Left Out, a podcast produced by Paul Sliker, Michael Palmieri, and Dante Dallavalle, creates in-depth conversations with the most interesting political thinkers, heterodox economists, and organizers on the Left.

The Hudson Report is a new weekly series produced by Left Out with the legendary economist Michael Hudson. Every episode we cover an economic or political issue that is either being ignored—or hotly debated—that week in the press.

Paul Sliker: Michael Hudson welcome back to The Hudson Report.

Michael Hudson: It’s good to be back. I’m just home from China, getting over jetlag.

Paul Sliker: You recently gave a paper at Peking University about the economy and what sorts of policies they should implement and what to avoid.

But Michael, because we only have a short amount of time in these weekly segments, I want to look specifically at housing in China, and then compare that to what’s going on here in the U.S. In your speech you argued that China’s most pressing policy challenge is to keep down the cost of housing and that the policies best suited to avoid what you call the “neo-rentier disease.” Can you give us a picture of what’s going on currently with housing in China, and then explain what you mean by “neo-rentier disease” and how the Chinese can avoid it.

Michael Hudson: To put this in international perspective, you could say that international competition is based on labor’s cost of living in each country. The most important expense in every country’s cost of living today is housing. What makes a country competitive in manufacturing or other sectors comes down to how much it costs to pay for housing.

20 or 30 years ago only 10 percent to 12 percent of one’s income had to go for housing. That’s about the ratio in Germany today. But in America today it’s over 40 percent in the big cities. It’s also over 40 percent in London, and and it’s rising throughout Europe. But this is not a force of nature. It doesn’t have to be this way. It’s largely because banks have found that they can do to housing the same thing they’ve done to education: Housing is an excuse to get people into debt.

The most important way to get people into debt for housing is to take control of the government with your lobbyists to un-tax housing. The property tax is way less than the rise in land prices. That leaves the rising rental value available to be paid to the banks. The reason why housing prices are going up is because a house is worth whatever a bank will lend. And they are lending more and more, to enable new borrowers to bid up property prices.

You’d think that China would have learned this by looking at the West, or at least by reading Volume 3 of Capital. In fact the Peking University meeting, the Second World Conference on Marxism, David Harvey gave the opening and closing speech. His point was that the Chinese should read Volume III of Capital to understand why and how the volume of debt and credit grows exponentially. As banks get richer and richer, the One Percent get richer. They need to nurture more and more markets for their credit and debt creation. So they lend on easier and easier terms, at a rising proportion of the home’s value. So it’s bank credit that has been inflating the price of housing.

David Harvey asked how China can let the price of housing go up so high in Shanghai (the most privatized city) that almost everybody who has a house is a millionaire. How can China expect to remain competitive in exporting industrial products when the cost of housing is so high?

Unfortunately, his talk and mine were almost the only economic talks at the meeting in Peking. As one of the Russian attendees pointed out to me, “Marxism” is the Chinese word for politics. “Marxism with Chinese characteristics” means to doing what they want politically. But economically they’ve sent their students to the United States, to attend business schools to learn how U.S. financial engineering practices.

Shanghai is where Milton Friedman and the Chicago Boys came in the 1970s and early 80s, because the Chinese government worried that if western Marxists came over, they would tend to interfere with domestic Chinese politics. So actually, China had less exposure to foreign Marxian economics than to U.S.-style neoliberal teaching.

I gave the same basic talk in neighboring Tianjin, which is a more interesting city in many ways. It’s where Chou En-Lei went to school. Talking to women students (about 80 percent of the economics students were women, because it’s considered a social science there) about how they planned to get an apartment, I was told that they would have to marry a boy whose parents gave him an apartment. I didn’t meet any male student who said he would have to marry a woman with her own apartment. It’s a male’s role to have an apartment for his wife. So if you can’t find a guy with his own apartment this is not going to lead to a happy married life, and there may be no marriage at all.

Some of the students that I talked to three years ago are graduating now, but are still not married. So I asked where they were going to live. One of the problems I found out – in addition to what we just talked about – was that in order to prevent a rural exodus to the big cities, people from the provinces or from small towns are not allowed to get a passport to live in these cities. They’re only allowed to buy apartments in their home town. China is trying to prevent overcrowding and the development of slums. As a result, in order to get an apartment the student decided to teach at a university or the high school that provides its own housing.

