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Nobody yet can tell whether Donald Trump is an agent of change with a specific policy in mind, or merely a catalyst heralding an as yet undetermined turning point. His first month in the White House saw him melting into the Republican mélange of corporate lobbyists. Having promised to create jobs, his “America First” policy looks more like “Wall Street First.” His cabinet of billionaires promoting corporate tax cuts, deregulation and dismantling Dodd-Frank bank reform repeats the Junk Economics promise that giving more tax breaks to the richest One Percent may lead them to use their windfall to invest in creating more jobs. What they usually do, of course, is simply buy more property and assets already in place.

One of the first reactions to Trump’s election victory was for stocks of the most crooked financial institutions to soar, hoping for a deregulatory scythe taken to the public sector. Navient, the Department of Education’s knee-breaker on student loan collections accused by the Consumer Financial Protection Bureau (CFPB) of massive fraud and overcharging, rose from $13 to $18 now that it seemed likely that the incoming Republicans would disable the CFPB and shine a green light for financial fraud.

Foreclosure king Stephen Mnuchin of IndyMac/OneWest (and formerly of Goldman Sachs for 17 years; later a George Soros partner) is now Treasury Secretary – and Trump is pledged to abolish the CFPB, on the specious logic that letting fraudsters manage pension savings and other investments will give consumers and savers “broader choice,” e.g., for the financial equivalent of junk food. Secretary of Education Betsy DeVos hopes to privatize public education into for-profit (and de-unionized) charter schools, breaking the teachers’ unions. This may position Trump to become the Transformational President that neoliberals have been waiting for.

But not the neocons. His election rhetoric promised to reverse traditional U.S. interventionist policy abroad. Making an anti-war left run around the Democrats, he promised to stop backing ISIS/Al Nusra (President Obama’s “moderate” terrorists supplied with the arms and money that Hillary looted from Libya), and to reverse the Obama-Clinton administration’s New Cold War with Russia. But the neocon coterie at the CIA and State Department are undercutting his proposed rapprochement with Russia by forcing out General Flynn for starters. It seems doubtful that Trump will clean them out.

Trump has called NATO obsolete, but insists that its members up their spending to the stipulated 2% of GDP — producing a windfall worth tens of billions of dollars for U.S. arms exporters. That is to be the price Europe must pay if it wants to endorse Germany’s and the Baltics’ confrontation with Russia.

Trump is sufficiently intuitive to proclaim the euro a disaster, and he recommends that Greece leave it. He supports the rising nationalist parties in Britain, France, Italy, Greece and the Netherlands, all of which urge withdrawal from the eurozone – and reconciliation with Russia instead of sanctions. In place of the ill-fated TPP and TTIP, Trump advocates country-by-country trade deals favoring the United States. Toward this end, his designated ambassador to the European Union, Ted Malloch, urges the EU’s breakup. The EU is refusing to accept him as ambassador.

Will Trump’s victory break up the Democratic Party?

At the time this volume is going to press, there is no way of knowing how successful these international reversals will be. What is more clear is what Trump’s political impact will have at home. His victory – or more accurately, Hillary’s resounding loss and the way she lost – has encouraged enormous pressure for a realignment of both parties. Regardless of what President Trump may achieve vis-à-vis Europe, his actions as celebrity chaos agent may break up U.S. politics across the political spectrum.

The Democratic Party has lost its ability to pose as the party of labor and the middle class. Firmly controlled by Wall Street and California billionaires, the Democratic National Committee (DNC) strategy of identity politics encourages any identity except that of wage earners. The candidates backed by the Donor Class have been Blue Dogs pledged to promote Wall Street and neocons urging a New Cold War with Russia.

They preferred to lose with Hillary than to win behind Bernie Sanders. So Trump’s electoral victory is their legacy as well as Obama’s. Instead of Trump’s victory dispelling that strategy, the Democrats are doubling down. It is as if identity politics is all they have.

Trying to ride on Barack Obama’s coattails didn’t work. Promising “hope and change,” he won by posing as a transformational president, leading the Democrats to control of the White House, Senate and Congress in 2008. Swept into office by a national reaction against the George Bush’s Oil War in Iraq and the junk-mortgage crisis that left the economy debt-ridden, they had free rein to pass whatever new laws they chose – even a Public Option in health care if they had wanted, or make Wall Street banks absorb the losses from their bad and often fraudulent loans.

But it turned out that Obama’s role was to prevent the changes that voters hoped to see, and indeed that the economy needed to recover: financial reform, debt writedowns to bring junk mortgages in line with fair market prices, and throwing crooked bankers in jail. Obama rescued the banks, not the economy, and turned over the Justice Department and regulatory agencies to his Wall Street campaign contributors. He did not even pull back from war in the Near East, but extended it to Libya and Syria, blundering into the Ukrainian coup as well.

Having dashed the hopes of his followers, Obama then praised his chosen successor Hillary Clinton as his “Third Term.” Enjoying this kiss of death, Hillary promised to keep up Obama’s policies.


The straw that pushed voters over the edge was when she asked voters, “Aren’t you better off today than you were eight years ago?” Who were they going to believe: their eyes, or Hillary? National income statistics showed that only the top 5 percent of the population were better off. All the growth in Gross Domestic Product (GDP) during Obama’s tenure went to them – the Donor Class that had gained control of the Democratic Party leadership. Real incomes have fallen for the remaining 95 percent, whose household budgets have been further eroded by soaring charges for health insurance. (The Democratic leadership in Congress fought tooth and nail to block Dennis Kucinich from introducing his Single Payer proposal.)

No wonder most of the geographic United States voted for change – except for where the top 5 percent, is concentrated: in New York (Wall Street) and California (Silicon Valley and the military-industrial complex). Making fun of the Obama Administration’s slogan of “hope and change,” Trump characterized Hillary’s policy of continuing the economy’s shrinkage for the 95% as “no hope and no change.”

Identity Politics as anti-labor politics

A new term was introduced to the English language: Identity Politics. Its aim is for voters to think of themselves as separatist minorities – women, LGBTQ, Blacks and Hispanics. The Democrats thought they could beat Trump by organizing Women for Wall Street (and a New Cold War), LGBTQ for Wall Street (and a New Cold War), and Blacks and Hispanics for Wall Street (and a New Cold War). Each identity cohort was headed by a billionaire or hedge fund donor.

The identity that is conspicuously excluded is the working class. Identity politics strips away thinking of one’s interest in terms of having to work for a living. It excludes voter protests against having their monthly paycheck stripped to pay more for health insurance, housing and mortgage charges or education, or better working conditions or consumer protection – not to speak of protecting debtors.

Identity politics used to be about three major categories: workers and unionization, anti-war protests and civil rights marches against racist Jim Crow laws. These were the three objectives of the many nationwide demonstrations. That ended when these movements got co-opted into the Democratic Party. Their reappearance in Bernie Sanders’ campaign in fact threatens to tear the Democratic coalition apart. As soon as the primaries were over (duly stacked against Sanders), his followers were made to feel unwelcome. Hillary sought Republican support by denouncing Sanders as being as radical as Putin’s Republican leadership.

In contrast to Sanders’ attempt to convince diverse groups that they had a common denominator in needing jobs with decent pay – and, to achieve that, in opposing Wall Street’s replacing the government as central planner – the Democrats depict every identity constituency as being victimized by every other, setting themselves at each other’s heels. Clinton strategist John Podesta, for instance, encouraged Blacks to accuse Sanders supporters of distracting attention from racism. Pushing a common economic interest between whites, Blacks, Hispanics and LGBTQ always has been the neoliberals’ nightmare. No wonder they tried so hard to stop Bernie Sanders, and are maneuvering to keep his supporters from gaining influence in their party.

When Trump was inaugurated on Friday, January 20, there was no pro-jobs or anti-war demonstration. That presumably would have attracted pro-Trump supporters in an ecumenical show of force. Instead, the Women’s March on Saturday led even the pro-Democrat New York Times to write a front-page article reporting that white women were complaining that they did not feel welcome in the demonstration. The message to anti-war advocates, students and Bernie supporters was that their economic cause was a distraction.

The march was typically Democratic in that its ideology did not threaten the Donor Class. As Yves Smith wrote on Naked Capitalism: “the track record of non-issue-oriented marches, no matter how large scale, is poor, and the status of this march as officially sanctioned (blanket media coverage when other marches of hundreds of thousands of people have been minimized, police not tricked out in their usual riot gear) also indicates that the officialdom does not see it as a threat to the status quo.”[1]Yves Smith, “Women Skeptical of the Women’s March,” Naked Capitalism, February 10, 2017.

Hillary’s loss was not blamed on her neoliberal support for TPP or her pro-war neocon stance, but on the revelations of the e-mails by her operative Podesta discussing his dirty tricks against Bernie Sanders (claimed to be given to Wikileaks by Russian hackers, not a domestic DNC leaker as Wikileaks claimed) and the FBI investigation of her e-mail abuses at the State Department. Backing her supporters’ attempt to brazen it out, the Democratic Party has doubled down on its identity politics, despite the fact that an estimated 52 percent of white women voted for Trump. After all, women do work for wages. And that also is what Blacks and Hispanics want – in addition to banking that serves their needs, not those of Wall Street, and health care that serves their needs, not those of the health-insurance and pharmaceuticals monopolies.

Bernie did not choose to run on a third-party ticket. Evidently he feared being accused of throwing the election to Trump. The question is now whether he can remake the Democratic Party as a democratic socialist party, or create a new party if the Donor Class retains its neoliberal control. It seems that he will not make a break until he concludes that a Socialist Party can leave the Democrats as far back in the dust as the Republicans left the Whigs after 1854. He may have underestimated his chance in 2016.

Trump’s effect on U.S. political party realignment

During Trump’s rise to the 2016 Republican nomination it seemed that he was more likely to break up the Republican Party. Its leading candidates and gurus warned that his populist victory in the primaries would tear the party apart. The polls in May and June showed him defeating Hillary Clinton easily (but losing to Bernie Sanders). But Republican leaders worried that he would not support what they believed in: namely, whatever corporate lobbyists put in their hands to enact and privatize.


The May/June polls showed Trump and Clinton were the country’s two most unpopular presidential candidates. But whereas the Democrats maneuvered Bernie out of the way, the Republican Clown Car was unable to do the same to Trump. In the end they chose to win behind him, expecting to control him. As for the DNC, its Wall Street donors preferred to lose with Hillary than to win with Bernie. They wanted to keep control of their party and continue the bargain they had made with the Republicans: The latter would move further and further to the right, leaving room for Democratic neoliberals and neocons to follow them closely, yet still pose as the “lesser evil.” That “centrism” is the essence of the Clintons’ “triangulation” strategy. It actually has been going on for a half-century. “As Tanzanian President Julius Nyerere quipped in the 1960s, when he was accused by the US of running a one-party state, ‘The United States is also a one-party state but, with typical American extravagance, they have two of them’.”[2]Radhika Desai, “Decoding Trump,” Counterpunch, February 10, 2017.

By 2017, voters had caught on to this two-step game. But Hillary’s team paid pollsters over $1 billion to tell her (“Mirror, mirror on the wall …”) that she was the most popular of all. It was hubris to imagine that she could convince the 95 Percent of the people who were worse off under Obama to love her as much as her East-West Coast donors did. It was politically unrealistic – and a reflection of her cynicism – to imagine that raising enough money to buy television ads would convince working-class Republicans to vote for her, succumbing to a Stockholm Syndrome by thinking of themselves as part of the 5 Percent who had benefited from Obama’s pro-Wall Street policies.

Hillary’s election strategy was to make a right-wing run around Trump. While characterizing the working class as white racist “deplorables,” allegedly intolerant of LBGTQ or assertive women, she resurrected the ghost of Joe McCarthy and accused Trump of being “Putin’s poodle” for proposing peace with Russia. Among the most liberal Democrats, Paul Krugman still leads a biweekly charge at The New York Times that President Trump is following Moscow’s orders. Saturday Night Live, Bill Maher and MSNBC produce weekly skits that Trump and General Flynn are Russian puppets. A large proportion of Democrats have bought into the fairy tale that Trump didn’t really win the election, but that Russian hackers manipulated the voting machines. No wonder George Orwell’s 1984 soared to the top of America’s best-seller lists in February 2017 as Donald Trump was taking his oath of office.

This propaganda paid off on February 13, when neocon public relations succeeded in forcing the resignation of General Flynn, whom Trump had appointed to clean out the neocons at the NSA and CIA. His foreign policy initiative based on rapprochement with Russia and hopes to create a common front against ISIS/Al Nusra seemed to be collapsing.

Tabula Rasa Celebrity Politics

U.S. presidential elections no longer are much about policy. Like Obama before him, Trump campaigned as a rasa tabla, a vehicle for everyone to project their hopes and fancies. What has all but disappeared is the past century’s idea of politics as a struggle between labor and capital, democracy vs. oligarchy.

Who would have expected even half a century ago that American politics would become so post-modern that the idea of class conflict has all but disappeared. Classical economic discourse has been drowned out by their junk economics.

There is a covert economic program, to be sure, and it is bipartisan. It is to make elections about just which celebrities will introduce neoliberal economic policies with the most convincing patter talk. That is the essence of rasa tabla politics.

Can the Democrats lose again in 2020?

Trump’s November victory showed that voters found him to be the Lesser Evil, but all that voters really could express was “throw out the bums” and get a new set of lobbyists for the FIRE sector and corporate monopolists. Both candidates represented Goldman Sachs and Wall Street. No wonder voter turnout has continued to plunge.

Although the Democrats’ Lesser Evil argument lost to the Republicans in 2016, the neoliberals in control of the DNC found the absence of a progressive economic program to less threatening to their interests than the critique of Wall Street and neocon interventionism coming from the Sanders camp. So the Democrat will continue to pose as the Lesser Evil party not really in terms of policy, but simply ad hominum. They will merely repeat Hillary’s campaign stance: They are not Trump. Their parades and street demonstrations since his inauguration have not come out for any economic policy.

On Friday, February 10, the party’s Democratic Policy group held a retreat for its members in Baltimore. Third Way “centrists” (Republicans running as Democrats) dominated, with Hillary operatives in charge. The conclusion was that no party policy was needed at all. “President Trump is a better recruitment tool for us than a central campaign issue,’ said Washington Rep. Denny Heck, who is leading recruitment for the Democratic Congressional Campaign Committee (DCCC).”[3]“Pelosi denies Democrats are divided on strategy for 2018,” Yahoo News, February 10, 2018.

But what does their party leadership have to offer women, Blacks and Hispanics in the way of employment, more affordable health care, housing or education and better pay? Where are the New Deal pro-labor, pro-regulatory roots of bygone days? The party leadership is unwilling to admit that Trump’s message about protecting jobs and opposing the TPP played a role in his election. Hillary was suspected of supporting it as “the gold standard” of trade deals, and Obama had made the Trans-Pacific Partnership the centerpiece of his presidency – the free-trade TPP and TTIP that would have taken economic regulatory policy out of the hands of government and given it to corporations.

Instead of accepting even Sanders’ centrist-left stance, the Democrats’ strategy was to tar Trump as pro-Russian, insist that his aides had committed impeachable offenses, and mount one parade after another. “Rep. Marcia Fudge of Ohio told reporters she was wary of focusing solely on an “economic message” aimed at voters whom Trump won over in 2016, because, in her view, Trump did not win on an economic message. “What Donald Trump did was address them at a very different level — an emotional level, a racial level, a fear level,” she said. “If all we talk about is the economic message, we’re not going to win.”[4]Ibid. This stance led Sanders supporters to walk out of a meeting organized by the “centrist” Third Way think tank on Wednesday, February 8.


By now this is an old story. Fifty years ago, socialists such as Michael Harrington asked why union members and progressives still imagined that they had to work through the Democratic Party. It has taken the rest of the country half a century to see that Democrats are not the party of the working class, unions, middle class, farmers or debtors. They are the party of Wall Street privatizers, bank deregulators, neocons and the military-industrial complex. Obama showed his hand – and that of his party – in his passionate attempt to ram through the corporatist TPP treaty that would have enabled corporations to sue governments for any costs imposed by public consumer protection, environmental protection or other protection of the population against financialized corporate monopolies.

Against this backdrop, Trump’s promises and indeed his worldview seem quixotic. The picture of America’s future he has painted seems unattainable within the foreseeable future. It is too late to bring manufacturing back to the United States, because corporations already have shifted their supply nodes abroad, and too much U.S. infrastructure has been dismantled.

There can’t be a high-speed railroad, because it would take more than four years to get the right-of-way and create a route without crossing gates or sharp curves. In any case, the role of railroads and other transportation has been to increase real estate prices along the routes. But in this case, real estate would be torn down – and having a high-speed rail does not increase land values.

The stock market has soared to new heights, anticipating lower taxes on corporate profits and a deregulation of consumer, labor and environmental protection. Trump may end up as America’s Boris Yeltsin, protecting U.S. oligarchs (not that Hillary would have been different, merely cloaked in a more colorful identity rainbow). The U.S. economy is in for Shock Therapy. Voters should look to Greece to get a taste of the future in this scenario.

Without a coherent response to neoliberalism, Trump’s billionaire cabinet may do to the United States what neoliberals in the Clinton administration did to Russia after 1991: tear out all the checks and balances, and turn public wealth over to insiders and oligarchs. So Trump’s his best chance to be transformative is simply to be America’s Yeltsin for his party’s oligarchic backers, putting the class war back in business.

What a truly transformative president would do/would have done

No administration can create a sound U.S. recovery without dealing with the problem that caused the 2008 crisis in the first place: over-indebtedness. The only one way to restore growth, raise living standards and make the economy competitive again is a debt writedown. But that is not yet on the political horizon. Obama’s doublecross of his voters in 2009 prevented the needed policy from occurring. Having missed this chance in the last financial crisis, a progressive policy must await yet another crisis. But so far, no political party is preparing a program to juxtapose to Republican-Democratic austerity and scale-back of Social Security, Medicare and social spending programs in general.

