RADHIKA DESAI: Hello and welcome to the 21st geopolitical economy hour, the show that examines the fast-changing political and geopolitical economy of our time. Welcome also to a new year that promises to be nothing but rocky, so let’s help rock it in the right direction. I’m Radhika Desai.

MICHAEL HUDSON: And I’m Michael Hudson.

RADHIKA DESAI: There’s an old saying, money makes the world go around. Like so many other truths, neoliberalism has subtly but decisively altered this one too. The adage of the neoliberal age can be said to be “debt makes the world go around”. Indeed, debt is not just making the world go around, it is making it spin madly. So madly that the possibility that it will spin out of control is ever present. Everywhere you look, there’s a debt crisis. There’s a student debt crisis, the mortgage crisis of 2008 never really went away, there’s the commercial real estate crisis, there’s a government debt crisis, and of course, there is the crisis of housing. I mean credit card debt, Auto debt, etc. To keep the debt cycle going, the Federal Reserve is even changing its decade-long tolerance of intolerance of inflation. For the Federal Reserve, inflation is acceptable at 3.5%. According to some reports. It would rather tolerate 3.5% inflation than sacrifice the asset markets that keep going up thanks to which have kept going up thanks to low interest rates, and it doesn’t want to take interest rates beyond a certain level. Raising interest rates at this point means making it harder for asset markets to go up and stay up, and that’s why the Federal Reserve is going to cut interest rates no matter whether it’s managed to solve the inflation problem or not.

So today, we are going to continue our closer look at more than four decades of neoliberal policy and how they’ve changed our economy by focusing on the triangle of debt, real estate, and financial instability. In short, we are going to talk about how in these decades while incomes have stagnated, debt has expanded such that households, governments, and businesses have all become indebted to the gills. Today, one of the reports shows that debt servicing itself has gone up by 50% and today accounts for almost a sixth of total government spending in the United States. How both residential and commercial real estate have become bound up in the vortex of financialization is another thing we want to talk about because it is not producers but rentiers who benefit from this type of economy, and even rent is being converted by the alchemy of financialization into interest. So at the end of the day, even land ownership and homeownership no longer matter. What matters is how much money you’ve got and how you can make your money, make more money.

So finally, we are going to talk about how even though all of this has benefited the financial sector, given its very nature, the expansion of the financial sector can only lead to crisis, and so how the mountain of debt today threatens the stability of the US financial sector and by turn of the US economy, and as Michael and I have discussed so many times, the dollar system itself. So let’s start looking at this chart. Michael, this is a chart, um, let me just find it, this is the chart of total indebtedness in the United States.

So you see here, this is simply the aggregate level of indebtedness. The kind of blue bits at the bottom are business debt, this green bit here is household debt, this purple bit here is federal debt, and then on top, you have state and local government debt which of course as people will know has been restricted by constitutional, by legal means. So what you have here is debt from the 1960s onwards, and you can see clearly that really the debt, the accumulation of debt begins to take off only out in the neoliberal era from the 1980s onwards, and it really begins to take off around the 2000s when of course the United States Federal Reserve first experimented with low-interest policies, and of course, which then resumed after the 2008 financial crisis.

MICHAEL HUDSON: Well, you can look at the basic sweep which is an up sweep, an exponential growth. Any debt is a doubling time, and there’s something very unique about this kind of slope. The economy doesn’t grow like that, the economy grows in business cycles, up and down. What you don’t see here is very much of a downswing, and that is because the growth of debt continues to mount up by compound interest. The creditors, the banks, simply reinvest all of the interest that they get in making new loans, which is exponential, and they can create their own money simply on their own computers.

So, this chart really should be juxtaposed with one of the business cycles, then you’ll see that any debt that grows this rapidly exceeds the ability to be paid, and that is the distinguishing feature of debt for the last 5,000 years. The natural tendency of debt is to exceed the ability to be paid.

Now, this chart simply shows debt by the sector that owns it, the household sector, business. What it does not indicate is what this debt is for. What is it collateralized for? Well, almost all of the household debt is for real estate, and the same thing with commercial bank debt. 80% of bank loans for this debt are real estate loans. And the blue chart of government debt really doesn’t matter that much because the government simply creates the debt. And it’s debt that doesn’t ever expect to be repaid. Households and businesses have to pay the debt. That’s what’s causing the problem. Nobody ever got into trouble running into debt. The government doesn’t run into trouble running into debt because it can simply print the money to pay. But individuals, families, and corporations have to pay. And when they can’t pay, that hurts the banks, and the banks go under. And the purpose of the Federal Reserve is to make sure that this debt keeps on growing despite the fact that it is stifling the economy and leading to depression.

The role of the central bank is to impose austerity on the whole rest of the economy to make us look like a third world country in paying the debt, because this is exactly the same kind of sweep that you have for the global south countries owing their foreign debt and for every country in the west. So the whole west, Europe, the United States, has a chart just exactly like this, and they’re all slowing down, and they’re all in what’s called a debt deflation right now.

RADHIKA DESAI: Well, you know, I’d just like to add a few more points because this chart is really kind of more interesting than might appear at first sight. Of course, there is the upsweep that you talk about, Michael, but there is also the fact that if you look at the period from essentially from about 1950 till the end of the 1970s, there is an upsweep, but it is not so pronounced. What you see now in the neoliberal era after 1980, and particularly after about 2000, that’s when you see the really exponential increase in debt. And I think that that, as I say, coincides with two very important things.

Number one, the repeal of the Glass-Steagall Act, which meant that this was essentially permission for the U.S. financial sector to simply enter into the most breakneck competition with one another in order to lend more and more, speculate more and more, and so on. So that’s what you’re looking at. And of course, the other part is the historic decision after the 2000 crash, the dot-com bubble crash, when the Federal Reserve first began experimenting with low interest rates. So you had sort of one, between one and two percent interest rates from about 2000 till about 2004-5, when because the dollar was coming under a lot of pressure, the Federal Reserve was forced to start raising interest rates. And that graduated series of interest rate increases was, of course, what eventually pricked the housing and credit bubble. So, I mean, that’s one thing.

The second thing as well is that United States government debt as well. You know, at one level you can say that, yeah, sure, the government debt doesn’t have to be paid off. But the thing is, it’s not as though the government debt does not matter. At the end of the day, even when the U.S. government, or when even the U.S. government borrows a lot, it does suffer. Because today, the U.S. government is having to pay much more money in return for its debt in order to borrow from the market than it used to have to. So, and even in the era of low interest rates, U.S. government paid a higher premium, higher interest rates on its debt than, say, a country like Germany, for example.

So in that sense, I think that what you see here, which is particularly after the increase in the debt in the neoliberal era, this initial increase here you see up to 2008, is basically created out of essentially giving tax cuts to rich people. So that expanded the federal deficit, even though you had cutbacks in Social Security and so on. And today, a very large part of U.S. debt is actually going to paying interest rates, paying interest on U.S. government debt. So in that sense, it’s important.

And then finally, of course, the expansion of household debt, which again, you see it increases, it increased a little bit in the 1980s, then it sort of slowed, but then you see it particularly increasing in the 2000s with the housing and credit bubble. Then it slows again, and then once again, it is increasing. And this increase, of course, is almost entirely because of the difficulties in which U.S. households find themselves. So on the one hand, at the top end of the borrowing, of course, you have borrowing in order to consume more, in order to spend more in one or the other way, including in order to speculate more in stock markets. But on the other hand, you also have a lot of distressed borrowing. So this is what we are looking at.

And finally, this increase in business debt is also because essentially what has been happening over the last several decades is that companies are bought by other companies. And then what these companies do is they burden every business they buy with as much debt as they can get in order to essentially use the money for other purposes, including giving fat dividends to owners and so on. But this is what you’re looking at. So we’re looking at a highly, highly indebted world.

MICHAEL HUDSON: Well, there are a number of points also in that chart. After 2000, a lot of that government debt was the war debt, the Iraq War debt. From 1950 through about 1980, almost all the growth in government debt was military spending abroad. And this debt is not only owed to the United States holders and the Federal Reserve, but the foreign government. So that is not included in the chart, but that’s much of the growth. The interesting thing also is that you see this acceleration of debt after 2008, and yet that was the period of zero interest rate policy.

When the Obama crash occurred, the Federal Reserve said, the one thing we have to make sure is that families bear the brunt of this enormous financial fraud and bad lending and junk mortgages that have taken place. We want to save the banks and we want to sacrifice homeowners for it. We want to make the public pay to the banks to make sure that homeowners lose their home and lose money. Businesses go bankrupt, but the banks continue to get richer and richer with this debt, and this debt will not get wiped out by bankruptcy. It’s going to grow and grow, just like student loan debt has grown. And you see a lot of this business debt going up, and yet this business debt was almost interest free, very low.

What the chart should be correlated with, if we really had a group of charts, was all of this debt was spent not on producing goods and services, not in building factories and means of production, not in employing labor, but in buying stocks and bonds and speculating. It was all used to buy companies, load them down with debt. And so this corporate debt that’s going up is a result of the mergers and acquisitions, the corporate raids, the corporate takeovers, and treating corporations in a way that would make money for their stockholders and their private owners, but not for the economy at large.

So a company would make money, suppose you take over Sears or Toys R Us, the private capital that would take over, they would borrow the money, hardly any interest from a bank, 100%, buy out Sears or another company. The first thing they’d do is say, okay, now we’ve taken over the company, could be the Chicago Tribune, let’s take the pension funds that’s invested in stocks and let’s borrow against that. Let’s let the pension funds lend the money to the company, and let’s borrow more money from the banks to the company. And the money that we borrow, we will then pay out a special dividend to ourselves. So the money goes from the banks to the owners without having any positive effect at all, but having a very negative effect. It leaves the company so deeply in debt that it goes bankrupt, like Sears or Toys R Us or all of the other companies that have been essentially going bankrupt. And when they go bankrupt, they’re sold to larger and larger companies. And so this debt has the effect of concentrating ownership within the sector.

And the household debt has gone up because as you increase the amount of money that banks will lend against housing, banks have competed. Who can lend the most money against homes for new families wanting to buy a home? Well, the banks compete to lend so much money that if you’re a family buying a home, you have to borrow more money than your rival who’s borrowing from their bank, and the banks have just created a new real estate bubble. And that’s what we’re in now. The real estate prices have gone up so high, the rental price is so high that one of the byproducts of this is a rise in homelessness. And with all of this debt, somehow people don’t have enough money to buy goods and services, and standards of living have gone down. We’re living in a increasing third world austerity plan as a result of this upsweep in debt.

RADHIKA DESAI: No, absolutely. And you know, what you say reminds me that we’ve already said that one of the reasons why especially poor households borrow is because they basically cannot make ends meet. They have to borrow, and so they are becoming indebted.

But there’s another reason, and that is, you know, why has there in the neoliberal decades been such a huge explosion in student debt? It’s because government cutbacks have stopped funding universities to the same extent. So fees go up. And of course, the cost of living goes up for students because of course you can’t rent anything half decent, or even indecent, unless you pay a lot of money. And so all of these things drive up the cost of an education, which then means that students have to get a loan, and so on.

So essentially, cutbacks in social services, including, by the way, we haven’t talked about medical debt. A lot of the debt is incurred because people have to borrow money if they want to pay for certain medical procedures. So all of these things just goes to show that once again, under neoliberalism, it’s ordinary people, the working people, and the poor people who get really shafted.

There’s another way in which these people get shafted. When you have a low interest rate fueled competition for buying houses, buying homes, typically the sharpest competition is happening at the lower end of the market. So that the lower end market, that is to say the kind of houses and homes that first time buyers will buy, tend to see the most appreciation in prices as a result of competition among the lower end buyers. And this is what prices out so many people.

But a final thing I want to say is this expansion of debt is also interesting because it has taken place exactly in that era when the government, right at the beginning of the 1980s, committed itself to restricting money supply, it committed the Federal Reserve to restricting money supply in order to slay the dragon of inflation. But what that has meant essentially is to have an economy in which people are making less money but incurring more debt. And essentially debt becomes the way in which money is issued into the economy.

And of course the Federal Reserve itself has kept up a policy going back to 1987 where no amount of money creation is too much if it is to bail out the financial sector. So from 1987 onwards, when you had the 1987 crash, Greenspan first engaged in this kind of liquidity provision in order to bail out the financial sector. It was called the Greenspan put. Now over the years it has become a Federal Reserve put. And the result is, you know, we just showed you the chart of indebtedness. And according to the Federal Reserve, the total debt or non-financial debt in the United States is now close to three times U.S. GDP. It has doubled since 1980.

There is another point that is really interesting. These charts, the chart we showed you, does not include the vast amount of debt which the Federal Reserve has itself created in order to bail out the financial sector. And the top end of the corporate sector, starting in 2020, on which the financial sector relies for its best assets.

So essentially, and this was very surprising to me, in 2008, a scholar called James Falkerson from your university, Michael, from UMKC, showed that the Federal Reserve could not cope with the 2008 crisis by just playing its normal role of lender of last resort, by providing ample liquidity, slashing interest rates, etc. It slashed interest rates at that time from 5% to 0%. But this did not function to stabilize the system and even made it worse. And then, according to Falkerson, the Federal Reserve engaged in a host of unconventional measures, unprecedented in terms of size or scope and of questionable legality. They’re his words. And the goal of these was to explicitly improve market conditions. And this program, according to him, amounted to a total of 29 trillion dollars.

MICHAEL HUDSON: You’ve gone very quickly over that, and I want to show how revolutionary this was. Until from the founding of the Federal Reserve to 2008, there was a basic philosophy of central banks going all the way back to the Bank of England and to the rules that people discussed in the 1880s and 1890s. The idea of central banks, you use the word lender of last resort. That means everybody realized that sometimes when there would be a business downturn or a shift in interest rates, people would have very sound property. The buildings weren’t destroyed when they became insolvent. Companies weren’t destroyed. But the problem is there was a temporary downturn in the business cycle. So banks are supposed to only borrow for short term and at a high penalty rate. Every central bank in the world followed the policy. You don’t subsidize rates for credit for banks.

Since 2008, the banks have taken control of the U.S. Treasury and taken control of the Federal Reserve to get all the money that they want for nothing. Actually, they’re paid to borrow. After 2008, the Fed said, we’ve got to make bankers richer. Despite the fact that they’re paying themselves more than any other sector, they don’t have enough money to keep on lending. We will give them all the money they want. The way we’ll do this is the banks will make loans to corporations for takeovers, make loans for commercial real estate. They will transfer these IOUs to the Federal Reserve in deposits. The Federal Reserve will lend them money in exchange for this. The banks have put all of their bad loans and shaky loans into the Federal Reserve. The Federal Reserve pays them interest on these deposits. The banks make interest not from the corporate borrowers, but the Federal Reserve is creating the interest to pay the banks to make this huge upsweep in loans. You can look at that as an arm of Chase Manhattan and Citibank. Essentially, they’ve taken control of the Federal Reserve.

That’s really the libertarian ideal of a centrally planned economy planned by the banks. When the libertarians say, let’s get the governments out of business, let’s get the governments [to not] run a deficit, that means if the government doesn’t run a deficit, it’ll cut taxes, it’ll cut spending. That means that all the credit that people need, the economy needs, will be produced by the banks.

The Fed has said, now we’re going to really turn up the screws. We’re going to let the banks make 5% of the money. All of a sudden, this growth in the blue, the government debt that you saw, is going to soar. The interest rates are going to be such a large proportion of the government spending that they’re already talking about, we’re going to have to cut back Social Security and Medicare. That’s what Haley, the Republican nominee, says. The Republicans want to say, if there’s a choice between paying Social Security and Medicare or paying interest to the banks and bondholders, the bondholders come first because they’re our campaign contributors. You don’t get campaign contributors from people who are broke because they don’t have the money that the banks have. Of course, we’re going to bail out our campaign contributors. The government itself has been privatized. That’s what neoliberalism is. That’s what the anti-government libertarianism is. It means liberty for the banks and debt system for the population at large. That’s what these charts imply.

RADHIKA DESAI: Absolutely. I would say just one thing. Of course, most people will know this, but in case people don’t, the Federal Reserve is peculiar among the central banks of the world in being still privately owned. In that sense, I think that what Michael says is very relevant. Essentially, what the Federal Reserve has done is over the last many decades, it has transformed the U.S. economy into an economy in which the primary way, the best way, the fastest way to make money is by essentially speculating, not by investing in the production of goods and services that ordinary people need, but by inflating the value of goods and services already produced.

Those of you who know a little bit of Marxism might appreciate it, but if Marx was around, he would have called it a very peculiar form of necromancy. What do I mean by that? Because already produced goods and services contain the dead labor that has gone, it is now dead, it is no longer living, that has gone into producing it and you are inflating the value of that. Whereas, as you do that, you are disvaluing the living labor, much of which may remain unemployed, and all of which is necessary to produce the new goods and services which every year, in every period, ordinary people need. We need more food, we need more clothing, we need more transportation, we need more housing, etc., etc. And these are the things that are strangulated. Living labor is strangulated while dead labor goes up. Because there’s something very peculiar.

Remember, as Michael pointed out, and as I pointed out, a lot of this debt has been incurred. In fact, most of it has been incurred to speculate, to inflate the value of already existing assets. And there’s something very peculiar about it, because imagine a house that goes up in price by 30%, 40%, 50%. Nothing in it may have changed, but it goes up in price anyway. Nothing is produced, but it goes up in price. So, this is the kind of economy that has been created.

And I just also want to show you one other outcome, just my last point this time around, but one other outcome of this vast increase, this vast federal government program to bail out the financial institutions. So, you see here, this is a chart of the total assets on the Federal Reserve balance sheet. And you see here, from up until the 2000s, it was basically hovering at about just below one trillion dollars. In the 2008 financial crisis, it doubled, a little more than doubled actually, to over two trillion dollars. Then over the course of the decade that followed, thanks to quantitative easing in which the federal government essentially started a program to buy the worthless assets of the financial institutions for good money. This was quantitative easing, and so it piled on, it increased its own balance sheet while essentially making good the damaged balance sheets of the very financial institutions that had caused the 2008 financial crisis. And then it was beginning to reduce its balance sheet when 2020 came, the pandemic came, and then you see that you have seen an absolutely unprecedented increase to $9 trillion of assets in the federal government. And this is the result of that $29 trillion worth of effort that the Federal Reserve made to bail out the financial sector.

So, please, Michael, go ahead. Yeah.

MICHAEL HUDSON: When you use the [phrase] “worthless assets”, they weren’t exactly worthless if you could get 100% from the Federal Reserve. The word that was used by Marx and almost everyone in the 19th century and today was “fictitious capital”. In other words, all of these debts and bank assets were counted as an asset. If a bank makes a loan to a large corporate property owner in an office building, the bank has that as an asset. But as we’re seeing today, these asset prices can’t be realized. In other words, what if the bank said, okay, now your mortgage is just falling due because it’s a balloon mortgage, you have to pay that. Every few years, you have to pay the entire amount or re-borrow it. Well, all of a sudden, if it’s lent $100 million against an office building, and the office building is now worth $40 million, why would a bank lend $100 million to an owner of a $40 million office building? That’s the situation we’re in today.

Now, look at these two jumps. The first jump that you have after 2008, that’s the junk mortgage jump. All of these loans were against fictitious mortgages, mortgages that pretended that there was value there, but there were mortgages mainly to Black and Hispanic borrowers by banks who cheated them, who over-evaluated the prices. The banks in general discovered a new way of making money after about 2004. They could make money by charging racial minorities much higher rates, almost double the rates that they charged white people. There were whole banks and brokers that specialized in this, and this was basically the junk mortgage group. Countrywide, Financial was the most obvious beneficiary of this.

