 Hello and welcome. I'm Lynne Freese, producer of Global Political Economy, or GPE News Dogs. I'm delighted to have Michael Hudson joining us today. He'll be discussing how, under a neoliberal shift from industrial to finance capitalism, today's most pressing economic conflict is not simply between labor and employers. It's a conflict in which rentier interests have the upper hand over labor, industry, and government together. This is the political economy in which the COVID-19 economic shock is playing out with dire consequences. Michael Hudson is a research professor of economics at the University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. A prolific author, Michael Hudson's latest book is, And Forgive Them Their Debt, Lending for Closure and Redemption, from Bronze Age Finance to the Jubilee Year. Welcome, Michael. Good to be here, Lynne. Michael, it's been argued that every successful economy has been a mixed economy, where the public sector places checks and balances on private sector power, specifically on the financial sector's power to, in debt society in ways that impoverish it. Yet this kind of role for the public sector is being vilified under finance capitalism. So what's your take on that? Well, ever since the Bronze Age, you had the temples and the palaces providing basic needs, because if you leave this to the private sector, then you're going to have a situation where the private supplier has a chokehold on the economy and can save your money or your life. There are certain things that governments are supposed to supply and which industrial capitalism wanted government to supply because they didn't want employers or their employees to have to pay for them. These are a number of things. Governments obviously have to supply military defense. You can't leave that to private people. But also healthcare, for instance, the Conservative Party in England, Benjamin Disraeli, said health is everything. We have to spend on health. And you don't want to, in principle, make money off crime. But in America, we're privatizing the penal system, the jail system. So you have increasing pressure on government, on governors, to arrest people, put them in jail, especially on drug use, where you can employ them at 10 cents an hour and lease them out to companies as low-priced labor. But most of all, government is supposed to provide the infrastructure, the transportation, the communication, the telephone system. And the idea is that if you leave cable TV to private suppliers, they're natural monopolies. The idea throughout history, from classical Greece and Rome medieval time to Europe, is that natural monopolies should be in the public domain because you don't want to provide opportunities for monopoly rent. Because monopoly rent, like land rent and natural resource rent, is not a necessary cost to production. You want the necessary cost to production to be the material costs and normal profit. Because obviously you need people to have some incentive to do things. But the incentive is supposed to be normal profit, not super profits, not just a free lunch. And so if you let transportation become privatized, then it's going to cost the workforce much more money to get to work and to get to a job. If you let the oil industry be privatized, then the profits from the natural resource and that the patrimony of mineral rights, oil and gas is all going to go to the private financial sector, not to be used as the tax base. And if you have the land rent, essentially if the government, for instance, in New York City, they spent let's say a billion dollars on extending the second Avenue subway line up along the wealthy Upper East Side, that increased land values for landlords all by about twice the amount, by about two billion dollars. Because people now were closer to the subway station, they didn't have to walk, they had better transport. All of this increase in land crisis could have financed the extension of the subway and still been able to lower the subway fares for the rest of New Yorkers. Instead, the city let the landlords keep all of the gains in land value and they just raised the income taxes and went into debt to pay for the subway. So you have a privatization of wealth that is not created by landlords, not created by individuals. Certainly the oil companies don't create the oil in the ground and the mining companies don't create the mineral resources. All of these things are given away freely. The United States let forestry logging companies and mining companies get whatever they can take from the public domain for free instead of getting the results of this publicly owned land to finance the public budget. Taxes in the United States could be vastly reduced on wages and on profits if you would just tax the unearned monopoly rent, the economic rent that is not necessary for production. So if you look at what Adam Smith wrote, John Stuart Mill, all of the classical economists said this is how capitalism is going to evolve because if the government doesn't have to levy an income or profit tax and just the rent tax, then it's going to be a low cost economy and the more socialized and the more mixed in the economy is, the lower the cost structure is going to be and the more competitive it will be and so it will force other countries to de-financialize and to