Also no longer on the horizon is a more progressive income tax, or a public option for health care – or for banking, or consumer protection against financial fraud, or for a $15-an-hour minimum wage, or for a revived protection of labor’s right to unionize, or environmental regulations.

It seems that only a new party can achieve these aims. At the time these essays are going to press, Sanders has committed himself to working within the Democratic Party. But that stance is based on his assumption that somehow he can recruit enough activists to take over the party from Its Donor Class.

I suspect he will fail. In any case, it is easier to begin afresh than to try to re-design a party (or any institution) dominated by resistance to change, and whose idea of economic growth is a pastiche of tax cuts and deregulation. Both U.S. parties are committed to this neoliberal program – and seek to blame foreign enemies for the fact that its effect is to continue squeezing living standards and bloating the financial sector.

If this slow but inexorable crash does lead to a political crisis, it looks like the Republicans may succeed in convening a new Constitutional Convention (many states already have approved this) to lock the United States into a corporatist neoliberal world. Its slogan will be that of Margaret Thatcher: TINA – There Is No Alternative.

And who is to disagree? As Trotsky said, fascism is the result of the failure of the left to provide an alternative.


[1] Yves Smith, “Women Skeptical of the Women’s March,” Naked Capitalism, February 10, 2017.

[2] Radhika Desai, “Decoding Trump,” Counterpunch, February 10, 2017.

[3] “Pelosi denies Democrats are divided on strategy for 2018,” Yahoo News, February 10, 2018.

[4] Ibid.

(Reprinted from Real World Economics Review by permission of author or representative)

‘J is for Junk Economics’: Michael Hudson on TRNN (2/5), February 28, 2017.

Trump’s infrastructure plan will privatize all the benefits for the financiers and make sure that the population at large gets zero benefit from it while paying the costs, says economist Michael Hudson

SHARMINI PERIES: Welcome back to The Real News Network. I’m speaking with Michael Hudson, the author of, J is for Junk Economics, a Guide to Reality in the Age of Deception. Don’t miss it. We’re going to be talking about this book, and some of the misleading concepts that are out there, in terms of economics, and understanding economics.

Being able to talk about economic concepts with a bit more knowledge than we have, requires reading this book. So, thank you for joining us, Michael.

MICHAEL HUDSON: It’s good to be back in Baltimore.

SHARMINI PERIES: So Michael, one of the things that you really try to tackle in this book is the euphemistic concepts of economics. Trump’s economic plan has focused on infrastructure investment as one of its key plans for the economy. And he says this will create a better business climate and good jobs. What do you think of that?

MICHAEL HUDSON: Well, everybody is in favor of infrastructure. Since the beginning of civilization – starting with the Pyramids, temples and city walls – most of the capital investment in every country of the world, even today, is in infrastructure. That’s why banks, corporations and wealthy investors want to privatize it, because privatizing it is like conquering a new country and being able to take its income.

You can take into your own hands, for your own profit, the largest capital investment there is – what used to be in the public domain. The roads, railroads, airline companies, water and sewer systems and everything that people need, including now the schools can be privatized and instead of providing them to the economy, to make the economy operate at a lower cost, you can make people pay two or three times as much as they were doing. Operating this infrastructure for profit (with high-interest credit) will vastly increase the cost of the economy, without increasing wages or the ability to pay for these privatized services. This will squeeze the living standards while sucking up more and more money to the top of the economic pyramid.

So I do talk about infrastructure in the book, but I also talk about important economists who discussed it. One individual whom I cite in the dictionary section is Simon Patten. He was the first economics professor at the first business school in the United States, the Wharton School at the University of Pennsylvania.

Patten said that there are four factors of production. Classical economics talks about three factors of income — land, labor and capital. But there’s a fourth factor of production, and that’s public infrastructure. However, its function, Patten said – and this is a pro-capitalist saying it, this is the business school – the function of public infrastructure, roads and schools is not to make a profit, like a private investor would do. The public aim is to lower the cost of living and doing business, so as to make the economy more competitive.

If a country does what the United States did, and finances a vast public school system, public extension system for agricultural education, and provides low cost roads, low cost transportation, water and sewers, parks and communications – if you provide all of this either freely or at least at a subsidized price – then you’re going to be able to undersell economies that don’t socialize the means of production.

That’s why, Patten said, socialized economies with active public infrastructure can undersell other economies. Imagine if you’re competing with an economy that does what Margaret Thatcher did in England. When she privatized the electric and water companies, everybody’s electricity and water rates went up. If countries privatize their roads and airlines, the private owners are going to want to borrow all the money needed to invest, and they’re going to pay interest on this.

That’s why banks and brokerage underwriters love privatization. The usual the rate of return to privatizers, over and above interest in the United States, is 12%. But this pales before capital gains of 50% and even 100%. That’s the real rip-off, because public assets are underpriced when being sold to insiders and bank underwriters.

British Telephone made a return of about 25% in just a day or two!
 That’s how Mitt Romney and other hedge fund operators go about privatizing. They add all sorts of managerial costs for their “services” (mainly looting, downsizing and scaling back pensions while intensifying working conditions to burn out labor – euphemized as “raising productivity”) as well as interest and profits.

They’re going to make a capital gain on the stock that’s issued. And all these payments to the privatizers, in what’s called a private-public partnership (PPP) is going to vastly increase the cost of popular access to this infrastructure.

Look at what happened in Indiana when it built a toll road. The state said that it needed a highway. Absolutely true. Every state needs highways. It paid privatizers to make back their investment (and then some!) with a toll. Needless to say, they set the toll very high, so as to pay the private investors their profits – and pay the bank for its loan, and pay the stockholders. All this cost so much money that drivers in Indiana didn’t use the toll road. They preferred the slower old routes.

To prevent this kind of free market, the privatizers and their banks insisted on a clause in the private-public partnership assuring investors that if Indiana lets private investor build a toll road, it can’t then build any other roads that might compete. The aim is to force people to use the toll road.

This is not a free choice economy. The aim is to to steer everybody into a private infrastructure monopoly.


By contrast, the purpose of public investment for 100 years in the United States was to prevent such monopolies. That’s why we had anti-monopoly regulations. That’s what made America so much more competitive in the late 19th century and early 20th century. It was able to undersell European and other countries that followed the private-sector emphasis.

The public-private partnership isn’t really a partnership at all. It “socializes” the losses, while privatizing the profits. Instead of society – consumers and also business – being the beneficiary of roads, schools, cable TV systems and communication systems, they are victimized. Instead of providing gains in technology to society at a low cost or even freely, so that people don’t have to earn high enough wages to pay these higher privatized costs, you raise costs. The effect is to squeeze family budgets.

By privatizing healthcare, for instance, people have to pay much higher health insurance in America than anywhere else. You have to pay the insurance companies, and you don’t enforce monopoly rules against the pharmaceutical companies. You don’t even bargain with them or buy in the cheapest market. You buy in the most expensive market, because they’re your largest campaign contributors and that’s what you’ve promised to do.

I fear that the way Trump will choose to finance infrastructure is the upside-down way to do it, the wrong way. Its aim is simply to make his class rich. If you’re building transportation, you’re going to vastly increase the rental yield and hence the price of real estate all along the new routes. If you build new schools, you make the neighborhood more desirable for people to go. Rents and housing prices are bid up – forcing people to take out even larger bank loans to move into such areas.

The guiding idea of classical economics was to recapture this added value created by infrastructure investment. A city or state could self-finance such expenditures by recapturing them as a windfall-gains tax on the rising rent-of-location. (I define these terms in my book.) That wouldn’t be the case with Trump. He’s not going to recapture anything. He wants to privatize the benefits of infrastructure. His aim is make sure that the population at large gets zero benefit from it. All the benefit is to go to the financiers and corporate owners.

SHARMINI PERIES: Why are you so apprehensive? I mean, when Trump talks about the cost of pharmaceuticals, he says the problem is that we don’t negotiate the price with the pharmaceutical companies, and he’s a negotiator. He’s a businessman. So, why shouldn’t we believe him?

MICHAEL HUDSON: We should hold his feet to the fire. We should say, “Hey, this is what you said. Nice to hear, but is it only rhetoric? When are you really going to do this?”

He’s going to try to say, “Oh, the Republican Congress won’t let me.” So then the reply should be: “When are you going to run against these candidates, and support candidates who will support what you’re trying to do?” So, he’ll reply, “That’s not my department.”

So, nice rhetoric, nice promises, but we’ve already had many years of broken promises by politicians.

SHARMINI PERIES: And also as a businessman, having run the Trump Empire, his attitude, and approach to business seems almost an antithesis to what he’s promised.

MICHAEL HUDSON: He’s made his business in real estate. The way most real estate operators make money is to have public investment increase the value of their property. In one of your shows we talked about the Second Avenue subway in New York. That’s increased the rents and property values all along the Second Avenue subway line. But they did it by raising the price on the subway fares, not taxing the windfall gains of the landlords who backed the projects. That’s how Trump made much of his money.

They did it by raising the taxes in New York City. The same thing is happening in Vancouver, Canada, which we also have talked about. They’re adding on a value-added tax to build transportation that’s going to vastly increase what landlords own.

So, of course he thinks this is a wonderful way to create wealth. Well, it does create wealth for him. But the wealth that he makes should have accrued to the population as a whole. It didn’t. That’s why he got wealthy, and the rest of New Yorkers didn’t.

SHARMINI PERIES: All right, Michael, let’s continue this discussion about J is for Junk Economics in our next segment. Thank you for joining us for now.

MICHAEL HUDSON: That would be fine.

SHARMINI PERIES: And thank you for joining us on The Real News Network.

(Reprinted from by permission of author or representative)
• Category: Economics • Tags: Donald Trump, Privatization, Wall Street 
Hiding How the Economy Really Works

Michael Hudson, author of the newly released J is for Junk Economics, says the media and academia use well-crafted euphemisms to conceal how the economy really works

SHARMINI PERIES: Michael Hudson is a distinguished research professor of economics at the University of Missouri, Kansas City. He’s the author of many books including, “The Bubble and Beyond” and “Finance Capitalism and Its Discontents”, “Killing the Host: How Financial Parasites and Debt Destroy the Global Economy,” and most recently, of course, “Junk Economics”.

Michael, your book reminds me of Raymond Williams’ key words. That was an incredible contribution to cultural criticism, a criticism of society and cultural studies as a discipline. And I think your book is going to make a phenomenal contribution to the field of economics. It would be a reference for people to go back, especially students to go back, and look at your version of the definition of these terms and looking at economics from that critical prism. So, my first question to you is really about this book. Why did you write it?

MICHAEL HUDSON: I originally wrote it as an appendix to a book to have been called, “The Fictitious Economy.” That draft was written before the 2008 crisis. My point was that the way the economy is described in the press and in University courses has very little to do with how the economy really works. The press and journalistic reports use a terminology made of well crafted euphemisms to confuse understanding of how the economy works.

In addition to giving key words to explain what’s positive and how to understand the economy, I discuss the misleading vocabulary, the Orwellian double-think used by the media, bank lobbyists and corporate lobbyists to persuade people that austerity and running into debt is the key to wealth, not its antithesis. The aim is to make them act against their own interests, by drawing a fictitious picture of the economy as if it’s a parallel universe.

If you can make people use a vocabulary and concepts that make it appear that when the 1% gets richer, the whole economy is getting richer – or when GDP goes up, everybody is improving – then the people, the 95% who did not improve their position from 2008 to 2016 somehow can be made to suffer from the Stockholm syndrome. They’ll think, “Gee, it must be my fault. If the whole economy is growing, why am I so worse off? If only we can give more money to the top 5% or the 1%, it’ll all trickle down. We’ve got to cut taxes and help them so they can give me a job because as Trump and other people said, Well, I never met a poor person who gave me a job.”

I’ve met a lot of rich people, and instead of giving people jobs when they buy a company, they usually make money for themselves by firing people, downsizing and outsourcing labor. So you’re not going to get the rich necessarily giving you jobs. But if people can somehow think that there’s an association between wealth at the top and more employment, and that you have to cut the taxes on the wealthy because it’ll all trickle down, then they have an upside-down view of how the economy works.

I had written an appendix to the book and that took on a life of its own. If you have a vocabulary that describes how the world and the economy actually work, then one word will lead to another and soon you build up a more realistic picture of the economy. So, I not only discuss words and vocabulary, I discuss some of the key individuals and the key economists who’ve made contributions that don’t appear in the neoliberal academic curriculum.

There’s a reason the history of economic thought is not taught anymore in the universities. If people really read what Adam Smith wrote and what John Stewart Mill wrote, they’d see that Smith criticized the landlords. He said that you’ve got to tax away their rents, because it’s a free lunch. Mill defined rent as what landlords make in their sleep, without working. Adam Smith said that whenever businessmen get together, they’re going to conspire as to how to get money from the public at large – how to do a deal and mislead people that it’s all for society’s good.

This is not the kind of free enterprise that people who talk about Adam Smith explain when they depict him as if he were a tax cutter, an Austrian economist or a neoliberal. They don’t want to hear what he actually wrote. So, my book is really about reality economics. I found that to discuss reality economics, we have to take back control of the language or economic methodology, not use the logic that they use.

Mainstream economists talk as if any status quo is in equilibrium. The subliminal trick here is that if you think of the economy as always being in equilibrium, it implies that if you’re poor or you can’t pay your debt, or you have problems sending your kids to school, that’s just part of nature. As if there isn’t an alternative. That is what Margaret Thatcher said: “There is no alternative.” My book is all about how of course there’s an alternative. But to make an alternative, you need an alternative way of looking at the world. And to do that you, as George Orwell said, you need a different vocabulary.


SHARMINI PERIES: Speaking of vocabulary and euphemistic economic concepts, that’s what’s so unique about this book. It’s not just the words, like in Raymond Williams’, but it’s also about the theory and the concepts that we are tackling. You also talked about businessmen and how they use these terminologies in order to mislead us. So here we have a businessman in office, as President of the United States, who is proposing all kinds of economic reforms supposedly in our favor, in terms of workers. And you know, the big infrastructure projects he is proposing that are supposed to elevate and lift people out of poverty and give them jobs and so on. What is the mythology there?

MICHAEL HUDSON: Well, you just used the word “reform.” When I grew up, and for the past century, “reform” meant you unionize labor, you protect consumers, and you regulate the economy so that there’s less fraud against consumers. But the word “reform” today, as used by the International Monetary Fund in Greece when it insists on Greek reforms, means just the opposite: You’re supposed to lower wages by 10 or 20%. You cut back the pensions by about 50%. Ideally, you stop paying pensions in order to pay the IMF and other foreign creditors. You stop social spending. So, what you have is an inversion of the traditional vocabulary. Reform now means the opposite of what it meant early in the 20th century. It’s no longer Social Democratic. It’s right wing, anti-labor, pro-financial “reform” to cut back social spending and leave everything in a privatized way to the wealthy, and to the corporate sector.

So reform is the first word that I’d use to illustrate how the meaning has changed as it’s used in the mainstream press. Basically, what the right wing has done in this country is hijack the vocabulary that was developed by the labor movement and by socialist economists for a century. They’ve appropriated it and turned it to mean the opposite.

There are 400 words that I deal with. Many of these words show how the meaning has been turned upside down, to get people to have an upside down view of how the economy works.

Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002). His new book is: Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy (a CounterPunch digital edition). Sharmini Peries is executive producer of The Real News Network. This is a transcript of Michael Hudson’s interview with Sharmini Peries on the Real News Network.

(Reprinted from Counterpunch by permission of author or representative)
Finance as Warfare: The IMF Lent to Greece Knowing It Could Never Pay Back Debt

SHARMINI PERIES: The latest economic indicator showed that the Greek economy shrank by 0.4% in the last three months of 2016. This poses a real problem for Greece, because its lenders are expecting it to grow by 3.5% annually, to enable it to pay back on its bailout loan. Greece is scheduled to make a 10.5 billion euro payment on its debt next summer, but is expected to be unable to make that payment, without another installment from its $86 billion bailout.

A growing impasse between the International Monetary Fund, and the European Central Bank, Greece’s two main lenders, is threatening to push Greece into default, and pull out of the euro. Meanwhile, the Greece government told its lenders, that we now call “Troika” today, that it will not agree to any more austerity measures. Joining us today, to take a closer look at the Greek situation is Michael Hudson. Michael is a distinguished Professor of Economics, at the University of Missouri, Kansas City. He’s the author of many books, and the latest among them is, J is for Junk Economics: A Guide to Reality in the Age of Deception.

Thank you so much for joining us today, Michael.

MICHAEL HUDSON: It’s good to be here. But I take issue with one thing that you said. You said the lenders expect Greece to grow. That is not so. There is no way in which the lenders expected Greece to grow. In fact, the IMF was the main lender. It said that Greece cannot grow, under the circumstances that it has now.

What do you do in a case where you make a loan to a country, and the entire staff says that there is no way this country can repay the loan? That is what the IMF staff said in 2015. It made the loan anyway – not to Greece, but to pay French banks, German banks and a few other bondholders – not a penny actually went to Greece. The junk economics they used claimed to have a program to make sure the IMF would help manage the Greek economy to enable it to repay. Unfortunately, their secret ingredient was austerity.

Sharmini, for the last 50 years, every austerity program that the IMF has made has shrunk the victim economy. No jjunkecon austerity program has ever helped an economy grow. No budget surplus has ever helped an economy grow, because a budget surplus sucks money out of the economy. As for the conditionalities, the so-called reforms, they are an Orwellian term for anti-reform, for cutting back pensions and rolling back the progress that the labor movement has made in the last half century. So, the lenders knew very well that Greece would not grow, and that it would shrink.