There were a number of notorious banks that ended up being merged. Bank of America was one of the crooked banks. Citibank was one of the most crooked banks, as has been very well documented. Randal Wray at the Levy Institute and Kansas City published a big explanation of who were these $29 trillion, $27 trillion of loans for. It ended up many of these loans were rolled over and reloaned, so the net amount was not $27 trillion, but that’s how much was given to the banks with this huge jump. Instead of sending the bankers to jail, they made them billionaires. They rewarded them. That was the Obama policy, and that is what makes them one of the most viciously racist presidents in modern American history. The Democratic Party became committed to returning to its pre-Civil War racist policies.

Well, the next group is you see in 2020-21, this huge jump in bank loans. What were they from? The Federal Reserve began to raise interest rates. When the Federal Reserve raises interest rates from less than 1% to 5%, this means all of a sudden debtors had to pay 10 times as much interest as they did before. What that did was that reduces the price of an asset. It’s an inverse proportion to the interest rate. All of a sudden, the stocks and the bonds held by the banks that went under were fictitious. In fact, although Silicon Valley Bank and New York Bank went under, all of the banks, especially Citibank and Chase Manhattan, had all of the loans that they had. All of a sudden, they were not worth anywhere near what they carried them on the books. The banks were insolvent.

Now, here was a wonderful opportunity. The Federal Reserve could have taken them over by the government and said, you’re insolvent. We’re going to wipe out the stockholders and the bondholders because you’ve made bad loans. Instead, the Federal Reserve said, well, instead of making the banks insolvent, let’s make the economy insolvent. That’s the policy we’re in today. This increase in Federal Reserve loans has been to support this upsweep of credit that is increasing the burden. All of this upsweep in credit is far in advance of the wages and salaries that people are getting. Somehow, all this increase in interest charges and amortization charges and penalty fees end up impoverishing the economy by leaving less to spend on food and clothing and other consumer spending. If consumer spending is going up, it’s because of the inflation.

RADHIKA DESAI: A small correction. This big increase, of course, was increased because the Federal Reserve started a new, massive liquidity provision program, quantitative easing program, when the pandemic hit. And the one that you’re talking about, where essentially they were bailing out Silicon Valley Bank, etc., this is the small increase here, which is what happened after interest rates started rising. But throughout this period, right up until about here, interest rates remained at historic lows.

And just one other thing I wanted to say about this before we close this chat, which is that, you know, around 2013, about here, essentially, the Federal Reserve decided that it was going to try to decrease the size of its balance sheet. So you can see, you know, it was still only about three and a half trillion, not the nine trillion that it is today. But you know what the financial institutions and the financial sector did? The financial sector at the time, in 2013, threw a “taper tantrum”. The Federal Reserve was threatening to taper its balance sheets essentially, you know, to decrease it. And they said, we’re not having it. You’ve got to keep supporting us and you’ve got to buy our assets. And so essentially, the Federal Reserve humored them in their tantrum and they continued to expand the balance sheet. And then, as we saw in the pandemic, did even more so, etc. So that’s the thing we’re looking at.

And the other thing I just wanted to point out, of course, is that, you know, I completely agree with everything that Michael said about just how racist the system is, because at the end of the day, you know, people think that debt is a market relationship. Debt is not a market relationship. It’s a relationship between, on the whole, relatively privileged people, one of which decides to lend money to the other. So the idea that somehow, by passing a piece of legislation, you can make the poor people of the United States, the black people of the United States, the Hispanic people of the United States into homeowners, this was always a bit problematic.

And in the end, the whole 2008 financial crisis, the vast buildup of debt that preceded it, only a tiny fraction, which happened towards the very end of that vast increase, was actually loans to subprime borrowers. The financial institutions only began lending to the subprime borrowers once they had filled the prime borrowers to the gills with all the debt they could take, and only then they moved. And so, in many ways, the subprime borrowers came last, and they were also, of course, the ones to suffer the most. So, yeah, I mean, I think these are really, so really we are living in an economy that is awash with debt, as we were just saying, and it really is the opposite of the sort of economy we ought to have.

And Michael, you know, one of the things about the whole classical conceptions of land and rent and interest and so on is, of course, that classical political economy always looked down on things like this, like interest and rent, because it saw it as unearned income, isn’t it?

MICHAEL HUDSON: Well, I could have a whole hour on that, but I want to follow up with some charts on the racial element of this. We’ve talked about how the volume of debt is too large to be paid, but I want to say there’s another aspect of debt, and if you could show the racial, that’s right, that chart is very interesting.

One of the results of debt is to create a bifurcated economy, and that means that we’re in a kind of apartheid economy. We’re in a financial apartheid economy. 10% of the population owns over 75% of the stocks and bonds in the population, and they’re almost entirely a white population. We’ve talked about mortgage debt being 80% of the overall debt burden. I want to show what has happened long before the chart begins in 2002.

I want to begin in 1945 at the end of World War II. That’s really when the houses had not been built during the Depression because people, there wasn’t a market for them. They weren’t being built during World War II because all of the raw materials were going to the war effort, and debt for the whole economy was very, very low debt in 1945 because there was nothing to borrow money for. You couldn’t borrow money to consume because everything was rationed anyway.

But finally, they began to make loans, and what had spurred the American takeoff and that of other countries. All countries of Europe, America, and elsewhere were rebuilding after the war, and most of this rebuilding was rebuilding for housing. That was when the great housing was taking place. Here in Queens, you had major developers, not only Trump’s father, but all the famous experiments and group housing were made.

There was only one thing. White people were able to buy houses for maybe $10,000 was a typical price of a house that now costs a million dollars. The problem is that banks would only, in order to buy a house, you had to take out a mortgage. Nobody has enough money to buy the whole value of a house, and if wages were maybe $3,000 or $4,000 a year back in 1945, you couldn’t even buy a $10,000 house. Nobody had that. You had to go to the banks. Banks, until about 2000, 2001, would only make mortgage loans almost entirely to white people, unless you were a very, very wealthy black person or a Hispanic.

What you created was a bifurcated society. The people who bought the houses in 1945—they returned from the war. They took civilian jobs. They bought a house, and many of them died of old age, but they left the houses to the children. And you had one generation after another generation of white people leaving the house to the children, leaving them enough inheritance to have a house of their own and an education of their own. So what you had was a home owning, educated white class, but this was not available to non-whites in this country. So what’s the depth of the restriction of credit to the prime human beings, not to the unprimed borrowers? We’re talking about a pretty racist policy. It was very responsible for the fact that you’ve had now 75 years—well, longer than that, 75 years since World War II—you have a disenfranchised, non-white class in the United States of hereditary homeowners who can get into college because their parents and grandparents went to an Ivy League university. And there’s a monopoly of housing and education and wealth at the top of the economic pyramid, and the rest of the economy is essentially disenfranchised as if we’re in our own financialized apartheid economy.

RADHIKA DESAI: Yes, and there’s a couple of other points. By the way, in this chart, I should just explain that the top line here is essentially showing the homeownership rates, that is about 75 percent, of non-Hispanic whites in the United States. The red line, which is at the bottom here, is of black people alone in the United States, and then the green line is of Hispanics of any race in the United States. So that presumably includes, for example, if you were a relatively white Hispanic, and they do a little bit better. But you can see that the rate of ownership of black people from the early 2000s till today has really not budged. If anything, it’s slightly worse today than it used to be back then, and became considerably worse just before the pandemic, reaching a very low level of below, like around 40 percent, in fact. So anyway, that’s the thing.

But in addition to these things, the kind of financialized economy in which we live, increasingly owning of houses and land, etc., does not necessarily, because of mortgages, the ownership of land or houses does not necessarily confer on you any privilege, because homeowners find that they are paying interest to banks, and even landlords typically are highly leveraged, so the bulk of what they are collecting in rent actually ends up as interest to banks. So in a certain sense, what we are trying to say is that the Federal Reserve has engineered an economy in which not only profits and wages have become essentially in hock to pay interest, are used to pay interest, but so is rent. So that interest has become sort of the prime form of income, at the top of the income pyramid, so to speak.

And this is a result of changes also in the tax structure. So for example, in the U.S. taxation system, earnings from interest and rent are treated a lot more softly, a lot more favorably than our earnings from work. This is a huge problem.

MICHAEL HUDSON: That sort of goes back to the value theory that I think requires a separate discussion altogether, because it’s so fundamental. The whole idea of classical economics and the free market was a market to be free from rent, rent being unearned income. Rent is what landlords make in their sleep. Rent is not created by labor, and most people don’t realize what’s called the labor theory of value that is based on Ricardo and Marx and the whole 19th century. The idea was to separate value, which is created by labor, from economic rent, which is created by hereditary, by privilege, by property ownership, by owner, by banking, and by monopolists, and by landlords who make their money, economic rent, by owning a rental property, or by lending money and making interest, or by having a company, a monopoly. And you just raise prices, and much of the inflation, as Radhika mentioned at the beginning of the talk, they call it profit inflation, meaning a company just decides, let’s raise the price of drugs.

For instance, my wife is on an employer, United Healthcare plan. The price that she has to pay, local drugstores went up quintupled on January 1st, because the healthcare insurer said, we can make money by quintupling the price. Drug companies have been raising the prices all across the board, not by producing more, not because their costs have gone up, which would be, ultimately, the cost would be a cost of production, labor, and materials, but simply because they’ve become a monopoly. And the Democratic Party has always been the great protector of monopolies, because they’re campaign contributors. And if you look at who heads the health committees and the others in Congress, related committees in Congress, their campaign contributors come from the pharmaceutical and drug industry. So you have the governments representing their campaign contributors, the military and state department desks at the Senate and House are subsidized and paid for by the military industrial complex, the health departments from the drug companies, and so on and so forth.

So we’re that part of the problem of what has made America a failed economy. And it’s a failed economy because of the austerity that this debt apartheid has created.

RADHIKA DESAI: And we should probably soon shift to talking about solutions. But let me just add a small point to what you were saying, which is that, of course, if you look at the US economy today, you will see that over the neoliberal period, what has happened is that it has become dominated, of course, by the financial sector, the so-called FIRE sector, finance, insurance, and real estate. And on top of that, if you look at what are the other sectors of the US economy, which are really important and lucrative, you will see that they are the military industrial complex, they are the big pharma, and they are information and communications technology.

And in pretty well all of these cases, these sectors are characterized by a high degree of monopoly, a high degree of rent-seeking in the sense that a military industrial complex, for example, essentially relies on vast government contracts, which are risk-free in which they get to mark up costs as much as they like. And big pharma and information and communications technology rely on intellectual property rights in order to secure their monopoly.

So in all of these ways, this has created an economy which is very undynamic, it is not very efficient, but at the same time, it is very lucrative for those who own it, which of course puts an added burden on ordinary Americans.

MICHAEL HUDSON: Well, one of the problems of it being undynamic is you’re having a decline in office space, in commercial real estate. We’ve been talking about homeownership rates and how unfair that is, but you remember back in 2008 when there was the property price crash, you had what was called “jingle mail”. You would have buyers, especially in Nevada and Florida, where there was a huge run-up in housing prices, they’d say, okay, I owe $500,000 for this house, but now the house just like it next door is selling for $300,000. I’ll just mail back the keys to the bank and say, okay, I’m defaulting, you can have the house, I’m just not going to pay, I’m going to take out a new loan and buy the house next door.

Well, that phenomenon is now happening for businesses. Apparently [only] 40% of the US commercial properties are occupied. In other words, since COVID, and most of all, since the economy began to shrink as a result of this debt deflation, businesses have been going out of business. Even those who are in business, you have people working from home. Now, if you have the average occupancy rate of buildings being only 40%, how is the owner going to have the money to pay for the bank?

Well, because the banks have lent almost 100% of the value of the building to the homeowner who’s willing to pay all of the rents as interest, rent is for paying interest, that’s the basic motto. What they want is the capital gain in the price of the building. They realize they’re not going to be a capital gain. This was all fictitious capital, it’s going down, we’re mailing our keys back to the bank and we’re walking away from the building.

This year and next year, there is such an enormous trillions of dollars of commercial real estate falling due, not only here, but in England and other countries, that the banks are all of a sudden going to be left with mortgages that are unpaid. Against these mortgages, they have liabilities to their depositors, to their bondholders, and most of all, they want to pay millions of dollars to the, I think Jamie, the head of Chase Manhattan, gets $29 million a year for running a company that’s gone bankrupt and is kept alive because he gives some of that $29 million to the politicians who continue to appoint Federal Reserve people who will bail them out. That’s what you call a circular flow.

What are you going to do when all of a sudden the banks should be going under? Well, normally, if they’ve made a bad loan, somebody has to suffer. Who’s going to suffer? As Bill Clinton said when he was told you have to do what Alan Greenspan says and support the banks, Clinton said, oh, it’s all about the bondholders. In 2009, when Obama came in and decided to bail out the banks, Sheila Baer, the head of the Federal Deposit Insurance Corporation, said, wait a minute, we have a crooked, incompetent bank. There’s one bank in America that’s more crooked than all the others and more incompetent. That’s First National City Bank. Let’s take it over. Let’s make it a public bank. You can’t let this bank destroy the whole economy by being so greedy that it makes loans way in excess of the value of property and keeps expecting to be bailed out so it can make more interest and pay its officers more. Let’s drive it under. And Obama and his Treasury Secretary, Tim [Geithner], said it’s all about the bondholders who own the bank.

So the question is, what will the banks do when all these mortgage loans go under? Well, wipe out the stockholders. But the bondholders are the wealthiest 1% of the population. They’re the ones who own most of the bank bonds. Who do you think the government is going to support? Is it going to support the economy or the stockholders or the 1%? That really is the way in which you should think about an economy being an apartheid economy, not simply ethnically and racially, but financially. That’s the real apartheid between creditors and debtors that I think all of our shows are examining from different perspectives.

RADHIKA DESAI: Well, I’d just like to add a couple of points to what you were saying, Michael. This is very interesting because if you look at commercial real estate, there’s no doubt for the last many months there have been headlines about how there is a collapse of commercial real estate prices. It’s coming. In fact, it’s already happening. As Michael says, the fall in the value of commercial real estate is already ongoing from what we read in the financial press. The really big prestige buildings may not be affected, but the next layer and down, all these buildings will be affected. Everybody who has walked around a big city in North America or for that matter elsewhere in Europe will see that commercial space is essentially going down. So many are boarded up. So many are empty and so on.

And according to one measure, about 10% of US bank assets actually rely on the value of commercial real estate. Now, Michael asks, you know, when the crisis comes, well, the crisis is already here. So who is the Federal Reserve going to help? But you know what, I’m not even sure. And the US government, who are they going to help? Who are US authorities going to help? I’m not even sure they’re going to be able to help them because the fact is that as the value of these assets decline, banks already have to report them if they are publicly listed on an ongoing basis, which means that their shares will already go down. And there is no doubt that a crash will come. And when it comes, yes, the Federal Reserve will once again, as you saw with the Silicon Valley Bank, essentially, in fact, there was another point that I wanted to make there. Essentially, Ms. Yellen stepped forward and said, we are going to guarantee all depositors, even if their deposits are higher than $250,000.

Now, you might think that this is somehow a very democratic thing. But on the contrary, if you look at what kind of bank Silicon Valley Bank was, essentially, it was like a club in which a select group of rich people who are all connected with one another lent each other vast quantities of money.

Now, what does lending mean? It means that I go to my friend and, you know, Silicon Valley Bank and say, you know, please give me $5 million. I’m going to have a startup. You don’t even look at whether my startup is worth supporting. You just say, okay, I’ll give you, I’m going to show a deposit of $5 million in your account. These are the deposits that Ms. Yellen was protecting.

This is not even the money that they have deposited in the bank. This is money that is in a deposit in my name because it has been lent to me. So, if you think about just how huge is the boondoggle that is protecting the interests of the tiny minority of the very wealthy, I hope in this program we’ve given you some idea of the lengths to which US authorities have gone to protect the wealth of this minority. And in our next show, maybe what we’ll do is we are going to devote it entirely to talking about what needs to happen if we are going to move away from this kind of economy.

MICHAEL HUDSON: That’s a good way to end it. There’s so much that it’s leading into. And the last thing that the Federal Reserve wants is for—what if banks reported the actual market value of their assets? When you have a balance sheet, assets and liabilities, they’re holding the assets at the price that they made the loan for, say $100 million for a building. But what if they reported their assets as only $40 million for the building? You would have bank assets here and the liabilities here. They’d look just like most people in America. 50% of Americans don’t have any assets, but they have a big debt. That’s an interesting bar chart to show, assets, liabilities. And you can look at it by income group.

The Federal Reserve does not produce believable statistics on debt as a proportion of income. If you look at the Federal Reserve statistics of debt to income by percentile, 10%, 20%, nothing has changed in the last 50 years. Nobody’s run into debt at all. Because they say, let’s assume that debt is constant for the last half century. The statistics are fictitious. And they’re fictitious because that protects the fact that most of this, what passes as bank capital is fictitious. I mean, we’re in a fictitious economy. It’s sort of like trying to read about international affairs in the New York Times. That’s about as realistic as the Federal Reserve statistics are.

RADHIKA DESAI: Exactly. I mean, it’s basically the rich people of the United States and the big financial institutions of the U.S. are in a situation in which, you know, they make a bad investment, they make a loss and they go, oops. And then the Federal Reserve, which is their sugar daddy, essentially comes and makes good all their losses. It gives them more money to plug the holes in their balance sheets that they have themselves created out of their own greed and misjudgment and bad judgment. So there we have it. It’s this kind of economy that, unfortunately, the United States is laden down with today. And so the question naturally arises, what kind of economy do Americans need in its place?

MICHAEL HUDSON: I want to add one point out there. The important thing is that these rich people who are not paying their debts do not have to pay penalty rates. The large businessmen who owe debts don’t pay penalty rates. You know that if you’re a family and you’re running a credit card debt, if you miss a payment in your electric bill or anywhere, your rate goes up from 19 percent to 30 percent or more. That’s not the case. If you’re rich people, there’s one set of interest rates and penalties for 99 percent of the population, another set for the wealthiest 1 to 10 percent of the population, and you’re not in it.

RADHIKA DESAI: And that’s what we call financial apartheid. So I think with that, Michael and I will say goodbye and hope to see you in a couple of weeks and we’ll talk about what kind of economy we need instead. Thanks very much for joining us and see you in a couple of weeks. Bye-bye.

The post Debt Makes the World Go Around first appeared on Michael Hudson.

Transcript of an interview between Ania and Michael Hudson. The interview took place on December 29, 2023.

ANIA: Hello everyone, welcome back to my channel. It looks like we are live and we are a few seconds before time, so a little bit better than Swiss precision. Today I have for the second time a very, very special guest. Many of you have been anticipating this conversation with Professor Michael Hudson, who is the financial analyst and very distinguished research professor of economics. Someone whose expertise, opinion, knowledge I very much value. And I think as we are coming to the end of 2023, this might be a very important discussion here, very important information from Professor Hudson. So welcome back, Professor Hudson. Thank you so much for finding time for our conversation.

MICHAEL HUDSON: Well, it’s good to be back, Ania.