free themselves from their rentier class, free themselves from their absentee landlord class, free themselves from the foreign mining class and essentially beat low cost economies, low tax economies as a result. Well that was their idea of a free market and the neoliberals essentially tried to take control of the minds of economic students and how people think about the economy to say no no a free market is free to make as much as you want, a free market is free from taxation on rent, a free market is where you let it doesn't matter how you make your income anybody can just keep whatever they make no matter how they make it whether it's in predatory exploitative means or unexploitative means so you've had a whole transformation of how populations understand how the economy works so that they don't understand how to solve and re-industrialize the economy and they don't even understand how they're being painted into a financial debt corner as a result of debt deflation. Talk more about the aims of finance and this private sector, public sector, mixed economy. The financial sector essentially is the one percent or the ten percent that holds the rest of the economy in debt. The financial sector makes its money by getting the rest of the economy in debt to itself and making money off asset price gains. In the past the financial sector made its money by getting interest but now with almost zero interest what what it's after for is capital gains because capital gains basically are either untaxed or taxed at a very very low rate so the financial sector essentially makes its money not by being part of the production and consumption economy but by siphoning off as much money from the production and consumption economy as it can for real estate, for insurance, and for debt service, and banking services. The insurance of course would include the health insurance. The the result is that Americans have to spend so much of their money now on housing up to 40, 43 percent of their income goes for housing as opposed to 25 percent back in the 1940s and 50s and 60s. They have to pay huge amounts for medical insurance and the taxes have been shifted off real estate, off finance, onto labor and industry. So you have America really being unable to revive its industry today because how can you create an export industry or even compete with foreigners when you have to pay such high housing costs, such high medical insurance and health care costs instead of the government taking over, such high debt service, if you've got all of your clothing and food and basic needs for nothing you still couldn't compete with foreigners because of all of these fire sectors, finance, insurance and real estate costs. Now the job of the government under industrial capitalism was all filled out in the late 19th century in the United States, for instance by Simon Patton who was a the first professor of economics at the first business school, the Horton School at the University of Pennsylvania and Patton said that public infrastructure was a fourth factor of production and the role of the government was to provide basic needs like health care, education and transportation, other basic services at very low price so that you lower the cost of doing business, you lower the cost of living so that the private sector will be able to compete with foreign countries. Now most countries now provide free health care because if they didn't then the employers and the laborer would have to pay health care, their cost of production would be much higher and America's not done that. America has the highest cost of production in the world not because it's technologically inefficient. The technology is all available and there the reason is all of these extra costs that are paid by labor and by employers that are borne by governments in other countries. So as long as essentially America is dismantling the government what you're dismantling is the basic means of subsidizing industrial production and manufacturing and that's what's left America in a high cost position and driven American industry abroad without any idea of how to create a national economy that makes it profitable to invest in industry here. So most of the American cost structure has nothing to do with a cost of production and therefore nothing to do with industry or industrial capitalism. It's all a fallback into a kind of post-medieval rontier economy. Michael, in the rontier economy banks have allied with landlords and monopolies. So comment more on banks and monopolies. Banks have always been called the mother of trusts. Back in the 19th century you had the great fortunes on Wall Street being made by creating the steel trust, the copper trust, the function of banks is to lend money to companies to essentially create monopolies in the markets that can control the prices and extract super profits, namely economic rent over and above the actual cost of production and normal profits. And when you have a trust, a monopoly, you can get monopoly rent over and above the normal rate of profit and the functions and the banks said, well, look, we can work with companies to let a few companies like Carnegie Takeover, the steel industry, you've had agriculture, agribusiness in this country really turn into a trust with two firms monopolizing all of the distribution of