So, the question is, why does this junk economics continue, decade after decade? The reason is that the loans are made to Greece precisely because Greece couldn’t pay. When a country can’t pay, the rules at the IMF and EU and the German bankers behind it say, don’t worry, we will simply insist that you sell off your public domain. Sell off your land, your transportation, your ports, your electric utilities. This is by now a program that has gone on and on, decade after decade.

Now, surprisingly enough, America’s ambassador to the EU, Ted Malloch, has gone on Bloomberg and also on Greek TV telling the Greeks to leave the euro and go it alone. You have Trump’s nominee for the ambassador to the EU saying that the EU zone is dead zone. It’s going to shrink. If Greece continues to repay the loan, if it does not withdraw from the euro, then it is going to be in a permanent depression, as far as the eye can see.

Greece is suffering the result of these bad loans. It is already in a longer depression today, a deeper depression, than it was in the 1930s.

SHARMINI PERIES: Yeah, that’s an important… at the very beginning of your answer here, you were making this very important point, is that although the lenders – this is the Eurozone lenders – had set a target of 3.5% surplus as a condition on Greece in order to make that first bailout loan. The IMF is saying, well, that’s not quite doable, 1.5% should be the target.

But you’re saying, neither of these are real, or is achievable, or desired, for that matter, because they actually want Greece to fail. Why are you saying that?

MICHAEL HUDSON: Because when Greece fails, that’s a success for the foreign investors that want to buy the Greek railroads. They want to take over the ports. They want to take over the land. They want the tourist sites. But most of all, they want to set an example of Greece, to show that France, the Netherlands or other countries that may think of withdrawing from the euro – withdraw and decide they would rather grow than be impoverished – that the IMF and EU will do to them just what they’re doing to Greece.

So they’re making an example of Greece. They’re going to show that finance rules, and in fact that is why both Trump and Ted Malloch have come up in support of the separatist movement in France. They’re supporting Marine Le Pen, just as Putin is supporting Marine Le Pen. There’s a perception throughout the world that finance really is a mode of warfare.

If they can convince countries somehow to adopt junk economics and pursue policies that will destroy themselves, then they’ll be easy pickings for foreign investors, and for the globalists to take over other economies. So, it’s a form of war.

SHARMINI PERIES: Right. Michael, you were saying that the newly appointed ambassador, Ted Malloch of the Trump administration to the European Union has suggested that Greece should consider leaving the European Union, or the euro in particular.


What do you make of this, and will this be then consistent with what Greece is suggesting? Because Greece has now said, no more austerity measures. We’re not going to agree to them. So, this is going to amount to an impasse that is not going to be resolvable. Should Greece exit the euro?

MICHAEL HUDSON: Yes, it should, but the question is how should it do it, and on what terms? The problem is not only leaving the euro. The problem really is the foreign debt that was bad debt that it was loaded onto by the Eurozone. If you leave the euro and still pay the foreign debt, then you’re still in a permanent depression from which you can never exit.

There’s a broad moral principle here: If you lend money to a country that your statistics show cannot pay the debt, is there really a moral obligation to pay the debt? Greece did have a commission two years ago saying that this debt is odious. But it’s not enough just to say there’s an odious debt. You have to have something more positive.

I’ve been talking to Greek politicians and Syriza leaders about what’s needed, and what is needed is a Declaration of Rights. Just as the Westphalia rules in 1648, a Universal Declaration that countries should not be attacked in war, that countries should not be overthrown by other countries. I think, the Declaration of International Law has to realize that no country should be obliged to impose poverty on its population, and sell off the public domain in order to pay its foreign creditors.

The Declaration would say that if creditors make a debt that cannot be repaid, the debt is by definition odious, so there is no need to pay it. Every country has the right not to pay debts that are unpayable except by bankrupting the country, and forcing it to sell off their public domain to foreign countries. That’s the very definition of sovereignty.

So, I’m hoping to work with politicians of a number of countries to draw up this Declaration of Debtor Rights. That’s what’s been missing. There’s an idea that if you withdraw from the euro, you can devalue your currency and can lower labor standards even further, wipe out the pensions, and somehow squeeze out enough to pay the debt.

So, the problem isn’t only the Eurozone. True, joining the euro meant that you’re not allowed to run a budget deficit to pump money into the economy to recover – like America has done. But the looming problem is that you have to pay debts that are so far beyond your ability to pay that you’ll end up like Haiti did after it rebelled after the French Revolution.

France said, sure, we’ll give you your independence, but you’ll have to reimburse us, for the fact that we no longer hold you as slaves. You have to buy your freedom. You can’t say slavery is wrong. You have to make us, the slaveholders, whole. So Haiti took this huge foreign debt to France after it got its independence, and ended up not being able to develop.

A few years after that, in 1824, Greece had a revolution and found the same problem. It borrowed from the Ricardo brothers, the brothers of David Ricardo, the economist and lobbyist for the bankers in London. Just like the IMF, he said that any country can afford to repay its debts, because of automatic stabilization. Ricardo came out with a junk economics theory that is still held by the IMF and the European Union today, saying that indebted countries can automatically pay.

Well, Greece ended up taking on an enormous debt, paying interest but still defaulting again and again. Each time it had to give up more sovereignty. The result was basically a constant depression. Slow growth is what retarded Greece and much of the rest of southern Europe.

So unless they tackle the debt problem, membership in the Eurozone or the European Union is really secondary.

Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002). His new book is: Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy (a CounterPunch digital edition). Sharmini Peries is executive producer of The Real News Network. This is a transcript of Michael Hudson’s interview with Sharmini Peries on the Real News Network.

(Reprinted from by permission of author or representative)
• Category: Economics • Tags: Counterpunch Archives, Eurozone, Greece, IMF 

An article by Robert Berke in, which describes itself as “The No. 1 Source for Oil & Energy News,” illustrates how interest groups control outcomes by how they shape policy choices.

Berke’s article reveals how the US intends to maintain and extend its hegemony by breaking up the alliance between Russia, Iran, and China, and by oil privatizations that result in countries losing control over their sovereignty to private oil companies that work closely with the US government. As Trump has neutered his presidency by gratuitously accepting Gen. Flynn’s resignation as National Security Advisor, this scheme is likely to be Trump’s approach to “better relations” with Russia.

Berke reports that Henry Kissinger has sold President Trump on a scheme to use the removal of Russian sanctions to pry President Putin away from the Russian alliance with Iran and China. Should Putin fall for such a scheme, it would be a fatal strategic blunder from which Russia could not recover. Yet, Putin will be pressured to make this blunder.

One pressure on Putin comes from the Atlanticist Integrationists who have a material stake in their connections to the West and who want Russia to be integrated into the Western world. Another pressure comes from the affront that sanctions represent to Russians. Removing this insult has become important to Russians even though the sanctions do Russia no material harm.

We agree with President Putin that the sanctions are in fact a benefit to Russia as they have moved Russia in self-sufficient directions and toward developing relationships with China and Asia. Moreover, the West with its hegemonic impulses uses economic relationships for control purposes. Trade with China and Asia does not pose the same threat to Russian independence.

Berke says that part of the deal being offered to Putin is “increased access to the huge European energy market, restored western financial credit, access to Western technology, and a seat at the global decision-making table, all of which Russia badly needs and wants.” Sweetening the honey trap is official recognization of “Crimea as part of Russia.”

Russia might want all of this, but it is nonsense that Russia needs any of it.

Crimea is part of Russia, as it has been for 300 years, and no one can do anything about it. What would it mean if Mexico did not recognize that Texas and California were part of the US? Nothing.

Europe has scant alternatives to Russian energy.

Russia does not need Western technology. Indeed, its military technology is superior to that in the West.

And Russia most certainly does not need Western loans. Indeed, it would be an act of insanity to accept them.

It is a self-serving Western myth that Russia needs foreign loans. This myth is enshrined in neoliberal economics, which is a device for Western exploitation and control of other countries. Russia’s most dangerous threat is the country’s neoliberal economists.

The Russian central bank has convinced the Russian government that it would be inflationary to finance Russian development projects with the issuance of central bank credit. Foreign loans are essential, claims the central bank.

Someone needs to teach the Russian central bank basic economics before Russia is turned into another Western vassal. Here is the lesson: When central bank credit is used to finance development projects, the supply of rubles increases but so does output from the projects. Thus, goods and services rise with the supply of rubles. When Russia borrows foreign currencies from abroad, the money supply also increases, but so does the foreign debt. Russia does not spend the foreign currencies on the project but puts them into its foreign exchange reserves. The central bank issues the same amount of rubles to pay the project’s bills as it would in the absence of the foreign loan. All the foreign loan does is to present Russia with an interest payment to a foreign creditor.

Foreign capital is not important to countries such as Russia and China. Both countries are perfectly capable of financing their own development. Indeed, China is the world’s largest creditor nation. Foreign loans are only important to countries that lack the internal resources for development and have to purchase the business know-how, techlology, and resources abroad with foreign currencies that their exports are insufficient to bring in.

This is not the case with Russia, which has large endowments of resources and a trade surplus. China’s development was given a boost by US corporations that moved their production for the US market offshore in order to pocket the difference in labor and regulatory costs.

Neoliberals argue that Russia needs privatization in order to cover its budget deficit. Russia’s government debt is only 17 percent of Russian GDP. According to official measures, US federal debt is 104 percent of GDP, 6.1 times higher than in Russia. If US federal debt is measured in real corrected terms, US federal debt is 185 percent of US GDP.

Clearly, if the massive debt of the US government is not a problem, the tiny debt of Russia is not a problem.

Berke’s article is part of the effort to scam Russia by convincing the Russian government that its prosperity depends on unfavorable deals with the West. As Russia’s neoliberal economists believe this, the scam has a chance of success.

Another delusion affecting the Russian government is the belief that privatization brings in capital. This delusion caused the Russian government to turn over 20 percent of its oil company to foreign ownership. The only thing Russia achieved by this strategic blunder was to deliver 20 percent of its oil profits into foreign hands. For a one-time payment, Russia gave away 20 percent of its oil profits in perpetuity.

To repeat outselves, the greatest threat that Russia faces is not sanctions but the incompetence of its neoliberal economists who have been throughly brainwashed to serve US interests.

(Reprinted from by permission of author or representative)
• Category: Economics, Foreign Policy • Tags: Donald Trump, Neoliberalism, Russia 

SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.

While protestors and police are clashing on the inaugural parade route in Washington, D.C., the newly sworn-in President of the United States is lunching with the establishment in Washington — Some of the very people he called out in his inaugural address. Let’s have a look.

DONALD TRUMP: We are transferring power from Washington, D.C. and giving it back to you, the people.

CROWD: (applause)

DONALD TRUMP: For too long a small group in our nation’s capital has reaped the rewards of government while the people have borne the cost. Washington flourished but the people did not share in its wealth.

SHARMINI PERIES: On to discuss with me all of this is Michael Hudson. Michael has a new book out, “J is for Junk Economics: A Guide to Reality in the Age of Deception” (February 2017). Michael is a Distinguished Professor of Economics at the University of Missouri, Kansas City. Thanks for joining us, Michael.

MICHAEL HUDSON: Good to be here.

SHARMINI PERIES: So, Michael, that first, I think it’s the third or fourth paragraph in, where he really talks about the establishment, how it benefitted Washington, I would think you would have objection to that.

MICHAEL HUDSON: Well, the establishment he talked about wasn’t really Wall Street. He said, “When Washington got rich.” Bernie Sanders would have said, “When Wall Street got rich, the country didn’t.” So I think when Donald Trump says “Washington,” what he means is the government regulatory agencies. He’s going to cut them back. And what he means is that the IRS, the tax collectors, he’s going to cut them back by cutting taxes on all the Americans, meaning all of the 1% that are his Americans.

So, basically, you’re seeing a cutback in government. I’m sure you will see a cutback in the CIA and the NSA that are parts of the Democratic National Committee and their Hillary supporters. So I think there is going to be a fight within the foreign policy and the national security establishment. But I think that what Trump is really doing is going to be supporting the same 1% that President Obama and George Bush were supporting.

SHARMINI PERIES: Right. And that’s pretty evident with the cabinet he’s lining up, as well — the richest cabinet in U.S. history. And he’s actually taking from the very establishment in Washington, as well as Wall Street. So I’m sure it’ll be doubled down on, in terms of the kind of establishment we’re talking about.

Michael, President Trump said something very interesting about building America, and building America in his own image, I think. Let’s have a look at what he had to say.

DONALD TRUMP: We will build new roads and highways and bridges and airports and tunnels and railways all across our wonderful nation. We will get our people off of welfare and back to work rebuilding our country with American hands and American labor. We will follow two simple rules: Buy American and hire American.

SHARMINI PERIES: So, Michael, what does he mean by this kind of infrastructure building?

MICHAEL HUDSON: Well, he’s talked a lot about infrastructure and there are a lot of different ways of doing infrastructure. I don’t think his way will be the way that it was done a hundred years ago. The whole idea of the Republican Party in the 19th century was for the government to finance infrastructure, and especially transportation, to lower the cost of living and doing business. But I don’t think that’s what Trump is going to do, because he wants to cut back government spending and he wants to cut back taxation. So what I worry about is when he says, “I’m going to build infrastructure” is that it means that he’s going to create a huge trillion-dollar market for Wall Street’s high finance.

They’re going to fund infrastructure by bondholders, and through private-public partnership, rail lines and transportation lines. Who are going to be the beneficiaries of this, and who’s going to pay for it all? If the government doesn’t pay for it, it’s going to be the bondholders and Wall Street. And the question is what is the cost of this transportation going to be, and who will be the main beneficiaries?

A hundred years ago, it was to build free roads and it was to lower the cost of living. But the reverse is happening today. Take for example the New York City subway’s Second Avenue Line, which was just finished a couple of weeks ago. It calls for $10 billion for just six stations.

The way this was funded is for the Metropolitan Transport Authority that runs the subways to borrow $10 billion from Wall Street. It pays bondholders interest, and will meet this cost by raising subway fares for all the riders in New York. To the extent that the New York City and New York State subsidize it, they’re going to raise sales taxes here, and also income taxes. So New Yorkers are going to have to pay more for the subway.

Who are the beneficiaries?

The politicians say, “Well, the people along the transport lines are going to be the beneficiaries – people who live on Second Avenue and First Avenue and York Avenue, who had to take those crowded Lexington subways.” But the real beneficiaries are the landlords. The $10 billion that’s been spent on the Second Avenue subway is probably increasing their land values, the real estate values of real estate developers by from $10 to $20 billion.


Already, wage-earners who live on Second Avenue – the supposed beneficiaries – are complaining that they’re being told their rents are going to go up by a couple of hundred dollars a month. Now that these neighborhoods have more easy transport, that makes it more valuable. So they’re worried that they can’t afford to live there anymore. They worry that they will have to move to Queens, Westchester or outside of New York City.

So there’s a giant windfall for the landlords, a give-away thanks to the subway that cost $10 billion, making $10-20 billion of “capital” (land-value) gains.

All this could have been financed by a windfall gains tax. If the subway and transportation, such as Mr. Trump wants to build throughout the United States, is going to increase the value of the rent of location for real estate landlords and developers, then there could have been a windfall gains tax. That would have captured all this $10 billion added value from the subway, to repay the MTA, the subway authority, for the cost of building it. But that hasn’t been done.

So what you have is the public paying for the 1% to benefit. That looks to me like the plan that Mr. Trump has. So when he says he wants to help all Americans, he means he wants to help all Americans in the 1% by really letting Wall Street get a huge debt from the 99% of the Americans. It’s just the opposite of what people believe.

The same fight is going on in Vancouver. They’re trying to spend about $6 billion in transportation up in Canada. How are they doing it? The transportation – the bus lines and train lines – are going to increase what already is the highest priced real estate in Canada. This promises to make a bonanza for the landlords. But they’re paying for this transportation by a 0.5% sales tax, that is going to cost consumers in Vancouver $250 million a year. So, again, the users of the transportation are having to pay, not the property owners along the route. They get the gains.

I think you could call this the Thorstein Veblen Law: that whenever there is a public expenditure on infrastructure, the benefits go to the absentee owners, the landlords. Civic improvement is basically a real-estate development.

So I think Mr. Trump wants to turn the U.S. economy into the kind of real estate development that has made him so rich in New York. It will make his fellow developers rich, and it will make the banks that finance this infrastructure rich, but the people are going to have to pay for it in a much higher cost for transportation, much higher cost for all the infrastructure that he’s proposing.

So I think you could call Trump’s plan “public investment to create private profit”. That’s really his plan in a summary, it looks to me.

SHARMINI PERIES: Right. And one interesting thing with the new administration coming in, and you have pointed to this, Michael, is that at least the good news here is that we’re not going to be going to war with Russia. Instead, I think we’re poking our finger in the eye of the Chinese government. Give us a sense of what your thoughts are on that.

MICHAEL HUDSON: Well, there’s been a whole argument in the administration between Kissinger and Brzezinski. Both these men say, “We’ve got to divide and conquer. If another country tries to go its own way and be independent of America, we’ve got to smash it up. We’ve got to break up Russia and break up China.”

The question is what do the neocons do first? Kissinger says that the long-term enemy is China, because they’re smarter and larger. So you want to pry Russia away. You want to do nice to Russia and tell President Putin, “Look, if you go with us, we’ll give you Ukraine, we’ll pull back NATO, but we want to pry you back towards Europe and away from China.”

Brzezinski, being Polish, hates Russia and wants to go with China. So he says, “No, no. We’ve got to continue to fight Russia and back the Hillary group within the CIA and National Security Agency.”

It looks like Trump is following the Kissinger group, trying to split up Eurasia by backing Russia. I don’t think he has a chance in succeeding in this, because Putin can say, “Look, America changes its policies so much we can’t depend upon you. Obama and Secretary Kerry have broken every agreement that they have made with us. The Clintons have broken every agreement. We can’t trust America anymore. You’ve forced us to rely on China and Iran.” And of course, China also is supporting Iran because of its oil investments there.