ANIA: Thank you. And just to let you know, everyone, all the links to find Professor Hudson are already down below this live stream. You can support his work via Patreon, all the books, there’s a link as well, also his website. All the links are down below. I appreciate you subscribing, liking, sharing, supporting my channel as well. And let’s start with actually Professor Hudson has sent me a very, very informative email. And I want to say thank you officially now to you for sending this to me because of that email, I was able to kind of narrow my question down to you. And if there are any questions from the audience, please put them in the Super Chats.

So in your email, you’ve mentioned that Ukraine’s apartheid state is an apartheid state. And I would like to start with this. Can you explain to the audience what does this really mean to be an apartheid state? And Israel is also an apartheid state.

MICHAEL HUDSON: An apartheid state. Well, that goes back to Nazi Germany in the 1930s. An apartheid state says that only one ethnicity should dominate the state and all other ethnicities should be excluded. As soon as World War II ended, the U.S. military and the intelligence agencies recruited the nationalists and the Nazis who had been working for the Germans against the Russians into the NATO framework as managers and began to prepare for a long-term fight against the Soviet Union. Somehow the end of World War II metamorphosized gradually into really a renewal of what followed World War I, the fight against the Soviet Union. And from the very beginning, for the last 80 years, the United States has sought to fight Russia. Even when Russia stopped being the Soviet Union, it was viewed as having an independent characteristic, an independent policy. And so it used the Nazis to spur a nationalistic, anti-Russian feeling of treating the Russians really as subhumans, denying the Russian-speaking population the retirement income and Social Security and health care and public services. And basically you had the Ukrainians treating the Russians as the Germans had treated the Nazis.

Well, you’re having the same fight now in Israel when Netanyahu and President Biden says there can only be one ethnicity in Israel. There can only be a single state. It’s possible to have a two-state solution. You can have Israel and you can have Palestine, but only Jews will occupy either Israel or Palestine.

The United States mentality, not only for Ukraine and for Israel, but for the whole world economy, is there can only be one economy and one state favoring one group of people. And what you’re seeing in the apartheid state of both Ukraine with its anti-Russian, banning the Russian language, banning Russian books, destroying Russian novels and literature from the libraries, not performing Russian music. All of this is followed by the United States pressing for the Olympic Committee, for instance, not to let Russian athletes join in the Olympics under the flag. The apartheid that you’re seeing in Ukraine is followed by the United States itself, spurring the apartheid state. To the United States, Both Ukraine and Israel are sort of models of what the United States would like to do on a global basis for the entire world economy. There can only be one economy. And basically, it’s a U.S.-NATO-centered economy to which other countries are either supposed to obey and accept the rules or else they’re to be fought against. And so you can look at what’s happening in Israel right now and Ukraine right now as a dress rehearsal on a small scale of the same kind of fight that is occurring in the world economy. Are there going to be two different economies? And are these economies going to be equals democratically? Or is the world economy somehow going to be itself an apartheid state between the United States and NATO on the one hand and the BRICS Plus and the Global South on the other, all in a central unit? That really is what all this fight and maneuvering is about right now in the Mediterranean and the Red Sea and the oil gulf. It’s not only an ethnic apartheid, it’s an apartheid of economic systems, both in Ukraine and Israel and in the kind of order the United States is trying to create.

ANIA: Thank you so much for answering this. And on this note, I would like to ask you two questions following on that. First, do you think the United States will be able to succeed this plan, will be able to be successful with this plan? And will the U.S. be able to keep Western Europe as a U.S. economic, political and military satellite? Yes or no? And if no, what’s going to happen?

MICHAEL HUDSON: Well, there are really two questions there. For your first question there, what is success? The fight in Israel right now is really a process that’s been going on for 20 years. The United States is backing Israel. And you can look at Israel as being to the United States what Ukraine is. The United States is willing to fight to the last Ukrainian against Russia. It’s willing to fight to the last Israeli against the Muslim states. The United States ever since 9-11 in 2001 has wanted to conquer Iraq, Syria, and most of all, Iran, as well as Libya. In the United States press, all of the discussions of what’s happening in Gaza and Israel today, whenever they talk about Hezbollah or Hamas, the newspapers all put in the qualifying adjective, Iranian-backed Hamas, Iranian-backed Hezbollah. And if Iraqis are trying to fight to drive out the Americans that are stealing the oil from Iraq, it’s the Iranian-backed Iraqis.

This whole fighting that you’re seeing in Israel now, that on the surface seems to be a fight to purify the Israeli state from the non-Jewish population, is part of the American attempt to really conquer the whole Near East and its oil production. To America, the Near East is important because American domination of the world economy for the last hundred years has rested upon its control of oil, along with British Petroleum and the French oil companies. The United States has used oil as controlling energy, and by controlling energy and its pricing, controlling industrial productivity and GDP. GDP, labor productivity, industry, is all a function of energy.

So what the United States is doing is goading Netanyahu to try to provoke the Lebanon Hezbollah into retaliating, so the United States can attack Lebanon, and trying to provoke Iran. It recently assassinated an Iranian leader in Syria, trying to provoke Iran into doing something.

Well, under normal circumstances, when Lebanon or Iran is attacked in the way that the Israelis are attacking now, you’d fight back. That’s the natural tendency. If you’re punched, you’re going to punch back. But this is so obvious that this is what the United States wants Lebanon to do, and wants Iran to do, that they’ve stepped back a month ago, and said, wait a minute, we’re not going to retaliate, just like the United States was trying to goad the Ukrainians to provoke a Russian attack, so that we could begin to bleed Russia, the United States is trying to provoke an attack so that it can finally attack Iran with everything it has.

Well, what has happened for the last month is Iran and Hezbollah and other Muslim groups have talked with each other to try to coordinate what we’re doing, and saying, look, we’re all under attack. We’re not going to let the United States pick us off one by one. Let’s not let the United States divide and conquer us, and first conquer Lebanon, and then conquer Syria, and then reconquer Iraq and drive out the opposition and the liberation fight in Iraq, and then conquer Iran. We’ve got to have a united front, and that’s why Russian ships and Chinese ships have moved into the area, and it’s realized that this fight that seems on the surface to be one between Netanyahu and the Palestinians, is really just a catalyst, a fuse, a trigger for the Near Eastern war that the United States has been planning.

And that brings us to the second part of your question. Will the United States succeed in maintaining control of Europe? Well, the fight in the Near East is very similar to the logic that the United States was fighting with its foreign policy in Europe, beginning in 2022. Its fear was that looking at the world situation from the German and French perspective, the logical policy of Western Europe would be to have a symbiotic trade and investment relationship with Russia and with China. And in this relationship, Germany would import Russian oil, gas, and other raw materials, and it would pay for the imports by exporting industrial goods.

Well, if this scenario had unfolded, the United States really would be pretty much left out. What did it really have to offer Europe? Well, the one thing it had to offer was refraining from blackmailing the German and French political leaders who basically had been nurtured and prepared by the United States State Department and CIA and non-governmental organizations, the National Endowment for Democracy, all to sort of represent U.S.-NATO interests, not the interests of their own countries.

From the United States’ point of view, how do you make Europe part of the U.S. economy, not part of the BRICS economy, not part of the Eurasian economy? Well, Nord Stream took care of that, along with the trade sanctions that the U.S. put in the hands of the German leaders, especially NATO leaders, to impose on the entire European economy. Well, right now, you’re seeing the collapse of the German industry as a result. The BASF, the large German chemical company, has already announced that its new plants are going to be located in China because that’s where it can get the natural gas and the oil, largely from Russia, that it needs technologically for its operations. Just last week, one of the big metal companies in Germany announced it’s closing its doors, it’s laying off its labor force, it cannot produce in Europe anymore. European companies are all closing down, and their choice is either to follow the U.S. directions and say, well, why don’t you move to the United States and put your plants in the United States?

Well, they can’t really put their plants in the United States because the cost of living and doing business is so high in the United States, because it’s a financialized economy, that they can’t make profits. So they’re thinking, well, where are we going to move? We can’t move to Russia because they have sanctions. Do we move to China? Do we move to India? Do we move to Asia? Or do we just continue to close down, and where is our labor force going to go? Germany has a very high productivity, highly trained, highly skilled technical labor force. There are no jobs for it now. They’re being closed down.

The question is, will Germany end up looking like Latvia, losing its population? This labor looks for some countries that want skilled machinists, skilled industrial designers, skilled, basically, industrial workers. Well, all of this is occurring in Asia. It’s not occurring in the United States. It’s not occurring in Europe.

So the question is, at what point will the European government act in the interest of its population? Well, you’re already seeing the European population rejecting the European government, because the European government turns out to be NATO. It doesn’t turn out to be acting in the interests of Germany or France or other European countries, but in the interest of NATO that’s controlled by, basically, an arm of the State Department.

And the question is, how can you bring democracy to Europe? It hasn’t really been democratic in the sense of the United States meddling since World War II. For 80 years, the United States has been financing the political right wing. You’ve all seen the story of the Gladio terrorist operation in Italy that the United States staged to oppose the left-wing Prime Minister Moro, ending with Moro’s assassination by a CIA front. The United States has said, we’re going to treat Western Europe in the same way we treated Chile under Allende. If Europe votes for somebody like Allende, we’re going to put in a European Pinochet and a man like Macron, who’s completely anti-labor and doesn’t represent his constituency, or leaders like Angelina Baerbock, the Green leader in Germany, pro-military leader Olaf Scholz, the Christian Democrat leader. They’re going to put in leaders who reflect the U.S. neoliberal doctrine.

And the real fight is, are you going to somehow make all of continental Europe thatcherized and Reaganized and financialized to privatize its public infrastructure along the lines that have occurred in England, in the United States, and in Chile under Pinochet? This is the great question.

Well, what can the European population do when the political system only permits them, basically, to vote for the leading three parties, not for any real alternative that is trying to say, well, why don’t we join the global majority and be in an economic system of mutual gain, mutual trade, mutual investment? That’s the question. Your question is, can it succeed? It can succeed as long as the United States can prevent democracy in Europe by making NATO the political policy arm of Europe instead of democratically elected politics representing the interest of voters.

ANIA: Thank you, professor. So what is the way out of it for the citizens? Do you think it’s an uprising of the citizens? How? Because I see this. I believe that many countries will be ultimately pulling out from the European Union system. You know, in Poland now, they just signed this agreement because they were opposed to it at first. Now we have a new government that is really in the same… A long story. Anyway, we will have to welcome the migrants, because if we don’t, I forgot the exact amount, how much penalty the country has to pay. Is it daily, I believe? 50,000 euros per day, I believe? Something of that nature. How do you see this ending? Because if those, and we know those leaders, so-called leaders, are already assigned to certain positions, they are most of the time groomed to be in those positions. There is a certain ideology that has to be implemented. How those countries, how those citizens come out of it ultimately?

MICHAEL HUDSON: I don’t think they are going to come out of it. I think that Europe is a lost continent for certainly the next decade. It’s going to take a long time. I don’t think Europe can save itself, because it hasn’t made any attempt to save itself. The European leadership believes that it must depend on the United States for their personal support, and also their personal fortunes, and even their personal freedom. So I don’t think that Europe can save itself.

I do think over the long term, the rest of the 21st century, they’re in salvation, but it won’t come from Europe. It will come from China, Russia, the BRICS Plus, and Eurasia, with the Global South, pursuing an entirely different economic and political agenda. You’re going to have the world dividing into two parts, and we’ve discussed this on, I think, our last show. You’ll have the neoliberal, financialized, privatized, NATO, European, U.S. economy. On the one hand, what Joseph Borrell calls the flowering garden, which is really, the flowers are all wilting, but the flowers have been picked. They’re not really a growing garden anymore. They’ve been picked and are lying on the ground.

ANIA: Poisonous flowers.

MICHAEL HUDSON: Right. And on the other hand, you have the jungle. The jungle is what’s growing. That’s what a jungle does. It grows. So the jungle is going to be Asia, East Asia, South Asia, and its linkages to Africa and Brazil. And the wild card is, of course, who’s going to control the Near East. Now, the alternative to the U.S. neoliberal model is a model of mixed economies. I see China and Russia following pretty much the same model that the whole world was going in prior to World War I.

In the early 20th century, you had American industrial capitalism. You had German industrial capitalism, all with a very active public sector. Both countries relied on government investment in roads, railways, canals, school systems, health systems, to minimize the cost of living, minimize the cost of doing business, and to prevent monopolies from developing that would make money without really producing anything.

All of that ended with World War I. The fight against the Soviet Union became a whole fight against not only socialism, but against industrial capitalism’s own idea of having public infrastructure as the key driver for economies. Well, right now, you’ve seen China take the lead in a country that is using its economic surplus not to make financial wealth, but actual tangible means of production. Railroads, the high-speed trains, roads to drive on, car production, industrial production. And you’re having a mixed economy, with most of all money itself being treated as a public utility, so that the government can decide, what are we going to create money for? We’re going to create money to finance tangible capital investment and employment in real goods and services. Building houses, building office buildings, building the infrastructure, building ports and ships and trains and railroads. That’s what they’re creating money for.

In the United States, the Federal Reserve, and in Europe with its central banks, are creating money basically for financial interests to buy existing industrial companies and infrastructure and close them down. The model for Western Europe is the Thames Water in England, a company that was privatized, and instead of providing clean water and stopping pollution in the sewage system, just uses the money that it gets to pay dividends to the investors without making the investment, and ends up polluting the water and losing a lot of water through leakage, and just being the disaster that you’re seeing in England. Similar stories could be said in the United States.

Let’s look 10 years, more likely 20 years in the future. What is going to happen when Western Europe and the United States see how China, Russia, Iran, and the rest of the BRICS 10 countries are raising their living standards, increasing their productivity? They will be to the West what America was to Europe after World War II. Now the situation is reversed. Now it’s the US and Europe that will look towards Russia and China as the leads of how do we emulate them? How do we get Russian and Chinese products for luxuries? Instead of buying blue jeans, American blue jeans and cigarettes as they did after World War II, they’re going to want to buy Chinese and Russian and Asian and, I hope, Near Eastern products as well.

Obviously, at a certain point, not only the population but business interests will say, well, if we want to make money, we’re going to have to join this expanding economic order instead of staying with the shrinking economic order that we’re seeing in the United States and Europe. Normally, you would think that countries always would act in the interest of their leading business classes, but that hasn’t happened in Europe. It hasn’t happened in the United States, and it is happening in Asia because of the way in which governments are creating a market for business to make profits by expanding the economy rather than by closing it down and gentrifying it.

ANIA: Wow, so you literally took me to the question that I had for you, which is, will the Western Europe ever reunite with Russia in trading? And you were already answering it, but I would like to know at what point you think this will happen?

MICHAEL HUDSON: That is impossible to say because the United States is doing everything it can to fight against it. And the United States cannot compete economically with Europe and Asia. It cannot provide an economic model or an economic system that works better.

What it does have is the power to destroy. Not the power to trade, but the power to destroy. It can mount color revolutions. You just saw last week an attempted color revolution in Serbia. And you’re seeing yet more attempts at color revolutions in Kazakhstan because that produces oil. So Kazakhstan has the curse of oil just as the Near East has the curse of attracting American military attacks. The American policy is not economic rivalry. It’s a regime change, color revolutions, and ultimately the kind of war that you’re seeing in the Mediterranean and Red Sea right now. The United States has 800 military bases around the world, and they’ve been put in place for just such an occasion. This is the time when the United States is finally saying, let’s use all the weapons that we have because we’re almost out of guns. We’re out of tanks. We’re out of ammunition. We’re out of bullets. We’re out of missiles. This is our last chance to fight, to at least if we can control Iran and the Near Eastern oil, we can starve other countries into depending on American control of energy, and on the condition that they not join the BRICS 10, that they join the United States instead of China and Russia, that they break relations with the East and lock themselves into the same dependency on the United States diplomacy that Europe has locked itself into.

So Europe is sort of a dress rehearsal. What’s happened to Germany is a dress rehearsal of what the United States is trying to do to other countries. And of course, the U.S. model is what happened to Russia under President Yeltsin, who was the tool of the neoliberals in the 1990s. Privatize all of this infrastructure that the socialist countries have put in place. If you can privatize it and sell it off, then you can replace infrastructure with low prices with natural monopolies charging very high prices. And if Americans are permitted to create the dollar money on their computers and buy out these companies and turn them into monopolies, then America can somehow live off the monopoly rents that it extracts from the BRICS countries and use these rents to pay for the manufactured goods and the labor-produced goods that these countries are supposed to supply the U.S.-NATO economies with a kind of a class war that is put back in business of the rentier economy in the West and the labor economy, socialist economies in the East.

The question will be, will BRICS in Africa and Brazil and other South American countries be willing to submit to financial colonialism and military colonialism in the same way that 18th and 19th century military colonialism of Europe took place? It’s really the same fight but on a different kind of a chessboard, a financial diplomatic covert chessboard instead of open military conflict.

ANIA: Thank you, professor. Here is a question from the viewer and I would like to ask this question to you. Dr. Hudson, I’m relatively young with not much but ambition and intelligence. Should I stay in the U.S. or if not, where should I move? Much appreciated. Could you answer this, please?

MICHAEL HUDSON: That depends how you want to steer your ambition. What is it that you want to do? Do you just want to make money? Do you want to survive? Do you want to be creative? Is there any talent that you have that you’re interested in? People are best at doing what naturally interests them and they follow it up, whether they’re a musical performer, a dancer, an industrialist, an inventor, an author, an analyst. Everybody has their own particular talents and whatever your talents are, you decide, what field do I want to go into? And then you say, well, okay, if this is what I want to do, this field, where and what part of the world is this field more promising?

Well, you’re very likely to have Americans asking questions like that. And just as Europeans asked this question 200 years ago and decided, well, if they want to be innovative and make money for themselves, they’re going to leave Europe and move to the United States. Well, a lot of Americans are going to think, well, now if we want to be innovative, we’d better move to China, Russia, Iran, and one of the BRICS countries that are following economic growth.

Because no matter what you want to do, whether it’s art or industry or even finance, you’ll do better in a growing economy than a shrinking economy. So you’re going to look at where is the world’s economic growth going to be centered. You can look at the U.S. economy as a failed economy. And the U.S. is a failed state. And you can look at Europe as a failed state because it let itself be run by U.S. neoliberal planners that are treating Europe just like they treated Russia in the 1990s. So wherever you see the growth of what you’re interested in is occurring, that’s where you want to go. And you may very well see a reversal of the whole world immigration movement to the new world. And now they move to the new New World, which is East Asia and Russia, the north.

ANIA: Thank you so much for answering this. I would like to ask you now about the United Nations. What is the purpose of existence of the U.N. anymore?

MICHAEL HUDSON: The purpose is to serve the United States foreign policy. That was built into the United Nations at the beginning by giving the United States veto power. The purpose of the United Nations is not to do any action or support any policy that is vetoed by the United States on the Security Council.

Well, what this means is that the United Nations is a failed institution. It’s a failed state. I remember when it was formed back in 1945 and all of the talk was the Nuremberg trials and the purpose of the United Nations ostensibly was to prevent war and to create an alliance of countries to move against any country that either was Nazi, meaning ethnic Nazism, ethnic superiority or war.

Well, beginning in 1950, the United Nations became the first official declarer of war, namely the Korean War. Russia did not use its veto for that because Stalin wanted to see the war in East Asia, fearing that the United States was going to fight Russia in the west from Europe. Stalin was paranoid about another invasion of Russia from Germany and the old Nazi countries under U.S. NATO move against itself. And so Russia let the United Nations proceed with the war in Korea, and Stalin sort of browbeat Mao into agreeing to support the North Koreans in this.