So China’s corporations, public universities and other institutions are doing much what the Russian Soviets did: Employers provide their own workers with housing.

Meanwhile, you’ve had a move in the last three years under President Xi against corruption. The way they’ve moved against corruption is to put in a bureaucracy to prevent it. That is a natural step in any country. The bureaucracy has put a short lease on what governments can spending. So most universities, if they have big conferences, need a private-sector participant to share in the cost, especially if they bring people over from abroad. At the worse, this shifts corruption from the public sector to the private sector.

Meanwhile, there’s a shift going on in China now, and the political attitude of the students I talked to is quite different from what it was a decade ago, when students really thought that they could change the country and get rid of corruption. OK, they’ve cracked down on corruption. They put in bureaucracy. But now they’re faced with a problem that their students have all been sent to America to study economics and come back and ask “How do we get a free market?”

I couldn’t believe that students in China were asking me about a free market. But that idea led President Xi a few months ago to say they’re thinking of letting in American and European banks. Well, I think this would be a disaster. If you let in the American and foreign banks, their product is debt! What are they going to lend money for?

The answer is that they’re going to lend more money to buy apartments than other Chinese banks are willing to lend. That’s how banks increase their market share – a race to the bottom, into deeper and deeper debt. The new banks will lend on easier terms, with lower down payments. That provides buyers with even more credit to bid up the price of real estate. The effect will be to start pricing China out of the market.

May 5-6, 2018 Lecture
Second World Marxism Conference
Peking University, School of Marxist Studies

Volumes II and III of Marx’s Capital describe how debt grows exponentially, burdening the economy with carrying charges. This overhead is subjecting today’s Western finance-capitalist economies to austerity, shrinking living standards and capital investment while increasing their cost of living and doing business. That is the main reason why they are losing their export markets and becoming de-industrialized.

What policies are best suited for China to avoid this neo-rentier disease while raising living standards in a fair and efficient low-cost economy? The most pressing policy challenge is to keep down the cost of housing. Rising housing prices mean larger and larger debts extracting interest out of the economy. The strongest way to prevent this is to tax away the rise in land prices, collecting the rental value for the government instead of letting it be pledged to the banks as mortgage interest.

The same logic applies to public collection of natural resource and monopoly rents. Failure to tax them away will enable banks to create debt against these rents, building financial and other rentier charges into the pricing of basic needs.

U.S. and European business schools are part of the problem, not part of the solution. They teach the tactics of asset stripping and how to replace industrial engineering with financial engineering, as if financialization creates wealth faster than the debt burden. Having rapidly pulled ahead over the past three decades, China must remain free of rentier ideology that imagines wealth to be created by debt-leveraged inflation of real-estate and financial asset prices.

Western capitalism has not turned out the way that Marx expected. He was optimistic in forecasting that industrial capitalists would gain control of government to free economies from unnecessary costs of production in the form of rent and interest that increase the cost of living (and hence, the break-even wage level). Along with most other economists of his day, he expected rentier income and the ownership of land, natural resources and banking to be taken out of the hands of the hereditary aristocracies that had held them since Europe’s feudal epoch. Socialism was seen as the logical extension of classical political economy, whose main policy was to abolish rent paid to landlords and interest paid to banks and bondholders.

A century ago there was an almost universal belief in mixed economies. Governments were expected to tax away land rent and natural resource rent, regulate monopolies to bring prices in line with actual cost value, and create basic infrastructure with money created by their own treasury or central bank. Socializing land rent was the core of Physiocracy and the economics of Adam Smith, whose logic was refined by Alfred Marshall, Simon Patten and other bourgeois economists of the late 19^th century. That was the path that European and American capitalism seemed to be following in the decades leading up to World War I. That logic sought to use the government to support industry instead of the landlord and financial classes.

China is progressing along this “mixed economy” road to socialism, but Western economies are suffering from a resurgence of the pre-capitalist rentier classes. Their slogan of “small government” means a shift in planning to finance, real estate and monopolies. This economic philosophy is reversing the logic of industrial capitalism, replacing public investment and subsidy with privatization and rent extraction. The Western economies’ tax shift favoring finance and real estate is a case in point. It reverses John Stuart Mill’s “Ricardian socialism” based on public collection of the land’s rental value and the “unearned increment” of rising land prices.