So I think the Trump administration will fail to break up Eurasia – to break up the Shanghai Cooperation Organization of Russia, China and Iran. At that point I think Trump may get angry and go back to the Hillary-type confrontation that looks very dangerous.

SHARMINI PERIES: What do you make of these allegations in terms of the intelligence agencies and the proximity of Trump and some of his aides in terms of their proximity to Russia?

MICHAEL HUDSON: I think the idea of proximity to Russia is fake. It’s a smear campaign, and President Putin has already warned Trump that this is an attempt by the Deep State, by the Russia haters, to threaten a coup d’etat.

I think one of the first things that Trump is going to do to roll back government is to clear out the fakers in the CIA – the people who’ve been faking or leaking these documents against him. He’s going to move against the fake news outlets, led by The New York Times and The Washington Post. They’re pushing unsubstantiated rumors. They’re claiming that it was Russia that somehow threw the election to Trump, instead of the leaks from the Democratic National Committee being leaks, not computer hacks.

So I think Trump is going to clean out the Democratic policy neocons from the CIA and NSA. That’s a good thing. I think he feels hostile enough toward Hillary after all of this. So a house-cleaning is probably the best thing that could happen.


The problem is, we don’t know whether the people he’ll bring in will just be mirror images on the other side, so that instead of being anti-Russian they’ll be anti-Chinese and have the same kind of fake news that they give to The New York Times and The Washington Post that they’ve been giving for the last few months. There’s certainly a crisis of real news reporting, a crisis of accusations. I’ve never seen anything like it.

SHARINI PERIES: All right. I thank you so much for joining us today, Michael. And we look forward a future analysis from you.

MICHAEL HUDSON: Well, it’s good to be here on such an important day.

SHARMINI PERIES: And thank you for joining us on The Real News Network.

(Reprinted from by permission of author or representative)
• Category: Economics • Tags: Donald Trump, Government Spending 
Real Vision Interview Transcript with Steve Keen

With two renegade economists in one room in London for 90 minutes you can expect some pretty controversial opinions about the current economic establishment. This film has all the makings of a Real Vision classic, as Steve Keen interviews professor and author, Michael Hudson, sharing their radical views and an extraordinary depth of knowledge.

Discussing the complacency and complicity of traditional economic models, as taught in universities and adopted by central banks, Michael and Steve take us on a journey from a solar system to a galaxy of thought, taking in the history of economics to solutions for the ongoing global depression

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Steve Keen: Often you’ll see somebody who’s a public speaker – or back in the old days, a public speake, who’d start with saying, “Unaccustomed as I am to public speaking.” Well, this is literally true for me this time, because I’m Professor Steve Keen from Kingston University. And I’m very much unaccustomed to being on this end of the camera, because rather than being the interviewee, I’m being the interviewer for my good friend and fellow rebel economist, Michael Hudson.

Michael, for those who don’t know him, is one of the few who not only saw the crisis coming, but was warning about the fact that we were inevitably going to have one, courtesy of financializing capitalism. And his two most recent books – this is the penultimate, right? [Keen's comments and questions henceforth in italics]

Michael Hudson: Yes. Penultimate.

Penultimate book. Still, of course, available. The Bubble and Beyond , which I’ve read most of. And this one I haven’t started reading yet, but I’m under orders to read it by the end of the year. Killing the Host .


So, Michael, give us a bit of background to these and let’s just have a rave.

All right. Well, Killing the Host will be published in German at the end of the month of November, and, basically, it’s a more popular version of The Bubble and Beyond. And it shows that when the financial sector takes over, it’s very much like a parasite in nature. And people think of parasites simply as taking the life blood of the host and draining the energy. But in order to do that, the parasite has to have an enzyme to take over the host’s brain. And the key thing in nature is they take over the brain, and they convince the host that the free luncher is actually part of the host’s own body, and even its baby to be protected. And that’s what the financial sector has done.

Classical economics was all about separating the rent-extracting sectors – landlords, monopolies, and finance – from the rest of the economy. And that was unearned income. It wasn’t necessary. And the whole idea of classical economics from Quesnay’s Tableau Economique to all the way through Adam Smith and John Stuart Mill was to look at the finance sector and the landlord sector and monopolies as unnecessary. You’re going to get rid of them. You’re going to tax away all the land’s rent or else nationalize the land. And you are going to have public enterprises as basic infrastructure so that they couldn’t be monopolized.

Well, you had a revolution against classical economics in the 1890s and 1900s, and the national income now – accounts make it appear as if the financial sector and the real estate sector and the monopolies – oil and gas – are all contributing to GDP. So a few months ago, you had the head of Goldman Sachs – Lloyd Blankfein – say, the Goldman Sachs managers are the most productive workers in the United States, because we make $22 million a year in salary, and we get bonuses. And that’s all considered as contributing to GDP. That’s the financial services that we’re providing $22 million per manager of financial services.

Now what they don’t realize is that this $22 million per manager in that Goldman Sachs extracts money from the rest of the economy. It’s a zero-sum game. And instead of adding to the GDP, you should have –

A subtraction.

Yes, you should have – all of this is overhead – unnecessary. And since 2008, the 99% of the population in America, and I think in most of Europe, too, have seen their incomes go down. But the 1% have had their financial and real estate incomes go up so much more that there is an illusion of growth. And what’s been growing is the tumor, not the actual economic body.

Yeah. And this is the – I mean, if you look back at Ricardo and look at his arguments for comparative advantage, which has become the one horse pony of neoclassical economics. Everything’s about specialization. And they’ve fallen for this whole pea and shell trick that Ricardo put there to get rid of the corn laws. But when you read it and see, why did he do it – and I know I can say this to you, because you’ve actually read Ricardo, and far more of the classicals than in fact I’ve read, which is I don’t think there’s anybody else in the world I can say that to, but you clearly have.

When Ricardo says why he designed that model, it was so that he could argue for the reduction in the price of corn, which would mean that no change to the real income for the workers, because they still have to get the corn to stay alive. But the price of corn would drop, which meant the money going to the landlords would fall. And that money would instead go to the capitalists, which were therefore enable you to continue growing and grow for longer than you would if all the money was wasted by the landlords and frivolous behavior.

So even that particular absolute core of neoclassical thinking came out of Ricardo’s attempt to get the money away from the rentier class and get it to the capitalists where the investment can occur.


Well, of course, he really wanted it to be to the banks. Ricardo was the bank lobbyist of his day. He went into parliament to be the arguer for the bank. His brothers, by the way, ran the capital firm. They underwrote the Greek debt after 1832 that bankrupted Greece already in the 19th century, just as the IMF and the Troika are doing today.

Ricardo, being the bank lobbyist – how did banks make their money back in Ricardo’s day? You still had a landlord class in England, so they didn’t make their money making mortgage loans. Banks made their money mainly in international trade and international financial transactions.

–and things like that.

And Ricardo thought that if you had a division of labor and everybody specializing, then banks would have this huge market in export-import trade and financing collections outstanding and basically currency swaps. And Ricardo’s example of comparative advantage was let Portugal only produce wine. Let England produce cloth. And in his example, Portugal comes out ahead.

And England does as well, because the –

Yes, but not as much as Portugal. So if other countries will agree to be hewers of wood and drawers of water and let the industrial companies industrialize, somehow the raw materials people will benefit. And, of course, that’s not what happened at all.

So when Ricardo fought against the landlord class represented by Malthus, he basically wanted England to have to buy all of its grain abroad, so the bankers would benefit not only from British industrial exports to Portugal and America, but also get the import trade in grain.

Malthus said, “Wait a minute, the landlords are very productive. We employ coachmen. We buy nice clothes. Who would be the servants? Who would hire all the servants, if it weren’t for us extracting all of the rent?” And he said, landlords also are able to put – if you have protectionism in high prices, landlords are going to improve the quality of the soil, and we’re going to make increased productivity, as we did during the Napoleonic Wars when there wasn’t trade.

Ricardo said that’s impossible here. He wrote at the time, when you had the greatest revolution in agricultural chemistry in history. You had Justus von Liebig. You had all of the increased fertilizers, mechanization. Ricardo said, you have the original indestructible powers of the soil. You cannot destroy the environment.

The Americans broke from all of this and said, wait a minute, you have the slavery system, and the cotton and tobacco planters are destroying the soil. In America, we had the term mining the soil. Soil depletion goes down. If you specialize the way Ricardo did, you deplete the soil, you deplete the environment.

And so it’s this Ricardian model – this narrow-minded tunnel vision that prevents economists today from looking at how the environment is being harmed by oil and gas specialization. They deny global warming. And, most of all, the worst environmental damage is debt pollution. The economic environment is being polluted by running into debt and, of course, that’s what banks produced.

And that’s what Ricardo was advocating for. He had a financial theory that said it’s impossible for any country to have a balance of payments problem. Impossible for any country to have a problem repaying the debt that we’re negotiating with them, because of automatic stabilizers. The magic of the marketplace will mean everybody can always adjust, everything adjusts.

And then, of course, you had the Irish potato famine, and you had Nassau William Senior saying – when he was told that a million Irishman had died, he said, that is not enough. Economics is about equilibrium. For them to have equilibrium, more than a million must die. That’s the equilibrium of the neoliberals today. It lives on.

I mean, I’ve read Ricardo’s principles, obviously. And where did you find – because what I see in Ricardo, when I read Ricardo is the arguments about reducing the money going to the landlords. You must have read much more to get the background on the banker history and so on than I’ve managed to read. Where would they have been in Ricardo?

Well, he wrote – there were two –

Collected works, you read the collected works?

Yes. Ricardo – there were two schools of monetary theory in England. After the Napoleonic Wars, what happened, they had a post-war deflation. They tried to return the price of gold to the original price. This is the same idea of deflation that wrecked the American economy from the Civil War through about 1890, crucifying the price of gold. You had deflation.

There were two schools of thought. There was the banking school that Ricardo headed, the lobbyist for the banks. And there was the currency school with Thornton and all sorts of other great people. The currency school said debt matters. Ricardo said debt doesn’t matter. So the arguments you’re having today all found their predecessor in the 1830s in the bank arguments.

Now this is not taught in any of the history of economic thought.

The history of economic thought isn’t taught anymore either.

That’s the problem. They take mathematics. And mathematics it’s all about taking the existing status quo for granted. And if you had a history of economic thought, you’d know that Adam Smith and the adversaries of Ricardo, and John Stuart Mill, their idea of a free market was a market free from rent, free from the banks, free from monopoly. But now when you have the Austrian School and Hayek’s talk about the free market, they mean free for the parasite. Free for the predatory.

They don’t they mean that half the time. They’re so caught up in their own ideology. But that is a huge part of it. And to them, it’s – in that classic sense, people think Smith is a free
market person as they define free market today. But when looking at Smith’s writing, he was in favor of limits on the rate of interest.


His logic was that if you have – people who are willing to pay well above the rate set by the King are likely to be profligates. Projectors and profligates he called them, and if you give money to them, they’re almost certain to have wasted it. If they want to pay that much for it, they must want it for nefarious purposes. Having the legal rate set slightly below a maximum rate set by the King, means that banks would have to give their money to people who would make productive investment of it. So he was in favor of control of interest.

Now his main rival – and you’d know better than I do on this front, too, but – one of his main-

Jeremy Bentham.

Jeremy Bentham. Bentham coming out saying, he sees – you probably remember how he expressed it about the crying shame of – he was trying to show – to save people from being accused of the crying shame of usury. And saying usury had a bad name, and the rate of interest should be set by the market, etc, etc.

It’s all free market. And the rate of interest I noticed on British credit cards of where I’m staying is 19%. In America, it’s 29% penalty rate. And banks make more money in penalties than they do in interest. After the interest rates hit 20% in 1980, all the usury laws were abolished in the United States. So it’s predatory.

Adam Smith also said something else about money. He said that wars should not be financed by borrowing from bonds. That was called Dutch finance, because the Dutch investors were the main bond buyers. And he said, if wars – like the military spending that England is doing today in NATO – if wars had to be financed by direct taxation, people would really feel the burden of war, instead of issuing bonds, where you have to add the interest onto a tax on necessities. And every war that England went in – and Book V of Adam Smith’s Wealth of Nations lists every single tax on every single – that was added with every new bond issue, pricing England out of the market.

And Adam Smith said, look, interest is a cost of doing business. And if you’re going to have all of these taxes and all of these interests, you’re not going to be able to be a competitive industrial market.

Which is the situation that we’re in again today.


By falling for – the financial sector. One thing that I’ve just written in – wrote my new book is called Can We Avoid Another Financial Crisis? So my little promo here. And as part of that I focus on the level of private debt to GDP as I know you do too. And I haven’t shown you this, yet, but you know the graph of American private debt to GDP. Going from very low in the 1860s up to 140% say roughly of GDP in the Great Depression. Plunging down and then rising again. And every time you look at the American data, there’s this tendency for the level of debt to rise compared to GDP.

I expected the same thing for England. When I plotted it, from 1880 through to 1980, it never exceeded 70% of GDP. And it was a series of humps and ups and downs, OK. But it never went past 75% of GDP. Maggie Thatcher gets elected. Within two years there’s this exponential – like watching a Saturn 5 take off, from about 65% of GDP to 200%.

She was the useful idiot for the banking class.

Yeah. And that’s where the cities come from here, which I’m sure are going to please many of our viewers to call them that way. But this city was enabled by Thatcher, coming really out of her reading of Hayek.

Well, you’re speaking so fast that I want to make sure that the audience gets to –

I’m faster than you?

What? I’m speaking fast, too? Well, I think we have to explain something to the viewers.

Let’s say that debt is equal to 100% of GDP, which it is at least in almost every country. Now, if countries are only growing at 1%, then if you pay interest at usually 5%, a country would have to grow 5% per year – the GDP – just to pay the interest. And if countries are growing at 1%, and the interest rate for average that everybody pays, about 5% or 6%, then you’re going to have the actual economy shrinking every year as there’s this siphoning off of interest. That’s what debt deflation is.

And that’s the situation that England is in. That is turning eurozone into a dead zone. And it’s the situation of the US economy. That all of the surplus is paid for interest – not to mention financial returns, capital gains, and economic rent to the landlord class and to the monopolies.

So no wonder the economy is shrinking. Nobody has enough money to buy what they produce anymore. So that’s why there are so many vacancies in storefronts in New York. Why stores are going out of business. Restaurants are going out of business. There’s a squeeze on.

Yeah. Can you – is that palpable in the States? Because in England it’s not quite so palpable.

Yes. Well, just imagine the average paycheck. I don’t know if it’s similar. In the United States, the big chunk off the top of every paycheck is for housing. Now in America almost all mortgages – 85% of mortgages are guaranteed by the government and banks will write a mortgage up to the limit of 43% of your total income.

So imagine, here’s a family that in order to have a home is either paying 43% of its income on a mortgage, or it’s paying that in rent. The average – average – rent in New York City of
$4,500 a month. Well, you can imagine if the average salary is about $80,000, do the math for yourself.


Now in addition to that, people have to pay maybe 10% more of their income to the banks for credit card debt, student loans, auto debt. And then also taken off the front of every paycheck is 15% of a forced saving of social security and medical care. So that’s taken off. And there’s about another 15% recombination of state and local and federal income taxes. And then you have the value-added taxes. So you add all that up. To the 43%, to 10% to the banks, maybe the 25% for taxes, you have only about 25% of the average paycheck that’s available to be spent on goods and services.

Now think of the circular flow. The whole of economics was founded by a doctor, Francois Quesnay in France that looked at a national income like the circulation of blood in the body. But you have this blood being drained – 75% of the circular flow now is drained for what we call the FIRE sector – finance, insurance, and real estate.

And the ironic thing is that’s actually the way it’s titled inside the American national accounts. When I first heard you say the fire sector, I thought it was a nice acronym, before I’d actually dived into the NIPA –

National Income and Product Accounts.

And there, lo and behold, it’s labeled the FIRE sector.


And it’s quite – that was Copland’s work, wasn’t it to put that


That was brilliant work when you look at it, because that’s the gold standard of the flow of funds to work out where the money flows actually go. And the crazy thing is that if it hadn’t been for Copeland, we probably would have this information at all, because according to conventional economics, money doesn’t matter. They completely ignore all that stuff.

And everything is productive.

Everything is productive. And this nonsense – I mean, at the same time, you and I are both trying to say, you cannot have a model of capitalism which doesn’t include money and banks and debt.

And debt. And people even who do talk about money, like the monetarists, don’t talk about debt.


And they don’t realize that money is debt. One person’s savings is somebody else’s –

The problem they make there is that they get to the stage of talking about money and debt in the same sense that Fisher beautifully described it back in the debt deflation theory of great depressions is that – no, actually, it was in Booms and Depressions and First Principles. He said, that a man-to-man debt – I’m going to use the sexist language of the ’90s, or maybe the sexist language of today now with Donald Trump.

A man-to-man debt doesn’t matter, because if one person pays down his debt to another person, then his spending power is fallen by the money he had to forego to pay the debt, but the person who receives the money as repayment of debt then has additional cash, and it’s like a seesaw. They balance each other out. The average level remains the level of the fulcrum, it doesn’t go up and down.

But when you include banks in there, and, of course, banks are the people who generate debt, it’s an elevator. It goes up or down. If they are increasing the amount of debt in the economy, then you’re both getting higher. But if you start repaying, you both start heading down towards the ground.

Well, another way of saying this – it’s said in America, the debt doesn’t matter because we owe it to ourselves.

That’s Paul Krugman’s classical cliche.

Right. And the question is who are we, and who are ourselves? The we is the 99%. The ourselves are the banks and the 1%. So when you say, wait a minute, white man –

But it is it goes beyond that because, again, if that was the mantra that we were borrowing from the wealthy people, there’d be no money creation involved. There’d be debt creation without money creation.