Well, any thought that the United Nations has a role to play, ended two months ago in October of this year. If the United Nations cannot prevent the ethnic attacks in not only in Ukraine, but in Israel, the the attempt at genocide of the entire Gaza population, as President Netanyahu has explained, the goal is to have an Israel for Israelis free of Palestinians.

Here you have a whole country that is at odds with the ostensible purpose of the United Nations and is breaking all of the rules of war that were supposed to be the rules of the United Nations. What the United Nations lacks is any attempt to enforce penalties on countries that are violating the United Nations Charter. You’ve had the head of the United Nations, Gutierrez, quite rightly, denounce Israel for genocide and denounce what’s happening as genocide. He refused to do that against Ukraine, but it was the same policy. And you have the Pope doing the same thing, denouncing the genocide that’s taking place.

But Stalin said to Churchill at the Yalta meetings in 1944-45, Stalin said, how many divisions does the Pope have? And Churchill said to Stalin, well, you know, you really want the… There are a lot of Catholic countries, you want the church on your side. Stalin said, well, without an army, what can the church do? Well, you can say, without an army, what can the United Nations do? Without an ability to impose economic and political sanctions on the United States and Israel, we’re talking about a partnership here. It’s not just Israel. It’s the United States and Israel in a tandem. It’s the United States that is providing all of the bombs, all of the armaments, all of the money to support Israel. Israel is really very much like Ukraine in its dependency on the United States and also in the corruption of its leadership, the personal political corruption, which is why Netanyahu would be sent to jail as soon as the war ended because he was already being accused of as much of being a criminal as Zelensky in Ukraine. You can think of Netanyahu as Israel’s Zelensky.

Well, if the United [Nations] is powerless to do something here, then what you need is an entirely new international organization, independently from the United Nations. You still need, officially, I guess the Russians and Chinese need to leave somebody in a hotel room in New York just to make sure that they can veto any attempt to have a new Korean War against whoever is America’s enemy of the moment. But you need a new institution that is empowered to actually commit its members to impose military, economic, and political sanctions against countries violating the basic legal rules of war and violating all of the Nuremberg laws that came into being. If you can’t do that, then there is no function at all for the United Nations, and you might as well disband it. It’s obvious that if you even try to reform the United Nations, and I don’t believe it can be reformed, it cannot continue to exist in the United States.

The Golan Heights would be a nice place for it. If it can’t solve the problem in Golan Heights, what’s the point for it to exist? Or it could be in Odessa. That would be a nice place for the United Nations. If it cannot solve the problem there, what’s the point?

There’s no point at all given the American veto power in it, just as America insisted on veto power in the International Monetary Fund, the World Bank, and any international organization that it joined. If it didn’t have veto power and the power to prevent an organization from pursuing any policy that the United States disagreed with, then it wouldn’t join. The International Criminal Court, International Trade Organization, you can go right down the line.

ANIA: Thank you, Professor. Even though I told you before we started the live stream that we will go about 30 to 40 minutes, I still have two more questions, if that’s okay.

MICHAEL HUDSON: Sure.

ANIA: Thank you. I want to ask you now, for the year 2024, what, in your opinion, will be the biggest change from the monetary financial standpoint? What can we expect?

MICHAEL HUDSON: Well, you’re trying to have other countries having an alternative to holding their international monetary reserves apart from the dollar. There’s going to be a special kind of money that will be created by the BRICS, and a kind of BRICS bank. This money won’t be dollars and it won’t be euros. It won’t be a currency that you can trade in or buy, like sterling or dollars or euros. It will be a means for central banks to hold mutual claims on each other.

In order to have a monetary system, you have to have a different taxing system, because money and taxes all go together. What gives money its value is the ability of this money [to be used to pay] taxes. You’re going to have to have a synchronism of BRICS members, of monetary tax policy, and also you’re going to have to need their own alternative to the International Monetary Fund, because the International Monetary Fund’s role is to promote austerity in other countries and to force other countries to pay their dollar debts.

The big financial shock is going to be the BRICS countries and the Global South stopping payment on their dollar debts. They’re going to realize that there’s a war on, and in a war you don’t pay debts to the country that’s attacking you. If it’s a colonial war of liberation or a post-colonial war of financial liberation from debt peonage and debt colonization and debt dependency, then you’re going to have essentially a clean slate wiping out the debts to the International Monetary Fund and the general dollar debts that have all been imposed under IMF leadership and under United States leadership as a purely exploitative phenomenon.

These countries will say, these are bad debts. When a bank makes a bad debt, the bank loses money. I’m afraid that the US dollar bank is going to have to absorb the loss. They never should have made loans to countries of Latin America, Africa, and Asian countries that they cannot pay.

Since the United States, just again yesterday on December 28, advised Europe to grab all of Russia’s foreign money, it’s done this as a warning really to Saudi Arabia. It’s telling Saudi Arabia, do you really want to join with the other Muslim countries with all of the money that you saved since 1974, since the oil crisis? All this money, we’ve told you it would be an act of war if you didn’t hold this money in the United States. Well, now we have your money and we’re going to grab it all just like we grabbed Russia’s money, just like we grabbed Venezuela’s money, just like we grabbed Iran’s money, unless you act as an arm of the United States. And so Saudi Arabia is going to have to work with the BRICS countries to move its dollars as rapidly as possible as it can out of the United States and Europe into a safe haven. The fate of the oil countries’ monetary reserves is going to be the key monetary crisis of 2024. Will they be able to achieve freedom from the United States’ grabitization?

ANIA: Thank you so much for this. I want to ask you now, looking back in history, as there is a saying that history repeats itself, if you look at the current reality we are living in, what era in history would you compare it to? And do you think the outcome will be the same?

MICHAEL HUDSON: I can’t think of any real comparison that is a repetition today. I can’t think of any other conflict between a thriving economy and a dead economic system apart from the 19th century flowering of classical political economy. From the French physiocrats, to Adam Smith, John Stuart Mill, to Marx and the socialists, they had the same fight. How were they going to free their economies from a parasitic, unnecessary legacy of feudalism, namely the landlord class that burdened the entire economy with land rent? How do you get rid of the landlords? By taxing the rent away. How do you get rid of the monopolies? Essentially, by taking them into the public domain and by socializing the basic needs. And how do you get rid of the worst monopoly, the financial monopoly of credit creation, by making money a public utility?

This was the fight that America and Germany fought so successfully from the late 19th century to the beginning of World War I. And that is the same fight that’s happening today, except instead of fighting against feudalism to create an industrial capitalism that is evolving into socialism, we’re having a geopolitical fight of Eurasia, Russia, China, along with the Global South to be independent of the neo-feudalism of neo-liberal economics done by the United States and NATO.

ANIA: So, you don’t think we will end up in a global war?

MICHAEL HUDSON: The United States is threatening to do that. That’s the one power it has. It can say, well, if we can’t control the world, the world’s not worth surviving. That’s the U.S. attitude. Just as President Putin of Russia said, well, if America destroys Russia in atomic war, who wants to live in a world without Russia? Certainly not the Russians who were destroyed.

So, yes, there is a chance of war and it’s never been higher. It’s the United States that is trying to provoke the war because it has 800 military bases. No other country in the world, no other region of the world has the kind of military bases or the war mentality of wanting to go to war, of wanting an atomic war that the United States leadership has.

That’s what should shock the BRICS Plus countries and the Near Eastern countries into a realization that the United States is threatening them not only with economic parasitism, but with atomic destruction and military destruction. That’s what the war in Israel and Gaza and Lebanon is really all about. It’s about the United States sweeping across the Near East to Iran and grabbing control of all of the oil or simply at the worst case, simply destroying it all, simply bombing Saudi Arabia, so leaving the world entirely dependent on oil from supplies controlled by the United States.

So, yes, as Rosa Luxemburg said a century ago, the choice is between barbarism and socialism. And barbarism is the US NATO today. Socialism is the hopes for what BRICS 10 can become.

ANIA: Professor Hudson, thank you so much for joining me today. I am really, really grateful for your time, honor for your time. And I want to ask you, what can we wish you for the 2024? What would you like to be the wish for 2024?

MICHAEL HUDSON: That people understand what the real war is about and that it’s about what kind of a world we’ll have and really what direction civilization is going in. This is really a civilizational war. It’s not just a military conflict. It’s not just an ethnic conflict. It’s not just the financial rivalry. It’s really a choice of which direction civilization is going in.

And that’s why I wrote my book, The Destiny of Civilization, to explain what the fight is all about.

ANIA: Thank you so much. And that book and many other books you’ll find down below the live stream. There is the link attached already. And the website to Professor Hudson, also his Patreon, where you can support his work. Thank you so much for joining us today, everyone. Thank you for your comments. Thank you for your likes. Thank you for sharing this video. I appreciate you very much. And thank you, Professor Hudson. Hopefully until next time, next year.

MICHAEL HUDSON: Well, thank you very much, Ania.

Photo by Philip Oroni on Unsplash

The post Predictions 2024 first appeared on Michael Hudson.

Owen Jones kindly invited me back to his show to discuss, what else, Gaza. We talk about the peculiarity of this genocide (i.e., that its perpetrators do not even care to hide their intent), the forgotten readiness of Western governments to brutalise not only foreign peoples (like the Palestinians) but also their own working classes, the hypocrisy of the West’s invocation of human rights and international law, Joe Biden’s motives and role, the history of settler imperialism (of which Palestine is a tragic repercussion), the brave resistance to Israel’s apartheid by humanist Israeli Jews, and, last but not least, the last source of hope there remains for the end of the slaughter and the granting of human rights to a people that have none – the Palestinians.

Please like, subscribe – and help us take on the pro-war media here: https://www.Patreon.com/owenjones84

The post Working toward snatching humanist hope from the jaws of the unfolding genocide in Gaza. In conversation with Owen Jones appeared first on Yanis Varoufakis.

Nov 13 2023 with Steve Keen

Pod version

Published Nov 24

How Finance Capitalism Ruined the World – Dr. Michael Hudson & Dr. Steve Keen

Dr. Michael Hudson is an American economist, Professor of Economics at the University of Missouri–Kansas City and a researcher at the Levy Economics Institute at Bard College, former Wall Street analyst, political consultant, commentator and journalist. Dr. Steve Keen is an Australian economist and author. A post-Keynesian, he criticizes neoclassical economics as inconsistent, unscientific and empirically unsupported. Our conversation examines the false dichotomy of capitalism v. socialism and considers the true dichotomy, which is industrial capitalism v. finance capitalism. Hudson and Keen argue that the transition to finance capitalism, where unearned income is considered economic growth, has truly sown the seeds to ruin the world.

Michael Shilo DeLay

We came down to the idea that the best thing to do might be to get both of your perspectives on why capitalism functions the way that it does, how it functions first of all, as opposed to the way that it’s ideally supposed to function, and then talk about why some of those myths persist about capitalism. And maybe, if we’re really lucky, we will work towards a picture of something better in the future because that’s what I’m personally obsessed with.So… 

Michael Hudson

Obviously, there are different kinds of capitalism, a nd we’re in finance capitalism. And What Steve and I are talking about really is the degeneration and reversal of industrial capitalism —away from its revolution into socialism, and toward finance capitalism, neo-feudalism, and global disaster. It’s supposed to work. It’s supposed to create a global disaster. So 1% of the population owns everything else and can take over the 99%. Isn’t that what’s supposed to work? Yeah, if you’re one of the 1%. So, who’s supposed to work for whom?  

Michael Shilo DeLay

Let’s unpack that history a little bit, from the grand ideal we started.

Steve Keen

Have we started? 

Michael Shilo DeLay

Yeah, we started recording at the very beginning, and then, you know, we’ll probably acts off the beginning until we get rolling.Exactly. But I honestly think we can just launch into it. I’d like to get both of your perspectives on how these events unfolded to the place that we’re at. 

Anastasia Bendebury

So before we get to the events that have unfolded, let’s make sure that… 

Michael Shilo DeLay

We need to do that. 

Anastasia Bendebury

We do need to do in a way.

Michael Shilo DeLay

We have one more tactical thing

Anastasia Bendebury

Alright, that’s a good call. Okay, so I’m going to clap here and then… 

Michael Shilo DeLay

We use this title on the audio. So if each of you in turn, we can maybe start with Michael. If you could say something with a ‘P’ like Karl Popper, perhaps… 

Michael Hudson

Karl Popper.  

Michael Shilo DeLay

Got it. And then Steve.  

Michael Hudson

Peter picked up a pack of pickled peppers.

Anastasia Bendebury

Yeah.  

Michael Shilo DeLay

Nice. Right?  

Anastasia Bendebury

Okay.

Michael Shilo DeLay

I think that’s how.  

Michael Hudson

Get that explosiveness that pumpkins up.

Steve Keen

Yeah, that’s all. How I’ll go for Polanyi.

Anastasia Bendebury

Okay.

Steve Keen

So I’m not Popper.

Anastasia Bendebury

I want us to start with making sure that everyone is on the same page for what we’re talking about. So when we say that capitalism is broken or it’s not working, do both of you have the same vision for what that means? Or do you have slightly different perspectives or totally different perspectives on how it’s going? 

Michael Shilo DeLay

What that word means? It’s such a huge, powerful word in this discussion. We should probably define it as vigorously as possible. 

Michael Hudson

Well, first of all, that’s the wrong question. ‘Working for whom?’ It’s working very good if you’re one of the 1%. It’s working very badly if you’re one of the 99% or if you’re living in a part of the world that the rising sea levels are going to make uncomfortable, or if you’re a renter and not a homeowner, or if you’re a debtor, not a creditor. So it’s working. For whom is the first question? 

Michael Shilo DeLay

What is it? What is capitalism? I know this is a very elementary question, but I think it’s really important that we define that term up front.

Michael Hudson

The word ‘capitalism’ was coined in the early 20th century by the chairman. I’m always plucking out his name right now.

Steve Keen

It’s from Plato. 

Michael Hudson

No, no, no. Who wrote ‘The Bourgeois’? Many of us. I’m blocking it all out. Right. Well, think what most people think of as capitalism is what Marx wrote about, describing industrial capitalism, where the distinguishing feature is wage labor. Industrialists will hire labor to produce a good to sell at a profit. And the idea is for capitalists in one country to undersell those of other countries and continually cut costs so that they can undersell their rivals. Modern finance capitalism is the opposite. Finance Capitalism or ‘Pentagon capitalism’ aims to maximize the cost of production. In ‘Pentagon capitalism,’ you’re paid an automatic 10% or similar proportion of whatever you spend money on. So the objective of ‘Pentagon capitalism’ is instead of making a $20 toilet seat, you make the famous $350 toilet seat because then you get a $35 10% commission. Is that capitalism? The kind of capitalism we have today?

If you want to say is capitalism, what we now have is finance capitalism, and that’s the antithesis of industrial capitalism. Industrial capitalism sought to cut costs, and how do you do it? You do it by having the government play a rising role. The government would make sure that costs are not increased by monopolies because any natural monopoly is going to be taken into the public domain. Communications, health care, education, transportation—all of these were developed by the government and supplied to the private sector at a discount or even freely so that the wage earners who were hired by the employers didn’t have to spend their wages on health care or education. And that enabled American and German wages not to include all of these extra costs because of government.

The ideal of industrial capitalism was revolutionary. It was to get rid of the rent seekers, to get rid of economic rent as unearned income, to get rid of the landlord class by taxing away land rent, to get rid of the monopolists by putting monopolies in the public domain, or at least regulating them. What happened was the rent seekers fought back and gave us modern economics. Modern economics said that government plays no major economic role. The one thing it picked up from industrial capitalism was to say any problem has a solution. The solution to every problem is one of two things: one, lower the wages of labor and its living standards; two, get rid of government and let the private market solve everything.

As long as the market is controlled by the financial interests. The ideal of finance capitalism is to replace economic planning away from the government towards the financial centers and to maximize economic rent. By the end of the 19th century, modern economics saying markets are ideal the way they are. Any attempt to change the natural market is an interference with the market. And the interference they meant was they didn’t want socialism to develop, they didn’t want economic regulation to develop, they didn’t want anti-monopoly regulation to develop. They essentially wanted to create an economy run by the financial sector, making money by creating economic rent opportunities and deindustrialization.

The objective of finance capitalism is to make money quickly with the least effort possible. And that does not mean you invest in a factory and develop markets. You take over a factory or a corporation, break it up, deindustrialize, turn the office buildings or factories into gentrified housing. And you remove all of the taxes on economic rent, on land rent, on monopoly rent. Essentially, you create an economy that is overblown and in many ways is very much like the feudal economy—special interests, inherited rights, and the economy polarizes primarily by debt. And so this post-industrial capitalism has sort of created a new idea of economics as its advertising a public relations effort. And this neoclassical, anti-government economics says that the ideal of any economy is to make money quickly as it is measured in financial form. And what we’re seeing today in the United States is a huge upswing in the financial wealth of the 1% of the population, while the 99% of the population is running into debt.

So if you read the newspapers in the United States these days, it’s all about why don’t Americans realize what a wonderful thing that President Biden has done? The economy is doing wonderfully. Why do people say it’s not doing wonderfully? Why are they so unhappy with the economy? Well, the reason is it depends on who is the economy that you’re talking about. Are you talking about the economy for the 1% or the economy for the 99%? And the 1% are making money so rapidly at the expense of the 99% that overall wealth is actually going up? And so people think that the economy is doing good, but it’s a very polarized, concentrated economy, just the opposite of what industrial capitalism aimed at.

Michael Shilo DeLay

Steve, do you have a different perspective on the history? 

Steve Keen

Well, I want to try. I can see you trying to absorb what Michael was saying there, and it’s amazing to watch. A narrative will set how we think about a system, and Michael’s narrative—you know, I think I have much agreement with Michael was saying. There are elements I disagree with moderately. But the overall narrative Michael’s making is, you know, I think quite an accurate description of how capitalism, as it was originally saying, which was the industrial capitalism has been distorted into financial capitalism. And that has worked out very well for those who own the financial assets and extremely badly for those who work and to some extent extremely badly for those that manufacture as well.

So you do have that, I think, Michael, narrative is accurate, in other words. But I would also come back and say, well, what’s the original distinction of capitalism from feudalism or from socialism? And that starts off with the private ownership of the major production. Now, again, I’m not going to agree on that one, but what you get out of that is in a modern society, there’s no such thing as a perfectly private system, never, never existed. There’s always been a mixture of private and public. And the question under capitalism, what would work better? And if you ask what would be better in general what Michael was talking about, where the government provides health, education, wealth, and the infrastructure, etc., etc., that means that workers are paying, as he said, aren’t paying for the cost of transportation to make a profit for the owner of transportation.

They’re paying a lower cost. They’re getting free education. So the capitalists don’t need to educate them, etc., etc. And what you get therefore, is a higher profit for those manufacturers. But financial capital is very much based on their classical economic thinking is that neoclassical economics didn’t intend to be a defense for financial capital. But that’s what’s worked out. When I say deregulate, I mean remove controls on the finance sector. So therefore, I very much agree with Michael’s perspective overall. But I think we have to and say, well, you know, let’s look at the systemic level—feudalism versus capitalism, capitalism versus socialism. And the private ownership of the means of production is an essential part of that.

What you get—and this is in Michael’s narrative as well—is a large part of what is done by the powers that be. And in capitalism, that makes it work less well than if they hadn’t garage around with the system in the first place. And if you look back and say, what was the period where this is America’s reference point, American population was happiest and I’d say the happy days period, the 50s and 60s, which, you know, the Happy Days show, captured that. And you could have a single male worker most of the time supporting a large family and having plenty of leisure time relatively.