Defining economic rent as the unnecessary margin of prices over intrinsic cost value, classical economists through Marx described rentiers as being economically parasitic, not productive. Rentiers do not “earn” their land rent, interest or monopoly rent, because it has no basis in real cost-value (ultimately reducible to labor costs). The political, fiscal and regulatory reforms that followed from this value and rent theory were an important factor leading to Marx’s value theory and historical materialism. The political thrust of this theory explains why it is no longer being taught.

By the late 19^th century the rentiers fought back, sponsoring reaction against the socialist implications of classical value and rent theory. In America, John Bates Clark denied that economic rent was unearned. He redefined it as payment for the landlords’ labor and enterprise, not as accruing “in their sleep,” as J. S. Mill had characterized it. Interest was depicted as payment for the “service” of lending productively, not as exploitation. Everyone’s income and wealth was held to represent payment for their contribution to production. The thrust of this approach was epitomized by Milton Friedman’s Chicago School claim that “there is no such thing as a free lunch” – in contrast to classical economics saying that feudalism’s legacy of privatized land ownership, bank credit and monopolies was all about how to get a free lunch, by exploitation.

The other major reaction against classical and Marxist theory was English and Austrian “utility” theory. Focusing on consumer psychology instead of production costs, it claimed that there is no difference between value and price. A price is whatever consumers “choose” to pay for commodities, based on the “utility” that these provide – defined by circular reasoning as being equal to the price they pay. Producers are assumed to invest and produce goods to “satisfy consumer demand,” as if consumers are the driving force of economies, not capitalists, property owners or financial managers.

Using junk-psychology, interest was portrayed as what bankers or bondholders “abstain” from consuming, lending their self-denial of spending to “impatient” consumers and “credit-worthy” entrepreneurs. This view opposed the idea of interest as a predatory charge levied by hereditary wealth and the privatized monopoly right to create bank credit. Marx quipped that in this view, the Rothschilds must be Europe’s most self-depriving and abstaining family, not as suffering from wealth-addiction.

These theories that all income is earned and that consumers (the bourgeois term for wage-earners) instead of capitalists determine economic policy were a reaction against the classical value and rent theory that paved the way for Marx’s analysis. After analyzing industrial business cycles in terms of under-consumption or over-production in Volume I of Capital, Volume III dealt with the precapitalist financial problem inherited from feudalism and the earlier “ancient” mode of production: the tendency of an economy’s debts to grow by the “purely mathematical law” of compound interest.

Any rate of interest may be thought of as a doubling time. What doubles is not real growth, but the parasitic financial burden on this growth. The more the debt burden grows, the less income is left for spending on goods and services. More than any of his contemporaries, Marx emphasized the tendency for debt to grow exponentially, at compound interest, extracting more and more income from the economy at large as debts double and redouble, beyond the ability of debtors to pay. This slows investment in new means of production, because it shrinks domestic markets for output.

Left Out, a podcast produced by Paul Sliker, Michael Palmieri, and Dante Dallavalle, creates in-depth conversations with the most interesting political thinkers, heterodox economists, and organizers on the Left.

The Hudson Report is a new weekly series produced by Left Out with the legendary economist Michael Hudson. Every episode we cover an economic or political issue that is either being ignored—or hotly debated—that week in the press.

In this episode we discuss the ancient history of debt cancellation, the untold life of Jesus as an economic justice activist, and more largely Professor Hudson’s forthcoming book, “…and forgive them their debts,” out in summer 2018.

Michael Palmieri: Professor Michael Hudson welcome back to another episode of The Hudson Report.

Michael Hudson: It’s good to be back here.

Michael Palmieri: I know we usually cover topical or current event that’s been either ignored or hotly debated in the weekly news cycle. But I thought it would be much more interesting this week to talk about your forthcoming book “…and forgive them their debts credit and redemption through the Bronze Age to the Jubilee Year” scheduled to be released early summer 2018. And I thought it was interesting in two ways, one–Easter’s three weeks passed and yet a lot of your work is centered around Christianity and the life and activism of Jesus. The second reason is that you’ll be leaving for the next few weeks to teach at Peking University in China.