And that’s the link that they haven’t got right. Whereas when you know that when banks – and this is where the Bank of England must deserve a big pat on the back from people like ourselves that they came out and publicly said, as a highly respected official organization, banks create money when they lend, and, therefore, as well as providing –

And that creates deposits. They create money by creating deposits. You go to – for the audience – you go into a bank, you borrow money, the bank credits your checking account, and adds to the loan. It’s done by a computer. It’s not somebody’s savings. It’s not a recycling of the savings.

And this is the hassle you and I are having. We’re both arguing in favor of things like debt abolition in some sense. People think, oh, if you write off debt, what about the poor lender. Lender’s being ripped off. And that’s seeing in the sense of a man-to-man debt. That if you lent me $100, and I didn’t repay you, I’ve stolen $100 that you had to earn. You had to save and put aside to have.

But when you take it from a bank, the bank is making an entry in the asset in increasing its assets, making an entry into liability side in giving you a deposit. It isn’t a money warehouse, it’s a money factory.

That’s right.

And that’s the interest in producing as much as it can, because by producing debt, that’s their means to make a profit.

Debt is the bank’s business – and you call that endogenous money, and that’s what you write about in your articles.

Yeah. But you go into the parasite side of things.

Well, there’s a strategy for all of this. I used to work for Chase Manhattan for many years. And I worked for other banks. I was a bank analyst, so I saw how it was done.

While I was working for the bank, I was taking my PhD At New York University. And the courses had this fantasy about how banks work. I would say, wait a minute, this is not how – here’s how banks actually work. Here’s what happens, and I used the example – I was the economist for the central bank for the savings banks – and pointed out the idea that – well, I won’t even get into the details, but I got a C minus, because –

You got a C minus?


Yes, a C minus, because it was explained to me exactly what Nobel Prize winner Paul Samuelson and others say, you don’t understand, Mr. Hudson. Economics is all about assumptions. It’s about whether the logic is internally consistent. What you’re saying may be realistic, but it’s not internally consistent with the body of mainstream economics that we’re talking. You have to suspend disbelief. You have to act – we’re in an as-if world. And I thought, my god this should be in the literature department as science fiction, not in an economics school.

Yeah. This is actually where I meant to get this. How did you become a rebel in economics? I know you’ve got a family background.

My family. I was born a rebel, basically – I was born in Minneapolis, which was the only city in the world where being a Trotskyist was a career advancement opportunity. My father was fighting against the Stalinist trade unions. As soon as America went to war was thrown in jail for advocating the overthrow of the government by force and violence – the Minneapolis 17 – because there was a deal between the mafia – the mobsters that wanted to take over the truckers union that was organized by Trotskyists of Minneapolis and the Stalinists that promised Roosevelt not to go have any labor strikes during World War II if they’d throw the Trotskyists in jail.

So your dad ended up in jail over that particular ruse by the mafia?

Yes. And so everybody I knew growing up – I thought the draft, and people were drafted, I thought everybody was going to jail. I didn’t know really there was a war on. I thought it was just a class war. I didn’t know it was actually a military war. You know I’m at three or four years old.

Well, I went to New York, thinking I was going to be – I inherited the copyrights of Leon Trotsky when his widow died.

You actually, this is one thing that you better mention here, who your godfather.

I don’t want to mention that.

OK, OK, all right.

Well, nobody was interested in these, so I had to get a job. I met the Chief Economist for General Electric, a man who had been. He was the most – in one evening, he was the most brilliant man I’d ever met. My friend Gavin –

How old are you at this stage? In your early 20s or?

I was 21 years old. And my friend Gavin MacFadyen had gone to school with his daughter, and said, you’ve got to meet this man. And he talked about how the change in the water level – in the sunspots and in the weather would affect the water levels in the Midwest and that would affect the autumnal drain, where the farmers had to draw money from the banks, from the east and almost all the crises almost always happened in October, because of the autumnal drain. And he described it and it was such a beautiful, aesthetic flow of funds that, believe it or not, I got into economics, because it was beautiful and aesthetic.

And Terence, I must have talked to him every day for an hour a day for 30 years. And he said he would work with me if I would read – he had made the first translation of a book that was banned almost all over the world. Banned in Russia. Banned in China. Karl Marx’s history of economic theories called his Theories of Surplus Value.

It was banned at the time, was it?

There was no English translation. It was the only thing that wasn’t translated, because it was Marx’s history of thought outlining how a national income account should be made. And by doing – he showed that what Russia took as its national income account was thinking only material labor is productive. And so Russia’s national income accounts were not based on Marx, they were based on Adam Smith. And so they did not want the history of economic thought really discussed.

So, indeed, I went into – I studied basically classical economics. And classical economics from Smith, Mill, the others, all sort of – Marx was the last classical economist. And he pushed it to the logical extreme, because his principle was that capitalism itself is revolutionary. Capitalism in order to do what we talked about at the beginning of the show-
- in order to get rid of the landlord class, in order to get rid of the idle rich, in order to get rid of the monopolies, in order to get rid of the banks and make that a public utility, that’s socialism. And the logical tendency of industrial capitalism is toward socialism. Well, that was a radical thought.

Well, it turned out that when I went to Wall Street first for savings banks and then at Chase, by about 1968, all of the leading – there were about four leading economists. And Lazard Freres and other companies. We’d all meet once a month on Thursdays at a Japanese noodle place.

And on one occasion I remember at 9:30 in the evening, we were all discussing Volume III of Capital –

Bloody hell, OK.

Where Marx discussed the interest and rentier money as an unnecessary faux frais, false cost of production. And then we broke out laughing, wouldn’t it be – what if people knew that we’re supposed to be the bank economists, and we all have a Marxist background, and here we are discussing Volume III of Capital.

When Terence translated – Terence McCarthy – translated the Theories of Surplus Value as A History of Economic Doctrines – he founded Langland Press to do it – the Stalinist operatives broke into the printing house and poured acid over all the plates of Volume II of it. The Volume III is in actually three parts, three volumes, I mean the Theories of Surplus Value is three volumes. So Terence is only able to publish the first volume, not the other two volumes. Then the Stalinists came out with another translation confusing value and price. And mistranslating it.

That’s actually the Progress Press volume. Because the volume, I’ve read the Theories of Surplus Value in the Progress Press edition, which is from the Russian edition. Now –

There was a bad Stalinist version through London & Wishart. But finally, Progress Press did come out with a very good scholars edition of all three.

All right, which is probably the one I’ve read.

And that’s good.

But they tried to stop it.


Initially. I mean, finally they figured nobody cares about Marxism anymore in Russia. If Russia would have known about – Russia’s really the only country that has no Marxist background at all. If they would have known about Marxism, they never would have privatized and fallen for neoliberalism in 1991.

Yeah, well again, the labor theory of value, I think was a magic contributor there, because that whole ideology became a huge part of the politics and the way they tried to organize industry as well. And to me the false vision that labor’s the only source of surplus.

But what they didn’t – what was the function of the labor theory of value. It was to isolate all those elements of price that were not an element of value. That were not necessary for value. And rent was the excess of price over intrinsic value.

Now that’s the principle that the national income accounts should be on. You want the basic cost value. What does it cost to produce the goods and services in the things that you need. And then everything that’s not necessary for this, that’s extractive – whether it’s land rent or natural resource rent or monopoly rent or financial returns – this is not actual cost. Because we know that you could have countries like Soviet Russia, America, China, and Japan all having the same technology, but having completely different relationships with
the financial and the real estate and the monopoly sector. And you need a technological core, and then you show how much is unnecessary, how much is institutional in nature.

Your point about the bank chief economists all sitting down discussing the third volume of Capital. Trying to imagine that happening today is just impossible. If they discussed the third volume of anything, it’d be the third volume of Mas-Colell. Micro-economic theory. The horizons of modern economists are so limited that if we talked – I just imagine if we actually bumped into a modern neoclassical, knowing the training they’ve gotten in an academic world these days. If we mentioned the classics, they would think we’re talking about –


Lucas and econometric problems in price inflation. Or Muth on the cobweb cycle.

Well, it wouldn’t even be that. When I worked for banks, until about the 1970s, banks really had a research department. I did actual research and statistics. After I left the bank, they changed the name to research and publications. And it was all public relations.

Law suit stuff.

Citibank led it all. It was all lobbying, and it was all fictitious stuff.

And at least when I was at the bank, I had to do a study once with the oil industry, and David Rockefeller said, we want you to tell us really what the facts are. We want to figure it out. I’m telling you, if we don’t like it, we won’t publish it, but write whatever you want. Don’t think you have to please us and whitewash this. Give us the facts.

This was actually one of the Rockefellers telling you this?

Yeah. David Rockefeller. And I met with the head of Standard Oil and Socony, New York, there. And so I was always given completely free reign. I had to code everything. They were just worried that the Senate might subpoena my documents, because -

Too much information.

And figure it out. They didn’t. They wanted to know. But it was actual research. Later – today, it’s all public relations from the bank, and you’re just not going to get anything. I think the Bank of England is the only really innovative central bank that I can think of.

Well, certainly in terms of central banks.

And I can’t think of – I mean the Federal Reserve is still so dominated by the neoclassical canon, you don’t get anything interesting out it.

A precondition for getting a job at the Federal Reserve is not understanding how the economy works. If they mention your name, and people say, oh, yes, Steve Keen, I’m sorry, you’re over qualified for the position.

Actually, I do know. I had some colleagues working in a couple of hedge funds who told me that they had a meeting with Bernanke once. And one of their female staff had just transferred from the hedge fund to working at the Central Bank and she came along for this meeting. And Bernanke was actually questioning her about the mechanics of money transfers because he didn’t know it. And you find – literally, she found herself – she thought she’d be talking to a superior she could learn a lot from, and she found the guy’s actually quizzing her about the actual mechanics of money transfers.

Yeah. That’s what happens when you go through a PhD, and you actually spend your time in school, instead of in the real world.

But you spent – where did you do your PhD at?

New York University, because all they wanted was my money, not my mind. And other universities they actually insist that you actually go along and agree with what they say. And New York University, the biggest private university in America is just a business – all they wanted was the money, and that’s what I wanted. So I actually learned everything I know about economics while working on Wall Street. But I got the union card, which is a PhD that you need in order to get the job.

And what was your PhD on?

Well, it was on Erasmus Peshine Smith, the leading American economist of the 19th century who developed the energy theory of GDP. He thought product was ultimately reducible to energy.

I agree with him. And I’ve got to show you some maths on that shortly.

Yes. He was the economy – in 1853, the year the Republican Party was created in America, his manual of political economy outlined the Republican policy for half a century. Protective tariffs. A national bank. And internal improvements. And this was the old Whig policy of Henry Clay.


Peshine Smith was the law partner of William Seward, who everybody had expected to be the presidential candidate. But by being so outspoken against slavery, they decided to get a gray figure. Someone nobody had ever heard of that was – they hoped would be completely mediocre. Abraham Lincoln.

Are you kidding?

He made William Seward secretary of state, and after Seward resigned, he made a trip around the world and went to Japan. And they said, we want to break away from England’s free trade policy. So he sent Peshine Smith over to be an advisor to the Mikado, who they waited till the British ambassador went on vacation, passed protective tariffs. And Smith went native and had a Japanese mistress and wore a sword when he went out in a kimono and everything and introduced protective industrial policy to Japan.

Which is what turned it from being a rural colony of totally feudal in 1868 through to an industrial super power that could challenge the Germans and the Russians in the First World War.

Yes, and in the process Smith broke up with the coolie trade. A Japanese ship stopped a coolie transporting Chinese coolies to America. The case went I think to Bismarck or some to referee, and it blocked the coolie trade between China and Peru.

China and Peru?

Yes. But that stopped it for the whole new world. The whole Western hemisphere. The ship was on – Maria Luz, I think it was, going to up Peru, and Smith stopped that.

He’s somebody I’ve never heard of.

There’s a reason – isn’t that surprising that the most important economists of the 19th century, who shaped American policy, nobody’s not only heard of not Peshine Smith, but there was a whole American school of economics. It’s very interesting.

America did something that has relevance for America for today. After the North won the Civil War, they thought how are we going to teach protectionist, non-Ricardian, non- Malthusian economics. And they say, most of the economic courses were taught at prestige universities, and most universities in America were founded by religious orders to train the priesthood. And the political economy course was taught in the seniorly years, you know, the final one, and it’s all, markets are great.

So the solution was that you can’t reform these academics. They’re hopelessly tunnel visioned. So America founded state colleges with a different faculty, new people teaching rational, protectionist economics, and the business schools. And the first business school professor was Simon Patten at the University of Pennsylvania, the Wharton School, which was funded by industrial protectionists. And so you had in America this whole body of theory that now has been whitewashed out of textbooks into a kind of Orwellian memory hole.

Wow. And in some ways we’re reproducing the same struggles today.

Yes. And you can’t do it through the universities –

Again, I can’t – being at Kingston University, which is one of the recently converted polytechnics here. Way down the bottom of the picking order of the English university system. The same applies to the University of Missouri, Kansas City, for the modern monetary theory group. The New School, where all the – University of Utah. That’s where the non-orthodox thinkers are.

Whereas the top universities are reproducing the religion. And the thing is this is quite a successful strategy when you’re fighting an ideological war. But it’s not a successful strategy when you’re trying to manage a capitalist economy. And, unfortunately, they’re trying to do both at once. And, of course, what that leads to is the debt deflation episode we’re seeing now. Because according to the theories of this high priesthood, such things can’t happen.

Yes, reality doesn’t exist.

So we’ve got the same thing happening again now. That this high priesthood dominates the Cambridges and the Oxfords and the MITs and so on. And they’re like the religious colleges you were talking about in the 19th century. And then the approach – the groups that are critical of theory – not necessary critical of capitalism, in fact, because you’d say they’re trying to achieve capitalism, rather than the feudal system that the financial sector is taking us towards.

We’re all forced to teach in the low-rank universities, where the priests don’t want to work. And we find ourselves in badly funded institutions, poor administrations, poor locations, and the students, who don’t know any better, think that they’re going to get a better education by going to the top places, so we don’t necessarily get the good students, unless they themselves also revolt like we ended up doing ourselves.

Right. And what they get is an expensive Andy Warhol instead of a Durer.

Yeah. And with Andy Warhol, it’s just a photograph, guys, he didn’t really do any art to draw them.

So it is such a pain, because in this sense we’re seen as critics of capitalism. And as you said, like your father being thrown in jail and things like that. That sort of thing is we’re traitors, we’re the ones who are trying to bring capitalism down. But what we’re really trying to say is unless you control the financial sector, the financial sector will bring capitalism down.

Will control you. Yeah. You own the banks or the banks will own you. You own the public-
and that’s what mayor Tom Johnson of Cleveland, Ohio, said a century ago. If you don’t own the public utilities and the transport system and the streetcar system, the public utilities are going to own you.

Yeah. And that’s what ended up happening.

Yes, and Dennis Kucinich, who was a later mayor tried to prevent it, and the banks all tried to gang up on him and said, look, if you privatize the electric utilities, we’ll push you for governor. We’ll make your career. Privatize, and if you don’t, we’ll smash you. And Dennis said, I’m not going to privatize it. I’m going to save Cleveland the price in electricity, and they got rid of him. And it was 25 years later, they realized he was right all along, they elected him to Congress. And pushed him for the presidency.

But he didn’t get there.

He wasn’t the tallest candidate.

That’s a problem, isn’t it. He’s actually – the visuals are – if only he was the height of his wife, he might have had a chance of success.

Yes, they did give her as much visual as they could.

You and I are both campaigning for debt abolition?


What you think our odds are, now after the last 10 years?

There are a lot of problems – people are realizing that it seems unthinkable to cancel the debts, but it’s also people have an avoidance of thinking, what happens if you don’t cancel the debts.


If you don’t cancel the debts, they’re going to keep growing, and all of the growth and national income is going to go to the creditors. And so the fact is that the debts aren’t owed to the we – to the 99%. The debts are owed to the 1%. 1% of the population has 75% of the financial assets. So and all of this – their growth has occurred since 1980. So what you’re doing is – the question is, who are you going to save? The economy or the banks?

And when President Obama came in, he promised that he was going to write down the debts. The mortgage debts to – especially the junk mortgages – to the actual real value of the homes that the junk mortgage people had taken out. Or and set the debt service – the money you have to pay every month to pay the mortgage, amortization, and principal, and interest to what the normal rental value of this would be.

Well, of course, as soon as he was elected, he dropped it all. He invited the bankers to the White House and said, boys, I’m the only guy standing between you and the pitchforks out there. Don’t worry, I can deliver my constituency to you.

So, basically, the Democratic Party broke its voters into a black constituency, a women’s constituency, a LSGBQ constituency, and they’re all for Wall Street. Instead of saving the economy, Obama bailed out and saved the banks by keeping the debts in place. And once
you have to pay that, it’s curtains. And so the end – everybody’s going to end up in Greece. Greece is where you’re going, if you’re don’t.

Unless you abolish the debts.


Yeah. There was that mortgage reset policy.

But it wasn’t policy – it was only in paper. Banks didn’t do it.

I think about what three – from what I understand about 300 people actually had their mortgages reset.

Yeah. It was all just a fiction.

Out of about 50, 60 million.

10 million. It was all fraudulent.

There was a particular individual as well I think who was involved in that, who was quite useless, the head of the organization as well. You might not know that particular detail. But again, even the person was put in charge of it was against the whole concept of debt writing off to begin with.

Well, no, you had the SIG Inspector General write a very good memoir as soon as he left, saying how Tim Geithner at the Treasury undercut everything that he was trying to do. And Sheila Bair head of the deposit insurance organization also explained how she was just sabotaged by the fact that Obama put all of the Wall Street lobbyists in charge of the Treasury and the Justice Department, so no banker would go to jail, because it was the bankers’ lobbyist who was the head of the Justice Department and as people.

