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As published in Harper’s Magazine.

Two years before the 2008 Wall Street crash that toppled the global economy into deep recession, Harper’s Magazine published a dark prophecy of what was to come. In “The New Road to Serfdom,” economist Michael Hudson laid out how millions of Americans had taken on huge debts to buy houses on the presumption that they could later sell them at a profit. “Most everyone involved in the real estate bubble so far has made at least a few dollars,” he wrote. “But that is about to change. The bubble will burst, and when it does the people who thought they would be living the easy life of a landlord will soon find out that what they really signed up for is the hard servitude of debt serfdom.” As the twenty million people who lost their homes discovered, Hudson got it entirely right.

Today, unemployment is at record lows, and the stock market is at record highs. Allegedly, we have recovered from the disaster. I talked to Hudson, Distinguished Professor of Economics at the University of Missouri-Kansas City and the author, most recently, of J is For Junk Economics, A Guide to Reality in an Age of Deception, about his pre-crash prediction, and what he now sees in our future.

Let’s start with your 2006 Harper’s article. What did you see happening at that point?

It was very clear that more and more of everybody’s income had to go to buying a house. Housing prices were soaring, and the reason wasn’t because of population growth. And it wasn’t because people were getting richer. It’s because a house is worth whatever a bank is going to lend against it, and banks were lending more and more money against houses and pushing people further and further into debt so that basically they had to spend almost their entire working life to pay off the price of getting a home. People thought they were getting richer as house prices were going up, but while the sellers were getting richer, the people who had to buy the house had to pay a larger and larger proportion of their income.

When I first went to work on Wall Street in the 1960s, the rule of thumb in banks was you’d lend people enough money so that they could afford to pay the mortgage fully out of only one quarter of their income. In other words, banks wouldn’t lend if the cost of carrying a mortgage was over 25 percent of what they earned. The balance had to be written off in 30 years, so at the end of their working life 30 years later people would own the home free and clear.

All of that had changed by the mid 2000s. Banks were lending almost 100 percent of the mortgage. You didn’t have to put down 20 percent of the purchase price as you had to in the 1960s. You didn’t have to save up any money to buy a house. Banks would lend you money regardless of whether you could pay it or not. They would lend money up to 40 percent of your income or even 50 percent of your income.

You could just see that mortgage debt was going up so much that, instead of making the economy richer by people living in homes that were building up their net worth in terms of assets, it was making them more and more indebted. More and more money was being paid by wage earners and the middle class to the banks, and the economy was polarizing. You could see that this was not only going to break, but once there was a break it was going to leave a whole residue of debt that was going to shrink the economy. Indeed, that’s what I forecast was going to happen in 2008.

As you predicted and as happened, people just couldn’t pay anymore and the thing collapsed. You could’ve made a lot of money out of this. Did you?

No, I couldn’t. I could only make money if someone would’ve lent me a billion dollars, like they lent to Mr. Paulson [the Wall Street operator who made billions out of the housing crash] to bet against it. I’m a professor and a book writer. They’ll only lend you money if they can grab the assets, and I’m somebody that doesn’t have many assets, except a big collection of economics books.

Have you ever heard of someone sitting on Wall Street who read Harper’s in May 2008 and acted appropriately?

I don’t think they needed me. If they’re on Wall Street, they didn’t need me to tell them that the economy is going to collapse. They all knew it was going to collapse. That was in the language of “liar’s loans” and “NINJAs.” It was pretty obvious what was going on. It’s just the media didn’t talk about it because the media was giving handouts from Alan Greenspan saying that it’s not possible for there to be a real estate collapse, it’s only local. The media are cheerleaders for the stock market. Whenever it goes up they celebrate, even if it goes up because there’s a short squeeze on speculators. The media have not done a good job in educating the American public.

Has that improved in the time since the crash? Did they learn anything?

No. If anything, it’s gone down, because the media have all been in a financial squeeze, and they’re getting pretty inexperienced editors, reporters.

At least you have the satisfaction, if that’s the word, of events proving you correct. But we’ve supposedly now recovered from that disaster. Have we?


No, we haven’t at all recovered. That’s why Hillary lost the election. She said, “Look at how much better you are since 2008. Obama has saved you.” Trump said, “Wait a minute. Look at how bad you are. You’re not saved.” Everybody thought, “Who are you going to believe, your eyes or Hillary?” We haven’t recovered at all. Obama saved the banks and Wall Street, not the economy. From 2008 until today, the economy has grown by 2 percent, but the top 5 percent of the economy have got all of that growth. The economy isn’t recovering.

That’s why when the Department of Labor statistics gave the most recent employment figures, everybody commented, “It’s very interesting. Employment is up, but wages are continuing to fall.” It’s all minimum wage work. The debt ratio for most families is rising, not falling, especially for student debt, for mortgage debt, for automobile debt. The default rate is continuing to rise.

Last time around it was housing debt or housing loans that blew everything up. Have the loans you just mentioned been turned into speculative packages similar to the infamous collateralized debt obligations [securities based on housing loans] of yesteryear?

The difference between today’s packaged student and auto loans compared to those toxic junk mortgage loans is that the buyers recognize the risks involved. No ratings agencies are going to stick AAA labels on consumer debt where arrears and defaults are soaring. They are unlikely even to package student debt from for-profit “universities” or technical schools with bona fide institutions. Every investor knows that students are NINJAs – No income, No jobs, and no assets.