They didn’t have fancy things like this to talk on, conversations across the Internet, etc., etc., at the technological levels obviously lower, but you could support a family and have a reasonable family life and be working in an industrial setting as well. Have pride in what you are doing as a worker, etc., etc. So that’s not America today. And so a lot of the sense of misery people get, even though you will get neoclassical economists in particular saying, ‘Oh, they’re so much better off than they were back then,’ because look at the cars as I drive, you know, of let’s technological change and that side of capitalism is one worth discussing that’s the main distinguishing feature in one sense between a feudal period and a capitalist, you have a greater right of technological development during capitalism. And to some extent that benefits everybody. But you’ve had a breakdown.

Financial capital has undermined what made capitalism great for the period that it was. And that’s a large part of Michael’s argument. And I’ve seen the data on that, too. If you look at the level of private sector debt, you got the booms and busts of private debt. What drives the apparent wealth and the final poverty of capitalism? We are now in the period of the highest level of private debt in America’s history. And every time we get a high level of private debt like that, it’s, you know, the old joke about if you owe the bank $100, you have a problem; you have a problem for the bank a million dollars.

The bank has a problem. Well, we’ve ended up with a bank dominated because we are the billion the trillion dollars. And the dominance of the finance sector, I think, is what’s eroded the good side of capitalism. And that has been supported by conventional economic theory, even though they claim, of course, they’re not doing that.

Michael Hudson

Okay. Now, based on what Steve has said, I can see the question that should have been asked. What direction is capitalism going in? And we could have said what direction was industrial capitalism going in. Everybody in the 19th century said it’s going towards socialism. There were many kinds of socialism. And the whole argument in the last decade of the 19th century was what kind of socialism are we going to have? It’s obvious that instead of having a post feudal ruling class, a post feudal landlord class to collect rent, post feudal monopoly class and a predatory banking class, we’re going to have government playing an increasing role, including money creation and control of the credit system. So that was going towards socialism. There was a counter revolution, and that’s the revolution that we’ve been having for the last century towards neo classical neoliberal economics, and that’s finance capitalism, and that’s going in the direction that precisely what Steve just pointed out.

What is really growing under finance capitalism is finance is debt. And the debt of the population as a whole is credit on the opposite side of the balance sheet. So while people now are talking about the growth of debt and the debt problem. The debt problem has a twin on the other side of the balance sheet that grows proportionally. The debts of one group are the assets of another. So when Steve and I have both written about how the modern economic picture ignores debt and money because they say we owe the debt to ourselves, but who’s the ‘we’ and who is the ‘ourselves’? The debt that we owe, or the debt the 99% to ourselves, the 1%? So we’re really getting a narrative by the 1%. And it’s very largely a fictitious Orwellian doublespeak or narrative.

Anastasia Bendebury

Was this kind of transition away from the happy days of the 50s and 60s inevitable because there was more money in the world and there was a greater need to put it somewhere where it would continue to accrue? What accrued value?

Michael Hudson

That’s the kind of question an economist would ask you if you apologize for that comment. 

Anastasia Bendebury 

I am learning of total years for long enough.

Michael Hudson

Every economic tendency politicizes itself. And the problem is that the financial class gets richer, what does it do? It takes over government and it takes over policy making, especially in the United States. You privatized the election process by the Citizens United ruling where the nomination of political candidates is based on who can raise the most money from the donors. And so the head of every congressional committee, whether it’s the military or financing the heads of the financial committee and the members, are all received donations from the banks and the financial classes, the heads of the military committee. So get a subsidy by the military industrial complex. So this is the magic of the marketplace is political as well as just economic. That’s what has changed things.

The law has changed. The application of the law has changed. The culmination of finance capitalism peaked with President Obama, who had the largest bank fraud in American history and not a single bankster was sent to jail because the banksters nominate the judges. The banksters nominate the lawmaker. So you have economics is not simply the growth of debt or the growth of income. It’s a mode of economic power translates itself into political policy, regulation and who staffs the regulators?

Michael Shilo DeLay

It seems like the political aspects feed back upon the financial structures as well. With things like, you see, the rise of ESG is being priced into corporate decision making. Is there a feedback loop at play there as well, where politics start to drive some of the financial decisions?

Steve Keen

I’ll fight finance, roads, everything. I mean, we know the expression ‘the military-industrial complex’ that was actually coined by General Dwight D. Eisenhower, president-general. So, I think Eisenhower pretty much in his last day in office and he was a general and certainly see not just from the point of view of the president, but having been in the military himself, the extent to which the industrial complex generated the strength of the military sector and that ran American politics. What we have today, I think I call the financial-political complex.

The financial sector is the only part of the economy that has the ear of politicians. Politicians are persuaded by very self-serving arguments which, you know, look convincing, but they’re cut beneath them and they’re self-serving. And all the reforms, so-called, are about liberating finance. I just want to share, can I actually share my screen with you? Because I want to show some data because most people have got no awareness of the level of private debt in America and they try.

Anastasia Bendebury

Hold on. I have to change a couple things. Pardon the interruption, dear listeners, but we must ask you for a favor if you like what the Demystify side podcast does. Consider coming over to our Patreon. It is that patreon.com/demystifysci site and there you can contribute a couple of dollars a month to help us keep the ship running and allow us to continue our investigations into the most interesting ideas that are out there about nature, humans, history, the future, technology, economics, all of the things that we do on the podcast. In return for your donation, you get both of our episodes for the week early. You get to join our fantastic patron chat that meets weekly on Sunday mornings to talk about everything that is interesting in the world and the direction that the podcast should take. And you get to have the satisfaction of contributing to something that you think is important in the world.

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Steve Keen

You’re going to see the top graph is the ratio of private debt to GDP in America from 1947 to today. Okay. And it starts about 50% of GDP back at the end of the Second World War, and then it just explodes cyclically, but it slows from 50% to 170% from the financial crisis in 2007 2008 occurred because the rate of growth of that debt turns from positive to negative. It went from a Ponzi scheme, the whole subprime thing, etc., etc. Ultimately, that fell over because people could miss a payment. Suddenly, they go bankrupt. And the growth of debt goes the opposite way, and drives house prices in the opposite direction. And you can see what I’ve done down here is I’ve taken the change in debt.

So this is the level of debt, which are the dollars we owe, that’s currently running at about $40 trillion, I think, in America’s current level. This is the annual change in debt that’s credit. The dollars per year that you borrow or the financial sector encourages you to take on as debt. And that peaked at over 15% of GDP just before the crisis began. It went down to minus five. Now, that’s repeating his part of history that’s been a part of America, right back to the 30s. You had the Great Depression, which was a more extreme version of this, and the panic of 1837, which was more extreme again. But the level of debt has never been as high as it is this time round. And that’s why we still live in a financial-loss economy. And the numbers scream it.

Now, what do you get out of mainstream economic theory as one of the. Well, this is the way in which Michael and I first bonded because we always approach the same issue from different directions. And we were about the only people and non-orthodox economists arguing the level of private debt mattered. And credit was driving the economy. And I remember, Michael, you remember this conversation. I’m sure I stayed in a hotel in a cabin in New York, and you came to visit me. And we were driving away in my hotel room, and you finally said to me, what is aggregate demand? And I answered, Now, technically, I’m slightly wrong here. I’ve since improved the argument. I answered it straight. They pay plus change in debt. And you said, why can’t other people see that? And it is, in fact, now what it is. Credit is part of aggregate demand and aggregate income. And I’ve proven that analytically as well.

So we now have the correct answer. If you leave credit out, if your analysis of aggregate demand in our program, you are not made whole in capitalism. And mainstream economics is lifted out all the way through and argues you don’t need to look at it. Now, that’s the reason I’ve done this bottom shot here, because the red line is the level of credit as a percentage of GDP mapped on the left-hand side of the chart. And the dotted line is the unemployment rate now. And that you can see, one goes up, the other goes down. Rising credit gives you falling unemployment, and vice versa. And the correlation between 1990 and 2015, which is the height of both the bubble, the burst, and then the aftermath. The correlation coefficient is greater than minus point nine. I ask was about point-out steroid.

Anastasia Bendebury

And so what and credit in this chart is just is personal debt that’s being carried by people or. 

Michael Hudson

Mortgage corporation.

Steve Keen 

Oh yeah, everything. It’s household debt and corporate debt of the of the non-financial sector to the banks. Okay, so it’s even worse when you look at the internal financials that the level is actually higher, but the data is badly designed. I just gave up on trying to include that data in my analysis, but this is how indebted the real economy is, so to speak, households and firms out of the financial sector. And because we’ve let the debt get this high, we’ve got you know it’s trebled, more than trebled.

So the happy days when debt was kept under control. And if you look at all the controls that came in after the Great Depression and the Second World War, they were to limit the capacity of the financial sector to do what they’d been allowed to do in the 50s, 60s, and out through to today. So we want to change financial capitalism because if you want to have a decent capitalism, you want industrial capitalism, not the financial sector going crazy. I’ll just I’ll stop my sharing now. But that’s you know, it isn’t just words. In other words, we’re both good talkers, Michael. Better than me. We’re both good talkers, which we’re a good pair. 

Michael Hudson

But we’re best when we talk to each other and we bounce ideas off each other.

Steve Keen

Yeah. The data screamingly supports us. I mean, I used to teaching it before I met Michael. I was working over in the University of Western Sydney in Australia, and I was first starting to look at this information, and I would say to my students. I wouldn’t dare make up the numbers that I actually find in the statistics. If I was trying to make the case that I believe. In other words, the data is overwhelmingly stronger than I would dare to pretend it was if I didn’t actually know the data. And so Michael and I went with that, led the battle in non-Orthodox economics.

I have got to focus upon the financial capital. The level of private debt and its effects and they have caught up with us to some degree. But, you know, we definitely led the battle on that front. And it means that, you know, we understand that capitalism, which we have now, is a perverted version of what it started as and what it should have stayed. And Marx actually put it beautifully. This is in I think it’s in the third volume of capital. I said talk about centralization, the banks and the money lenders, and the parasites that surround him.

Occasionally, got the capacity to dominate the industrial capitalism. And this gang knows nothing about production and should have nothing to do with it. And he called them the roving Cavaliers of Credit. And that is what we’ve let take over. And Marx was right in that if you’d had much better capitalism, we would never have got the garbage we have got now. He had a naive vision of what socialism would be, but he would have kept the financial sector under control. And that’s what we need to do to have a decent version of capitalism.

Michael Shilo DeLay

It occurs to me that there’s the sort of false dichotomy set up in most people’s minds which regards the division between capitalism and socialism. But what we’re talking about is the nuances of government restraints on the different industrial and financial sectors. Like there’s a more nuanced dichotomy that should be at the center of people’s attentions. 

Michael Hudson

Well, the answer is yes. And Steve points out that he and I are almost the only people that continue to talk not only about debt, but the fact that the economy cannot recover until you cancel the debt. Well, the reason that economists don’t want to talk about debt, if they’re representing the status quo is the old phrase, the devil wins at the point that people believe he doesn’t exist. The financial sector winds at the point where people think debt doesn’t matter. Debt problems don’t exist. Don’t regulate it.

There’s nothing to see here, folks. Keep on moving. What I should have said is that in does at the very beginning is that industrial capitalism ends at creating profits, and it creates profits by employing labor to sell at a profit. And making profits means minimizing economic rent and minimizing predatory finance. Finance capitalism doesn’t look for profits. That’s why we’re deindustrialization.

It looks at economic rent-seeking and financial gains. So the objective of these two forms of capitalism are diametrically opposite. And if you look at where they’re going, this really is the problem. Are we going to have a society based on profits and wages and rising feedback between rising wages, higher productivity, and higher capital investment? Or are we going to have the finance capitalism just looking at how to get a free lunch at the economy’s expense?

Anastasia Bendebury

I don’t know if you saw this World Economic Forum presentation where, at the end of it, they made this point that, in the future, you will own nothing and be happy. And it’s really stuck with me because it feels like there is a massive force. That’s kind of pressing on the lever arm of society to push people towards dematerializing their own lives, where…. 

Michael Hudson

I guess they have the Obama doctrine now. When he came here after the 2008 crisis, he said, we’re going to start with nobody owning anything by evicting 10 million American families that have been fraudulently loaded down with junk mortgages. Let’s first of all, reduce owner a land homeownership by the black and Hispanic population. Let’s slash homeownership. And you’ve had since the Obama takeover, financial takeover, a plunge of ten percentage points in America’s homeownership rate. Yes, we’re moving towards the polarization, moves towards nobody will own anything, meaning nobody except the 1%. Well, on anything.

Steve Keen

But this what what we’re caught up in, as well as a battle between reality and ideology. And ideology, is neoclassical economic theory and people who swallow it’s arguments all the way through. And if you go back to the 70s and 80s, that was when you had the real switch shift from a Keynesian understanding, which is like a bastardized version of a Marxian understanding which at least appreciated classes exist and at least appreciated. You wanted to get income to the working class because the working class will spend faster than the richer.

So if you actually distribute money to the working class, it ends up going to the capitalists anyway ultimately. And you get, and this is actually what’s called a classic is profit equation that says that if all you increase government spending ends up in the pockets of capitalists because you give it to workers, they’ll spend it, and it ends up in WalMart, etc., etc.

Now, the thing is, if you do that, that’s better than giving it to the capitalists directly, although certainly financial capital, they spend much more slowly. So what do you get out of it? Is even though, you know, it ends up being something which capitalists profit from, you get a better level of economic activity, a larger level of economic activity. If the goes through the workers in the first place, workers have to spend the money they’ve got very rapidly, capitalists and the bankers spend it very slowly, and they’ve got far more money.

So what’s happened is a switch to the money going to the workers, which gave us the buoyant economy of the 50s and 60s, that the happy days capitalism, where it goes to the ultra wealthy now and they buy now. They used to buy Lamborghinis, now they buy top-level Teslas. They’ve got yachts everywhere. They compete over the size that they also have got. It’s a much, much more, as I said earlier, a feudal-type economy we’ve generated. And the point I want to make, I’m going to share my screen again. By the way, this is a very heavy-looking piece of data here.

But one of the things which was sold to get a change, like we’ve got out of Thatcher and and Reagan, you’ve got to have something which gets the popular support so you get people voting for it. Part of that comes out of the Murdochs of the world pushing their views and so on. But what they were saying is get rid of trade unions, get rid of government interference, get rid of, you know, socialized medicine, and socialize education. And what we’re going to get is a booming economy that grows much faster. And even though you won’t have a welfare state holding your hand or putting a net beneath you, you’re going to have a faster rate of growth. You’ll be wealthier. Okay.

So what that tells you is their argument was the economy would grow faster if we moved from the. Type of capitalism Michael was talking about earlier, where the government covered a lot of those costs, to one where everything is privatized. That was supposed to increase the rate of economic growth. Now, I could show a screen. Was it worth trying again?

Michael Shilo DeLay

Yeah. You should be good to go.

Steve Keen

I think we got it. Give it a try. Okay, Just hang on a second. Let’s share the same score. This is my software package. Ravel. By the way, Michael the Terminator. A lot of the shots on this one. But I want to just zoom in to show you the growth.

 

Steve Keen

Rate makes it all clear.Okay.

Steve Keen

So, what you can see, this is for America. And the growth rate from 1945 to 1975 was 3.24, roughly 3.25% per annum. Real economic growth for 75 has been 1.9%. Okay. That’s virtually halving the rate of growth, which of course means that the level of economic activity now for many, many years is far lower than it would have been if we continued with the old, so-called inefficient Keynesian system. So they’ve sold us a product. We’ve bought the pump. And the trouble is, nobody realizes. Let’s say I’ve got a few bucks for the stock, but I’ll try going to another country here. Let’s try Japan, for example, and see if I can upload the data.

Anastasia Bendebury

Well, while you’re working that out, I wonder. So if the switch to financial capital has been this artificial method by which to grow GDP by seeking rent from, you know, the working class, why doesn’t the growth of GDP reflect that calculation? Like, why does it slow down?

Steve Keen 

The growth of GDP to growth, of ownership of capital, ownership of resources, and a concentration of wealth? So we’ve actually grown more slowly. If you go the money to the workers and they were spending on Happy Days form, there’d be a higher rate of economic growth. That’s what they told us they’d get. They didn’t get the higher rate of growth. We’re now slumping, but they’re much, much wealthier, and we’re all complaining about it, and we’re right and they’re wrong. Michael

Michael Hudson

Well, two things about that. When President Biden gave money for the Covid people, I guess that was President Trump who did that. The workers used their money to pay down their credit card debt because what’s brewing is debt. You’ve talked about the growth of GDP. And what’s happened is that finance capitalism transforms the concept of GDP; it erases the distinction between what is the product and what is overhead. For instance, right now in America, as a result of this, growing death, arrears and foreclosures are increasing for housing, for automobiles and for credit card debt. Defaults of loans are rising.

Now, what happens when you default on a credit card loan? Your interest rate goes up from 19% a year to about 30% a year. And this the credit card companies now make more money and penalties than they make in interest. And what they make in penalties is recorded in the GDP is providing financial services. So the more you lose your money, you lose your house. You pay higher financial rates. This is considered economic growth, not overhead. And all of the money, the high wages that our CEOs pay themselves, the monopoly prices that are charged for Amazon and for the other companies are under federal prosecution right now for big monopolies. All of this is economic growth. What is growing is the financial tumor, not the economy as a whole, not the industrial economy. Again. That’s why the US economy is deep industrializing. And they call that economic growth because the financial sector is making a fortune off deindustrialization.

Steve Keen

And this is actually a problem with how the the flow of funds tables are defined way back in the in the 40s which Copeland, who designed the statistician Michael, and I both have a lot of respect for. But the mistake he made was he decided to record industrial capitalism. You can report the number of cars going out the factory door times the price. If you get a physical measure of the profit, you go the capital, you purchase the machinery, you’ve got all these prices, and it’s all solid and real. But how do you call it the finance sector? And he decided simply to call the contribution of the finance sector’s GDP the sum of the finance sector.

All the wages that are paid, all the bonuses, all the profits that are that are made. So if you pay double the pay of a CEO, you increase their they pay. Now, that’s wrong. We should have said, let’s look at it and say one of my students way, way back at my university, western Sydney, put it better. He said, Is finance a profit center or a cost? And the answer is it’s cost of doing business. It’s not a profit center. We have made the mistake of saying it was being creative. And therefore, and that’s also, unfortunately, the way the companies often does accounts rather than having a negative for the financial sector, which would have made sense.

You made it a positive, as if it adds to profit, adds to GDP. And what has happened? Of course, it’s grown enormously. So the financial sector is going for something of the order of. I don’t have the exact numbers, but say like about 5% of GDP to 15% of GDP. And we’ve counted that as growth. But as Michael said, it’s not a growth. It’s a tremor past a certain level. You do need finance to enable, you know, all the transactions that we do on a daily basis. And you need borrowed money if you’re going to buy a large item like a house or a car, etc., etc. It does make sense to have a certain level of financial debt in a capitalist economy, but not three times what it was in the 50s.

Michael Hudson

And then this financial bias is the denial that there is any such thing as economic rent. Post-Industrial capitalism theory says everybody earns whatever income they get. So, as I think I said it on the earlier broadcast on our show, when the head of Goldman Sachs says, our partners are the most productive workers in the American economy. Look at how much our partners are paid.