And regarding the debt cancellation, people think it’s – how do you do it in the modern time. It’s impossible. Well, there is a perfect debt cancellation that should be the model. And that’s the German economic miracle of 1848. They canceled –

1848 or 1948?


1948, yeah.

Did I say, 18? That was the revolutions that didn’t go far enough, a century earlier.

That’s the one. Sorry, I thought you were getting your centuries mixed up.

Yes, I do that all the time.

Well, in 1948, because most of the debts were owed to the Nazis, people who had been Nazis in the war. All of the debts were annulled except for the debts that employers owed their workers, labor debts. And everybody had a minimum working – you could keep your minimum working balance up to a given amount. So they did a debt cancellation that was the German economic miracle. That was the free market.

But the trouble is this time around – look, if you go back to the original debt cancellation back in the time of the Sumerian civilization, because another part of your background is an archaeological focus. And just a bit of personal curiosity, how did that come about? Because as well as doing your research on 19th century economists we should have learned from and didn’t, you also got involved in archaeological research about the origins of money and culture.

Well, in 1979, there was – I was an advisor to UNITAR, the United Nations Institute for Training and Research for about three years. And I was writing a whole series of reports on the fact that the third world debt couldn’t be paid. This was just before Mexico –

Which year was this? 1970?


OK. I was doing similar work in Australia for the Freedom from Hunger campaign. Curious.

Well, we had a meeting in Mexico, organized by the Mexican president, who’d wanted to be head of the UN and thought if he had UNITAR come. So you know I gave the position of the rest of the staff. And I’d brought along a whole group, including some radical Canadians, including Kari Polanyi, was there.

Daughter of?


Kari Polanyi?

Yes, the daughter of Karl Polanyi.

Right. OK.


Or Kari Polanyi. And so I gave my speech and saying that the debts couldn’t be paid. It turned the reparteur was, I suspect, a CIA plant, who gave the summary of my speech, saying that it would be hard, but third world could pay the debt.

I stood up and said, I’m pulling out the American delegation. I insist on an apology from the President of Mexico for this. This is a willful and malicious falsification of everything I’ve said by a lobbyist for the US banks and for the government. There was a riot. And then they tried to beat up all of the Americans they could find.

In this conference?

In Mexico City. I had a girlfriend who was part of a Dadaist painters group that was having a ballet, and I hid out, literally, on the ballet stage, while they were trying to look for me to beat up in Mexico. So I realized that debt cancellation was very political. And I just said, I’m going to write a history of debt cancellation.

And so I – it took me about a year to go back through the medieval times to Rome and to Greece, to Solon’s debt cancellations.

This is reading at this stage, rather than doing archaeological research?

Reading. So I went back – I had just moved down to Wall Street from where I was living to the Tribeca, one block from the World Trade Center. And then I got all of a sudden, there were references in the Jewish jubilee year to the Babylonians

But there was no economic history of Babylonia. So I begun to read about Sumer and Babylonia. And I found that every new ruler for thousands of years – from 2,500 BC down to about 500 BC – would start their reign by abolishing all of the debts owed to the palace and temples, all of the consumer debts. Not the business debts. The business debts – silver debts – were left in place. But the personal debts – the usury – that were paid in grain would be annulled.

When there was a failure of grain and people – the debtor’s, the harvesters, the citizens couldn’t pay their debts, the ruler would proclaim a clean slate. The word the rulers used in Babylonian was andurarum. And that’s the word that in Hebrew, deror, used for the Jubilee year. in Leviticus 25.

Then I did more reading, and I realized that when you know what these words mean, when Jesus gave his first sermon, reported in Luke 4 – the first sermon that he gave. He unrolled the scroll to Isaiah and said, I have come to proclaim the year of the Lord. The year of the Lord was the word for deror, for debt cancellation. And what he’d said was I’ve come to insist in abolishing the debts. And his rival was the chief rabbi of the pharisees, and who said who had the prose book – the small print, every debtor to borrow money had to sign, I will not insist on my rights to have the debts canceled in the jubilee year.

So I wrote a book – a history of this – by about, I think, 1988 and 1990, and submitted it to a university press. They submitted it in a right wing Assyriologist that said, it’s impossible to cancel the debts, because if you cancel the debts, no one would lend you money.

Take it in the first place.

But the problem – most debts didn’t arise from borrowing money. Most debts arise just like they do for the third world countries today. From not paying a bill. You ran up – if you were a Babylonian, during the crop year, you’d go to the bar, to the ale woman, and you’d – and we have all this on record. And you’d have put it on the tab, and they’d keep a tab for how much you would owe for the beer you drank to be paid on the threshing floor when the harvest was in. And if there was a failure in the harvest, or if there were just a new ruler wanting to restore balance in the economy, they would – the debts wouldn’t have to be paid.

Well, they actually had a model – a number of models in Sumer and in Babylonian times. We have the economic models taught to the students in 1800 BC. They’re more sophisticated than any model used today except for yours. Because the model had on the one hand compound interest. And we have the test exercises. How long does it take a debt to double? Any interest rate is a doubling time. Well, it took five years to double it 20%, which was –

Linear. Compound. Yeah.

Back then. And there was no compound interest. You couldn’t let the debt compound.

But it doubles in five years. How long does it take to quadruple? 10 years. How long does it take to multiply 64 times? The answer is 30 years. So you can see that –

It was simply unsustainable. It was obviously unsustainable.

Now in addition to doing the debt, they had what is the growth of a herd. And then they had growth of output. And it was an s-curve, just like almost every curve of whether it’s refrigerators or television sets or iPhones –

Which is the saturation point.

It’s always an S-curve. So they had the s-curve, they had the compound interest growing through it. And you can see that at a certain point, the debts mount up in excess of the ability to pay.

Now modern theory – mathematical theory – says, wait a minute, equilibrium means everybody can pay. There’s no unpayably high debt. And they don’t see what for 2000 years was basic principles of rulership in Mesopotamia. The Greeks know it. This is what really should be taught.

Well, I was when I was teaching money and banking at the New School in the ’60s and ’70s, I couldn’t fit it into the curriculum. And that was why I stopped teaching. I thought the whole curriculum didn’t have room for debt and rent and the kind of things that I wanted to talk about finance. I had a big following of students, but they weren’t the core courses in the curriculum there.

And same thing with Kansas City. When the graduates, who learn what you and I are talking about money, graduate, they can’t get jobs, because jobs are conditional upon being able to publish in prestigious economic reviews, and they’re all controlled by University of Chicago and by neoliberals.

And the genius of Chicago free market theory is you can’t have a free market Chicago style unless you have a totalitarian state that will prevent any alternative to the theory. When they went to Chile, Harberger is said to have sat in a hotel room saying, here are the professors you have to kill. Pinochet and the American embassy said, here are the labor leaders you have to kill. And here are the intellectuals you have to kill.

You cannot have a free market neoliberal style unless you are willing to either kill or exile or suppress or censor any alternative to your theory, because the theory doesn’t work. It’s fiction. It’s junk economics.

Well, what we find – this is what I found is quite intriguing right now, because the mainstream actually do believe in their theory. They actually – they genuinely –

Useful idiots.

Useful – and they also believe that their theory is a good way to manage the system. So what they’ve had by the purge they’ve managed to achieve – not quite as drastically as Chile, thank god – but the purge they managed to achieve in intellectual economics to make them just that the sole mainstream and knock out any alternative arguments meant that they took over economic policy as well as economic theory. And pushing it forward led them to the financial crisis that they could not see coming, because they didn’t even include the variables that cause the financial system in their models.

That’s right.

Now what you’re seeing 10 years after the crisis is, finally, some awareness coming through that our models are completely at variance with the real world.

Well, my next book is called J is for Junk Economics. And I’m going to have that out in December. I’m just correcting the page proofs now. But I’m juxtaposing our reality economics to their junk economics.

But as to where – I mean, will we succeed? I mean the classic thing is you and I are both fighting for realism. Now realism with an edge, because we’ve seen the impact of unrealism right back from Roman times forward to now. But capitalism needs realism to function. But it doesn’t need realism to maintain its ideology.

But they put the propogandist in charge of the planners. It’s just like the banks. It’s as if the banks are run by the public relations people who have this patter talk about debt is good for you, debt will make you rich. And it’s one thing to have them there to advertise for the people – the usual Orwellian deception. But you have to have somebody who knows what’s happening.

At the same time.

And they don’t have any one who knows.

That sense of you need someone like you – you need two bank research units. One for like yours giving the actual information to the Rockefellers of what’s actually happening and the other public relations for the public.

Yes, that’s what they need. Yes, but they don’t.

But the reality is they got rid of the back one. And what I find amusing about all the conspiracy theorists – the right wing and left wing conspiracy theorists that see this all being like a Rothschild plot and stuff like that. They think the banks are operating with you in the back room and the public relations people in the front. But no, they’ve got the public relations people in the front and in the back. And, therefore, giving completely misleading advice about how the system works.

That’s it.

It’s worse than think, funnily enough.

This is what Thorstein Veblen called educated incapacity or trained incompetence. You’re trained not to understand the reality when it comes up.

You have – you’re the only person I can think of who’s read far more of the literature than I’ve read. When you read, when you did read, what did you do? Did you take massive written notes of everything and have stacks?

I haunted the bookstores. I’m a little older than you. So in the ’60s – I mean, I knew all of the book dealers, and I’d ask – I had to get the books that Marx talked about and the history of economic theories. But I also asked, are there any other sort of strange books? I’d – what’s this book here? And I’d found books by people who’d nobody ever heard of. Like A Clue to the Economic Labyrinth by Michael Flursheim. Great books. And I found the American protectionists. I found Peshine Smith.

That’s how you discovered him before you did your PhD.

Yeah. I couldn’t have discovered him after I did the PhD about him.

No way.

So I found Calvin Colton and Alexander Everett and Henry Clay and Henry Carey and Simon Patten and all these books that – what are these books. And so, I said, if you, let me know more. And I was the only guy who bought them. Most people wanted first editions of Adam Smith. And I was the only guy that wanted –

All the obscure texts that they had all the same.


Have you still got that collection?


No, I had to sell it. I decided when I moved – once I got this feeling that I wanted to write on debt cancellation, I mean I sold my art collection. Most of it was burgled, actually, and I never got it back – the money from the insurance company. But I sold the books, because I’d read them already. And, essentially, thought I’d rather have my own free time than have the books. So, essentially, I sold what I had, had my free time to do the studies, and, I mean, I ended up OK. But I can’t carry the books around. That would be like a shell.

What about what about the notes? Did you take massive handwritten notes? Have you got those? Or you typed?

Yes. I typed up notes on everything. Yes.

OK. So you’ve those sitting somewhere.

I’ve got all the notes that I took.

Because when I read your books, that’s what I find. The voluminous references. And what look like in anybody else, they’d be in footnotes, if they existed at all, because they couldn’t be, because nobody else has read as much as you’ve read of the literature. But then you just find this – you put it together in your brain in a way that – like we’re going through this talk right now, I’m sure people watching and thinking, how the hell does he recall all this stuff. And it’s an amazingly organized structure of knowledge, far broader than any modern economist actually accumulates.

And it’s really because I always had an end in mind. The first discussion that I had with Terence McCarthy, who got me into economics was to realize that the debts couldn’t be paid. And he told me if I read tried to read everything ever written on usury, I still couldn’t
read it during my lifetime. But he said the big problem of our time is the debt. They don’t realize that –

So he was inspiration for that particular ?


What about your – l mean, the line, every time I use it, I say my good friend Michael Hudson’s line is. I embellish it a bit. I’m saying, the debts that can’t be repaid won’t be repaid. And what I add is all you have to work at is how you’re not going to repay them. Which is it.

He wanted me to study that. And that’s why he wanted me to work on Wall Street. And from the very beginning, my focus was on the ability to pay debt and the financial side – looking at the financial system and the flow of funds, and so everything that I was reading, I was organizing.

You know, every economic theory begins with a conclusion and they work back from the conclusion is what kind of logic is going to lead to this.


It’s a reverse of – it’s not empirical. So the is free market people said, how can we tell people that a lower wages are good.

Make a model that the free market gets to equilibrium.

How can we tell people that austerity is good for you? Well, what assumptions are necessary to believe the IMF austerity plan –

Is going to work.

Is good, and all the IMF riots are bad. And so they have the fictitious line of reasoning that they engineer for that. And I was free of that.

And partly because of my political background, I always – I had to go to a school where we had to read Mein Kampf in class. This was the University of Chicago Lab School.

You had to read Mein Kampf in class?

Yes. The Social Science teacher had a sign over his board, “Give them all what the Rosenbergs got.” And I thought he meant communists. But he meant Jews. And in the class, he would call me a commie. But we had a real Stalinist in the class. Danny Landau. And he called me a fascist. And for the first time – the only time in my life I was the voice of reason in the middle.

I converted the class into Trotskyism. Recruited what became basically the leadership of the Young People’s Socialist League, and the Trotskyists, and my friends. And that was the time in my life when I was right in – that was my idea of being in the middle – a centrist.

Yeah. And this is as a school student, like 16?

It still seems realistic to me and this should be the center. So that was my radicalizing high school experience, where I realized – everybody should have a schooling experience where the teacher is in authority and completely so wrong that all of the students know that it’s all full of bullshit, and they lose their trust in authority, and they realize they have to think for themselves. If education did its job, it would be a radicalizing experience by giving you these incompetents and accusers.

I had a similar – like I benefited from a similar sort of thing in some ways. There were two teachers in particular I can think who did exactly what you’re talking about, unintentionally of course. I went to a Marist Brothers school. And there was one teacher who was so duplicitous in his treatment.

My class was sort of divided into the tough side and the brain side. I was the chief of the brain side, and there was a tough gang as well. And he let us have discussions, which he tried to try to chair. And we just got more and more verbal and vocal in our discussions. It began talking about haircuts, and the pill, et cetera, et cetera, and much more progressive. And he told the class we could say whatever we like, it would never go outside the room.

Then one day he was ill, and a replacement teacher came inside. And we’re having our usual conversation just like the other guy was there. And suddenly this guy explodes, I heard what a blasphemous lot your class was, but I didn’t believe it, and now I know. And he’s admonishing us, you could feel these two groups just come together and think that asshole blew our cover.

And he came in the next day, and there was just a wall of 64 kids – we were known as the 32-32 fighting each other. You said you wouldn’t say what we spoke about inside this
room. He had to be replaced inside a Catholic school. The next day, he was removed as our school teacher. We got somebody else.

So that was the same sort of thing, experiencing. And it made you think outside the confines. And what I find weird, because that’s again what I – that’s who I am and that’s who you are as well. And yet you find yourself surrounded by people who follow this stuff. And to me this comes down to trying to understand why does it happen.

I believe people – we see ourselves as critical and curious, wanting to know how things work creatures compared to animals that don’t actually think at all. But I think what we are-
we’re belief systems. We see something. We try to get a belief system that explains how something functions. And we become wedded to the belief system.

And when we share a belief system that makes us extremely powerful against other forces, versus actual lions on the Serengeti or whatever else. We can take on any other species. But now we find ourselves in a world we’ve created out of our belief systems, where the main threat to our existence are those very belief systems. And you and I are now trying to break through that one over debt.

Yup. One friend of mine taught sociology at the University of Chicago. And he was trying to tell them, there is such a thing is that a belief system, and there is the orthodox point of view, and I forget the Veblen term he used. And one of the students said, yes, that’s what we’ve come here to learn.

The brainwashed yes.

I know. I know.

We want to rise.

Again, like even on the radical side. I had a lot of friends who were Marxists. In my student days, I was leading the revolt at Sydney University over the teaching of economics back in 1973 as an undergrad student, just because I regarded the neoclassical stuff as total nonsense, but having abandoned that and having abandoned Catholic religion, as well, I didn’t go to Marx as somebody that I wanted to get a new religion from. I wanted to read Marx and understand the logic of his thinking.

And I was very much skeptic about the labor theory of value. I wanted a serious convincing and that made sense, because I was looking at all these cranes on the skyline of Sydney in

1973, and I was thinking, I just can’t imagine they’re not adding value somehow to output. But that’s a long –

Of course they are. I wish they would have called it the rent theory of price.

Yeah, that would be better. But what – some years later, on the bus I met one of this old Marxist mob, we’d actually kicked in the door of the vice chancellor’s office, you know, at one of our little demos once. And we’re just having a personal conversation, like you and I are having to some extent now about how we got our orientations in life. And he talked about being a school student. And he said, I remember the day that I found Marx. And I thought – I didn’t say it, but I thought to myself, that’s exactly how somebody would say, I found Jesus. He went from one belief system to another belief system.

I find the situation worse in academia. In Wall Street, they know my background. They knew all of our backgrounds. They didn’t care. All they cared about in Wall Street was whether we were right or not and could make good forecasts. And because I could make good forecasts, I did very well.

In the university, they didn’t care at all whether we knew reality. All they wanted to know was are we part of your ideological gang. You know the theme that you have for the ‘on our side’. And no reality. And so I found much more academic freedom on Wall Street than I ever found in the university.

Well, that’s a similar thing that I’m now going through. I’ve been battling through the university sector all the way through my life. That’s where of I’ve done, my battling was there. And you’re right. What I find now, people would expect – that my academic colleagues think, nobody in the finance sector would talk to somebody like Keen, because he’s such a critic of the finance sector. That’s where I get most of my invitations. Because, again, they want people who can actually remove the veil.

These other people want to see what’s to happening.

They want to see what’s actually happening.

Yeah, because there’s money involved.

Yeah. It’s serious stuff. This is actually matters.

Yeah, and these other people – once you get tenure, you don’t have to think anymore.

