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‘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.

(Republished from by permission of author or representative)
• Category: Economics • Tags: Donald Trump, Privatization, Wall Street 
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  1. All this cost so much money that drivers in Indiana didn’t use the toll road. They preferred the slower old routes.

    That’s my impression of what’s happening with the beautiful toll roads in Greece. The things are superb but virtually devoid of traffic. Not only were they likely financed, designed and built largely by foreigners, but I believe the tolls go out of country as well. I could be wrong tho.

    What a deal for the people of Greece!

  2. When the truth is replaced by silence, the silence is a lie. Yevtushenko

    To write about privitization of infrastructure without writing about the out-of-control costs of government due to the public employee lobbies is to omit the truth.

    And, yes, I agree with Derb, they are lobbies, not unions.

    • Replies: @Colleen Pater
  3. Anonymous • Disclaimer says:

    Here’s a cheerful thought about the new serfdom. In other times the elites would have more to gain by inoculating the masses with a whiff of socialism à la FDR. Nowadays, thanks largely to the internet, repression has become a lot easier and cheaper. The opposition can be mapped out and neutered even before it opens its collective mouth.

  4. To be a socialist requires that one be deluded about human nature. Of course governmemts which privatise and contract out also suffer from some of the inadequacies of bureaucrats even when the politicians and bureaucrats are honest. It is an imperfect world.

    One neglected benefit of privatised infrastructure is the reasonably secure income stream going to a country’s savers who largely finance rather than rely on social security.

    • Replies: @bluedog
  5. RobRich says: • Website

    What a moron.

    “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. ”

    All these things were often originally (before government seizures) and are now increasingly regularly privately provided. The result of ending coerced government monopolies with free choice via re-privatization is the services are increasingly low-cost or free.

    The Libertarian Reform is all around us but folks like Hudson still think they’re in Stalin’s 1930’s.

  6. 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.


    This may be absolutely correct but absolutely trivial in a world where China is building the future and we are not even playing catch up. The incestuous elite mindset that sees only the US as meaningful is in full bloom currently. The focus we have on the world vs the US, our place in it and the role we play, is so far removed from reality I wonder if our leaders ever look clearly abroad at what’s happening every day in Asia, Europe and Africa.
    While we reread from a 50’s playbook China puts down 30,000 K’s of new rail this year to link three Continents. We, on the other hand, debate fixing some bridges and roads. When the sun goes down on empire it gets real dark

  7. @another fred

    Certainly true and years ago Id have raised you one galts gulch. Its not that Im no longer a Austrian its I think we have worked our way into a situation where blind adherence to what we thought will make things worse.
    Infrastructure is a good place to look at where Im coming from (and I think Bannon is too). If we allow formerly American corporations to become international corporations that extract the technology, capital, etc then pass on the domestic labor but come back for the consumer market and then again pass on the taxation, or import the labor but have the labor subsidized by welfare paid for either by the few lucky americans who still have jobs or to offer to loan the government money at interest to pay for the welfare. The inflation that we now lie about that has made everything from housing, medicine, education, fuel,cars,pretty much everything but imported electronics 2-10 times more expensive than a decade or three ago; is directly tied to the cost of this a la carte capitalism. Capitalism where third world misery (caused by oligarchy and communism but sustained by emigration ) Is triangulated against first world labor markets. Its not sustainable eventually americans are going to be able to compete with third world wages, but not the way they told us. that any day africans would be just like canadians and all would be well, no america is halfway to brazilification.
    Now heres the thing My problem with libertarianism is they cuck on on property rights when it comes to the nation itself. Its as if every border contract one property right is sacred to them except the most important one the one that is the impetus of all civilization and law; the national boundary the one that keeps the other tribe from raping and pillaging, the one the violent men banded together to enforce giving the traders a safe space to operate in.And giving a safe space for all the benefits of civilization that also support trade.
    The nation, the school system that fosters tech development, the court and law making system and police that enforce contracts, the idaho farm boy on an aircraft carrier protecting the trade routes, The transportation and communication infrastructure that facilitates everything from shipping to financial trading,The first world labor market, access to the wealthiest consumer market in the world, etc etc is worth a lot. Its not moochers demanding free stuff. Oh sure their are moochers demanding free stuff for minorities, but its not them that own this infrastructure it the generation of americans that pioneered built maintained and defend it. If you doubt its value Imagine somehow say to support the subsidies globalists insist are basic human rights, our government sold it all off and Halliburton owned it. Do you think Halliburton would give it away to all these corporations that enjoy it.Do you think Halliburton would let amazon just use the highways for free, do you think it would allow Apple to simply sell iphones here while eschewing the labor and Halliburton’s potential income tax? Do you think Halliburton would allow Tyson and walmart to import third world peasants paying them \$11 hr while Halliburton fed clothed medecined educated policed their entire peasant family and the family of whites they displaced? You think Halliburton would protect the property enforce the contracts and manage the 350 million inhabitants of their consumer market for free while they offshored their profits and bribed halliburton’s middle managers for deals? No of course not.
    No doubt the author is likely a commie and we dont want to give commies an inch.But in some ways blind loyalty to the outer party is how we got into this headlock.The capitalists have made a devils deal with the globalist marxists. Maybe they each plan to doublecross the other in the future or maybe they have both given up on the 60s version of capitalism and communism and settled for a 1000 year reich of corporatism.Lets not forget they are supported by cuck christianity and Israel, and of course because immigration and HBD its inescapable this becomes a racial issue, appalling the neocons and reactionaries. But of course the commies realized a long time ago communism didnt sell well in wealthy white countries so they morphed into racial redistributionists and hit on a way to partner with christians and capitalists,and of course the power hungry who wish to remake the world.
    This is the hope I think that some have with trump that he will break the dynamic, hes trying to beat the commies to the pivot back to white socialism while there’s an opening and hold the banksters over the hole they dug. Its doesnt look to be working, Trumps an idiot who only intuits vaguely, Bannon may not be fully woke or able to control trump and of course the deep state seems pretty much committed to killing trump if they have to. That might set off a civil war.But they probably wont have to hes pretty much been pwnd by the confederacy of dunces having no consistent outlook hes easily swayed piecemeal out of his gut feelings by his jew and neocon advisors