[But] you could say that the whole stock market is a kind of a ponzi scheme, because \$4.3 trillion has been provided to the banks by the Federal Reserve in quantitative easing to keep the interest rates down. So if you’re a good bank customer, you can borrow from the bank at 2 percent, you can borrow to take over a company or to buy stocks or to buy risky bonds that are yielding more, and you can make an arbitrage. That is, you can make in dividends or interest more than you have to pay.

So are we heading for another explosion comparable to 2008?

I’m not sure it’ll be an explosion. It’s more like a slow crash. It’s more like people are getting desperate. They’re having to live off their credit cards, not to buy luxuries but just simply to break even. They’re falling further and further behind, and as they fall behind the interest rate rises, the penalties rise, so people are getting more and more squeezed.

That’s why where I live in New York City, on all the big shopping streets there are more and more storefronts for rent. The stores are going out of business, especially the stores that are either mom and pops, or small well-known stores like art supply stores that have been there for a generation. Only the big chains are surviving, and even the chains are closing down, Sears and others. Entire shopping malls are going into default.

But we keep being told that this is because people are shifting to online shopping. Is that not the case?

Certainly many people are shopping online, but that’s not the real cause. The real cause is that overall retail sales are going down, because the average wage earner is only able to spend between a quarter and a third of their income on goods and services, after what’s left over from housing and taxes. The Federal Housing Authority now guarantees government mortgages up to 42 percent of your income. In New York City it’s normal to pay 40 percent of your income for rent.

Assume that 40 percent of your income goes for housing. Maybe 15 percent of your income is taken right off the paycheck by the FICA [Federal Insurance Contributions Act] for Social Security and essentially pre-saving for Social Security medical care (which provides the government with enough money to cut taxes on the higher brackets.) There’s another 10 percent to 15 percent in income taxes, local income taxes, and sales taxes. In addition to paying the mortgage debt, people have to pay bank debt, auto debt, and credit card debt. That’s about 10 percent. When you add all of these up, there’s only about maybe 30 percent of the income that they can spend on goods and services.

Economic textbooks talk about a circular flow, where the workers will get paid wages and they buy what they produce. That’s why Henry Ford paid his workers \$5.00 a day, so that they could afford to buy cars. Now they only have a little bit to buy what they produce, and the rest of their money goes to the banks and to the government to give tax cuts for the top 10 percent. You’re having a slow squeeze on the middle class and the working class in this country, and it’s stifling the domestic market.

How do you explain what are billed as record low unemployment figures?

People are desperate to go to work. But if you look at where the jobs are, these are minimum wage jobs. Most of the jobs are in retail, trade, or in other low-paying jobs. Yes, employment is going up, but at very low wages that don’t enable families to save. You can see this particularly every two years when the Federal Reserve publishes a survey of consumer finances. You can see for instance that blacks and Hispanics have almost no savings at all, and 50 percent of the American population as a whole doesn’t have any savings because if you’re earning a low salary, then almost all of what you do earn has to go to pay for rent and for bank credit and for taxes.

You say the most likely prospect for the future is a “slow crash” but when your Road to Serfdom piece ran in Harper’s, the Case-Schiller national home price index stood at 184.38. As of February this year it stood at 185.56. Why shouldn’t there be a similar blow-up?

Nowadays nearly all residential mortgages are guaranteed by the government’s Federal Housing Agency (and have been since 2008), so banks are not threatened. The government is on the hook to guarantee American mortgage loans as well as student loans.


A large portion of the millions of homes that were foreclosed have been bought by hedge funds, often for all cash – because they can make more money renting them out than they can make in the financial markets. So this real estate is not debt leveraged.

Wall Street’s investment banks and bondholders were rescued, not the economy. The debts were left in place, and continue to grow not only by compound interest but by arrears and penalties compounding. The proportion of national income paid as interest, insurance fees and economic rent is rising faster than the economy is growing.

Banks lend mainly to other financial institutions. They don’t lend to factories that are creating jobs. They don’t lend out for goods and services. They lend to other financial institutions. The whole economy has turned into trying to make money on speculation and arbitrage, not on producing goods and services, not on hiring people to actually do work. The economy therefore is very fragile.

The whole economy at the end of the road is going to look like Greece or Spain or Portugal or Italy. All of these economies are shrinking by what’s called debt deflation. In other words, people have to pay either so much debt or they have to have forced saving, like pension fund saving, that the economy is shrunk for financial reasons, for putting more and more of its money out of the real economy of goods and services into the financial sector.

Is that your prediction for our future here in the United States? Greece?

Yes, a slow crash as more and more money is drained from the economy to pay the FIRE sector—finance, insurance, and real estate—not the goods and service producing sector.

It all sounds like a ghastly inevitability. Is there anything to be done to save us from this?

Sure. There are a number of things. One of the things that Trump had suggested in the campaign was to remove the tax deductibility of interest. The tax system subsidizes the financial sector and subsidizes going into debt. It would be best not to give the favoritism to the financial sector. For example the real estate sector since World War II has hardly paid any income tax at all, because it has fictitious deductions. Even though real estate goes up and up and up, the real estate owner can pretend that the building’s losing value, as if it’s depreciating instead of going up in value. It can take this depreciating as if it’s an actual cost, even though there’s no cash at all. They don’t have to pay any income tax, because when you take depreciation, interest, and the high salaries they pay themselves, it appears as if they’re not earning any money at all.

The oil industry, the minerals industry, all of the rent extracting industries, the rentier industries, don’t have to pay tax. Only the industrial sector and the workers and the middle class have to pay taxes. That’s a backward tax system. This is the opposite of where economic theory was going for over one hundred years.

Could we quickly define for those who might not know, “rent” and “rentier?”