So it’s a priesthood thing. Because the irony now is that priesthoods have been actually taken over the running of capitalism. And you and I – again the thing that I find frustrating about being critics of bad theory, rather than critics of the system itself fundamentally is that people – when the system is working OK, people think the people who are wearing the mantle of experts must know how it functions. So they don’t bother about economics. They’d rather watch football and want to talk about football and talk about grid iron and soccer than talk about economics. Only after a crisis occurs, do they start talking about economics.

So you and I are lucky in that sense to be alive during a financial crisis, because we have many predecessors. Minsky and Gottlieb being the two most important recent ones who died before.

Well, Minsky was also a Marxist. I mean he didn’t talk about it, but his children told me he gave them Capital – that was the first thing he gave them to read.

You’re talking to Alan.


What’s your Alan story?

Well, just- I don’t have a particular Alan story –


Well, my particular one is actually on this very issue. Because Alan was telling me how he and his father had a usual sort of father-son schism that tends to occur quite regularly, and he didn’t want to study economics. But in his 30s he got more interested and went to his dad finally and said, you know, what book would you recommend me to read first to get into economics.

And he said his dad went into his study, and he came out with a book, and he said, this is the first one you should read. And it says volume one of Das Kapital. And, of course, Minsky couldn’t admit that in academic circles, because it was the McCarthy experience.

Well, no. He told me that he was radicalized at the University of Chicago by the vice president candidate with Norman Thomas on the socialist – Maynard Krieger. And Krieger used to be over at our house a lot. I mean this is part of the group that I grew up around for that. While he and his wife and his children you know will talk to me about Marxism, the Levy Institute and the people around Minsky are sort of embarrassed about that, because they’re trying to cover it up. But that was – he also followed Volume III of Capital.

So people who look at our show, they should read Volume III not only have Capital, but Book III of Theories of Surplus Value.

Well, that’s the – I mean, I was with them when I got my beginning in academia I was doing – my master’s thesis which was on Marx’s theory of value, because I believed Marx’s dialectics contradicted the labor theory of value, and so I – I found that in the Capital Volume I, I found where I saw the contradiction occurring. And though Marx’s theory was far richer than the labor theory of value. It was a –

Whole theory of society.

Yeah. But I then had to go back and read everything Marx wrote from 1844 through to third volume of Capital in chronological order.

But you know the Theories of Surplus Value Marx had meant to be the first volume of Capital, and he summarized that in his critique of political economy, which was his sort of summary of the history of economic thought.

It’s supposed to be a six volume set, and, actually, in that sense Capital as published is one book –

And international. A whole – international trade. So it was enough to me that I wrote that, that was my first big volume in what I taught.

But that’s again, this is one reason I want to get history of economic thought back into universities once more, because that’s not only the – we’re talking about people that wouldn’t even turn up in any history of thought the modern crowd would even consider doing. Their history began in 1973 so far as they’re concerned.

But this richness that you get out of reading history of economic thought doesn’t let you get trapped in any of the particular eddies that you see people getting trapped in. Not just, I’m not just talking about neoclassicals here. I’m talking about some of the other –

A theory of society.


And there’s another reason for that – that all reformers – the classical economists were reformers. They wanted to free industrial capitalism from feudalism. They wanted to get rid of the landlords who’d conquered the land. They wanted to get rid of the monopolists.

And all of the reformers, including you and me, look at the – we have a picture of the overall economy, because we’re showing how something whether it’s bad or good will affect the overall economy. The anti-reformers have something in common – a methodology.

And the methodology is a very narrow minded. Only look at the market as the whole economy. Only look at individuals. So an individual will borrow from another individual.

Not a systemic.

Not looking at banks. Not looking at how the flow of interest and financial gains and capital gains do not appear in the national income. And yet that’s what the name of the game is capital gains, making asset price inflation. We look at the whole economy. But the Austrian School, the Chicago School, the Neoclassical School, the neoliberals carve things up only as how individuals make their money. And that’s really the difference.

Once you can get students to adopt this narrow, tunnel-visioned methodology, they’re not going to see what you and I are talking about, which is the whole society. And that’s what all of the classical economists were talking about. Pro and con. From Smith, Malthus, and Ricardo – they had a great debate between Malthus and Ricardo. It was something that took me a long time to get through. John Stuart Mill. And it all led to Marx. And that traumatized.

I’m going to finish –ask one question if I can, which I think is important. What’s your method for debt abolition? How would you go about reducing the debt?

You’d have to do it on a case-by-case. In Greece’s case, I would have simply called the – Greece’s problem was foreign debt – official government debt. I would have said, this is odious debt. We’re not going to pay it. You, the IMF, knew that we couldn’t pay.

However, the debt is about $50 billion. The Lagarde list of kleptocrats holding accounts in Switzerland just happened to be what we owe. Take that money, folks. But you’re not going to get it from us, because this was simply theft.

For domestic debt, it would depend on a situation. I know you have a plan, and your plan is mathematically logical. The question is how to get it politically, and you almost have to play it by ear when the political situation comes up. But you realize that if you cancel the debts, they’re going to be – the counter to that, is oh, gee, you’re going to give some people a free lunch. And what about all of the poor people that have saved. And you see quite rightly that you have to give some compensation to people who’ve saved up to a middle class degree. But not an exorbitant degree. And I think you’ve worked it out.

So we’re common on the modern debt jubilee?

Yes, we’re common.

Sounds good. Let’s go have dinner then.

(Reprinted from Real Vision by permission of author or representative)
• Category: Economics, Ideology • Tags: Classical Economics, Debt, Wall Street 

SHARMINI PERIES, TRNN: It’s the Real News Network. I’m Sharmini Peries coming to you from Baltimore.

And we’re unpacking some economic mythologies here with Michael Hudson who joins us in our Baltimore studio. Thank you so much for joining us Michael.

MICHAEL HUDSON: Good to be here.

PERIES: Michael has a new book out, J Is for Junk Economics: A Survivor’s Guide to Economic Vocabulary in an Age of Deception. Michael, so let’s continue our discussion about the various myths that are out there that we need to be aware of in order to understand the economy. Part of the problem is ordinary people, partly some because of this terminologies that you described so well in your book is led to feel that the economy is so abstract, its removed from them. They’re not engaged in it. It’s all about the stock market or the housing market or what the big banks are doing. But we are very active agents in the economy everyday. So in that sense, the real estate market is the only thing that seems to be somewhat real for people because people do buy and sell their house and sometimes its foreclosed on them and they have to move out. They have to then rent somebody else’s house that’s owned by somebody else. So, let’s talk about the real estate market and how it’s mythologies for us.

HUDSON: People have the idea that when house prices go up, somehow everybody’s getting richer. And it’s true that the entry to the middle class for the last hundred years has been to be able to own your own home. From about 1945 to mid-1980, families were able to ride a wave of rising house prices. They thought they were all getting richer. Then prices went even higher up between about 2001 to 2008 as Allan Greenspan flooded the economy with money – that is, credit (peoples’ debt to the banks). People still had the idea that just like their parents got rich off of rising housing prices and were able to put them through school and give they a better life, now they’re getting richer.

What they don’t realize is that the reason house prices go up isn’t simply because population grows or nature makes them go up. There are two factors. One, the public sector pays a lot of money on infrastructure. It builds new schools and parks and roads and sewer systems. Every time it builds a new transportation system, property goes up. When New York City built a subway in on 2nd Avenue, property prices are going up there. So, you have the public sector spending money on transportation. Taxpayers have to pay but the landlords all benefit and their taxes don’t go up.

But most of all, think what a house is worth. It is worth whatever a bank is going to lend against it. The fact is that none of us have enough money to pay down cash for a house. All of us have to take out a mortgage and how much we can pay and whether we can outbid the next guy who’d like that house would be, who’s going to borrow the most money?

When I became an adult in the 1960’s there was a rule of thumb. Families could borrow up to where the mortgage would absorb 25% of their income. They would get a 30-year mortgage that, at the end of 30 years, would pay itself off and they would owe nothing. Then, when they left the job market after having worked for 30 years, they would own their home outright, free and clear.

By 2008 matters had changed drastically. Banks were lending 99% and even 100% mortgage. So you could get a house for nothing. Just sign the 100% mortgage, and in many cases you didn’t even have to pay any interest, or take any of your income for 3 years. That is why housing prices rose. It wasn’t because property was worth more. It wasn’t because people were earning more and population was rising. Housing prices were going up because banks were making junk mortgages. It was all on credit.

Was this really making home buyers richer? Was it helping create a middle class? The proportion of the population owning their homes did rise – but after 2008 it plunged back down when foreclosure time arrived and the Obama Administration re-negged on its promises to write down junk-mortgage debts to realistic prices and carrying charges that reflected actual rental values.

The result was that instead while house prices were going up, they didn’t think about the fact that their debt was going up proportionally. All their increased house price was matched by the increased debt that people were taking on. Instead of paying 25% of their income on the mortgage, which was the rule in 1960’s, the government today, in 2016, will provide a Federal Housing Authority guarantee for mortgages that absorb up to 43% of the borrower’s income. That’s a huge, historically unprecedented ratio, 43%. It’s made the bank rich, not homeowners.

In Germany where I was last month, the average rent is between 10 and 15% of family income. There are very low prices there, for historical reasons. So ask yourself how can you expect American factory workers to compete with German factory workers, when you have to pay 43% of your income for a mortgage and they have to pay only 15% of their income. There’s no way you can compete. So instead of making the U.S. economy richer by housing prices going up, it’s actually made the economy less competitive, leading to more unemployment.

Of course there’s one other facto that makes housing prices go up. That’s property tax cuts.


This is a radical change, and it has helped banks much more than homeowners. Every economy in the world before about 1800 used to depend primarily on the land tax. Ever since the Stone Age, Bronze Age and classical antiquity, the land tax was what was the basis of taxation. That was the criterion for citizenship in Greece and Rome. Governments financed themselves by taxing the land. After William the Conqueror conquered England in 1066, a few years later he had the Domesday Book written up to calculate how much rent tax everyone had to pay on their land.

Water, all of this tax was privatized. The Revolt of the Barons sought to privatize the rent tax instead of making land a public utility.

Fast forward to today. In the United States since the Reagan administration, there’s been a steady cut in the real estate tax. At first glance, many homeowners think that this saves them money and helps the middle class get richer. What they don’t realize is that when the real estate taxes are cut, that leaves more rental value of the land available for new buyers to pledge to pay the banks in interest. The basic principle is that rent is for paying interest. This is true in commercial real estate as well as residential real estate.

Bankers know that every time there’s a property tax cut, they can make a larger mortgage loan against that property. The result is that instead of paying taxes, new homeowners pay interest to the bank. The higher interest payment absorbs the tax cut.

Meanwhile since they’re not paying taxes on real estate, the government – local governments especially – find themselves in a budget squeeze. They’re not getting the real estate tax revenue as before, especially California with its Proposition 13. So, they have to find the tax revenue elsewhere – for instance, by sales taxes on what con summers buy. Some cities and states impose an income tax on labor. But they don’t tax dividends or Wall Street.

The result is that if you are a wage earner, they tax your wage withholding, impose excise taxes and sales taxes on the things people buy. Not houses, not stocks and bonds, not the things that rich people buy, but the things that the middle class and the working class buy. They end up with the tax burden. And landlords get richer, especially commercial property owners.

What this tax shift means is that housing prices have been pushed up by shifting taxes off real estate, off the Donald Trumps of the world, onto homeowners, renters and consumers – the people who are not millionaires. But most people don’t realize why prices for real estate are going up. Most of all, they don’t realize that they’re not really better off if the price housing goes up, if their debt goes up even more. They didn’t anticipate that in 2008, housing prices would plunge and the debts would remain in place. Suddenly many families found themselves in what economists call negative equity. That’s the position that 10 million American families were in when they were foreclosed upon after 2008.

And just now, as soon as the election was over in November, foreclosure rates have gone up sharply. It’s as if Wall Street has said, “Okay, we got the suckers to vote, now we’re going to slam and begin foreclosing on them like anything. That’s exactly what’s happening in New York where I live. Foreclosure rates way up. You’re seeing a transfer of property from debtors to creditors.

PERIES: And Donald Trump in his interview on 60 Minutes on Sunday with Lesley Stahl said the first thing he’s going to do, he has a bill waiting which is going to cut taxes. So what does he mean by this,and what will it mean for us?

HUDSON: Nobody knows what it means because we don’t know whether he’s just going to turn the presidency over to the Republican Party’s lobbyists to write the bill. The implication is that when he talks about cutting taxes, being a narcissist he means cutting taxes for himself. He doesn’t mean cutting taxes on most people. There may be a small token tax cut for other people, but a big cut in the taxes on the highest wealth brackets. So, you can be sure that his constituency is going to get the biggest tax cuts. Not your constituency that watches this show.

PERIES: Here you’re talking about Wall Street getting more tax cuts?

HUDSON: Right.

PERIES: All right Michael, thank you so much for joining us.

HUDSON: Good to be here.

PERIES: And thank you for joining us on the Real News Network

(Reprinted from TRNN by permission of author or representative)
• Category: Economics • Tags: Real Estate, Taxes 

SHARMINI PERIES, TRNN: Welcome back to the Real News Network. I’m Sharmini Peries coming to you from Baltimore.

Today I’m being joined in our Baltimore studio by economist Michael Hudson. Michael has a new book out J is for Junk Economics: A Survivor’s Guide to Economic Vocabulary in an Age of Deception. Michael is a distinguished Research Professor of Economics at the University of Missouri, Kansas City. Thanks so much for joining us Michael.

MICHAEL HUDSON: Good to be here in your Baltimore studio.

PERIES: Thank you. So Michael, in the first segment we spoke more generally in terms of how people are misled through our policy makers in Washington in particular. But give us some specific examples of some of the terms used to mislead us.

HUDSON: Well take the word capital gains. When most people think about capital gains, they have an image of industry growing and innovation taking place. There’s an indication as if somehow when real estate and housing prices go up, everybody’s getting richer. When stock prices go up, the economies got richer. So Hillary Clinton was able to say, look at how the stock market soared in the last 8 years thanks to Mr. Obama.

Well the stock market has soared, but not the employees working for these companies. Most of the capital gains don’t reflect what the textbooks say. The textbooks say that a company is worth whatever it’s expected future earnings are. So the reason stocks are going up and bonds are going up and real estate prices are rising again is that rents are going up, profits are going up and the economy is expanding. It’s as if and everybody is getting richer. But thay’s not why the stock market has gone up.

The stock market has gone up since 2008 in America, Europe and all over the world because central banks have flooded the economy with new money. They didn’t create this money to hire workers. They didn’t create it to build infrastructure, they didn’t create money to invest in the economy. They didn’t create the money to pay off the mortgages of people who had junk mortgages and were exploitive. They didn’t create the money to write of student loans. All the money that was created, every penny, was created to give to the banks – to the Wall Street banks at 0.1% interests to create reserves at the Federal Reserve so that the banks could then lend out money. And what did they do? Who did they lend it to?

For one thing, they lent to corporate raiders. So part of the reason the stock market has gone up is that corporate raiders have borrowed very inexpensively, at say 1% or a bit more from a bank, and bought companies whose dividend rates are 3% or 4 or 5%. They’re after what’s called the arbitrage, the difference in the two rates. So you take over a company with borrowed money. As a result of paying interest to the banks and this borrowed money, you don’t have to pay income tax on it because this is counted as a cost of doing business, not as a cost of takeover.

The first thing they do is tighten working condition. They work labor harder. They let the labor force go. When people retire, they don’t hire new workers. They just work the remaining workers all the more. So, what’s happened isn’t a new investment. It’s just the opposite. It’s disinvestment. It’s asset stripping. What creates the stock market going up is not capital formation. It’s asset stripping. When Donald Trump calls that wealth creation, it means his wealth – meaning the money he’s been able to make. But that money has been made by making the economy poorer.

So, when people talk about the economy, they have to realize that it’s actually money layers. Not everybody is a millionaire working on Wall Street. Some people actually have to work for paychecks and out of their paychecks they have to pay rising healthcare costs, rising money to the banks, rising debt service. They have to borrow more money just to break even. Their rents are going way up to larger portions of their income.

So, what people are actually left with to spend is maybe 25 to 30% of their income on goods and services, after paying taxes and after paying the FIRE sector (Finance, Insurance, Real Estate). Whether it’s housing insurance or mortgage insurance. So there’s an idea of distracting people. Don’t think of your condition. Think of how the overall economy is doing. But don’t think of the economy as an overall unit. Think of the stock market as the economy. Think of the rich people as the economy. Look at the yachts that are made. Somebody’s living a lot better. Couldn’t it be you?

Well they don’t explain is why it’s not you. The reason “they” are living better is what used to be called a transfer payment. Something that is not really earned, but is just a transfer of income, like from a rent when a landlord raises the rent, all of a sudden for the same house. Nobody’s invested more. Nobody’s saying “Oh, your rent’s going up by about $50 a month this month. No that’s a transfer payment.” But you just have to pay more. The landlord didn’t do anything to earn that more money. He just found that he’s able to squeeze more money out of you.


Squeezing money out of you to pay a rentier class – that was a word that used to be used 100 years ago. The rentiers were people who lived on rents. They were coupon clippers, they were landlords, they were the idle rich who inherited money. Somehow you have even the words widows and orphans. People say you have to provide large capital gains, meaning debt financed asset price inflation, so that the widows and orphans can survive. The widows and orphans that are referred to are wealthy people living on trust funds. Or they’re living on alimony. Or they’re living on inherited wealth. People forget that before 1900, widows and orphans used to be poor people. We’re talking Charles Dickens type novels. Widows and orphans were the people who needed welfare. They weren’t the millionaires.

So today when people talk about widows and orphans, they mean millionaires. When they talk about the low interest rates that capitalists aren’t making to get rich enough, that’s really hurting the pension funds. Our hearts bleed for the workers. But their hearts aren’t really bleeding for the workers. They’re trotting out pension funds as their factotums to say, “Make the pension funds richer.” And behind them is the fact that 75% of all the stocks and bonds are really owned by just a small percentage of the American population they’re really talking about themselves.