But can you explain or maybe give a little bit of a summary as to what the book looks at and describe it. I know it’s focused on the origins of debt and debt forgiveness. But can you elaborate a bit more?

Michael Hudson: It’s a history of the origins of interest bearing debt – the origins of interest and Sumer in the third millennium BC, in an epoch when most debts were owed to the palace, either for taxes or for fees for services. Periodically for a thousand years, from Sumer, Babylonia, and other Near Eastern countries, when new rulers took the throne, they would begin their reign with a debt amnesty.

We’re familiar since medieval times for European rulers often freeing the prisoners when they came to power. But the amnesties in Sumer and Babylonia extended to everything that was owed to the palace. They were general cancellations of personal debts, mainly agrarian debts by cultivators – citizens who also manned the military.

The idea was to restore the economy to the stability that existed before widespread debts ran up during the preceding ruler’s reign. What was “restored” was an idealized “original” or “normal” state in which nobody owed debts to the palace.

These debt remissions extended in due course to debts owed to palace collectors – and, by Babylonian times (from about 2000 to 1600 BC), to debts owed to individual creditors. Most agrarian and personal debts were cancelled, but not debts among businessmen that were owed to each other. They were left in place.

The guiding logic of these debt cancellations was spelled out by Egyptians. If rulers had not cancelled these debts, they would have faced a situation in which indebted cultivators were falling into permanent bondage. Their labor would have been pledged to their creditors, and thus would not be available to perform the corvée labor that had to be mobilized each year to build basic infrastructure – walls, temples, palaces and other basic construction that was public or communal in character.

Also if the debtors on the land had to pay private creditors, they wouldn’t be able to pay their stipulated fees or taxes run up to the palace. So for two thousand years throughout the Bronze Age (circa 3200 to 1200 BC), there was a tension between the rulers and the emergence of a private wealthy class of creditors who used their money to try to become landowners. By about 1800 BC you had cultivators pledging their land to creditors and losing it. You begin to find large aggregations of landholdings, all at the expense of palace authority and its ability to levy taxes on labor, crops or money.

The big picture therefore is that for thousands of years you have a tension between centralized authority, which needed to preserve economic balance and wanted the population (and hence, the army) to keep growing, and wealthy creditors, traders and land buyers who made gains by impoverishing the rest of the population. That was the same dynamic found in early Greece and Rome. In fact, it’s a dynamic that you still have today.

The difference is that today’s governments have been taken over and captured by creditor interests. The result is that today’s ethic is the opposite of the first few thousand years of debt. Today’s ethic, ever since Rome, is a sanctity of debt, not of its cancellation. All debts have to be paid – regardless of how this may impoverish and polarize society.

But in Sumer, Babylonia, Egypt and the Biblical lands there was a royal understanding that if poor cultivators – the 99 percent – had to pay the debts that they ran up, they would fall into bondage to the 1 percent, and forfeit their land to their creditors. Rulers sought to prevent this from happening, because if they had not intervened, they would have a citizenry available to serve in the army. They wouldn’t have taxes. They would have had a kind of Margaret Thatcher type economy – and quickly been conquered by outsiders or overthrown from within.

Michael Palmieri: This gets us to where we began in the first episode of The Hudson Report. We spoke about the ACLU report called ‘A Pound of Flesh,’ about the “modern-day debtors’ prisons” that are beginning to pop up throughout society.

Michael Hudson: Shakespeare’s famous “pound of flesh” owed by the Merchant of Venice actually was a zero interest loan. So debt problems arose even before interest came to be charged. But obviously, once you begin to charge interest, debt expands exponentially at a geometric rate. Babylonian scribes were taught to calculate these doubling times. So one of the aims of my book is to explain how interest began.

There’s no question that when it began, the objective was not to find a way to impoverish society, polarize it and impose austerity. But that’s how matters ended up. Interest was innovated in the Sumerian temples and palaces, basically in the form of trade credit. The palace consigned export and import trade to entrepreneurs. Sumer – present-day Iraq – had very rich soil, deposited by rivers over the millennia. But it didn’t have hard stone, metal or gems. So Sumer had to trade in order to get the copper and tin that gave their name to the Bronze Age.

