Come January 20th Donald Trump is placed to take power in Washington D.C., and there’s one thing that everyone is wondering about is what kind of economic policies will he implement that we should really worry about it. Well there’s been one economist, Michael Hudson, who’s been thinking hard and taking a close look on the economics profession and how it misleads the general public in favor of the top 1%.
Michael Hudson joins us today to talk about his most recent book, J is for Junk Economics: A Survivor’s Guide to Economic Vocabulary in an Age of Deception. Michael is a is a distinguished Research Professor of Economics at the University of Missouri, Kansas City Thanks Michael for joining us.
MICHAEL HUDSON: Good to be back in Baltimore.
PERIES: So Michael, your new book, J is for Junk Economics actually is a sequel if I may say, to this book which is Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy. So give us a sense of your impetus for the new book.
HUDSON: Well, Killing the Host was basically a historical narrative of how the financial sector rose to power and how it sought to take over government and resist the tendency to democratization by really restoring a financial oligarchy and rolling back in Europe what were the 1848 revolutions. The revolutions to sort of free economies from landlords, from monopolies and from the banks. By the late 19th century there was a counter move in economics and that move redefined the idea of free markets. Adam Smith and John Stewart Mill and even Marx wrote about free markets.
They meant a market free of the idle rich. The idle landlords who collected land rent on a hereditary basis without working, with financers and the bankers who then insisted that governments create monopolies to give them the whole idea of industrial capitalism was to get free of all these unnecessary costs. You don’t need a landlord class to collect rent. You don’t need monopoly rent. Around the late 19th century the landlords fought back and they claimed there’s no such thing as unearned income.
The whole essence of classical economics was to say there’s a difference between value and price. Value is what it really costs what it really costs to produce goods and services. All that costs can be expressed in terms of what it costs to hire labor and keep it alive. Everything that’s not a real cost is just a privilege. It’s just a legal right to put up a toll booth and extract rent.
So Killing the Host was how this fight was waged politically and essentially what’s happened since Margaret Thatcher and Ronald Reagan introduced neoliberalism that was followed up by the Clinton’s, by Tony Blair and England, really by Europe today, well J is for Junk Economics is sort of two things. It describes how the economic vocabulary has been turned around in an Orwellian way to mean just the opposite of what words used to mean. A free market now means a market free for the landlords to charge whatever they want. Free for the monopolists to charge whatever they want. Free of any regulation.
The whole intent is to create what is called a methodology. I know that’s technical word but to create a way of looking at the economy of making national income statistics that make it appear as if Goldman Sachs is productive. As if Donald Trump is productive. To make it appear that people who take money from the rest of the economy without working, without really providing any service or actually contributing to GMP and to economic growth. So I’m trying to show that what people think is scientific economics, it makes it appear as if poverty is natural. That makes it appear that Goldman Sachs and Donald Trump are job creators instead of job destroyers, is illogical.
So I talk about the vocabulary. It’s an A to Z vocabulary that goes over all of the concepts you need to pierce through this Orwellian rhetoric that passes for mainstream economics today. Mainstream economics is pretty much turned into junk economics and its idea is that rent is perfectly natural to be paid. That a well run’d economy should have no government at all but should shift all the economic planning to Wall Street to city of London or Paris or other financial centers. Let finance do the planning because they’re the most productive people in the world that government is just a bureaucracy.
Now this is just the opposite of what was believe 100 years ago. I think I said before in this program that the first business school economics professor, the Horton School of Economics at the University of Pennsylvania in the 19th century was Simon Patton and he defined public infrastructure, the public option roads as a 4th factor of production. The biggest capital investment in every country is what governments spend on roads, water and sewer, basic infrastructure, communications, telephone, natural resources, and of course land. All these things are being privatized now and the job under government ownership under a public option like public health in Europe, the whole idea is to lower the cost of living, lower the cost of doing business so you make the economy more competitive.
Well under Thatcherism or Clintonism or whatever you want to call it, the idea is to turn the sidewalks over to the monopolists financed by Wall Street, to all of a sudden begin charging and the result is to make America a high cost economy. So, that when people like Donald Trump come in and say we’re going to make America great again, what he means is competitive again. But how can you make it competitive if you make Americans pay so much more in healthcare, as much in healthcare as an Asian would earn in an entire year. If you gave Americans all of their food and clothing and everything they buy and self for nothing, they still couldn’t compete because of all of the costs that other countries pay for through the government; government healthcare, government spending, government roads.
This was the dream of America in the 19th century. It’s what made America the most competitive country in the world. Enabled it to undersell others. It’s what made Germany competitive. It’s what made Japan competitive and all of this is being undone now as if this whole world that existed before 1980, before Margaret Thatcher, before Ronald Reagan, even before Bill Clinton, didn’t really exist. There’s been an expurgation of all of the tools of thought, all of the vocabulary that you use to distinguish between profits that are actually earned on capital investment, hiring people and economic rent which is just a toll booth to extort money over and above the actual cost of production.
PERIES: Now you said something really important, which is that people at least in this election cycle started to believe that Donald Trump was a job creator rather than a job destroyer. What did you mean by that and how have you led down the garden path?