Rent is unearned income. Rent is what landlords get, “what they make in their sleep” as John Stuart Mill said. The landlord gets rent simply for inheriting or somehow being able to buy property and then gouging the renter for whatever will bear. Or rent is what is from natural resources. If you’re given a forest or an oil well or a mine, the rent is what you make over the actual cost of production and over the actual profit that’s made.

A rentier is someone who used to be called a coupon clipper. The original meaning of rent was to own a government bond in French. Rent is somebody who earns income every month or every quarter without doing any work at all, just by ownership privilege, just by inheriting wealth or somehow acquiring wealth and getting money without any work or any real value being produced

You suggested that Trump might’ve had the right idea with his suggestion to abolish the deduction for interest. Do you see any sign of that happening?

Not a chance.

(Republished from by permission of author or representative)
• Category: Economics • Tags: Banks, Donald Trump, Housing 
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  1. I was with Prof. Hudson until his last comments. Not everyone who collects “rent” considers it unearned. I deferred a lot of consumption in my younger days and now have investments that produce a reasonable amount of income. I don’t consider it unearned.

  2. JGarbo says:
    @Diversity Heretic

    Agree. Going without to buy a property to rent, then the interminable hassles of collection, insurance, repairs, etc for ~6.0% (taxable) income. That’s not hard work? Slum landlords might have it better. Flipping real estate is a better game.

  3. The 2008 crash in my opinion had a very simple cause: ‘economists’ believing their own phantasies, laid down in complicated mathematical models, that they themselves did not understand.

    As Varoufakis states ‘since 1970 macro economics has not been taught anywhere in the world’.
    There is no such thing as ‘absolute minimum value’.
    No value is guaranteed, if anyone invents synthetic gold tomorrow, the value of gold will drop to the production costs of synthetic gold.

    Stupidity of economists is a disaster, in 1997 70 Dutch economists warned that the euro cannot function, they were severely harmed in their careers, the euro is a disaster, yet agriculturalist Dijsselbloem, chairman of the euro group, promotes ‘muddling on’.
    The only sensible analysis of the derivates disaster I found in
    Thilo Sarrazin, ‘Europa braucht den Euro nicht, Wie uns politisches Wunschdenken in die Krise geführt hat’, 2012 München

    Sarrazin was a member of the Board of the Bundesbank, after he publicised a book on how immigration destroys Germany Merkel fired him immediately
    Thilo Sarrazin, ‘Deutschland schafft sich ab, Wie wir unser Land aufs Spiel setzen’, München 2010

    Varoufakis, in my opinion also a very competent economist, also was silenced.

    This is the present world governed by believers in fairy tales, the few that see reality are fascists, Trump, nationalists, extreme right, as Le Pen, extreme left, as Mélenchon.

    People like Sarrazin and Varoufakis are silenced, a man whose education was bookbinding wants to lead Germany, a woman educated in physics leads Europe.

    In the Netherlands someone who for eleven years studied art history, and someone with little more than primary education, are deciding on the future of our country: immigration, climate, EU and euro.

    Politics seems to be for those who are unfit for any productive job.

    • Agree: jacques sheete
    • Replies: @Agent76
    , @Clearpoint
  4. Medvedev says:

    You can see for instance that blacks and Hispanics have almost no savings at all, and 50 percent of the American population as a whole doesn’t have any savings because if you’re earning a low salary

    What they lack is called financial responsibility. I’m a bad example, since I arrived to US with a degree. Yet, I know Asian/Slavic people, who arrived with no degree, worked minimum-wage jobs, managed to save money for local community college, became nurses, accountants, tradesmen etc and now earn more than average American.

    Rent is somebody who earns income every month or every quarter without doing any work at all, just by ownership privilege, just by inheriting wealth or somehow acquiring wealth and getting money without any work or any real value being produced

    Complete and utter BS. You gotta be a socialist to believe in such nonsense. Even a child in the kindergarten doesn’t want to share his toy unless he gets something in return.

  5. unit472 says:

    I’d only quibble with the idea that the economy has ‘grown’ over the past decade. The only ‘target’ Bernanke and Yellen have hit is their 2% annual consumer price index increase. Any GDP growth has been, at best, nominal and in reality just additional debt. Its a bit like running up your credit card balance by \$10,000 over the course of a year and imagining you got a pay increase.

    • Agree: bluedog
  6. dearieme says:

    “That’s why Henry Ford paid his workers \$5.00 a day, so that they could afford to buy cars.” Dear God, an economist who believes this fairy tale!

    “and then gouging the renter for whatever will bear “: oh for heaven’s sake – charging a market price is “gouging”?

    “If you’re given a forest or an oil well or a mine”: what tittishness. Is there no start to this fellow’s understanding of society?

    • Replies: @TomSchmidt
    , @David
  7. Noah Way says:
    @Diversity Heretic

    Your children will inherit your holdings – because there is no effective estate tax generational wealth is preserved – and become rentiers, collecting profit without ever producing work.

  8. I don’t consider it unearned.

    I have no doubt you’ve earned every penny, but I suspect Hudson is using the term in a specific, “academic” sense and that it probably doesn’t have the same meaning that you and I would use in ordinary speech.

    I admit I haven’t read the article yet, but I intend to especially since Hudson is a better thinker than most. Waaay better than the bankster mouthpieces, the Krugmans of the world, although I admit that’s a pretty low bar.

    • Replies: @Anonymous White Male
  9. Sunbeam says:

    “I was with Prof. Hudson until his last comments. Not everyone who collects “rent” considers it unearned. I deferred a lot of consumption in my younger days and now have investments that produce a reasonable amount of income. I don’t consider it unearned.”