agricultural products. It goes all the way, you've had essentially Amazon becoming a monopoly. You have the information technology sector turning into a monopoly. And the function of these monopolies is the reason their stock prices are going up so much is because they're setting the price without any anti-monopoly legislation such as you had under the Sherman Antitrust Act of 1890 and then Teddy Roosevelt is a trust buster. Essentially, since the 1980s, you've not had any anti-monopoly prosecutions at all. So the economy has been more and more concentrated in the hands of a few large companies that have been able to get the credit from the banks to buy potential rivals such as Facebook has been buying its rivals. You have the cable companies as rivals so people's cable rates continue to go up and up without any actual cost increase. You have a dissociation of price from the cost of production. Price is whatever the market will bear. There is no longer the reference to the cost of production and hence profits is understood under industrial capitalism is the rate of return on the cost of production and the capital investment. You have essentially prices being dictated by a financially organized trustification and monopolization of the economy, most conspicuously in the United States, of course. We should also note pharmaceutical monopolies. That's the most obvious and when you have prices of drugs here so much higher than you have in Canada and other countries, President George W. Bush said we're not going to bargain with the firms. We're not going to have to do what every other country does where the government gets to buy and bulk. The whole idea is if you buy and bulk you get a low price and George Bush says we're going to pay the retail price and then a little bit more because after all there is campaign contributors. Under the Obamacare you had a huge giveaway written, essentially written by the pharmaceutical industry and the people that Biden have appointed as the health czars were the lobbyists and the heads of the pharmaceutical companies. So you're going to have a very vicious pharmaceutical monopoly squeezing the population here already in Idaho where there's a very heavy COVID issue. People are now being put in jail for medical deaths. If you can't pay the hospital you can be arrested put in jail and then you die as everybody in jail gets COVID. It's like a financial death star has hit America and the death star isn't COVID itself. COVID is all over the world. Other countries have been able to cope if the financial death star is really killing people in the United States. So Michael how is it that industrial capitalism ended up in this stage you described one of a pro-rentier, pro-finance capitalism? Well nobody really expected industrial capitalism to ender the stage we're in now which is finance capitalism. This was not a necessary stage of industrial capitalism because you think of a stage as a kind of natural evolution. Darwinian style where the most efficient stage or form wins out. But what's happened is instead of evolution you have a devolution. You have a move backwards. The whole idea of industrial capitalism as explained from Adam Smith to David Ricardo to John Stuart Mel to Marx. The whole idea was that the destiny of industrial capitalism was to get rid of the remnants of feudalism. To get rid of the landlord class, of economic rent, of natural resource rent and the idea was to make everybody basically only earn money in proportion to what they contributed to production. Industrial capitalism was supposed to clear away the whole overgrowth of absentee landlordism, of unproductive credit or usury capital and that seemed to be happening by the late 19th century. In the field of finance for instance you had German and Central European industrial banking creating credit only to create no means of production. To build factories, to create a steel industry, the lower house of government throughout Europe for instance the House of Commons over the House of Lords in Britain. In 1909 there was a constitutional showdown in Britain where they passed a land tax law to sort of get rid of landlordism and the House of Lords vetoed it. Constitutional crisis for a whole year and they passed a law that never again could the House of Lords the upper house veto a revenue bill in the House of Commons. In every of countries the upper house of government was created and run by the rentier interest that is by the landlords and the wealthiest interests and the whole idea of industrial capitalism was to push democratic reform in order to sort of overthrow the old rentier class. World War I changed all that. Since World War I the rentier class began to fight back. Before World War I you finally had the United States pass an income tax law that really only 1% of the American population was liable for the income tax law because there was a cut off point. You had to be fairly rich to pay the income and most of the income of wealthy people was from either rents or stocks or bonds financially or from loans and after World War I all of this was changed. Instead of taxing real estate instead of taxing the oil and gas industry they were made pretty much income tax exempt. You had a shift of tax onto labor and industry and you had industrial capitalism lose out to finance