This trade had to be financed on credit. The palace and the temples employed war widows, children, the blind and other people who couldn’t make a go of things on the land. They were set to work to weave textiles or make other handicrafts, which were turned over to traders. These traders exported these handicrafts northwest to Turkey and eastward across the Iranian plateau. That’s how the Sumerians obtained the tin, copper and other raw materials, like stone and silver.

There was a transmutation of this practice of charging interest to creditors to merchants who could pay. Interest began to be charged on debts in general, including advances of fees owed to the palace by cultivators on the land. That’s where problems arose, especially when there was a crop failure or when members of a family got sick.

Most of these debtors didn’t actually borrow money. They simply ran up debts and arrears. Most debts thus did not result from loans, but were unpaid bills, headed by those that were owed to the palace or its collectors.

Left Out, a podcast produced by Michael Palmieri, Dante Dallavalle, and Paul Sliker, creates in-depth conversations with the most interesting political thinkers, heterodox economists, and organizers on the Left.

We’re excited to announce our new weekly series called The Hudson Report with the legendary economist Michael Hudson. Every episode we’ll pick Professor Hudson’s brain for 10 or 15 minutes on an economic issue that is either being ignored—or hotly debated—that week in the press.

Michael Hudson is a Distinguished Research Professor of Economics at the University of Missouri at Kansas City. He counsels governments around the world on finance and tax policy and has served as an economic adviser to the US, Canadian, Mexican, and Latvian governments. Michael is a financial analyst and a veteran of Wall Street, an economic historian and one of the world’s leading experts on the history of private property, debt, and real estate and the origins of economic civilization in the Ancient Near East. He’s widely credited with being one of the few economists who foresaw the financial crisis of 2007-08. His new book, …and forgive them their debts: Credit and Redemption From Bronze Age Debt Remissions to the Jubilee Year, releases in May of 2018.

LISTEN to this week’s first episode of The Hudson Report on modern-day debtors’ prisons in America and debt in antiquity:

*If you’re enjoying Left Out, please consider becoming a supporter on Patreon. Your small donations are crucial to keeping this show alive.

[FULL TRANSCRIPT]

Paul Sliker: So Michael, in conjunction with Harvard University’s Peabody Museum you headed up an archaeological research team on the origins of private property, debt, and real estate and the origins of economic civilization in the ancient Near East. You actually have a new book coming out in May called ‘…and forgive them their debts: Credit and Redemption From Bronze Age Debt Remissions to the Jubilee Year’. And speaking of debt that’s a perfect segue into the topic of our first discussion here. A new ACLU report just got released called A Pound of Flesh: The Criminalization of Private Debt, that shows that thousands of debtors are arrested in jail each year in the U.S. because they owe money–and millions more are threatened with jail. The debts can be as small as a few dollars and can involve every kind of consumer debt from medical bills to car payments to student loans to credit card debt.

It goes sort of something like this… cities and private collections agencies have teamed up to bring back a system of modern day debtors’ prisons to skirt around federal law that has prohibited debtors’ prisons since 1833. And it’s also in clear violation of the Equal Protection Clause of the 14th Amendment. And these agencies and their hired lawyers will send out a notice to someone who’s missed a payment. That person won’t show up to court. They get a notice of contempt and then it goes on their record and an arrest warrant is issued for their failure to appear in court. And this takes some pretty big cooperation or coordination with the prosecutors and the judge. One of the most alarming things is that there’s sort of a business relationship or a quid pro quo between collection agencies and the prosecutors.

So my question for you Michael is, as an economist and someone who is an expert on the history of debt, can you give us your reaction to this report?

Michael Hudson: Well I think much of the modern variable is the privatization of prisons. If you have a privatization of prisons you run them for profit. And what do you need in order to run the prison for profit? Well, you need inmates. So the first question is how are you going to get inmates. And that’s what brings us back to the issue of debt.