    That’s nice. But are you economically useful?

    Looking at it as a game, tell me what benefit you bring to the other players as a game theory argument.

    If you had been feckless in youth, your consumption would have required someone to service it, providing an economic benefit as the Keynes argument about broken windows and repairmen goes.

    But let’s consider the case of a young Poindexter that saves his money, so he can buy his first rental property so he can be a rent seeker too.

    Specify to me the benefit to anyone else in the system?

    You look at yourself and see virtue in the Horatio Alger sense. To my eyes you are the game theory version of AIDS though.

    Dunno though. Maybe I got you wrong and you made your money by manufacturing or making specialty porn.

    • Replies: @Miro23
    , @RadicalCenter
  10. Anon • Disclaimer says:
    @Diversity Heretic

    Indeed. On the logic of the Hudson view you would be a rentier ripe for plucking if you bought land and built houses on it that you then rented out for more than would pay your outgoings to maintain them and your ownership of them. Obviously you wouldn’t have spent your money and time to build them if you weren’t allowed to get a deferred reward for tbat expenditure which made it worthwhile.

    • Replies: @Anonymous
  11. @Diversity Heretic

    I believe this may be what we’re looking for, but it’d be nice if Hudson would comment.

    “Economic rent.”

  12. Current state of affairs is a logical development of this system called capitalism which was predicted by Marx. This cancerous growth is going to have us all firstly enslaved then killed be if allowed to continue. The stage when capitalism was progressive is long past which has been obvious for about some 50 years. It had fullfilled it’s goal but as social development is not precise science it is hard to predict when next stage will come. Quite obviously it is about more fair, just, communal and sustainable society which would provide decent life for all and allow full development for those with true talents and true fruition of what science has achieved in all society interests. We also must go and develop and explore Solar system as our continuos survival depends on it. Capitalism is a dead end. I hope next stage will be achieved before capitalism kills us all.

    • Replies: @bluedog
  13. Anon • Disclaimer says:

    Isn’t fha only a small amount of overall loans?

  14. On more practical note. As I live in Toronto prices here are out of control and I daily see signs house sold about asking price. I wonder what part of their bodies people use while making decision to get into real estate market which is in obvious bubble stage. Last year I was talking with one real estate guy who while doing his job was also wondering same about people taking on \$500-700000 mortgages. Now it is even more. \$1000000 is quite a possibility. One with a little beat of basic math skills should have known long time ago that even after mortgage is paid off he is never going to be expenses free. I got into this in 2004 when prices were just starting to rise and even with far smaller mortgage expense was quite significant. Now it must be total murder especially considering property taxes which are through the roof and hydro expenses which are out of control . People are just like lemings. In real estate just like in all other markets there is a limited window of opportunity to enter be to make real gains. The only difference is that real estate market has far longer cycles. I’m hoping real estate should have never been in the market game as it is just a shelter.

  15. Agent76 says:

    This is how the one that triggered the faux bailout of the Bank’s.

    Barney Frank Does Not Believe a Housing Bubble Exists Although He Created it 2005

    In 2005 Said Barney Frank on September 25, 2003: “I want to roll the dice a little bit more in this situation towards subsidized housing.”

    How The Democrats Caused The Financial Crisis Starring HUD Sec Andrew Cuomo & Barack Obama

    It started under Jimmy Carter with the CRA which was put on steroids under the leadership of President Bill Clinton and his thug in chief, Sec of HUD, Andrew Cuomo.

    • Replies: @bluedog
  16. @Diversity Heretic


    I must admit that I agree with your comment.

    Hudson did define “rent” and he certainly appears to not give adequate credit to the landlord’s foresight, negative time preference, labor, vigilance, discipline, risk assumption,and other extremely important forms of input.

    I wonder how he’d respond to the charge!

    • Replies: @Anonymous
  17. bluedog says:

    Yes but you have to remember those that come here pay no taxes for x number of years one who came from Turkey said he paid almost nothing for his first house, and another from Romania said the same the one from Turkey said his daughter got a free pass to college, both were preparing to sell their homes and return back to their home countries, and as the one said “I can sell my home and my savings are already banked in Romania and my S.S can be sent to me there ,so I can go back and live like a queen” it seems you just didn’t know how to work the system at the American taxpayers expense.!

    • Replies: @Medvedev
  18. Agent76 says:

    Mar 20, 2017 US Debt of \$20 Trillion Visualized in Stacks of Physical Cash

    Showing stacks of physical cash in following sequence: \$100, \$10,000, \$1 Million, \$2 Billion, \$1 Trillion, \$20 Trillion. The faith and value of the US Dollar rests on the Government’s ability to repay its debt. “The money in the video has already been spent”

    FEBRUARY 23, 2016 The World’s Debt Is Alarmingly High, But Is It Contagious?

    The world has continued to borrow hand over fist since the financial crisis, adding nearly \$60 trillion since 2007 in the process of pushing the worldwide debt load to \$200 trillion, or nearly three times the size of the entire global economy.

  19. Joe Hide says:

    The idea that rent doesn’t involve work is ludicrous to people that own or manage rental properties. However, maybe the author is correct in his overall assertion, that the rules of the economic game have changed / been changed to reward asset ownership too much, vs. Production of beneficial goods…. especially in manufacturing, agriculture, and mining. There’s much more and easier money to be made renting out properties, owning stocks, and manipulating currencies …. than making and servicing things. By the way, I have rental properties, am involved in stocks, and speculate on cryptocurrencies, etc….. but also have worked in, and have relatives who presently work in manufacturing , service industries, and agriculture. So my observations come from reality. I would prefer being of greater benefit like my relatives, but to make money I have to play by the creepy new rules of this economic game.