As we rob companies, pull them apart, create international crimes by stealing Malaysia’s foreign money, the most money is to be made in crime. We know that. And we’re the best criminals. There are financial criminals, which is why they were prosecuted. Well, if you say that everybody earns what they get, no matter how they earn it, there is no such thing as unearned income, no economic rent. Then you you’ve negated the entire 19th-century political economy.

All of the value and price theory of the 19th century that was the essence of industrial capitalism was to distinguish earned from unearned income so that they could free capitalism from the landlord class, from the monopolies, and from the predatory bankers, and the counterrevolution that began a century ago and in which we are still living, denies this distinction. So that again, the devil has made himself invisible.

Steve Keen

You look back at Ricardo because people would know Ricardo for the theory of comparative advantage. Now, that was one of the can I call it the shows. And Patrick, because he managed to deceive everybody. And the Economist that that’s been the one, the one horse, the one trick pony that economist economics have been since is using the idea of specialization. But what his real purpose for putting that argument forward was that he argued that workers get the means of subsistence.

Capitalists you want they want capital to get a profit. Those capitalists will invest. And if you want to had a longer period of growth before what he saw as being a stationary site in the future, then you want to get as much money into the hands of the capitalist. So go in this and as little as possible. And so the landlords. So if you read him carefully, he says, My purpose in this book has been to show GW to show that wherever.

Rents go down, profits go up effectively. And I haven’t got the quote right there. But what he’s saying, if he can reduce the amount that goes to rent, you’ll get a higher rate of growth and you’ll have a longer period of prosperity before the stationary state. So he was anti-landlord, which is hilarious because he actually was a landlord. But nonetheless, that was the flavor of Smith. It was the flavor.

Ricardo certainly, Marx’s on the whole idea was to minimize raunchier behavior. And if you look back and see what the feudal system was, that was the ultimate of frontier behavior. So that’s where the anti-feudal, pro-capitalist elements exist in all the classical schools, and the neo-classical had this fantasy view of capitalism to begin with. But they’re the ones who threw away the distinction. And then that, of course, very much suited the wealthy. And so, Michael, you probably know a lot more about this than I do.

But the takeover of economics in the 1870s, from the classical school to the neoclassical school, where virtually in about a decade you went from the classical school being the dominance and the neoclassical being the undergrowth to all the professors of economics being a neo classical.

Michael Hudson

So it was largely in the 1890. John Bates Clark in America, and similar the Austrians abroad, it was a whole counter-revolution. That’s basically what you had? 

Steve Keen

Yeah. And that meant we went from a generally fairly realistic picture of capitalism under the classical school of economic thought and then one that ends up with the type of capitalism we had in the 50s and 60s, which was largely an accident, more than deliberate, to the financial capital side. And the neoclassical economic theory justifies all that by saying that the ludicrous pay being paid to manage people, managing financial organizations because they have a high marginal product. Well, since capitalism a meritocracy, which is bullshit.  

Steve Keen

Well, since Steve mentioned Ricardo, well, when our generation went to school, they still taught the history of economic thought that is now stripped away from the curriculum. The one thing they don’t teach is that there ever was a theory of economic rent. They don’t talk about Ricardo or the whole 19th century.

They’ve replaced the history of economic thought with mathematics, as if you can just mathematics. The existing statistics that have all been, as Steve pointed out, restructured so as to deny that there’s any distinction between the financial economy and real industry. So you have economists being turned out that are very smart mathematically, but they don’t know what to be smart about because they’ve never been exposed to the idea that there is such a thing as economic rent, unearned income, and debt crises.

Anastasia Bendebury

So I want to talk about the way that….  

Steve Keen

I wouldn’t call them smart.

Michael Hudson

Clever. What shall we say? Oh, idiot. Savants.

Anastasia Bendebury

Numerate. They very numerous. 

Michael Shilo DeLay

Quantitatively reasonable.

Anastasia Bendebury

Quantitatively able.

Michael Hudson

Sounds as if Robert McNamara was running the economy like you ran the war.

Anastasia Bendebury

I want to understand better why debt is so stifling. Because in the back of my mind, I’m kind of like, Well, why can’t it just continue to go on eternally? Like, why can’t we just have this thing?

Michael Shilo DeLay

About national debt.

Anastasia Bendebury

National debt, personal debt, economic debt, Just like, why can’t it just perpetually grow and grow and grow? And if everybody’s debt is growing and everybody’s kind of looking at it and is like, well, it’s just that’s just that’s just the thing that grows fine.

Steve Keen

It’s growing faster than everything else. This is the problem. If debt grew at the same rate of GDP, we wouldn’t be having this conversation. And government debt is different. So that’s the point worth elaborating on shortly. But private debt, a private debt was growing up faster.

Today, probably the same ratio, and therefore, you’d be right; it could continue growing. What we’re talking about, the ratio has grown dramatically. And then, what’s happened? It’s gone from being a servant of capitalism to a parasite of capitalism. And it’s slowed down the capacity of the industrial capitalism to develop new products. And like the first example we ever saw, that was actually Japan, because if you go back to the postwar period for Japan, you got the enormous Japanese miracle, as they call it. Dramatic growth in the economy. And then, between 1980 and 1990, they had what they called, they literally call it the bubble economy. Where people were speculating on the value of houses in in Tokyo so that the Imperial Palace, which I think has got an area about ten square kilometers roughly. Maybe less than that was worth more than California.

Steve Keen

You had the Nikkei reach almost 40,000 points on the 31st of December, 1989. It since fell to about 7000 points. But this financial bubble took over. Now, up until that point, up to 1990, you would see movies like what was it called The Rising Sun. A classical that was Denzel Washington was adorable. A very classic movie about Japan taking over everything. And we had Walkmans, etc., etc. What happened?

Well, Japanese corporations tended to operate as connected with the church. So rather than being equity-financed, they were largely debt financed. There was a symbiotic relationship, but also independent at the same time. Well, those Japanese corporations have so much debt that they’ve spent most of the period since 1990 paying off that debt. And the industrial development, the technological development that we associated with Japan died in the US. And so that’s what got rid of them. And wait.

Anastasia Bendebury

Who did they owe their debt to?

Steve Keen

But the Japanese cooperation under two Japanese banks, the level of private debt in Japan went from about 30% of GDP and sort of fairly flat for quite some time through the 70s and 80s. Rose 225% of GDP. And then, after the crisis, and now back down to about the same level as America, which is about 170% of GDP. So when you let that get out of hand, you stall. You stifle everything in the real economy. Investment. Technological development and happiness.

Michael Hudson

This can easily be charted. You have the key for financial debt that grows by compound interest. I can send you that. And while the economy grows an S-curve, it tapers off. And the reason it tapers off. As debt grows at compound interest, there is a gap. And more and more of the output of wages and profits have to be paid to the creditors is interest. And the more you pay in interest and amortization to the creditor class, the less you have to pay on goods and services. This is the most sophisticated mathematical model of this, was in Babylonia in 1750 B.C. The Babylonians had a very clear model. Because we have, what are the textbooks that they taught for their scribes? They asked, How fast does a debt grow at a compound interest?

Well, at 20%, every debt doubles in five years. It quadruples in ten years and multiplies eightfold in 15 years and on. But the economy they have, how fast does a herd of cattle grow? And they have a tapering off. And when modern translators first looked at these, they thought, Oh, this must be just actual statistics. But they actually taught it in the model that the rate of debt exceeds the ability to pay. So what what do you do with such a model? Well, it’s very simple.

Hammurabi wiped out all of the personal debts four times during his rule. Not commercial debts. Commercial debts owed by businesses to each other stayed in place. But you need a debt write down. If you look at the statistics that Steve just put up on the growth of debt, the only way in which you can prevent this debt from causing a chronic depression, what Irving Fisher called debt deflation in the 1930s, is to write down the debt.

Well, if you look at today with a former head of the Federal Reserve, Ben Bernanke, was given the Nobel Prize for saying that there’s no such thing as debt deflation. Irving Fisher was wrong. So they give the Nobel Prize. They think if we give enough prizes to idiots savants who mislead the economy, then we can maybe people will think if they have a prize, they’re a celebrity and they know why listen to Steve and Michael, who are never going to get the Nobel Prize. Because if they gave us the Nobel Prize, they’d have to cancel all the prizes they’ve given for the last 50 years.

Steve Keen

And the Nobel Prize—I don’t know if you guys know this is not a Nobel Prize. Are you aware of that?

Michael Hudson

Yes.

Anastasia Bendebury

In what’s important ?

Steve Keen

I’ll go to Congress. Why ask a Nobel? Alfred Nobel established the prize in chemistry, physics, literature. And I think it was those four prizes, not economics. And I actually specifically considered and said it wasn’t a science. It shouldn’t be given a prize. In 1969, the Swedish central bank, which it was fighting headed by neoclassical economists, was fighting a battle to prevent the social democratic politics that we tend to still associate with Sweden. And they came up with the idea of having a prize, which this call I can’t pronounce the name of the bank in Swedish.

The Swedish Central Bank Prize in Economics in honor of Alfred Nobel 1969. That’s when it started. Everybody there selected by a few as a handful of many rebels. So that I can sort of button down dispute occasionally. But it’s been to strengthen the neoclassical vision all the way through.

Michael Shilo DeLay

So it strikes. Me as a bigger problem, too, with Nobel Prizes, which is, how do you walk back on something like, you know, science in general knowledge? The acquisition of knowledge is always changing. The way we see things is changing. And I don’t know how you that’s kind of one of the dangers of giving these monumental prizes—that you don’t have the ability to change your mind anymore, which is really dangerous to progress.

Steve Keen

We can’t withdraw a prize. I think there should, if it was possible, withdraw prize. The two prizes almost want to withdraw a William Nordhaus Prize in 2009 for the so-called comics of climate change. I only read his shit, and that’s my technical description of what he wrote. I only read his shit after he got the prize and realized how bad it was. I’d read Bernanke’s before the prize when I saw that, given that guy’s been given the prize for an approach model, a model of lending, which the Bank of England said is garbage, In 2014, the Bundesbank said his garbage. In 2007 time, literature said the textbooks are wrong, and they give a price to this guy. Five years later, after the Bundesbank. Yeah. So it is just a sign of how it’s an ideology. It’s not a science.

Michael Hudson

But that’s why it’s given, and that’s why it’s named for a Nobel. Nobel invented dynamite, which is how I made the fortune to support it. The Nobel Prize is for intellectual dynamite. It blows up the understanding of the economy to leave devastation in its wake.

Anastasia Bendebury

Per Nobel.. I want to understand something about the way that profits become accumulated at the peak of the credit structures. Because we were talking about the way that debt grows and the financial system makes most of its profits off of servicing that debt. And I guess I’m trying to understand what actually happens to the money that’s accumulating there.

Like, does it get paid out of salaries? Does it just live in the bank and then allow the bank to then progressively ratchet up its influence on the economy, or, like, what happens ? Like, if it’s debt and it’s being calculated as part of the economy and somebody is accumulating it, Is it real wealth that’s getting spent, or is it just sitting on a ledger somewhere being accounted for but not being used? 

Michael Hudson

Oh, you love to ask trick questions. What they count as profit is what anybody earns, whether they earn it or it’s unearned economic rent, financial, let’s say revenue, which is the word that the classical economists used, the financial revenue. What the banks do, they relend it and yet more debt.

That’s why debt grows exponentially. All of the revenue of the banking financial sector earns is reinvested in yet more debt to invest in debt. the economy yet more, siphoning off yet more revenue from the from industry and from wage earners. So there’s even less and less and less money to spend on the goods and services that they produce. And you create economic shrinkage. So if not industrial profit that grow, it’s the profits of the ranters and the monopolists. And if you don’t believe there’s any such thing as economic rent or monopoly rent or landlord rent, or financial rent, then to you, it’s all the same thing. There’s no distinction at all.

Anastasia Bendebury

Can we break apart the distinction between economic, financial landlords? Like all of these different types of rents?

Michael Hudson

What they have in common is their unearned, and as John Stuart Mill said, landlords make their rent in their sleep. Well, so do financial investors who hold bonds for mortgages. They make their rent without enterprise, without earning. They play no role in the process of production, employment and reinvestment, and economic growth. They say they simply obtain a special privilege, a monopoly privilege, the privilege of being a creditor. And instead of having the government as the creditor, as you have in China. And as long as you are unearned.

Michael Shilo DeLay

But surely there is a role for rent, right? There must be a role. I mean, when kids come out of the house at 18, they’re not to be able to afford a house under any economic structure that I can imagine. So do you imagine?

Steve Keen

There’s a role for rental. But you also constrain it that there’s a role for debt. But you have to constrain it. Michael’s point earlier about the same area, and Michael knows this. This is his power, his expertise, not mine. But what you had in that vision was we had an agricultural society. You had physical bounds on your plots. So if you stop farming somewhere, you’re going to reach the boundaries at some point. But if you’re borrowing and you’ve got to pay really high compound interest, that’s going to rise exponentially. And what happened? We’re telling Michael’s work, so pardon me, mine. I want to just elaborate only on your idea.

The debts of financial of corporate debt, people doing trading. That wasn’t abolished. That was left as it was because that was a corporate decision. But most of these debts run up in made holes, or they were run up with values of crops, and so on. And there were such high rates of interest, they’d necessarily grow faster than the productivity of the fields that were actually supporting it. Now, the downside for the emperor at that stage was only free men could fight in the army. So the more debt that occurred, the more people became wage slaves and began work on the land as the landlord. And if that continued long enough, there’d be no army to fight all the other empires. And you’d collapse.

So there was a strong reason for the state to come in and say, we’re going to abolish those debts. You could go back as been very free men back on the land you lost because of the debts you ran up in the middle or through failed harvests. And you’d replenish and regenerate. And if you look at this again as Michael’s work, you look at the history of human civilization from way back those 3000 years, B.C., right through the Roman period to today, a huge part of what we see in all sorts of great men theories of conflict have really been struggle between debtors and creditors and the political power now and the hand of the creditors. And that’s what gives you a society which ultimately undermines itself. And that’s what we’re seeing now.

Anastasia Bendebury

So it sounds like you’re saying that if we bring back debtors prisons and we imprison the large majority of people that have debt, all of the sudden we’ll create the incentive structure for canceling the debt because there’s literally not going to be anybody to work any more people.

Steve Keen

If you cancel that in jail, I mean, yeah, you would. But it is the extent to which political power rests with those who want the money. And if you let them, then they are their own worst enemies in the long run. So even though they’re dominating the 1% or the .01 percent, really, they’re the ones who are benefiting out of the current system. Their decisions about how to run it are undermining its viability.

Michael Hudson

Well, the problem is that the financial sector doesn’t have a long run. They live in the short run. It’s the hit-and-run that’s the problem. They don’t care about the long run. They’ll say, Well, we’ll do something else. When we wreck this economy, they’ll move on to another. And you can see this most of all in the international economy: the global South debt, a dollar debt. How is it ever going to be paid? All of this was debated in the 1920s with German reparations and allied debts, and all of that’s been expunged from the economics curriculum. And I went all the way through a Ph.D. without ever hearing a word about a debt or the debt crisis. It’s not talked about in polite company.

Anastasia Bendebury

Yes, that’s something that I wanted to go into, which is the eventual pressure, not just on a bank on its own people, but this gradual push towards the bank, pressuring other countries and affecting their ability to make freely self-determined choices. And it seems like an extension of just resource extraction because the terms of the loans are often extortionist. And so one generation agrees to the term of the loans. Another generation is paying it off, and it promotes poverty and the ability to just extract the wealth from a country. That is agreed to something that maybe it didn’t really understand to begin with or was forced to.

Michael Hudson

Since we’ve talked a lot about global warming. Before I talk about Third World debt, I want to talk about why neo liberal has lives and has a financial center, and it’s America, and America’s balance of control over the international economy is very much by control of the oil industry. The financial sector makes loans to whatever sector can afford to pay the most interest back and the most. I won’t say profitable.

The most rent-intensive sector is the oil sector. Every dollar of oil investment abroad is repaid, and balance of payments terms in 18 months. At least that’s what I. I found in the only study of the oil industry that’s been done. So the one of the aims and objectives is finance. And finance capitalism is to speed up global warming and to control the world economy by being able to turn off any country’s oil, electricity, and economic power, and hence its growth of GDP as well as warming houses. It will, if it can, control the oil trade.

That’s why the United States blew up the pipelines with Russia. If the United States can control the oil trade of the world, then it can essentially have a stranglehold on the economy. And that’s why the United States prime aim and diplomacy is there. We will disable any attempt to slow global warming, accelerating global warming. preventing an alternative to oil, gas, and coal is a key to America’s ability to control the world economy. And Steve has done all the numbers on that.

Steve Keen

Well, I mean, I got blame particular Americans, not just America in general for global warming, but William, the White House, being one of the main ones. I can’t think of the guy’s name, but a physicist as well who worked for the government and talked the government out of worrying about global warming back in the 80s the 70s and 80s, which is why America’s done nothing about it. But yeah, again, this is a point of the short-term bigness of capitalism, why that’s so damn dangerous.

But the financial sector in particular, because they’re all on three-month reporting at best, they look five years in the future. And I’m speaking from personal experience here and that I’ve written a report called Loading the Dice Against Pensions, which points out the extent to which neoclassical economics in the form of William Law, White Houses models, and all the models that have been generated around by his cabal of neoclassical economists trivialized the dangers of climate change with the worst research I’ve ever seen in my life. Okay.

Dreadful, dreadful stuff should never have been published. But the impact of the sanctions is pointing out how badly these pension funds have been advised by consultants who relied upon their economic research. The barrier I’ve come up against to say, Well, yeah, but that’s outside our investment horizon. That’s more than five years in the future. Now, if civilization is going to be destroyed in six years, that’s outside their investment horizon.

Anastasia Bendebury

I wouldn’t like civilization to be destroyed in six years, though I would expect that there would be a perpetual loops. I would expect that there would be a perpetual decay that you see in advance. And so if you look at your five-year window and it starts to just trend down for the next, you know, for the last ten, five-year windows, then you’re looking at the decay. And is that kind of how they used to justify.

Steve Keen

No, they just it’s even if it doesn’t affect their current profit and loss statements and the three reporting and five year reporting and so on, then they’re not going to be bothered about it. Now with that means that you only start realizing, oh, global warming is affecting us; we should do something about it when it’s too late.

You can’t have that time horizon to survive something of the nature of global warming. And economists applied an enormous role in trivializing the dangers. And when capitalism collapses, and I’m using when not if, when capitalism collapses, it’ll be the fault of economists, neoclassical economists, not the radicals. So people are going to bring capitalism down. They’re the ones who thinkers who think they’re its friends.

Anastasia Bendebury

So when you say that capitalism collapses, what do you see near feudalism or you see something totally different?

Steve Keen

Mad Max.

Anastasia Bendebury

I mean, that’s very romantic. But..

Steve Keen

Now it’s not romantic. But I’m looking forward to dying before it happens. I mean, I can’t if you keep having watched Covid in particular and seeing the catastrophe that our so-called leaders made of that, if you didn’t have experts at all in charge of anything at any point when you had idiots like Boris Johnson, who’s being exposed in a Covid inquiry in the UK right now, the stupidity of the decisions that were made to imagine that we’re going to realize there’s a threat and then organize collectively and do the right thing and just manage to save ourselves in the nick of time is a Hollywood movie. It ain’t going to happen.