HUDSON: I didn’t mean that they actually believed that he is a job creator. He wanted to convince them that he was a job creator. And it’s true, he did create a lot of jobs. Probably not as many jobs as were lost by people gambling at his resorts. I teach at Kansas City and the just had a study of why do people go bankrupt in Kansas City. Well they have a ship that goes in the river that goes in the river that people can go and gamble on. Most of the people who gamble find themselves they can’t afford to pay their rent. They lost their jobs. They think there’s only one way I’m going to be able to pay the rent and not be out in the street. I’ve got to pay 100 to 1 payoff. If I don’t, it’s that or nothing.
So for them it’s actually rational, I’m probably going to lose but the only way that I can keep my head above water is to win the lottery and apparently they end up losing the lottery. So Donald Trump’s idea is if he can convince the working class that you can all be a millionaire, you’re all going to win the lottery. Wouldn’t you like to be nice to be millionaires for the time that you win the lottery?
That’s the game. Nice trick if you can pull it off. But I think it’s a myth and it’s a myth that people want to, that leaders who represent Wall Street and the elites and the real estate interests want to promote in the hopes that somehow people will think of themselves, well I could be a big capitalist. They’re a little bit for Donald Trump’s father goes million, I can do all that but they really can’t do that because the odds are stacked against them and a good economic theory would show how the odds are stacked against people, why people are getting poorer and poorer since 2008. For the last 8 years, the entire Obama administration has been one downturn for the 95% of the population. All the growth has been at the top. We’ve got to show them that.
PERIES: Yet when we heard President Obama speaking at various rallies to support Clinton’s candidacy, in terms of his own legacy, all he talked about was how much better off we are in terms of what he inherited in 2008. Which is true.
HUDSON: No that was the kiss of death. That was what lost the election for Hillary. Imagine Hillary going to the country and saying, just think of how much better off you are than you were 8 years ago. Well imagine the people wait a minute, I’m not better off, I’m worse off. My real wages have gone down. If you’re 95 out of 100 Americans, your real wages have gone down. You’re being squeezed by healthcare. Your housing costs are going up. All of your costs are going up and your wages are not going down and your working conditions are getting worst. I think the voters thought I’m not better off at all. What is this?
And their feeling was one of revolt. They said they can’t fool me anymore, no matter what the opposite is, we’ve got to throw them out. Even if we can’t vote for someone good, at least we can keep throwing out the bad guys and maybe like on a roulette wheel, a winning number’s going to come up some day. Unfortunately that’s not how it worked.
PERIES: And so let’s talk about the kind of mythologies that are being sold to the people like the one I was just talking about in terms of President Obama and the campaign trail telling. People that they’re better off, than they are. How are they being sold these mythologies and what are some of the terminologies that you cover in your book that leads people to believe what they’re being told?
HUDSON: Well one way that he convinces them they’re better off, he says GDP, gross domestic product is going up. It’s true. For the economy, gross domestic product actually has gone up since 2008. The problem is, it’s only gone up for 5% of the population. But it’s gone up for so much for Wall Street, so much for 5% of the population that it’s larger than the decline of the 95%.
Now I don’t know if I’ve talked about this on the show before but I was just in Germany at an archeological conference and we were talking about the Roman empire turning into feudalism and people said there’s been a new economic approach, new economic archeology. There really wasn’t a Dark Age. Because it turns out we’ve found so much luxury trade among the very rich, the landowners despite the fact the population was all being turned into serfs, the rich were doing quite fine. We find nice pottery, there was certainly many at the top of the pyramid. So much money that maybe there was actual growth. So they call the transition to serfdom and just peonage for the population, actual growth because so much wealth was squeezed out at the top.
Now is that really growth or not? If President Obama and Hillary could convince people that GDP is going up and you haven’t shared in it, something’s wrong with you. This is blame the victim. She’s blaming the victims for not participating in this growth that was enjoyed by Goldman Sachs and Wall Street and Chase Manhattan and the other bankers that were not thrown in jail. Most people didn’t want to think of themselves as the victim and they thought that Donald Trump’s appeal was pretending that they weren’t victims and that he was going to do something about them apart from making himself rich.
PERIES: Right and why is it that you blame the Obama period for this because he actually did inherit terrible economy in a depression.
HUDSON: Yes the reason he’s so much worse than President Bush or even President Clinton is this was a potential turning point. When you look at who are the great presidents in history, you really think who’s a president during a great war or during a turning point. Obama promised hope and change. But that was all demagogue. He didn’t have any hope and change. The hope was for Wall Street. He delivered his constituency to his Wall Street backers and instead of making a change, he turned the economy over to Wall Street. He turned the treasury over to Robert Rubin and his Wall Street gang who supported Bill Clinton, the most corrupt bank in the country, CitiGroup, that Sheila Bair wanted to close down and turn into a public option. He turned over the Justice Department to Wall Street factotums like Eric Holder who refused to put any of the crooked bankers in jail.
So basically, he made it appear as if he was representing the people where he slammed down hard on them. Just as he slammed down on them in his work in Chicago.
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