  20. bluedog says:
    @Sergey Krieger

    Indeed as the man said “we have destroyed the one great evil communism now we must destroy the other great evil capitalism and he was right…

    • Replies: @Sergey Krieger
  21. @dearieme

    According to Drucker, Ford’s profits doubled the year after raising the wage, because it so dramatically cut his labor costs. Ford understood the cost of training, and the usual way that companies pay for training is by hiring someone and paying a salary while they learn the ropes. That’s 3-6 months of low productivity, so basically a half year’s salary is spent on training for companies that do not effectively on-board people. Because the assembly line was so miserable for skilled labor, you had to offer a lot of economic balm to get people to stay.

    I think it was Walter Reuther, head of the UAW, who, when shown a car-making robot, asked how many cars it would buy.

    • Replies: @jilles dykstra
  22. The pending real estate crash will be a great boon for those who are currently renting and saving to buy a home in the future. It is an ill wind that blows nobody any good.

    • Replies: @The Alarmist
  23. @Jonathan Mason

    “The pending real estate crash will be a great boon for those who are currently renting and saving to buy a home in the future. It is an ill wind that blows nobody any good.”

    You’re assuming their savings won’t be wiped out in the big reset. Ever notice that the super-wealthy keep very little of their wealth in banks or financial assets?

  24. Agent76 says:
    @jilles dykstra

    Jilles Dykstra, know and share these with folk’s for a reality check.

    The Fed Audit

    GAO (Government Accountability Office) report Of the Federal Reserve

    May 21, 2013 Why the whole banking system is a scam – Godfrey Bloom MEP

    • European Parliament, Strasbourg, 21 May 2013

    • Speaker: Godfrey Bloom MEP, UKIP (Yorkshire & Lincolnshire)

  25. Agent76 says:

    Jun 9, 2017 Political Theater Trumps Economic Data

    • Replies: @edNels
  26. AaronB says:
    @Diversity Heretic

    If you borrowed money from a bank, bought property and rented it out, and made way more in rents that it took to pay back the bank, you pretty much “did nothing” to earn that extra income. Its income earned while you sleep.

    Maintenance costs are also paid by the rent, so cost nothing.

    Hudson’s point is that most property now is like this. And inheritance as well.

    Obviously, “some” people worked really hard, saved,. and bought property.

    However, even so, once you buy that property and rent it out, if your income from it vastly exceeds your investment, it is “unearned” – you produced nothing to get it. To that extent, you aren’t a productive member of society.

    The second instance is obvious less bad than the first, but it is questionable if an economy should be set-up to favor these kinds of things, even if they are not entirely avoidable. An economy that favors these kinds of activities too much, especially the first, will become highly fragile.

    It makes sense.

    • Replies: @Anonymous
  27. Anonymous • Disclaimer says:

    No, because the land would still be there. Rent derives primarily from land value, not building value.

    • Replies: @Anon
  28. Anonymous • Disclaimer says:
    @jacques sheete

    Land value, from which the landlord derives his rent, does not derive from the landlord’s input. That’s why empty lots can sit idly for years and increase in value. That’s why absentee landlordism is a thing.

    • Replies: @BCR
  29. Miro23 says:

    [But] you could say that the whole stock market is a kind of a Ponzi scheme, because \$4.3 trillion has been provided to the banks by the Federal Reserve in quantitative easing to keep the interest rates down.

    So \$4.3 trillion went into a Ponzi scheme and another \$4-5 trillion went to destroy the Middle East.

    I suppose that in a parallel universe all those \$trillions could have gone into developing a world competitive US workforce, world competitive US industries, middle class employment and first class US infrastructure.

    • Replies: @bluedog
  30. Anonymous • Disclaimer says:
    @Diversity Heretic

    It’s unearned because it’s not generated by your productive labor or enterprise. When you were younger, the money you received in income from productive labor or enterprise would have been earned income.

    If you use your land to run a farm or factory, then the income you receive from your productive labor and enterprise is earned income. If you rent out your land to someone however, the rent you receive is not generated by your productive labor or enterprise, but must come from the earned income of the tenant.

    • Replies: @Anon
    , @annamaria
  31. edNels says:

    Godfrey Bloom tell’s it pretty convincing but Peter Schiff…? Blahdy Blah, what a Tool!

    • Replies: @Agent76
  32. @TomSchmidt

    Hitler admired Ford, Ford could produce a car for 300 dollar while in Germany an Opel cost 1500 RM.
    USA production methods were far superior to European methods.
    After Pearl Harbour USA production specialists visited British aircraft factories, they were flabbergasted about the inefficiënt methods.
    In 1942 Ford began to produce bombers as if they were cars.
    Charles Lindbergh assisted him in setting up the production.
    Liberty ships were built faster than German U boats could sink them.

  33. Miro23 says:

    If you had been feckless in youth, your consumption would have required someone to service it, providing an economic benefit as the Keynes argument about broken windows and repairmen goes.

    Isn’t it time to bury these stupid Keynesian arguments?

    Keynes gets the government to pay the unemployed to dig holes and fill them in again – and their spending will benefit the economy right?

    Wrong. Any use of capital is an investment and a valid investment has to be of enough quality to return the capital and pay interest. Otherwise it just builds up more government debt.

    Keynes was into being cute and clever , and unfortunately generations of leftists followed him with the “stimulus spending ” idea while having no interest in the quality of the investment. They just built ever larger and more dysfunctional welfare states loaded with debt and high taxation.