    • Replies: @another fred
  8. nsa says:

    The first chunk of necessary infrastructure: a 2000 mile 40′ tall (and 20′ deep) reinforced concrete wall along the southern border…..topped and bottomed off with concertina razor wire. The second chuck of necessary infrastructure: 200 guard towers spaced every 10 miles.

  9. bluedog says:
    @Wizard of Oz

    I hope its better than the re-building of Iraq by private companies and corporations which saw millions/billions go down into the black hole of tricky accounting,and as far as the countries savers I’m sure your not talking about the working class for they have little to invest anywhere..

    • Replies: @Wizard of Oz
  10. This seems like a good example of government provided infrastructure, at least in the U.S.

    Florida’s Government Built a Train — And It Didn’t Go Well

    Thanks to the grand vision of politicians, and the financial incentives created by the Federal government, Floridians have now spent hundreds of millions on a train that loses money charging customers to ride it. In the future, as government incentives expire, SunRail will face the issue of either raising ticket prices, likely further decreasing its already underwhelming demand, which will likely decrease the ad revenue the project was projected to be dependent on. The other response, perhaps more likely, is to simply pass the costs on to the millions of Floridians who have rejected the project by refusing to ride it.

  11. 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.

    damn, this is so goddamn true it is crazy. this is why aca cause all the premiums to go up.

  12. @Colleen Pater

    I think we have worked our way into a situation where blind adherence to what we thought will make things worse.

    I don’t know quite what I said that your long “reply” is in reference to, but it does not refer to much of what I believe (or disbelieve). I do believe that about the only thing we can do to “make things worse” is to engage in an all-out nuclear exchange with another of the world nuclear powers. Other than that, our present circumstance is not sustainable and we are headed for some very hard times involving great loss of life and human pain. But not to worry, some will survive and life will go on.

    My comment to Mr. Hudson is prompted by the fact that I find half truths distasteful, especially so if they are told with political intent.

    …third world misery (caused by oligarchy and communism…

    “Third world misery” has been the lot of most humans since the dawn of agriculture, but the fact is that most hunter-gatherers will opt for it if given the chance. Life is hard because life is hard.

    You seem to think that there is some “solution” for society somewhere. I do not, other than continued evolution.

    • Agree: bluedog
  13. Anonymous [AKA "homeless soul"] says:

    Yeah let’s sink tens of billions of hard earned U.S. taxpayer dollars into a worthless border wall, and concern ourselves with a \$20,000,000,000,000.00 dollar national debt some other time.

    For those too naive to realize it, the border wall’s a joke and the joke’s on Americans. You want a cost-effective and efficient way to keep non-citizens from entering the United States illegally, then place legal liability firmly on the shoulders of self-serving contractors and small businesses who hire them.

    Try entering Mexico illegally, and asking its federal government to pay for your kid’s diapers and flip a \$20,000 bill per year per kid for public education. “Buena suerte con eso, gringo!”

    In the mean time, it appears as if the House of Rothschild’s trust-fund nation is positioning itself, hoping to reap a cash windfall of U.S. taxpayer dollars, from this artificially engineered sociopolitical albatross of a border wall.