capitalism not as a step forward but as a lax backward as the old post feudal landlord class and the financial class fought back and sort of took over the development and that was greatly increased in the 1980s with Ronald Reagan and Margaret Thatcher and since then the whole western world has been characterized by really a kind of neoliberal meaning pro financial pro rent pro rentier economy and the result is that we have a financial view of the world not an industrial view of the world. Earlier in the conversation you explained the financial sector essentially makes its money not by being part of the production and consumption economy but by siphoning off as much money as it can from the production and consumption economy. So how is this unprecedented income and wealth that rentier interests have extracted from the real economy being redeployed? The 1% makes most of its money by lending money to the 99% and making the 99% pay debt service to itself. The 1% own most of the bonds of banks meaning ownership of the banks and they essentially use their income to buy more and more assets. They don't use their income to buy new factories or to make new means of production. They made biota company and then they'll downsize the labor force, they'll wipe out the pension obligations, they'll dismantle the factory and turn it into a gentrified housing. For instance, New York City used to be a manufacturing city. What is now the Tribeca, the low canal street in the Wall Street area. There used to be low cost electronic stores there, the dairy industry. Now all of these buildings have been torn down or closed down and turned into luxury loft departments for the financial, people making enormous financial salaries to buy in, driving out the rest of the economies from New York and paying very little money, very little taxes for this. So instead of the progressive taxation that you have under, say, President Eisenhower in the 1950s, you have essentially regressive taxation. You've slashed the taxes on the upper incomes very low and you've made most of the upper income money tax exempt. If you're making money by financial speculation, you only have to pay 15% of your gains, not the full income tax that used to be 90% of the gains. So essentially, you've shifted the taxes off speculators, off the 1% that makes its money by capital gains and stocks and bonds and rising real estate prices. And you've burdened employers and employees with it. That's the legacy of debt deflation that's leading to an accelerating shrinkage today without either political party making any discussion of how this is occurring. And without the economics curriculum, even discussing debt, almost all the economic theories that have been sponsored by the business schools, the University of Chicago, Harvard, they treat the economy as if it all operates on barter. They're only looking at current costs. They're not looking at the balance sheet of the economy. They're not looking at the financial claims, the stocks, bonds, and loans, the whole superstructure of financial wealth that is extracting money from the economy. The whole way in which the gross national product and national income accounts are created are not breaking out these of the distinction between making money by industrial capitalism or making money by finance capitalism. And so people are not even aware of why they're being more and more squeezed, why they're getting poor. The result is suicide rates are going up, life spans are shortening after the lower incomes, because people are blaming themselves. The whole doctrine of personal responsibility means it's not the system that's making you poor, it's not finance, it's your responsibility to survive. And so people who believe this actually look at themselves as failure and get very depressed and go on antidepressants or sedatives as we see with OxyContin and end up dying. That's what happened in Russia after the neoliberals did their reforms in the 1990s is what happened in Greece after the Eurozone insisted on Greece paying the IMF and the Eurozone for fraudulent debts that were run up by its financial class. It's something that's happening all over the world and yet it this doesn't appear as an object lesson for countries to look at and say, do things really have to be this way? Is there really no alternative? And if you think there's no alternative, you're not going to look at all the alternatives you have. There's very little discussion of what China's doing. I mean, how did China pull ahead? It pulled ahead by very heavy government spending on building up buildings, on subsidizing real estate and in paying for most of the costs of living and doing business that are privatized in the United States and have to be paid by employers. So there's a reason why China has become the largest economy in the world overtaking the US and there's no discussion of that. That's total, that's communism. We don't want that. And what it is, it's industrial capitalism. So industrial capitalism is now called communism. I mean, that's the irony of the whole thing because that was where industrial capitalism was evolving towards is an attempt to minimize the cost of production and create an efficient economy. You published a book as a dictionary guide to reality in an age of deception titled J is for junk economics. And