So, you have the economic vocabulary turning into vocabulary of deception. So, I go over what this vocabulary is and what the concepts are and I also talk about what the original concepts were in classical economics. Everyone from Adam Smith, John Stewart Mill, they were all reforms. What they wanted to reform was getting rid of this parasitic landlord class that had conquered England in 1066 and it’s the heirs of the military warlords who ended up taking the land and making everybody pay them and all of their descendants just for having been conquered.

You can see the carry-over of this today. The rent that people have to pay, the money they have to pay the banks instead of having a public option. That’s the price they still have to pay for being conquered. The group that I’m working with is trying to promote a public option. We’re trying to promote public banking that would provide credit cards, banking services, basic vanilla services at a fraction of the price that Chase Manhattan or Citibank or Bank of America charge.

Most of these charges that people pay are economically unnecessary. There’s no real cost behind them. There’s no real value behind them. So, they’re what the classical economist called empty pricing. Prices with no real cost value. What they called rent and fictitious capital. Capital claims on junk mortgage borrowers. The pretense is that all these debts can be paid but it’s all fictitious, because everybody knows – at least on Wall Street everybody knows – that many debts can’t be paid. Somebody has to default, and Wall Street’s plan is to make the government reimburse the banks, like the bailouts that happened in 2008, so that they don’t lose. “Let’s pass all of the loss onto the tax payers without changing the banks, without throwing our guys in jail even though these were fraudulent mortgages.”

PERIES: And the government itself doesn’t pay its debt.

HUDSON: That’s right. The whole idea is that it doesn’t. At least if it does pay the debt, it only pays the wealthy bondholders, not Social Security recipients or pensioners.

There are two kinds of debts that governments have. They have a debt to the bondholders and they do pay that. They have a debt to Social Security recipients. Hillary promised her Wall Street backers that she was going to cut back Social Security. She was going to cut back social spending, Social Security and medical care, so that the government would have enough money to pay her backers on Wall Street. So she was indeed Obama’s legacy, standing for Wall Street.

A stand in is a politician who can deliver her constituency to her Wall Street backers. That’s what a politician does in America. You get a constituency; you make them believe your promises, and then you turn them over to your financial campaign backers. That’s what politics has become and that’s as much an art of deception as economics is.

PERIES: Now Donald Trump is proposing to spend trillions of dollars on infrastructure development. That sounds very good. Of course, in the immediate future that means jobs for people. But what is the problem with that kind of infrastructure development in the long term and what kind of plan is he thinking of when he’s talking about infrastructure development?

HUDSON: There are many ways of building infrastructure. The way Donald Trump would like, would be to spend a hundred million dollars building a new bridge in the highway. Then he would like to sell it, privatize it to a private buyer like himself, for 10 million dollars. So the government would spend a huge amount of money that could’ve been used for a free bridge or a free road. He’ll then sell it for 10 million dollars to a private owner, who will put up a toll booth and charge money for coming across, and make a mint.

This is what happened in England under Margaret Thatcher. This is called Thatcherism and it’s what destroyed the English economy. It’s what’s destroying the European economy and turning Europe into a dead zone. Alternatively, you could do infrastructure in the way of a subsidy to the economy at large instead of to a special interest. A classical infrastructure program would be for the government to indeed pay for rebuilding this. But the whole idea of what made America rich in the 19th century was the government developed infrastructure and provided its services freely to the population. If you begin to charge people for bridges, for roads and for parking meters as in Chicago, and for everything else that’s being privatized, you’re going to have even higher costs of living. Wages will have going to go up, and it will be even harder to compete with foreign countries and to make exports, because nobody can afford to pay the prices that the American workers have to pay in export competition with Asia or even Europe or Germany.


Germany doesn’t have all of these costs. It has very low rental charges, at least in the East. Maybe 10-15% of their income – higher in Western Germany, but not 40% as we have here. Low-priced public health, a free autobahn to drive on. Donald Trump wants essentially to raise the cost of living for everybody and give the public domain away to his Republican backers, and essentially leave the whole country unemployed – but the 1% is going to be very, very rich.

PERIES: Right. Now let’s go back to some specific examples in terms of the kind of infrastructure Donald Trump wants to build. He wants to build new airports. He says our airports are outdated. He wants to build new roads and new bridges, and build a wall over the US-Mexico border. All of these are considered infrastructure. In the past we’ve been told that public-private partnerships are a good thing. It even sounds good, public-private partnerships for the betterment of society. But it really isn’t. In terms of myth making, where does this take us?

HUDSON: What’s called a public partnership is really a one-way partnership. The private sector tells the government what to do. The costs are born by the government, which bears all the risks. The profits go to the private sector. It really means we’re creating an opportunity for banks to make a killing on making loans. All this will be financed by bank credit. Banks or bond holders are going to be paid high interest rates.

The government could create this money the same way banks do. The government has computer keyboards, which is how a bank creates money. They could create their own money without having to pay interest to anyone. They could charge the airlines for the cost, or they could provide the airports more freely. But public partnerships are designed to quadruple or quintuple the actual costs of doing business, and pretend that this is in the public interest instead of just in that of the banks and the corporate insiders the banks are willing to lend money to.

Investigative journalists looked at just one horror story after another of private public partnerships in London’s railroads. Look at what England did with water. Public Private partnership for water make people now pay huge amounts just to get it, which used to be free. The transportation quality goes down, while the price goes way up. So the partnership is a very exploitative. We’re not talking about an equal partnership. We’re talking about a dominant/submissive sadomasochistic partnership.

PERIES: Then the point you were making is the government can print all the money they want if they want to invest it in infrastructure and own that infrastructure. It can make money to then pay back the treasury if it needs to. But instead they’re going to borrow from these banks and bondholders, and then be indebted. So is this kind of debt a bad thing?

HUDSON: Well the debt is bad when you have to repay it. All new money is a kind of debt. All money is created on a computer nowadays. You can look at it in terms of a balance sheet. When you go into a bank and want a loan, the bank will give you a bank deposit and you’ll sign a promissory note. The bank has an asset and you have a debt to the bank. You can spend your deposit any way you want, but the bank charges money for this.

The government can do the same thing. The Treasury can just mint a 1 trillion dollar platinum coin, for instance. Give it to the Federal Reserve and the Fed can issue notes against it. You could call it whatever you want. It’s all constitutional because you can assign any price level you want to a coin. All such money is just created artificially.

So, it’s a monopoly, it’s a legal privilege. For thousands of years, from Mesopotamia through Greece and Rome, money was created by the temples to make sure that it was honest money. But it was privatized after over thousands of years, and now banks charge for something that the government can do for free.

PERIES: Michael, for Donald Trump and the Republicans, they are against creating debt aren’t they?

HUDSON: No. They know that most people are afraid of going into debt. Because if you go into debt, you actually have to repay it. Government debt doesn’t have to be repaid. If you repaid government debt, there wouldn’t be any more money. What they’re really looking for is that the way to cut debt their way is by cutting the deficit – and what they want to cut above all is Social Security. They want to a sort of downsize it. Hillary wanted to put FICA wage withholding into the stock market, and to pay less social spending. Her backers wanted less medical care. They want to spend less money on the 95% of the population so that all the money gets spent on the top 5%.

So, they’re really against what debt is spent for. They’re against democratic debt. They’re against democracy. What they really want is oligarchic debt which used to be state socialism. Government will only give money to the banks. They’re all for the kind of debt that is the bank bailout in 2008. They’re all for giving money to Wall Street. They’re all for giving subsidies to Donald Trump for building his buildings in New York and enabling him to make a killing. They’re just against giving debt to the workers or to the middle class or to the cities or to anyone who’s not one of the 5%.

PERIES: Alright so this is the kind of austerity plan that Paul Ryan?

HUDSON: Austerity is the word.

PERIES: Is he trying to promote that he wants Donald Trump to sign onto.

HUDSON: Right.

PERIES: Alright Michael I thank you so much for joining us today. And thank you for joining us on the Real News Network.

Michael Hudson’s new book J is for Junk Economics will be released on January 20.

(Reprinted from TRNN by permission of author or representative)
• Category: Economics • Tags: Donald Trump, Wall Street 
It’s Time for the Clintons, Rubin to Go – and Soros too

In the week leading up to last Tuesday’s election the press was busy writing obituaries for the Republican Party. This continued even after Donald Trump’s “surprising” victory – which, like the 2008 bank-fraud crash, “nobody could have expected.” The pretense is that Trump saw what no other politician saw: that the economy has not recovered since 2008.

Democrats still seem amazed that voters are more concerned about economic conditions and resentment against Wall Street (no bankers jailed, few junk mortgages written down). It is a sign of their wrong path that party strategists are holding onto the same identity politics they have used since the 1960s to divide Americans into hyphenated special-interest groups.

Obviously, the bottom 95 Percent realize that their incomes and net worth have declined, not recovered. National Income and Federal Reserve statistics show that all growth has accrued to just 5 percent of the population. Hillary is said to have spent $1 billion on polling, TV advertising and high-salaried staff members, but managed not to foresee the political reaction to this polarization. She and her coterie ignored economic policy as soon as Bernie was shoved out of the way and his followers all but told to join a third party. Her campaign speech tried to convince voters that they were better off than they were eight years ago. They knew better!

So the question now is whether Donald Trump will really a maverick and shake up the Republican Party. There seems to be a fight going on for Donald’s soul – or at least the personnel he appoints to his cabinet. Thursday and Friday saw corporate lobbyists in the Republican leadership love-bombing him like the Moonies or Hari Krishna cults welcoming a new potential recruit. Will he simply surrender now and pass on the real work of government to the Republican apparatchiks?

The stock market thinks so! On Wednesday it soared almost by 300 points, and repeated this gain on Thursday, setting a DJIA record! Pharmaceuticals are way up, as higher drug prices loom for Medicaid and Medicare. Stocks of the pipelines and major environmental polluters are soaring, from oil and gas to coal, mining and forestry, expecting U.S. environmental leadership to be as dead under Trump as it was under Obama and his push for the TPP and TTIP (with its fines for any government daring to impose standards that cost these companies money). On the bright side, these “trade” agreements to enable corporations to block public laws protecting the environment, consumers and society at large are now presumably dead.

For now, personalities are policy. A problem with this is that anyone who runs for president is in it partly for applause. That was Carter’s weak point, leading him to cave into Democratic apparatchiks in 1974. It looks like Trump may be a similar susceptibility. He wants to be loved, and the Republican lobbyists are offering plenty of applause if only he will turn to them and break his campaign promises in the way that Obama did in 2008. It would undo his hope to be a great president and champion of the working class that was his image leading up to November 8.


The fight for the Democratic Party’s future (dare I say “soul”?)

In her Wednesday morning post mortem speech, Hillary made a bizarre request for young people (especially young women) to become politically active as Democrats after her own model. What made this so strange is that the Democratic National Committee has done everything it can to discourage millennials from running. There are few young candidates – except for corporate and Wall Street Republicans running as Blue Dog Democrats. The left has not been welcome in the party for a decade – unless it confines itself only to rhetoric and demagogy, not actual content. For Hillary’s DNC coterie the problem with millennials is that they are not shills for Wall Street. The treatment of Bernie Sanders is exemplary. The DNC threw down the gauntlet.

Instead of a love fest within the Democratic Party’s ranks, the blame game is burning. The Democrats raised a reported $182 million dollars running up to the election. But when Russ Feingold in Wisconsin and other candidates in Michigan, Minnesota and Pennsylvania asked for help. Hillary monopolized it all for TV ads, leaving these candidates in the lurch. The election seemed to be all about her, about personality and identity politics, not about the economic issues paramount in most voters’ minds.

Six months ago the polls showed her the $1 billion spent on data polling, TV ads and immense staff of sycophants to have been a vast exercise in GIGO. From May to June the Democratic National Committee (DNC) saw polls showing Bernie Sanders beating Trump, but Hillary losing. Did the Democratic leadership really prefer to lose with Hillary than win behind him and his social democratic reformers.

Hillary doesn’t learn. Over the weekend she claimed that her analysis showed that FBI director Comey’s reports “rais[ing] doubts that were groundless, baseless,” stopped her momentum. This was on a par with the New York Times analysis that had showed her with an 84 percent probability of winning last Tuesday. She still hasn’t admitted that here analysis was inaccurate.

What is the Democratic Party’s former constituency of labor and progressive reformers to do? Are they to stand by and let the party be captured in Hillary’s wake by Robert Rubin’s Goldman Sachs-Citigroup gang that backed her and Obama?

If the party is to be recaptured, now is the moment to move. The 2016 election sounded the death knell for identity politics. Its aim was to persuade voters not to think of their identity in economic terms, but to think of themselves as women or as racial and ethnic groups first and foremost, not as having common economic interests. This strategy to distract voters from economic policies has obviously failed.

It did not work with women. In Florida, only 51 percent of white women are estimated to have voted for Hillary. It didn’t even work very well in ethnic Hispanic precincts. They too were more concerned about their own job opportunities.


The ethnic card did work with the blacks (although not so strongly; fewer blacks voted for Hillary than had showed up for Obama). Under the Obama administration for the past eight years, blacks have done worse in terms of income and net worth than any other grouping, according to the Federal Reserve Board’s statistics. But black voters were distracted from their economic interests by the Democrats’ ethnic-identity politics.

This election showed that voters have a sense of when they’re being lied to. After eight years of Obama’s demagogy, pretending to support the people but delivering his constituency to his financial backers on Wall Street. “Identity politics” has given way to the stronger force of economic distress. Mobilizing identity politics behind a Wall Street program will no longer work.

If we are indeed experiencing a revival of economic class consciousness, who should lead the fight to clean up the Democratic Party Wall Street leadership? Will it be the Wall Street wing, or can Bernie and perhaps Elizabeth Warren make their move?

There is only one way to rescue the Democrats from the Clintons and Rubin’s gang. That is to save the Democratic Party from being tarred irreversibly as the party of Wall Street and neocon brinkmanship. It is necessary to tell the Clintons and the Rubin gang from Wall Street to leave now. And take Evan Bayh with them.


The danger of not taking this opportunity to clean out the party now

The Democratic Party can save itself only by focusing on economic issues – in a way that reverses its neoliberal stance under Obama, and indeed going back to Bill Clinton’s pro-Wall Street administration. The Democrats need to do what Britain’s Labour Party did by cleaning out Tony Blair’s Thatcherites. As Paul Craig Roberts wrote over the weekend: “Change cannot occur if the displaced ruling class is left intact after a revolution against them. We have proof of this throughout South America. Every revolution by the indigenous people has left unmolested the Spanish ruling class, and every revolution has been overthrown by collusion between the ruling class and Washington.”[1]Paul Craig Roberts, “The Anti-Trump Protesters Are Tools of the Oligarchy,” November 11, 2016. Otherwise the Democrats will be left as an empty shell.

Now is the time for Bernie Sanders, Elizabeth Warren and the few other progressives who have not been kept out of office by the DNC to make their move and appoint their own nominees to the DNC. If they fail, the Democratic Party is dead.

An indication of how hard the present Democratic Party leadership will fight against this change of allegiance is reflected in their long fight against Bernie Sanders and other progressives going back to Dennis Kucinich. The past five days of MoveOn demonstrations sponsored by Hillary’s backer George Soros may be an attempt to preempt the expected push by Bernie’s supporters, by backing Howard Dean for head of the DNC while organizing groups to be called on for what may be an American “Maidan Spring.”

Perhaps some leading Democrats preferred to lose with their Wall Street candidate Hillary than win with a reformer who would have edged them out of their right-wing positions. But the main problem was hubris. Hillary’s coterie thought they could make their own reality. They believed that hundreds of millions of dollars of TV and other advertising could sway voters. But eight years of Obama’s rescue of Wall Street instead of the economy was enough for most voters to see how deceptive his promises had been. And they distrusted Hillary’s pretended embrace of Bernie’s opposition to TPP.

The Rust Belt swing states that shifted away from backing Obama for the last two terms are not racist states. They voted for Obama twice, after all. But seeing his support Wall Street, they had lost faith in her credibility – and were won by Bernie in his primaries against Hillary.

Donald Trump is thus Obama’s legacy. Last week’s vote was a backlash. Hillary thought that getting Barack and Michelle Obama to campaign as her surrogates would help, but it turned out to be the kiss of death. Obama egged her on by urging voters to “save his legacy” by supporting her as his Third Term. But voters did not want his legacy of giveaways to the banks, the pharmaceutical and health-insurance monopolies.

Most of all, it was Hillary’s asking voters to ignore her economic loyalty to Wall Street simply to elect a woman, and her McCarthy-like accusations that Trump was “Putin’s candidate” (duly echoed by Paul Krugman). On Wednesday, Obama’s former Ambassador to Russia, Michael McFaul tweeted that “Putin intervened in our elections and succeeded.” It was as if the Republicans and even the FBI were a kind of fifth column for the KGB. Her receptiveness to cutting back Social Security and steering wage withholding into the stock market did not help – especially her hedge fund campaign contributors. Compulsory health-insurance fees continue to rise for healthy young people rise as the main profit center that Obamacare has offered the health-insurance monopoly.

The anti-Trump rallies mobilized by George Soros and MoveOn look like a preemptive attempt to capture the potential socialist left for the old Clinton divide-and-conquer strategy. The group was defeated five years ago when it tried to capture Occupy Wall Street to make it part of the Democratic Party. It’s attempt to make a comeback right now should be heard as an urgent call to Bernie’s supporters and other “real” Democrats that they need to create an alternative pretty quickly so as not to let “socialism” be captured by the Soros and his apparatchiks carried over from the Clinton campaign.


[1] Paul Craig Roberts, “The Anti-Trump Protesters Are Tools of the Oligarchy,” November 11, 2016.

Michael Hudson
About Michael Hudson

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

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

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