    A real national investment would involve developing a world competitive workforce, world competitive manufacturing and top class infrastructure, but that would require a whole different type of government and an unimaginable level of national unity.

    • Replies: @ANON
  34. bluedog says:

    Oh they knew they were creating a bubble when under Reagan, when David Stockman Reagans budget director wanted to remove Freddy and Fannie from a GSP and force them to go to the street for the money, but the house republicans threw a fit crying about all the business’s who would loose money if they did that,thus the bail-outs que’s which would follow a few years later that plunged the country neck deep in debt, a debt left for the taxpayers and their g grand children to pay off a debt they will never pay off…The Great Deformation by David Stockman

  35. bluedog says:

    Damn I like your thinking one of the few who can see beyond “I want mine too” and it exposes all that is wrong with the capitalist system…

    • Replies: @RadicalCenter
  36. Agent76 says:

    I roll the Madison way without believing the two party mythology. I am an old man who was writing computer programs long before the first P.C. ever came to market in the 1990’s. View this other post on this topic. Mar 20, 2017 US Debt of \$20 Trillion Visualized in Stacks of Physical Cash

    Madison said it best for me, “Knowledge will forever govern ignorance; and a people who mean to be their own governors must arm themselves with the power which knowledge gives.” James Madison

    • Replies: @Negrolphin Pool
  37. @bluedog

    Both are on different curves sides. Capitalism had exhausted its usefulness while communism or whatever it might be called was just the first attempt. I remember reading comparison between modern capitalism and Soviet style socialism as between cool sport car as Western capitalism and rusty but still primitive space ship as Soviet socialism. In any case I would take early socialism over early capitalism any time of the day. Socialism despite all its faults in the first edition still provided people with certainty and all things human needs to live and live decently. While early capitalism was quite frankly hell on earth. It takes time and there is no alternative or we shall perish.

    • Agree: bluedog
  38. “Hudson got it entirely right”


    shoot damn caps lock.

    I know one of these people. They lived mortgage free for 48 months….and the taxes got paid by the bank.

    what a fucking scam where the honest people lose every time.

    if you pay your bills and play by the rules you’re a damn fool……..

    • Agree: jacques sheete
  39. Medvedev says:

    Yes but you have to remember those that come here pay no taxes for x number of years

    This assertion is not true.

    • Replies: @bluedog
  40. Anonymous • Disclaimer says:

    You almost completely ignore the passage of time and the need to have a pattern of incentives to produce, inter alia, modern residential accommodation.

  41. ANON • Disclaimer says:

    Keynes would have been horrified at much of what was done or proposed as Keynesian for decades after his death and the end of the 30s Depression.

  42. Anon • Disclaimer says:

    Your point being? Surely not that some people use the word “unearned” narrowly and tendentiously ignoring the fact that we are not normally productive beings who can produce more than we consume from birth to death.

  43. Anon • Disclaimer says:

    “No”? What’s your point? A purely verbal one that Humpty Dumpty *chooses* to apply the word “rent” only to what is [notionally] derived from the land?

    As empitical fact it is obvious rubbish. Just in case someone who thinks it worth making your comment can’t see it, suppoae the recipient of the landlord’s rents has. Invested \$10 million in the land and then built a \$60 million building on it…. And think of the case where the landord who receives the building rents has leased the land for (an initial) \$400,000 a year from the state before building the \$60 million high rise.

  44. @jacques sheete

    Well, he is an academic and an economist. Talk about unearned income! He knows words have meanings and, like most academics, he uses them as a bludgeon to advance his preferred objective. Rent as unearned income is similar to being told by Obama that businesses didn’t “build” that business.

  45. CanSpeccy says: • Website

    Years ago it was said of the last the Duke of Westminster that he “earned” ten thousand pounds an hour, and his heir presumably earns a lot more. But does anyone “earn” the equivalent of the national median annual income in an hour?

    In fact, most of the great rental empires, like that of the Duke of Westminster, are mostly inherited, so even if someone at some time in the past had earned money and invested it in rental property, the income from that investment has probably long ago repaid the investment in labor. Thereafter, the income is a benefit of ownership, not a reward for effort expended. Property ownership and the inheritance of property is thus a major cause of inequity between man and man.

    • Replies: @ANON
  46. @Agent76

    Why is that idea so easily violated, then, in places like South Africa and Zimbabwe, where the ignorant lord over the knowledgeable and destroy all in the process?

  47. ANON • Disclaimer says:

    Since the Grosvenor Estate includes many properties that need to be professionally managed if they are to be kept in good condition, used by those who get most value out of them and replaced when too far depreciated do you think thete are others than the Duke of Westminster’s managers who would do a better job of it while paying no less tax on the net income generated?

    As for your last sentence are you sure you mean “inequity” rather than “inequality” and are intending to say that property ownership and inheritance of property are morally bad? If not, what are you saying? And what should follow from it?

    Are you aware of societies that are without the concept and practice of ownership (of thine and mine) or that do/did not recognise family claims on the deceased’s properties? Do you not recognise the place that ownership has played in motivating people to achieve economic improvement? Was the creation of patent law and copyright so that IP could be worked for and enjoyed morally misconceived?

    • Replies: @Anonymous
    , @CanSpeccy
  48. bluedog says:

    Oh my but it is if you look it up for they have a five year grace period on taxes, then they can sell it to a family member who is an immigrant and they will receive a 5 year grace period and on and on and on..

  49. annamaria says:

    “It’s unearned because it’s not generated by your productive labor or enterprise.”

    Imagine someone building/renovating and making livable a house to make it a rental property, while paying off the expenses for the construction — before seeing any profit. Not everybody likes to possess a house with all the problems coming up along with having a private property. This situation (having a few apartments for rent) is akin to having a farm as compared to mega-agribusiness.