in the book you defined that there is no alternative or Tina as the neoliberal principle that if one can censor awareness of policy alternatives to austerity, people will believe that poverty and equality and economic polarization are natural, not manmade. What else do pro-finance advocates mean in saying there is no alternative? Well, when Margaret Thatcher said there is no alternative and that was her famous quote, Tina, there is no alternative. What she meant is the financial sector has put a debt charges into the economy saying there's no alternative if you want to avoid a breakdown. And the breakdown is right now the economy is in a debt deflation. So much American industry is closing down because of debt. For instance, let's look at the legacy of the coronavirus, which is only catalyzed and accelerated the debt deflation. Imagine the restaurants that are closed since last March, the gyms, the bars, they haven't done business. So they have not been paying rent. And their employees have not been getting an income to pay their rent. So what's happened is that, let's say in January, everything is going to go back to normal, although they say here it's going to be March or April. Well, the landlords are going to say, okay, we haven't been collecting rent for the last year. Now you're going to have to pay all these rent arrears. Well, there is no way that a restaurant or a gym or a bar can pay a years back rent and make enough profit to cover it. So they're going to say, why should we work for the landlord without getting any pennies for ourselves? We're just going to go out of business. And so the restaurants are closed down. This, again, is a reason for the stock market booming. If you close down the privately owned restaurants and the privately owned bars, this is going to let the big food chains come in and take over the whole market. Just like Amazon took over much of the market for books and for things that people buy, the big restaurant chains will come in now that maybe 70% of the restaurants in New York City are expected to go out of business. That's not going to go out of business. So the only way to avoid all of this is to say, okay, we the government are suspending all of the debt service, all the taxes and all the rents owed during the period when nobody can earn an income to pay. If you don't wipe out the arrears of the debt that have accumulated for the back rent, people running into debt in order to live while they're unemployed, running up their credit card rates, borrowing from the banks, or borrowing against the house, if you don't wipe out this debt, then you're going to have the economy shut down with debt deflation because there won't be any money to buy goods and services. And it'll be just an accelerating unemployment and a shrinkage of markets. Now, when Margaret Thatcher said there's no alternative, what she meant was, well, wait a minute, if you don't pay the debts to the banks, they'll have to lose money. The richest 1% have made a trillion dollars in gains since the virus hit last spring. They've made a killing. In the last 10 years, all of the growth in the American economy has accrued the top 5%. All the growth in GDP, gross domestic product, has accrued to the top 5%. Since Obama took office, GDP for the 95% of the population has actually gone down. So the banks are saying, well, wait a minute, we've made a lot of money, we don't want to have to lose any of it. If you write down the debts, we're just going to close up shop and we'll pull out all of the connections of the economy and the banks will go under. They pretend that this is a crisis. Actually, this is a great opportunity to save the economy. Sheila Baer said in 2009 that the most badly run bank and crooked bank was Citibank. She wanted to close it down and take it over by the FDIC. There was plenty of money in Citibank to pay all of the insured depositors. But then she was overruled by Obama and Tim Geithner, the lobbyist for Wall Street, who was connected to Citibank in a shameful conflict of interest. They didn't close it down. Sheila Baer wrote in her biography about this. She found out it was all about the bondholders. The 1% are the bondholders of the banks and they're refusing. They would rather have the economy shut down and 10 million more people thrown into the street than lose a single dollar. All of this is what the classical Greeks called wealth addiction, the love of money. They said that the more money you have, the more addicted you are to get more and more. Now, the good thing about canceling the debts is that you cancel savings on the other side of the balance sheet. The savings are all this immense amount of money that's accumulated by the rentier sector since Obama took office, really, since the 2008 and 2009 crisis. You'd restore balance to the economy. You would restore a much more equal distribution, not only of income, but of wealth by having other wealthy people bear the costs of the economy being shut down for the virus. The rentier sector opposes all of this. In fact, Biden has already said that because of the huge $8 trillion giveaway to the financial sector by the Federal Reserve under Trump, we're going to have to balance the budget. The cities and states are near bankruptcy. In New York City, they're talking about cutting down the subway