So far for the last 20 or 30 years most of the inmates have been racial minorities on drug deals…marijuana and other drug deals putting them in. But now that’s being phased out because they realize how destructive and racist it is. So they want an equal opportunity source of inmates and debt is a major source of the inmates to be employed to make a profit. Now in a way this goes back to the very origins of debt. I’m a little surprised that the title that the ACLU gave its report A Pound of Flesh. That obviously refers to Shylock’s loan–and that was a zero interest loan. And that misses the whole point. The whole point of debt is interest!

We’ve done a number of books recently through the Harvard group. One is on labor in the ancient world, where we look at the origins of how labor was mobilized in the Neolithic and the early Bronze Age in Egypt. And originally there were no workers for hire. There was no labor for hire… you couldn’t say well I’m a cultivator on the land and I need to make some money so I think I’ll go into town and get a job. The governments could mobilize labor to work on public building projects and that’s how the infrastructure was built up. How would individual merchants or even temples or palaces get labor? The only way of doing it was to make an interest bearing loan to a cultivator where the interest was paid in the form of labor and where the worker himself or his family member –his son, his daughter or a household servant– was pledged as collateral. The collateral was supposed post to work off the interest. The original way of getting labor for hire was to make a loan, and it was paid as interest, not to pay wages. Wages only developed maybe in the second millennium very largely on the basis of what labor had to be paid or supported when it was pledged for debt. So the idea of working off a debt by one’s labor and in the form of being a bondage pledged to one’s creditor is a very old idea.

What’s fairly new in history is that there are public institutions–public jails–that you’d be pledged for if you couldn’t pay a debt. Instead of being pledged to the creditor to work off the debt you would be–especially in England it was known from the medieval times through pretty recent times–they still have the debtors’ prisons open and if you couldn’t pay a debt you’d be consigned to a debtors’ prison. You’d have to pay for your own food and board and you’d be charged for the support. And the only way if you didn’t have any money to pay for your own food–or if you didn’t have friends who would bring by food for you–would be to stick your hands out of the grate for alms. Many people who were Almsgivers would go by the debtors’ prison supporting the debtors so they wouldn’t simply starve to death.

Paul Sliker: And Michael I want to talk a little bit about about the reasons for why debts have been written down over the course of history. So I mean, you know, according to your work from my perception, writing down debts obviously reduces the overall economy’s financial costs… so the perception of this long term macroeconomic dynamic explains why debtors’ prisons have been closed and things like bankruptcy laws have become increasingly humanitarian to enable debtors to make a fresh start and become economic actors and start spending into the economy again.

So what are the reasons why they’re sort of trying to bring back these arrangements particularly here in the U.S. today?

SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries coming to you from Baltimore. The Organization for Economic Cooperation and Development, or known as the OECD, predicted on Tuesday that Trump’s tariffs on aluminum and steel imports could initiate a wave of protectionism and slow global economic growth. The tariffs have already spurred various countries to announce retaliatory measures. For example, the European Union plans to impose tariffs on Harley Davidsons and blue jeans. China has also promised to retaliate. Meanwhile, US companies that use steel and aluminum as raw materials for their production processes already report significant cost increases by as much as 40%.

Joining me now to analyze Trump’s tariffs is Michael Hudson. Michael is a distinguished research professor of economics at the University of Missouri Kansas City. He’s the author of several books, the most recent among them is J is for Junk Economics. Michael, welcome back.

MICHAEL HUDSON: Great to be here again, Sharmini.

SHARMINI PERIES: Michael, what do you think of Trump’s tariffs on aluminum and steel, will they protect US manufacturing industries?

MICHAEL HUDSON: On the one hand, it’s supposed to protect and rebuild US manufacturing. But to really rebuild manufacturing, you need much more than a tariff against foreign goods. You need public infrastructure, and that’s not going to happen. You also need a different tax system, and that’s not going to happen. You need a more competitive economy; that’s not going to happen. So I think there’s not really any attempt to repeat how America built up manufacturing by what Henry Clay called the American System in the 19th century: infrastructure, public investment, tariffs and an industrial banking system.

We’re still in a Thatcherite economic policy, so I think what Trump really wants to do is use diplomatic leverage and economic threats against Canada and Mexico. I think what is on his mind is “We’ll let Mexico’s steel in, but it’ll have to build the wall and pay for it. If it doesn’t do that, then we’re going to punish it. For Canada, you’re going to have to surrender to all of our renegotiated NAFTA demands. You have to buy more American cars. You have to do whatever we tell you to, otherwise we’re going to create unemployment in your steel industry.”