    • Replies: @Anonymous
  50. David says:

    I agree and well put. Next he’ll roll out the evil origin of the Rule of Thumb.

    In his last ramble Mr Hudson said Blackstone had bought houses with Cash because of the unprecedentedly low cost of borrowing. Huh?

  51. Anonymous • Disclaimer says:

    You’re confusing building value and land value. Most of the rent derives from land value, not building value. This is why a mansion in a volcano or underwater will have no value, and why an empty lot with no buildings on it in a city will be worth millions.

    • Replies: @annamaria
  52. Anonymous • Disclaimer says:

    IP is created by the productive labor and enterprise of a particular person. Land isn’t. If the Duke of Westminster died or never existed, the land his estates sit on would still exist. That’s not the case with IP.

    Ownership does motivate people, which is why the situation whereby people’s labor and enterprise are taxed to pay for the ownership rights of the Duke of Westminster while the Duke of Westminster pays relatively less or no property tax is a severe corruption of that incentive structure.

    • Replies: @ANON
  53. CanSpeccy says: • Website

    Rather than placing the responsibility upon me to rebut arguments that you do not make, I suggest that you first make those arguments. In particular, I should like to know your case for inherited property. And in making that case, I suggest that you explain why it was a good thing, for example, that David Rockefeller was enabled to devote time and vast wealth to a conspiracy to destroy the nation state, to the great benefit of the globalist (mainly inherited) Money Power but at great cost to the American people, merely because his grandfather created an oil monopoly.

    • Replies: @ANON
  54. annamaria says:

    And you are confusing the efforts and the dogma. What is the difference between building a house for a kindergarten and rehabilitating and making livable an old house nearby the kindergarten for parents’ convenience? Is the owner of a house for a kindergarten is a malicious rentier or part of normal business process in a functioning society? To follow the dogma, each human being has to build his/her own house and live there. Imagine that not everyone is skillful in construction and management. This level of explanation simply follows your comparison of an empty lot in center city and an underwater disaster.

    • Replies: @Anonymous
  55. @Medvedev

    You gotta be a socialist to believe in such nonsense.

    Yes, that is very “Labor Theory of Value” thinking Hudson’s displaying there. Apparently the time value of money (and assets) doesn’t figure into his view of economics.

    That’s why Henry Ford paid his workers \$5.00 a day, so that they could afford to buy cars.

    What is it about economic myths like this that makes them almost unkillable (hello, “gender pay gap”)? Is it because so many people don’t really grasp economic basics? Ford paid his workers well to cut turnover, which is the lesson that need to be emphasized today, rather than the garbage about Ford “wanting them to be able to buy his cards.”

  56. anonymous • Disclaimer says:

    The description of the “rentier class” reminds me that my company had a client who was a nationally known real estate holding company in NYC which owned scores of buildings mainly in Manhattan but also in the other boroughs (No, not Trump). Many were luxury residential buildings but just as many were commercial buildings. The buildings were worth billions. Each building had a group of different owners with one exception: the president/CEO of the parent holding company owned a piece of EVERY one of the properties. In addition, this individual used to simultaneously serve as broker in the sale of the properties. It was amusing to see how buildings used to change ownership literally two, sometimes three times a day. And with each change of ownership the value would grow like topsy. It was like a Monopoly game with real property. And on each occasion the “managing partner” would extract a fee–this in addition to the vested interest he had in the sale of the property itself as an owner. It was my understanding that this is supposed to be illegal but in the world of NY real estate it’s honored in the breach.

  57. Anonymous • Disclaimer says:

    The owner of a kindergarten who runs it and earns income selling kindergarten services would not be a rentier. He would be a rentier if he rented out the building to someone who used it to run a kindergarten.

  58. @jilles dykstra

    There are economists who are propagandists for the elite, who benefit from the system as is, and who use macroeconomic models to justify the system and hide the truth, and there are economists like Hudson who have stayed true to the wisdom of classical economics. Agenda matters. It doesn’t matter if you’re selling magical elixers or magical economic models.

    • Replies: @CanSpeccy
  59. CanSpeccy says: • Website

    There are economists who are propagandists for the elit

    They are virtually all propagandists for the elite, or so said Harvard economics professor John Kenneth Galbraith.

  60. ANON • Disclaimer says:

    I suspect you are wrong about the tax situation in your second par as you certainly are in the distinction you make wrt IP in the first. Like land titles IP is created by decision of the lawmaking sovereign authority (and upheld by the same system of courts). The beneficiaries may have had absolutely nothing to do with the “productive labor”. It may in fact be Agatha Christie’s great-grandchildren who have reaped the royalties for productions of “The Mouse Trap” decades after her death but it could have been an opportunistic speculator who bought the copyright cheap from her son when he was in debt….

    • Replies: @Anonymous
  61. ANON • Disclaimer says:

    My questions at the end were of course rhetorical simply intended to remind you or prompt you to think of the obvious. That some people wbo inherit wealth do not use it well is as obvious as the examples of those that have taken publicly beneficial advantage of inherited wealth. But, so what?

    • Replies: @CanSpeccy
  62. I hadn’t intended to comment further but I’m going to anyway about “collecting rents.” Does anyone out there think that rents just magically appear in the mailbox or the bank account? Lots of tenants are deadbeats and getting them out of property, and paying tenants in can be agony. In one case in which I was involved, a tenant failed to pay the rent for several months and then claimed damages because the refrigerator had malfunctioned and spoiled a \$700 bottle of wine. Can’t pay the rent but can afford a \$700 bottle of wine to put in the fridge? And the judge bought it!