system to maybe only 40%. It'll be very crowded. You'll be risking your life to go on it because of the virus. The Washington subway system has been closed down on weekends and I think many stations have been closed down. You're going to have a breakdown of state and local finance because the landlords are not able to pay the property tax. The cities and states are not getting the income tax because of the unemployment. You're going to have a spreading financial crisis. Again, finance capital firms are going to be able to come in and it's much easier to make a billion dollars off a crisis than it is off a boom. Most of the big fortunes have all been made when the rest of the economy are in crisis because everybody's in distress. You can buy assets in distress crisis and that's why the crisis that's coming to the United States is almost engineered by Wall Street is a grab bag and it'll be a grab bag without their expecting 50,000 New Yorkers to be homeless. They're going to be out on the street. Where are they going to go? Crime is already rising here. You're having a disaster and it's a disaster that is welcomed by the government that is refusing to do any bailout for the cities and states, refusing any support of the infrastructure system, the transport system that is only providing money to support the stock and bondholders so that they don't lose money and to support the banks so that they remain solvent with quantitative easing money creation, but without any attempt to revive the industrial economy, the restaurant owners, the few factories that remain and of course the labor force. What do you think is in store for the U.S. barring some sort of progressive change in U.S. political leadership? The donor class, mainly the financial class and the rentier class controls who's nominated for the presidency and their campaign contributions determine who's elected to Congress and so at the beginning of the epidemic here they said well we can see that the economy is going to be closed, you know pretty much closed down. The first thing to do, it's okay to close down the economy, it's okay for people to be fired, but we want to make sure that the stock and bond and the bank real estate market is supported. So Donald Trump's the Republican plan created $10 trillion, $2 trillion was given as just to the population at large and $8 trillion was put into the stock and bond and real estate market and so the result since the pandemic began is this is a wonderful victory for finance capitalism, this is the buying opportunity of a generation. You're going to have in January five million renters thrown out onto the streets, they're not able to pay the rents, you're going to have massive foreclosures venture capital companies are going to be able to come in and buy real estate just as cheaply as they were able to do when the junk mortgage crisis crashed in 2009 and Obama did not write down the junk mortgages to the realistic value but throw out 10 million families. Well 10 million families are going to lose again about five million renters and a lot of low-income families who bought houses on mortgage but have lost their jobs or lost their income are going to be defaulting so the Biden administration is going to begin just where the Obama administration left off with huge evictions that will end as in the case of the Obama administration most of the victims will be black and Hispanic lower-income people so you can say that Biden is going to continue the anti-black anti-Hispanic policies that Obama pioneered so strongly which makes it all the more amazing to me that the blacks and Hispanics supported the Democrats and the election it's like identity politics has succeeded in blinding the population with the fact that you can have blacks and Hispanics in office spending their time fighting viciously against the black and Hispanic voters who elected them that's the irony of what's happening now but it's what's in store for the economy in just one more month when the Biden administration comes over the evictions begin the foreclosures begin and the the medical deaths are going to be increasing and as the foreclosures begin and the medical deaths increase how would you define a centrist position in other words what's a centrist a centrist is somebody who looks at all problems as being marginal not structural and so you can only have a little change so a centrist is a right-wing neoliberal supporter of the financial sector and implicitly anti-labor and anti-industry a centrist is someone who doesn't want any change in the system and just goes with the status quo because they can't imagine that the real every economy tends to polarize naturally between wealthy people at the top and impoverishing the 99 at the bottom and the centrist doesn't realize that a centrist thinks that economies tend to move toward equality and equilibrium and the reality is economies move towards disequilibrium polarization and then there's a crash polarization and then there's a crash but a centrist says don't do anything at all so essentially you should just stand aside and let obama and biden and the rest stand by while the financial sector monopolizes the economy and impoverishes michael hesson thank you thanks for having me and from janeva switzerland thank you for tuning into this episode of gpe news docs