That’s called national security somehow. But how can it really be national security if he’s willing to let in most of the aluminum and most of the steel if Canada and Mexico do things that have nothing to do with national security at all?

His policy is what we call an internal contradiction that doesn’t make sense. Canada has already announced that it is not going to renegotiate NAFTA and let the tariff be used as a threat. The Canadians are getting fed up with American pushing special interest favoritism against it. The Mexican president refused to come up a few weeks ago when it was obvious that Trump was going to make demands on Mexico that were so much against its national interest that they just canceled.

SHARMINI PERIES: So then why is US manufacturing, steel manufacturing in particular, predicting a 40% increase in prices?

MICHAEL HUDSON: It’s not just a prediction, Sharmini. The Financial Times just had a chart, and steel prices have already gone up 40%. Aluminum prices have already gone up one-third. If you look at the forward market, the prices are already up. We don’t have to say this is a dire prediction, it’s already happening.

SHARMINI PERIES: Michael, historically tariffs and protectionist policies have been used by countries as a strategy to industrialize. Can this strategy work again in light of the fact that US has been de-industrializing for several decades now?

MICHAEL HUDSON: It can’t work again, for a number of reasons. For one thing, from the very beginning of the 19th century, ever since Henry Clay put forth the American System in the 1840s of internal improvements, protective tariffs, and a national bank and financial policy to fund an industry, those three had to go together. In order to make industry competitive, you need not only tariffs to block imports, you need to support manufacturing by infrastructure investment, roads, canals, an educational system.

By the end of the 19th century, you had the Conservative Party in Britain, Benjamin Disraeli, saying “Health is everything. We have to have a health policy to promote our workforce.” In Germany, Bismarck said “We need a pension system. We need an industrial banking system to fund Germany. We need government spending on infrastructure, on railroads.” You had European, French, German and English investment in public spending. But Trump is a Thatcherite. You cannot have a Thatcherite economy, which is basically an asset-stripping economy, you cannot have a tax policy like Trump has, which is basically a financialization policy, and at the same time, have an industrial policy.

In fact, what Trump is saying is that he wants this to be the first salvo in a trade war against the whole world that has a mixed economy. He’s announced pretty much that within the World Trade Organization he’s going to promote blockages against any country where the government plays a role. For instance, if they tax companies that pollute with a pollution tax, any government that regulates, any government that provides subsidized services like subsidized education, subsidized healthcare, subsidized roads and railroads, this is somehow not a free market economy.

A free market economy is an austere economy sort of like Thatcherism. This aim is to dismantle industry, and Trump is essentially saying “Any economy that has an industrial strategy, we’re going to exclude from the American-centered way of reorganizing society.” Basically, this means that either you’re going to join the neoliberal Thatcherite block, or the rest of the world is going to be a state socialist or other socialist, or just plain mixed economy block.

But no other country outside of the neoliberal countries is going to say “Okay. We’re going to privatize our education just like America’s doing. We’re not going to give free education or subsidized roads. We’re not going to regulate industrial monopolies.” No country is going to go along with this attempt to essentially declare war on countries that are not “free enterprise economies,” meaning financialized economies.

SHARMINI PERIES: Michael, legally, trade policies are supposed to be coordinated through Congress. However, Trump is sidelining Congress and saying that he has the right to negotiate and to do his wheeling and dealing from The White House. We just saw a recent decision where he’s denied the $177 billion Broadcom takeover of Qualcomm that he considers this a national security threat. We don’t know whether it is or not but let’s take it for granted that it is. This kind of wheeling and dealing and sidelining Congress, does that concern you?

MICHAEL HUDSON: Yes, for two reasons. Number one, it’s the imperial presidency. It’s an attack on the American Constitution. You’re right, Congress is supposed to be in charge of trade policy, just as it’s supposed to be in charge of declaring war, but the president can say that there’s a national security emergency. The problem with this is that ever since the World Trade Organization was created anew in the 1990s, no country, not even the United States, has used the national security excuse to impose tariffs. George W. Bush thought about it, but then he was told that there was no persuasive basis for it.