Michael Hudson

What is happening is that the world is now dividing into two halves. You have the golden billion, the garden of the Anglo-Saxon world, Europe, and America, and you have the jungle. That’s how they had to borrow at the European Union Express as the jungle as the 75% of humanity.

China, Russia, Iran, the BRICs, plus countries. So they are the groups led by China that are moving towards socialism. And what makes China so uniquely different from the capitalist countries is they have kept money creation and banking, and credit in as a public utility in the government’s hands. So in America, when a corporation goes bankrupt, it’s closed down, it’s sold and dismantled. In China, if you’re the creditor, China is the one country where it’s politically possible to cancel the debts without a creating a political crisis, because you can’t if you’re the government; you’re canceling debts owed to yourself. It’s always easier to cancel the debts owed to themselves, which is why Hammurabi in Babylonia was able to write them down, because the palace and the temples were the creditors, not a privatized financial class. So the privatized the financial class in the West is the it has essentially replaced the landlord class, the great the major source of debt and credit is now mortgage loans in the West. 80% of American and British loans are mortgage loans for real estate.

So there isn’t a landlord class anymore. But still, land rent is created a rent-seeking class. Although it’s a rent-seeking financial class, not a landlord class. But in China has the ability to right now cope with the fact that its real estate prices are also collapsing. But it doesn’t have to evict the homeowners.

It can just either write down the debts or it can let the private banks that are borrowed from the Central Bank of China and lend out money to the big real estate companies like Evergrande and Country Garden that have overbuilt; it can let the banks go under. And the good thing about letting the banks go under is you wipe out all of the large depositors. You move towards equalizing the income. And that is the beauty of canceling the debt: you cancel the savings of this predatory 1% financial class that you want to, so you get your benefit, the debtors, and you benefit society by removing the creditors from their position of trying to take power and dismantle governments, attempt to regulate them, and create an overall prosperity.

Michael Shilo DeLay

Is there any modern precedent for debt cancellation?

Michael Hudson

Yes. The 3000 years of every near Eastern ruler, not only Sumerian, but Babylonian, every near Eastern Kingdom, even Assyria, cancel the debts and that. Well, the Babylon.

Anastasia Bendebury

MichaeI, I know you’re older than us, but I feel like Sumerian. Babylonia is a fair example of modernity. That kids…

Michael Shilo DeLay

Yeah. What would what would the modern version of that look like? Like, how would that even unfold? Who would have the power to pull that off?

Michael Hudson

The Germany’s economic miracle in 1948 when they wiped out all debt except for the debt that employers owed their employees for the last week or, you know, a month or two. And everybody was allowed to keep a few thousand marks and in the bank. So the Germany wrote down the debt because most of the creditors were Nazis and the debts are owed to the Nazis. So it’s easy when you don’t treat the Nazis. The problem is that we don’t treat Goldman Sachs and Chase Manhattan as financial Nazis, and we’re not willing to write down the debts owed to them, as the allies were willing to write down the German debts in 1948 that started the economic miracle.

Steve Keen

Michael and I’ve been pushing this point for decades now that if you want to get capitalism function well, you reduce private debt. Okay? That’s the private debt and unearned income of the two things you want to minimize to enable capitalism to grow. And it’s done by accident for the Germans after World War Two. And that was in reaction to what the disaster they caused when they did the opposite after World War One. So that’s the Marshall Plan was the last time America acted with intelligence in the international sphere. And then the benefits that were huge.

Now we’re trying to say the same thing. You could actually reduce private debt by using the government’s capacity to create money and cancel private debts in what I call the modern deterrable. And I’ve done the modeling and all this, and Michael and I’ve spent a long time discussing it. The idea was should give everybody an equal amount of money, which means I’d get the same amount of money as Rupert Murdoch. Okay. And then, if you had any debt, you’d have to pay it down. If you didn’t have any debt, you’d get a cash injection, which you could make to spend, or you could have controls over it in terms of asset ownership if you didn’t want to cause a huge inflationary surge. And if you did that, you’d reduce the level of private debt dramatically.

Government debt can be carried out easily. And when I’ve stimulated it, government debt also falls ultimately because the rate of turnover of money rises so much because workers suddenly have money without debt, so they can suddenly spend. You got a greater level of economic growth coming out of it. So you address the debt ratio over time as well. So it’s quite feasible to do it, and it’ll never happen because if only America’s armies could only be staffed by people who didn’t have debt, then maybe America would agree to cancel household and private debt. Otherwise, it couldn’t invade other countries. But unfortunately, that’s not the case.

 

Anastasia Bendebury

Wouldn’t the banks collapse if you canceled private debt? Because, I mean, a lot of the banks are…

 

Steve Keen

A lot of them have to sack a lot of workers earning ridiculous salaries. So it wouldn’t be a bad thing to go and get a factory job.

 

Michael Hudson

The banks would be good as they did under Roosevelt. There’d be a bank holiday. They’d reopen the next day. But the uninsured depositors, the billionaires, would no longer have their money. And again, that’s a good thing. Not a bad thing, because they haven’t used their billions of dollars very well.

 

Steve Keen

I’ve actually I don’t model that happening. I model that everybody gets the same amount of money. Money doesn’t get destroyed. You have the same amount of money, which you end up backing. The money, rather than being backed by private debt, is backed by government money-creation capability. You go from credit-based money to state-based money. You could leave the same amount of money in their own overall system. But by reducing the debt on a per capita basis, you’d benefit the poor far more than you benefit the rich. And that’s the idea behind it.

I want us to negotiate politically palatable. You could actually sell it to 90% of the population that are off. The trouble is, you simply can’t get this law discussed. Idea discussed anywhere in any circles apart from like when Michael and I get together. It just it is not even discussed. And economic theory is a major reason why. Because you if you try to argue to Ben Bernanke that you should reduce the level of debt, oh, pure redistribution should have no significant macroeconomic effects. That’s from the paper. After he got the paper right after the one he got the Nobel Prize for. You know, so economic theory is what’s preventing a sensible reform of capitalism. And in terms of the global warming, it’s what setting us up for the physical demise of capitalism, as it’s climate change destroys sedentary civilizations. So, you know, the greatest enemy of capitalism is neoclassical economics.

 

Michael Hudson

Think of it as a debt pollution. And that pollution is like environmental pollution that grows and grows and grows and stifles growth.

 

Anastasia Bendebury

But I’m still thinking about it in terms of just how much money you would have to actually pay people. I was looking at this recently. The average personal debt in the United States is $30,000. And that’s like for every man, woman, and … 

 

Michael Hudson

The 50% of Americans don’t have any savings at all. That’s the key. Let’s look at who has the savings. If you always look at both sides of the balance sheet, if you think of economics in terms of balance sheets, not just one side, you’ll get the basic dynamics. When you talk about debt. Also, look at savings. 50% don’t have any savings. And the average American can only raise $400 in an emergency, according to the Federal Reserve statistics. So you know what happens when there is an emergency there? They go further and further into debt because they can’t pay for it. And that’s really the problem that we’re in. So it’s not the amount of money, the what a lot of money is. The savings of the 1% is the concentration clotting at the top of the economic pyramid.

 

Anastasia Bendebury

I mean, I just looked it up. The average household debt, as reported by The Motley Fool at the end of 2022, was $100,000.

 

Michael Hudson

But most of that would be up real estate debt. And the reason there’s this real estate debt is because of the failure of the 19th century to achieve its main economic objective, which was to finance government not by taxing profits or wages, but by taxing land rent. And if you would have if all of the increase in land prices as a result of prosperity, population growth, and public spending, if all of this increase in prices were collect, were not given away to the landlords freely but were collected as the government, then this would this rent would not be available to pledged to the banks to pay interest. So simply taxing away land rent would prevent the financialization of land valuations, which is what most of the debt is in the United States. There are no need at all for this debt. Instead of paying an income tax by the wage earners and companies, they’d be paying a rent tax on the land, and this rent would not be used to pay interest.

 

Anastasia Bendebury

Interesting. So you look like you have something you want to ask.

 

Michael Shilo DeLay

Well, it just seems to me like there’s two ways to look at the solution set to this. One is the post-collapse narrative. And one of them is something like what individuals right now can do in order to promote a better financial structure in the future. Like, are there things that people can actually do to take, for instance, not taking on debt? Is that a solution that people can actually contribute to this whole or is that an impossible wish?

 

Michael Hudson

No, not if you needed to break even. The break-even costs force you to go into debt. Then the economy is mal structured. A well-structured economy wouldn’t force you to go into debt. It wouldn’t force you to pay higher and higher debt service to the banks, to buy a home to live in, because it could be the same home that’s been there for a hundred years. If that’s going up in price, there’s no reason to have the banks earn money interest in their sleep by forcing you into debt to pay the land rent to the banks that can simply create the credit.

 

Michael Shilo DeLay

So in that sense, all of our entire solution set is bounded in a top down view that we fundamentally have to restructure the system in order to actually get out of this hole.

 

Michael Hudson

There’s nothing that Adam Smith and Ricardo and John Stuart Mill and Marx and all of the classical free market was all about a free market as a market free of economic rent. And now it’s a market. It’s free for the wrong to is to take as much as they want without government regulation or taxation.

Steve Keen

And this is the point that looking back at the classical economics, first of all, it was a fighting the feudal system and arguing in favor of capitalists. So the feudal system was overwhelmingly landlords. You might be lord landlord, but you were still a landlord. So your wealth came out of land ownership, and they saw that it was unproductive, and they wanted to erect the wealth from the landlord class to the capitalists. And that gave you an anti-unearned income perspective.

The Classical school of Economics. And what’s happened with the neoclassical taking over? They’ve abolished that distinction. Everything is a marginal product. And therefore, the landlords, if you’re a wealthy landlord, you’ve got a large marginal product. It’s everything is a meritocracy. The classical school focused on the fact that wealth came out of ownership, not out of what you did with the neoclassical to abolish the whole idea that ownership has any role at all. Which is crazy because we’re talking about capitalism.

 

Anastasia Bendebury

I think that we should take a short break right here and refill coffee and maybe use the bathroom, because afterwards I want to get into a historical picture of how this happened, because what you guys are saying is that we went from feudalism to capitalism, and now we’re going from neoclassical economics, which took over from classical economics back into.

 

Michael Shilo DeLay

Financial feudalism.

 

Anastasia Bendebury

Neo-feudalism And so I want to see if we can learn something by looking at that first transition and the one that’s happening now to see if we can accelerate the transition back out of it.

 

Anastasia Bendebury

There’s one more thing that I wanted to mention. We are organizing our very first conference, Mr. Con 2024, which we’re going to hold in Austin, Texas, April 7th and eighth of next year. We’re going to have two days of talks on astrophysics, cosmology, mythology, archeology, economics, consciousness with some of our favorite guests from the podcast. The link for that is down in the description. It’s also going to be up here in just a second. But if you have that weekend available and you are interested in joining us, please come over to our Eventbrite and purchase tickets now. If you cannot attend by coming in person, that’s totally fine. We also have tickets available for the live stream. So check that out right up here.

 

Michael Shilo DeLay

Guy I was just saying in the break to an associate that when I listen to other podcasts by non-economists and they talk about the financial crisis in America, let’s say just the sort of impoverishment of the average person, the idea is that the dichotomy is between socialism and the government stealing up people’s money or something. And capitalism, free market capitalism. And I think that that’s not the right dichotomy to be examining. I think we established that pretty early on. But why does that myth persist? Why is that something that most people on the street understand to be the dichotomy?

 

Anastasia Bendebury

And I imagine that it must be something of a historical artifact because it’s a reflection of the most recent economic conflict, which is, you know, Soviets versus Americans. Or, if you go even further back, it’s Karl Marx and the development of rising up to own the means of production. And so everybody just kind of fits it onto this pattern and just don’t go any deeper than that.

 

Michael Hudson

Well, there are many kinds of socialism, just too there are many kinds of capitalism and the idea of socialism. And prior to World War One was, as we said, the government was going to. Help industrial capitalism. And it was the industrialists that were pressing for socialism in the sense that they were pressing for government to provide as many public services as public utilities as they could in order to make the economy lower-priced and more competitive. And that’s what made industrial capitalism revolutionary. Getting rid of the landlord class was revolutionary.

Getting rid of the monopolies was revolutionary. And even turning money away from usury and just pure explosiveness into actually financing production was revolutionary. And all that seemed to be happening, especially in Germany, where you had a unity between government, the large banks, the Reichsbank, the military, and heavy industry. And that seemed to be the way to go in. And England’s financial policy would be to pay out profits as quickly as you could to the financial owners. It was a hit and run. But in Germany, the banks encouraged companies don’t pay out the profits the stockholders reinvested in your interest.

To grow so the economy can grow. We want to grow through equity, not through debt. Well, all of that changed in World War One. Is it true that the monitors were overthrown? But you also had a whole change in what socialism meant? And certainly, the Russian Revolution, as it turned into Stalinism, transformed the whole idea of socialism. And they thought of socialism as being intrusive and essentially either Stalinism or Naziism. Not as a byproduct of and evolution of industrial capitalism. And part of the problem was that the left wing, as it became solenoid, stopped talking about finance. And if you look at who are the people that read and pay attention to what Steve and I are saying, it’s sort of across the whole political spectrum.

It’s not left wing. If anything, it more right-wing, or is it more focused on finance than the left wing? And so the idea of economic reform no longer had a political vehicle for it. And beginning with Ricardo again in England. The critics of industrial capital said, Well, we’re not going to be able to get rid of the landlords until we democratize politics. We want to get rid of the House of Lords being able to dominate British policy, and we have to clean up the rotten boroughs.

We have to democratize that parliament. And all of this came to an explosive head in 1909 to 10 when the House of Commons actually passed a land tax revenue bill, and the House of Lords vetoed it. And that was a crisis. And the result was that the House of Lords could never again block a revenue bill. So the capitalist sector was all in favor of democracy. But, needless to say, the financial sector was all against democracy. The financial sector was, let’s put it plainly, fascist.

The financial sector did not want democracy unless it could manipulate the voters and confuse them into not understanding their class consciousness. And so you had a whole shift in how people thought about the economy—how they thought about what is capitalism and what is socialism. And the result is that the financial view of socialism is somehow high taxes on everybody and progressive taxation that would really hurt the poor more than the progressive people. All of that went by the wayside. Well, in 1913, the United States finished a whole fight with the Supreme Court. Are you allowed to actually tax wealth and tax income?

Well, finally, the Supreme Court let there be an income tax, but only 1% of Americans had to pay an income tax. And this 1% were Americans. The rich who made almost all their money through rents and finance rent seekers. Well, all of that changed when there was a counter-revolution and economic theory saying a progressive income’s bad. You want a flat tax today. The richer you are, the lower your tax bracket, the lower income you have, the more you pay in taxes and various fees. So you’ve had a failure of the population to understand what Steve and I are talking about. That’s why we’re on your show, not. Oh, oh, on…

 

Steve Keen

NBC. Yeah, well, it goes back further than that. And I think it was actually extended, but it’s actually a human characteristic as well, because if you read Doc, they very, very original neoclassical you have to read. Augustine Curnoe was a French mathematician around the turn of the 1800s. And Jean-Baptiste say, who was an economist and a libertarian in the 1820s, and they put across the idea of capitalism being utility, maximizing wealth, and maximizing systems. And it operated best when there was perfect competition, no monopolies in the sense of large companies, and they completely ignored the issue of land ownership and the issues we’re talking about the rent-seeking side.

And what you got was with what became neoclassical economics was largely attraction to Marx because Marx took the classical school of economic thought and then turned that not as a criticism of feudalism and support of capitalism, the criticism of capitalism and support of socialism. Marx was born to socialism, was what we call democratic socialism today now. Education for the workers, health care, etc., etc. But the vision that the Che put forward was of capitalism, free market capitalism as a utility-maximizing system.

And it gave me this vision of a world where there was no control and no power. So everything worked out fairly, and everybody got what they deserve for meritocracy. And humans, I think, have got to, and we see this in religions like Scientology and Catholicism and all the other religions around the world. We have a vision of a perfect society, and we’re very good at sharing that with each other. And capitalism, the neo-classical theory puts across capitalism is a perfect system. And that is what lies behind the neoclassical zealotry, because they think they’re going to make the world a better place if only they can get rid of the government intervention, get rid of trade unions, let the market decide, blah, blah, blah.

And one of my favorite experiences that ever was I set up and they I farcical economists who didn’t always being set up but it was I got to talk to a bunch of unionists and management in the food industry back in Australia. This is back when I worked in part of the government called the Accord, which was supposed to get unions and management to get together to cooperate.

Anyway, this guy came along, and he was the person who worked out what’s called the effective rate of protection. And it was strictly neoclassical or organized, socially workable. Called the Industries Assistance Commission, the nickname of which amongst both the manufacturers and the workers was the Industries Assassination Commission. They were trying to abolish tariffs, abolish controls, etc., etc. And this guy got blasted by both sides.

He had no idea was going to get shot, but he did. And I sat down with him after feeling sorry for him because he was, you know, nobody else was talking to him, and he’s sitting away and having a drink. And he finally says to me and I and I quote, Look, you’re an economist. Help me convert those people. It’s your religion, and they don’t realize it’s a religion and anything which contradicts that religion. They don’t look at they walk away from. So on a central part of the religion is the idea that cost of supply arises because of what they call rising marginal costs.

It costs more to produce a traditional unit of output, and that’s driven what they call diminishing marginal productivity, which is that each additional worker is assumed to be as productive as the previous worker. But because you’ve got a crowded factory, effectively they produce less output as more workers are added. So productivity per worker falls, cost per worker rises. Rising supply curve. When they go and research that, they find that every last bloody firm they interview virtually says that doesn’t apply to us. We’ve got constant or falling marginal costs.

We design factories are the most efficient at full capacity. And that’s what said dozens of surveys have been done. Every last one is found. At least 89% are normal. In 95% of firms report constant or falling marginal cost. Now, what that means is the whole theory of welfare that’s part of the model for it breaks down. So one of them made a big mistake. In a neoclassical economists called Alan Blinder made the mistake of doing a survey to ask manufacturers what they call structural work.

Got this answer, and literally, and I quote from his book, described as overwhelmingly bad news brackets for economic theory. It was such bad news that his textbook doesn’t even report his own research to his students. It continues with the myth. So this is what the behavior is, not a behavior of science, is behavior, religion, and anything which doesn’t fit the religion. You either don’t look at it in the first place. What he rejected, if you actually discover it and that comes back to that. What is a religion? It’s a way of saying this is the way to the promised land. So they say capitalism is the route to the promised land, and that’s why they fuck up the bloody thing, because there’s no relation whatsoever to the real world.

 

Anastasia Bendebury

And so, as a very…

 

Michael Hudson

Heavily subsidized religion and the most of the subsidy…

 

Steve Keen

Why, You’re on a bull.

 

Michael Hudson

Yes. Go to business schools, and the University of Chicago are founded by the Rockefellers to justify essentially his oil rent as sort of the leader in it is, quite frankly, a fascist university. That was where the Pinochet fascism came from. In Chile? It was from the Chicago school. That’s their doctrine, as is fascism.

 

Steve Keen

What they don’t know it is that they believe that they know what they have.

 

Michael Hudson

I want to tell. Let me tell you.

 

Steve Keen

Okay.

 

Michael Hudson

You weren’t there. I went to the high school when I was in high school and grade. There are the social science teacher, Curtis Edgett, had a big sign over the bulletin board. I better not say it, but it was pretty. Those of us who graduated from the high school and went on to college found when we got our FBI records that our professors normally turned in reports on us to the FBI about what we said in class all the time.