    “Israel’s Magal sees Mexican wall as no barrier to business” (

  14. @bluedog

    Working class people do well in two main ways. Until recently there were plenty of bright and potentially energetic people who didn’t have the opportunity to rise through education and good health but most now leave the workung class. The other way is to belong to a nation which has conferred the luck on them of sharing in bountiful resources they have played no part in discovering or developing or in the product of superior brain power applied with imagination and discipline. Australia exemplifies (mostly) the first case, Germany the second. The US is spreading its generosity (not willed as such) to Latin America’s working classes …

    • Replies: @bluedog
  15. bluedog says:
    @Wizard of Oz

    Sure we are that’s why we have a 100,000,000 unemployed and rising, with only God knows how many living in poverty, where even grads from institutions of higher learning can’t find a job, while running up a tab in the thousands for their education, why wages were drove down and have remained stagnant due to outsourcing and flood of people from South of the border, I suggest you read David Stockman’s book ‘The Great Deformation” The Corruption Of Capitalism in America and then you might just have an idea of where we are headed and its going to be a nasty ride…

    • Replies: @Wizard of Oz
  16. map says:

    There is a kernel of truth here. It is true that you definitely do not want to privatize a monopoly, or, at least, privatize it in a way that regulates it like a public utility. Privatized infrastructure has monopolistic characteristics that need regulation.

    It is, however, wrong to imagine the supposed public benefits of government subsidy. This is the same multiplier fantasy that Keynesians use to prove how much more efficient government is. in effect, there is no government efficiency. When a road is built, a government contracts with a private company to have it built and maintains it using private resources. That government will pay at or above market rates for all of the inputs, depending on the level of corruption and cronyism. And where does the money come from to pay for these toll roads? Why, either budget surpluses, tax increases, or bond issues…ultimately from the tax payers. And taxpayers always pay through the nose, whether directly in toll rates or indirectly in fees and taxes. The only difference is how hidden it is.

    Furthermore, I happened to drive through Illinois and Indiana. Indiana has beautiful roads, built in a state with a budget surplus and a low cost of living. The ipass tolls were comparable to Illinois…with terrible roads. So, I don’t see Hudson’s take on Indiana.

  17. @bluedog

    Yes it hasn’t been great for at least half of US natives for a long time despite great new technology for those with reason or the time to use it. Mostly left side of the IQ Bell Curve but not all. Can democracy survive, or as some might say, begin? Oh, did I forget? Democracy has been exported

    • Replies: @bluedog
  18. Wally says:

    Michael Hudson, a Marxist, trying to tell everyone about economics.


    • Replies: @Anon
  19. bluedog says:
    @Wizard of Oz

    No democracy is one item we never export well unless it comes from the muzzle of a gun, but we do export our brand of loot and steal or regime change to embrace our form of parasitic type capitalism..

  20. bjondo [AKA "redwhiteblueorange"] says:

    i use toll roads/areas for dumping garbage and paint ball practice.

  21. Anon • Disclaimer says:

    Really? A Marxist? On what basis of what’s posted here do you draw that conclusion?

  22. Agent76 says:

    “Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government.” Milton Friedman

    Aug 30, 2011 CORPORATE FASCISM: The Destruction of America’s Middle Class

    A new kind of fascism has taken over America: the merger of corporations and government whereby corporate power dominates. With the emergence of ever-larger multinational corporations — due to consolidation facilitated by the Federal Reserve’s endless FIAT money — the corporatocracy has been in a position to literally purchase the U.S. Congress.

    • Agree: bluedog
  23. The article rings true in many of its claims. But in large municipalities, particularly metropolitan areas the private sector is better off running things when compared to the government. Governments at a certain size become unaccountable, corrupt, incompetent, filled with lazy union workers, suffer from mission creep, and generally just do not function well at all. So large metropolitan areas in particular are well suited to privatization, it is the lesser of the two evils imo. The private sector can run it cheaper, more effectively. The things stated are “in theory”. In theory big government can work. In practice one would be hard pressed to give any examples. You continue to use Greece as your example of government done right, which is a bit comical. Greece is a basketcase, and the government does not function there. The Greek government is a black hole into which money, no matter how much, disappears with no increase in government effectiveness. How this qualifies as progress to anyone is beyond my comprehension.

    In smaller cities where government can be kept in its cage it probably does not make sense to privatize.

    • Replies: @bluedog
  24. bluedog says:
    @Linda Green

    And you don’t think the private sector is corrupt the companies and corporations that are just as corrupt as any, when the money is on the table with their over runs contributions to the political hacks to get the contract,spare me please…

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