    I remember seeing a segment on French TV about a property owner who was living in a shelter because he could not evict a non-paying tenant. And what about the tenant who not only doesn’t pay the rent but trashes the apartment? There are a lot of landlords who refuse to rent to Section 8 tenants, even tough most of the rent is guaranteed, because they know what they’ll find when the tenants move out, or are finally evicted when they can’t even come with their minimal share of the rent. Industrial and commercial property evictions are easier but finding new tenants for property configured a certain way can be difficult.

    So anyone who thinks that the life of a rentier is easy, make sure your unicorn is fed and watered and say hi to the trolls under the bridge and the fairies that dance around the toadstools on your lawn. They’re all just as real as your perception.

    • Agree: RadicalCenter
    • Replies: @bluedog
  63. Anonymous • Disclaimer says:

    Yes, all formal property titles are government constructs. But the assets themselves aren’t. A piece of land or a novel aren’t government constructs. The difference between land and intellectual property is that the latter is created by productive labor and enterprise, whereas the former isn’t. Thus the incentive structure affects them differently.

  64. bluedog says:
    @Diversity Heretic

    Yep then you have the slumlords who have the right connections who rent places out without a working toilet or anything else, and the cities are full of them but they charge a lower rent because in many cases its people can pay, and that’s with two working, and of course that’s the other side of the coin..

  65. CanSpeccy says: • Website

    So you your unstated argument is that inherited wealth is as good as merit as the determinant of an individual’s social status material advantages.

    Most people, most of whom inherited nothing of any significance, probably disagree. So, in a democracy, the sovereign people would confirm the merit of estate taxes — or as I would prefer, a capital tax, levied at the rate of 1.5% with generous exemptions to limit application of the tax to the truly wealthy. That would generate something like half a trillion in the US, which would go a long way toward eliminating the deficit and fulfilling Warren Buffet’s plea to be taxed more — about a billion a year more.

    • Replies: @bluedog
  66. bluedog says:

    And a flat tax would raise much more but then again with the corruption in the government that will never come to light..

  67. TG says:

    Response to Diversity Heretic: Yes, I hear you. And I applaud your diligence and personal self-denial. But yes, you are indeed a rentier. Sorry.

    Suppose that I worked hard and saved a lot of money. Then I buy a section of highway that is the only way to get into a city, and I charge everyone who passes through twenty bucks. (Oh, and I used some of my savings to bribe a politician so I got the road paying only 10 cents on the dollar). I don’t even maintain the road – I let the city do that, or threaten to let the road decay – I just collect rent automatically, forever, for nothing, having produced nothing.

    I think there is a separation here between my honorably accruing wealth, and then using the wealth to bribe politicians and buy a tollbooth and scam everyone else forever.

    Even Adam Smith said that there is a difference between passive rent collection, and active management – though sometimes an individual may wear two hats and do both (an owner-operator of a farm), but still these are separable. Or someone may own apartment blocks and collect unearned rent – but also add value through active management. These are two separate activities, even if done by the same person.

    I don’t fault you for taking advantage of the system as it is, but that you would get tax advantages for passively collecting rents, while people who are actively building things and doing things are taxed at higher rates, is, I think, not fair, and not good for the whole of society.

    Suppose everyone tried to do what you did at the same time? Suppose all of us ‘saved,’ and lived on very little, then invested in passive rent-seeking without building anything or doing anything. The society would collapse and we would all starve. What is good for an individual might not be good for the society as a whole (‘the paradox of thrift’). I suggest that any activity that, if everyone did it at once, would result in a disaster, might not be so benign.

    • Agree: bluedog
  68. @Sunbeam

    Couldn’t get your act together enough to buy rental property, eh? “Game theory version of AIDS”? Bitter, man, and strange.

  69. @bluedog

    Yeah, because in “socialist” systems people aren’t selfinterested. I hadn’t noticed that.

  70. anon • Disclaimer says:

    The United States is the richest country in the history of the world. Our poor may be starving for something but it isn’t food, since they are fat.

    Why do people feel so poor? I have no real idea.

    Consider this. Commodity prices are declining. Since 2008, the US has built out the infrastructure to produce its own oil. Manufactured goods are cheaper than ever. The only things that aren’t have government dictated supply constraints. Medical care and higher education. And real estate in desirable locations where zoning and other supply constraints prevent building more. The rule of real estate is location/location/location.

    Capital has even gotten cheaper. There is a shortage of safe investment. Hence government bonds pay zero real interest rates — with 10 year treasuries yielding slightly more than inflation.

    Right now, the issue is immigration and health care. Without governmental constraints on supply, the latter would be cheap. But it is now absurdly expensive in the US. If we have open borders and give away governmental funded services it is an ugly situation. Open borders creates the illusion of growth. It prevents deflation, since it creates demand for certain services and it creates a demand for housing new people and an even greater demand for housing that is isolated from the externalities caused by poor neighbors.

    The problem being that you can import cheap manufactured goods but you can’t import highly productive taxpayers.

    Your property is theft. My property is hard earned and deserved.

    The problem with capitalism is growth. We can’t grow our way out of entitlement imbalances by importing poor people. Yet people think it can be done. Because short term, it appears to have some benefit.

  71. BCR says:

    I am no economist. I am quoting my father, who worked in the financial side of the oil and gas business for his entire career, mostly for what became Exxon. He said they learned very early on that undeveloped property did not actually increase in value greater than the rate of inflation. Empty lots are not the same as absentee landlordism. The latter might make you some money. The former will not.

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