the stage immediately preceding oligarchy."
* On Marx and how he was trying to isolate what part of value came from labor and what part came from economic rents like a monopoly pricing or return to privilege.
* On the central idea of economic rent or unearned income; the term "rente" in French and the term rentier; also companies like the East India company which had a trade monopoly and then could sell product for whatever the market would bear, think of this as a type of rent extraction. This is one of the reasons many European countries kept the most important natural monopolies in the public domain: things like roads, the post office, national airlines, etc. Hudson believes that this keeps the costs of living lower for everyone. [This is a suspect statement of course for anyone who looked at, say, the UK's national health service, or who looked at service quality at Poland's national phone company before privatization!!]
* A neoliberal policy conclusion advocates neosurfdom: Hudson believes that Hayek's book The Road to Serfdom actually advocates neosurfdom (!) because giving things from the public sector into the private sector (where they quickly gets financialized and monopolized) causes even more rents to be extracted from it than before. [This is a very interesting point, and I'm not sure it applies in all domains (if you look at telecom domains or healthcare domains they tend to be run better in private hands and at lower costs), but this may not be true for every domain. I don't know what I think about this overall.]
* Latvia as a "disaster story" of neoliberalism, essentially this is a clear statement of the authors political position and economic views, so it's helpful in that light: "But instead of advice as to how to emulate American experience--with protective agricultural and industrial tariffs, government subsidies for economic modernization and education, progressive taxation and New Deal-type checks and balances--what they got was the opposite: how to let foreign investors and bankers back domestic kleptocrats to carve up the economy, dismantle its industry, and drive its young workers abroad to find employment. Latvia became a bizarre neoliberal experiment, featuring the world's fastest real estate bubble." Latvian people found that to buy housing they had to go deeply into debt, typically to Scandinavian Banks.
* "Why then does the population continue to vote for these neoliberals? The answer is, the neoliberals say, the alternative is Stalinism. To Latvians, that keeps alive the memories of the old pro-Russian policy, deportations and exile."
* [Note that this interview is from 2015 and already Hudson saw through the US strategy of driving a wedge between Russia and Europe and using Ukraine as a "let's you and him fight" type situation to squelch any potential mutual economic relationship between Europe and Russia.
* See also creditors dividing up Greece much like England and France divided up the Near East and Middle East after World War 1.
* [It's also actually quite stunning to see (again, as far back as 2015!) Michael Hudson articulating what's happening in Ukraine and Russia in a way that is precisely the opposite of what we're being told buy co-opted mainstream media today. Given the mendacity of our governments and our media, I can't help but completely reverse my entire paradigm for how to think about Ukraine now. It also fits to use one of the more reliable heuristics of the modern era: I may not know what's going on but whatever the official narrative is, I know THAT at least is absolutely not true.]
* More discussion here of the constant financialization of the US economy, how Obama actually was a shill for this process (despite being of the political left and ostensibly a supporter of working people). He was quickly co-opted during the financial crisis; even Obamacare was a type of privatization/smash and grab: see now how so much of the medical insurance industry is in the power of very very few tremendously huge insurance companies, and they're raising prices relentlessly and nobody cares or can do anything about it.
* On the debt peonage of most American families; the high cost of homeownership, again because of debt levels inflating asset prices.
142) Hudson's solutions involve:
* Getting people away from ethnic and identity politics and to understand the real conflict (which is economic)
* Funding industry with equity not debt
* Don't overlook the tsunami of the huge finance insurance and real estate sector that is swamping the economy. This is modern neo-feudalism.
To Read:
***Michael Hudson: America's Protectionist Takeoff 1815-1914
**Warren Mosler: The 7 Deadly Innocent Frauds of Economic Policy
**Frederick Soddy: Wealth, Virtual Wealth and Debt: The Solution of the Economic Paradox
George Lakoff: Don't Think of an Elephant! Know Your Values and Frame the Debate
Michael Hudson: Killing the Host
Carl Menger: The Origin of Money
Thorstein Veblen: Absentee Ownership
Upton Sinclair: The Goose Step
David Gress: From Plato to NATO: The Idea of the West and Its Opponents
Milovan Djilas: The New Class
Ron Chernow: The Warburgs
Hyman Minsky: Can "It" Happen Again?: Essays on Instability and Finance
Steve Keen: Debunking Economics
Seymour Melman: Pentagon Capitalism
L. Randall Wray: Why Minsky Matters: An Introduction to the Work of a Maverick Economist
L. Randall Wray: Understanding Money
David Graeber: Debt: The First 5000 Years
Karl Polanyi, et al: Trade and Markets in the Early Empires (1957)
Aristophanes: Ploutos (play)
"Give a man a sum of thirteen talents,
and all the more he hungers for sixteen.
Give him sixteen, and he must needs have forty,
or life's not worth living, so he says."
[If you've managed to read this far through this entire post, congrats. :) :) ]