I mean, the result is that all this money going to the University of Chicago, Berkeley, and others they become they’ve taken over the editorship of all of the main economic journals. So and if you are a graduate in the United States, an economic graduate, whether you’re hired or not by a university, depends on whether how many articles you’ve had in the prestigious economic journals.

And needless to say, you have to have the party line, or, as Steve says, religion. I think a party line is better in order to get published there. So where I taught and most of modern monetary theory was taught at the University of Missouri at Kansas City, our graduates had great difficulty talking about money and debt and getting it published. They’d all get rejections. And as a result of having to publish only in the left wing journals, they had great difficulty getting hired by prestigious universities. So it’s a very well-subsidized junk economics, basically.

 

Anastasia Bendebury

And is the subsidy done in service of maintaining financial capitalism? Like what?

 

Michael Hudson

Amazingly enough, yes, of course it is there. But they’re going to they want to popularize something that says that they are productive, not unproductive. That’s the great myth, that the parasites are productive. They’re the parasites. Take over the body.

 

Steve Keen

No, I’m. From a broader experience, like not the mainstream university, like University of Chicago is absolutely top of the neoclassical pecking order. So I went to places like Sydney, New South Wales, western Sydney, Kingston, and so on in the UK, and you still get people who have got nowhere near this gravy train and nowhere near having political influence of paying working for the state, because often working in state-run universities and they start this religion, they actually believe it, and that’s why they’re so fucking dangerous other than the French, because if you have somebody who’s paid to believe it, so it’s all they helping out oil, blah, blah, blah, you can pay them a bit more money or that they’ve got to be at least partial.

They’ve got to have some sort of, you know, internal conflict out of the supporting a libertarian arguments and knowing they’re supporting multinational wealth and so on. But these people believe it, and they’re not even getting rewarded for it. So that’s why I say I see religion as more appropriate analogy, because you have true believers who are in poverty because of what they believe, but then they push out this myth of a libertarian meritocratic system, and that myth persists partly because of money at the top, but also because many people believe it. And humans in general, I think, are seduced by the idea of a vision of a perfect society.

 

Michael Hudson

Well, I think Wall Street is not as bad as the universities in Wall Street. They didn’t care what my politics were. They knew what my politics were. All they cared was whether I was right or wrong. And I did very well on Wall Street. But in academia, they didn’t care about whether I was right or wrong. All they cared about was what I believed. And they thought that be Certainly at the New School, which was a left-wing university under Bob Brunner. Well, it was a Stalinist university. They thought that because I came from Wall Street, I had to be a left winger.

Hull Brunner said, Look, if you’re talking about finance, you’re a right winger. And I wanted to cancel debt. And he said that would just discredit the entire left to account, talk about the need to cancel debt. And he he also attacked me for writing for Catholic publications and for having the Catholic Church popularize my ideas as part of the land reform issue. So I found that the universities, especially the left-wing universities, were the most hard-line right-wing religious people on Wall Street. And they welcomed my ideas because, Stephen, I have the right ideas. That’s why most of our support comes from the financial sector. They know what’s happening.

Steve Keen

It’s ironic, but true. Yeah.

 

Anastasia Bendebury

So if the financial sector sort of, well, you know, if the financial sector is…

 

Steve Keen

Supporting our policies, they support our analysis.

 

Michael Hudson

Yes.

 

Anastasia Bendebury

I see. Okay.

 

Michael Hudson

Internal use only?

 

Steve Keen

Like, for example, I’m looking at my analysis now of credit and unemployment, and people that followed my work developed what I call the credit accelerated or explained the rise and fall of asset prices and did very well out of speculating on the basis of that. I don’t have the money to speculate, but, you know, I know people have made a large amount of money out of following the idea that Michael has on other people who are not all non-Orthodox thinkers because we’re actually identifying what’s going to cause a big change in the market next. Whereas the Neo-Classical Church, there’s nonsense of the efficient markets hypothesis. And you all know Warren Buffet. Obviously, Buffet was being criticized when he was doing his degree and saying, look, there’s no profit to be made. The market is efficient; instead of that’s true, I’m going to be broke. Oh, we ain’t broke.

 

Anastasia Bendebury

So what is inside of the finance? If the people in the inside of the financial sector realize that things are broken? What are the decisions that they are attempting to make in order to fix it? Or is the dream?

 

Michael Hudson

To fix their idea of fixing it is to make as much money as they can. They want to fix it by increasing the stock prices on which their bonuses are fed. They want to fix it by using profits to pay out dividends and for stock buybacks, not to invest. They want to fix it by making more money for themselves. That’s their idea, acting rationally.

 

Steve Keen

So we’re trying to say, look, this and this is why the system fucks up. Let’s do something to fix it. And they say, This is what the system fucks up. Let’s ride the wave. So you do get some people in finance. I mean, Nick Hanauer, for example, is somebody who is a socially minded billionaire, and he will be putting forward ideas about how we have to do. His next book is on the on this topic of reforming a system.

I don’t know if you go as far as actually agreeing with the wealth confiscation or you going to modern debt jubilee; maybe he would with a modern Dutch overlay. But in general, people in finance are looking for an advantage. And if you’re following a theory which is not delusional, then you’re going to have an advantage. And Warren Buffett was the classic one of following a non-delusional theory. The efficient market hypothesis said you can’t find a badly priced company. And he said, You’ve got to be kidding. So that’s how he made his money.

 

Michael Hudson

Well, Steve used the word reform. And the question is it is reform enough, or do you need a revolution? Reform is simply fixing an existing structure to make it stronger. A revolution is to change the structure. And we’ve reached a point at which, in order to save the economy, save the environment, save the world’s military situation, you need really a revolution. And I think Marx said the end of capitalism will not be a pretty sight on one occasion. And in a way, the runt. It’s very funny.

The people who are the debtors and the wage earners are not going to lead a revolution violently. Violence. Ever since Greece and Rome all the way to modern times, violence is always used by the Free lunchers by the rontiers, by the takers to protect their predatory power is not by the victims. Violence is by the victimizers, unfortunately. And so you need this forces of revolution.

As you saw in Latin America, You had the revolutions have been sponsored by the United States. They’ve all been from the right wing, from the pro-financial, neo feudal or outright the fascist Pinochet to Chicago sector. You had the one country that’s immune, mostly of China, that had its own revolution in order to make all of this possible.

 

Michael Shilo DeLay

Well, prior to the fascist revolution, there was something of a democratic revolution in Chile, from what I understand, right? They had some sort of democratic election. This didn’t go over well. The redistribution of land didn’t go over well.

 

Michael Hudson

Right?

 

Michael Shilo DeLay

Yeah, particularly with the foreign aid.

 

Michael Hudson

Kissinger said Yeah, just because they vote wrong doesn’t mean that we should follow them. When you use the word democracy, Democracy is a euphemism for oligarchy. We’re not in a democracy. We’re in an oligarchy. And if you don’t realize that, then you don’t understand who’s making the decisions of power and what governments are doing to protect oligarchic power against other people. And Aristotle, in his book on constitutions, said many constitutions claim to be democratic, but they’re really oligarchic. And that’s as much the case today as it was in his day.

 

Anastasia Bendebury

Okay. So one of the problems that I see with debt cancellation is we had this very active debate about the canceling of student deaths over the course of the last few years. Definitely, people are still talking about it. And on some level, I am viscerally pro-the cancellation of student debt. On the other hand, what I see happening is you have the massive increase in the cost of education that’s going to the administrations and not towards professors and students like there was. I looked at this the other day. I think that Harvard has a 1:1 ratio almost of students to administrators. And so it feels like what you do in that case by canceling student debt is, yes, you relieve the individual, but you have passed. An approving judgment on the structure of the universities that allows you to maintain this kind of. But I mean.

Okay, let me see if I can lay out the way that you have this. So if you have a student that pays money to a university where most of the money is going to the administrators and they’ve taken the money out as a loan and they don’t end up paying back the loan, but the loan is forgiven. The university has made a large profit. And there is nothing that prevents the university from continuing to extract wealth from the financial sector. By getting these students to take these massive loans. The students get their loans eventually forgiven, but the system continuously ratchets up costs.

 

Steve Keen

The system began by making students borrow money to do education and experiences from the very beginning, to where I literally caused a bit of a dispute in the Vice-Chancellors office when I decided to resign from Kingston University. This huge growth in administrators is all the product of turning universities into profit centers because when the universities were government-funded, this is, I’m talking in Australia’s case, now government-funded.

They did have private fees initially. So if you didn’t get in through competitive means, you could buy your way in. But most of the people got that through competitive matches. And then, in 75, I began university, not in 71. In 73 we had a progressive Labor government come in which abolished student fees, and that meant you went to university if you got a good enough mark. That was the only interesting 80 was good school results, and at that point, the ratio of administrators to staff would have been 1 to 2, or 12333 academic staff for every administrator, and the administrators were there to do the administrative work for the academics.

So the hierarchy was definitely, you know, academics above administrators below. When we got this push to commercialize universities again, the administrators became marketers. They ended up on top there telling you what to do. I had this enormous growth in a ship structure of what our great old friend David Graber called Bullshit Jobs, whose whole role was to try to market the university. And then what they did knock out the bloody vice chancellor. There’s just a damned clock. And you know, you see all the public relations for the university.

It wasn’t about the innovative academic staff; it was what a great Vice-Chancellor we had. So this huge hierarchy of bullshit jobs, the support the Vice-Chancellor developed out of commercializing it, and they’re also competing the day they start. A University of Western Sydney starts a department in Saskatchewan to try to compete for the Saskatchewan market, and they all try to get extra market share. It’s ludicrous, and what is meant is far more of the money and administer university.

This does go to administration and marketing than actually goes to research and teaching. And I’ve lived through it has been a bloody nightmare. And that’s why I was glad to leave the university sector in 2018. And I’ve done far more academic work since I left than I ever managed when I was there, because I got rid of all the stupid form-filling and ludicrous reports to bureaucrats. You haven’t got a fucking clue. Pardon me? I’m becoming really Australian talking about this. I haven’t got a clue what an academic actually does, and got in the way of us doing the work that we all became academics to try to do in the first place. So the whole bureaucratization and overloading of universities has been a product of commercializing them, believing the profit motive would work better for managing universities.

In fact, it’s corrupting that extremely badly, even to the point where I have had students say, Look, I’ve paid for my degree, like I’ve been shopping at Kmart and bought something, and I think I can walk out the door because I paid the bill. Sorry, you’re not bright enough. You deserve to fail. You can’t tell. You’ve got to pass you to get your studies. There’s enough idiots already, you know. But that’s if you abolish student fees and abolish private funding, abolish the students, you don’t treat the student like a consumer. The student’s a student that had a lot. And so they’ve got to compete well enough to get in; if they don’t do well enough, so they fail.

You know, I’m quite a libertarian in most of my attitude, but if you’re not smart enough, you don’t get the exams on your failure. Repeat, you can’t do that to them these days. So the whole if you got rid of the whole superstructure of training, image of market and private institutions, you’d reduce the cost structure quite radically and you’d make it cheaper to educate, and you’d have academics. You’ve got time to be academics and think as well as changes well, rather than the shit we have those does.

 

Michael Hudson

Well. There’s a race to the bottom going on also that you have. How do you maximize your profit? You lower. The cost of production, how many? And instead of hiring full-time teachers in the United States at, let’s say, 60,000 a year, you can hire part-time teachers at $2,500 a year for your course. And so you’ve had pushing them way down. There was a protest. I live in New York City, and I have friends who are professors at NYU, and they had the professors who were complaining that no new professors were being hired. They were all part-timers. And you’re having graduate students do the teaching and no higher hires. And the there are more and more deans, and some deans and bureaucrats, as Steve pointed out, being appointed. And what is the job of a dean? It’s to lower the price of the people working for you, the lower the cost of teaching, and giving the the income you save to yourself.

So you make money by lowering the wages that are paid to the other people. So the professors have been downsized, basically. And. A premium is put on inexperienced, literally the race to the bottom. But that’s not really the main cost. The main what made China so great for thousands of years was Confucianism. The idea that everybody was going to take exams and you would have the best people.

Basically, ending up as the administrators if you make, if you limit university registration to the rich and say if you don’t inherit your wealth, you’re going to have to go into a lifetime of debt in order to get an education. And if you do not inherit enough money from your parents to pay, then you’re not going to be able to buy a house. When you graduate, you’re not going to be able to start a family because no bank will lend you money because your income over and above basic consumption goes to pay the university. Sorry, you can’t afford a house. That’s the result of not writing down student debt and of teaching, treating education not as a public utility, not as a human right, but as a profit center. That’s the result.

 

Anastasia Bendebury

And that’s exactly what I am pointing to. Which is like…

 

Steve Keen

Saying you don’t abolish the debt.

 

Michael Hudson

You don’t run in the first place.

 

Steve Keen

You abolish the debt. You get the whole commercialization. You get rid of the administrative layer, and you drastically reduce the cost. And the state pays for education.

 

Anastasia Bendebury

But If you abolish the debt after, because the students pay in the moment, the universities have already gotten that money. And so if you abolish the debt without a simultaneous shift in the way that the universities do business, then the universities are not suffering the ill effects of that debt abolishment because if…

 

Michael Hudson

No, they’ve already got paid. This debt is owed to the government. It doesn’t cost the government a penny to cancel the debt. It just is not going to collect the debt from the people. But a windfall benefit.

 

Steve Keen

But we’re definitely in favor of completely changing the university system as well. It’s a nightmare. I about when I did a study back on the 90s, late 80s early 90s, and when I took it on I took I suffered a substantial pay drop, but I didn’t regard myself as putting myself in poverty for future. Now the pay the students in most universities certainly American university tend to be better actually on this front better pay rates. But the pay rates are so bad that I’ve ended up telling my students, in later years, don’t get a job at the university, learn how to make coffee, become a barista, work 9 to 5. If they force work later than five, I’ll pay you time and a half.

When you get home, you’ll have plenty of energy to do the research you would have done if you had time as an academic. But instead, all the academics are working two and three positions to basically, you know, it should be over paper in front of a blackboard. Terrible situation, terribly insecure. It’s an awful lot of style. And that means what? You then saying you’re only an idiot would work at a university, and that ends up with a dumb population. Oh, we want to get back to the stage of education, as Michael said, is a Confucian thing. It’s the highest. It’s the exact most exalted role. You get your best people in there, and you get them. give them time to think, and we haven’t done it. We’re screwing up a capacity to think, and we’re supposed to be, you know, an intelligent species.

 

Michael Hudson

Well, I think that’s a vocabulary problem here. You’re using the word university. What you really mean as a real estate company that holds classes in some of its real estate in order to get tax exemption on all of its other real estate. The largest real estate investors are owners in New York, Columbia University, and New York University. They came to them. Giving an education is just part of the annoying overhead. They’re into making real estate gains and increasing their endowment. That’s so we really shouldn’t think of them as teaching at all. They’re real estate companies with a tax exemption.

 

Anastasia Bendebury

But even so, Columbia and NYU private universities. And so this real estate company model for them makes a lot of sense. But I’m thinking about even the University of California system, which is a public system. And, you know, I was just looking at it in the 1980s. I think tuition was $700 for a semester, and now I think it’s over 20,000.

 

Michael Hudson

Thank you, Ronald Reagan.

 

Steve Keen

And that’s all the cost. Gross By turning into privately run organizations. And this this myth we’re talking about earlier, the neoclassical. Believe everything is done better privately, you know, lower costs, more efficient, blah, blah, blah. In fact, what happens is you have university that used to be happy with their own intake. You know, the University of Los Angeles wasn’t going to get students from San Diego. Then you put them into commercial. They’re all competing for market share. So they start marketing a huge increase in marketing costs.

They have all these bureaucrats who are now involved in packaging, you know, sales materials at the universities. An enormous distribution costs. All that stuff doesn’t exist when you don’t have private competition, and you’re far better off having publicly funded, well, publicly funded universities than private ones. A few private make it makes sense in somewhat in some areas, but to privatize the entire system ends up in a disaster. And that’s what we’ve got now. And I’ve lived the experience of going from the days when it was state-controlled and state-funded, and you had to get good results to get in, and no money was paid. Now a fortune is paid and the whole of effort, everything is about getting more students in and marketing, and that dominates everything, including the tuition.

 

Michael Hudson

Well, let’s talk about why there are public universities in America to begin with. They were created after World War, after the Civil War, as a result of the Republicans protectionists, the industrialists coming to power. And the and I wrote a whole book about this. Americans protectionists take off the Republicans fruit, and the industrial capitalists who they represented had a problem. People who went to the prestige private universities. Harvard was considered to be the worst. But there were other bad ones.

Yale and all of the Ivy League universities basically all taught British free trade. You in theory, the you know, the private universities in America until the civil war were basically for training members of the clergy, and their economic course was taught in the fourth year, the year senior year of college. And it was more; it was called moral philosophy. And this was all free trade. It was all British free trade theory. And the Republicans came in and the business interests and said, how are we going to get people educated? And reality economics, the fact that free trade benefits the dominant country and prevents countries like us from catching up, Well, we’re going to create state universities. And what we’re going to do, we’re going to give every state a land grant, and the land grant is going to enable them to fund courses for the public at large. And this is going to be where reality economics is taught instead of the British free trade right-wing theory. And that you had, in addition to the state universities, you had the first business schools that were funded and the business schools were all staffed by Americans who had studied in Germany and came back, as the Social Democrats are outlined, social outright socialists, and the first economics professor in the United States at the first business school was Simon Peyton at the Wharton School of Economics at the University of Pennsylvania, who developed the whole idea of public infrastructure as a fourth factor of production, but a factor of production that didn’t seek profits or rents but sought to lower the price for the economy as a whole.

It was the business schools and the state colleges that taught so essentially how industrial capitalism would evolve into a mixed economy, a quasi-socialist economy, to benefit capital formation. And all of this, again, was changed in modern times. Somehow, the universities have been financialized and taken over, and become part of the the race to the bottom. And as a result, you had a stratification of the American economy. If you don’t inherit a wealth from your family, you have a lifetime of debt. And that is dividing the economy into two classes, the debtor class and the inheritance class. And is that really what you want the university system to produce a class conflict?

 

Anastasia Bendebury

Yeah, definitely. I mean, that’s a huge problem. I see it in the small we teach, so we actually we’re living this; we’re teaching at a university. So we teach at Southern Oregon University, which is about an hour away. And so I was teaching astrophysics and cosmology and teaching microbiology labs. And it’s really interesting because there’s some students that are first generation who are working full time, going to school full time, and they have this very, very clear vision for what their path is going to look like.

Like, there’s one girl in one of my classes. She’s the oldest of four. She is, and her siblings are basically first generation born in the country. And she works full-time at a coffee shop and wants to be a plastic surgeon. And she just she has this arc laid out for herself, and she’s very, very competent. And then there’s other students who are clearly they’ve been admitted to a for-profit system that doesn’t really care if they succeed or they don’t succeed because they don’t come to class, they don’t do the work, and they’re being charged for it.

They’ve probably taken a loan to arrive there, and there’s no mechanism by which the university takes it upon itself to say, Hey, you need to stop paying us because this is extortionist and immoral and just continues to collect from students that probably shouldn’t be there, like they should take a couple of years figured out and come back. And it’s really heartbreaking because it just seems like a place that is meant to be the source of foundational knowledge and wisdom for the society has been converted to yet another place of financialization, profits. And these interests drive everybody into the ground.  

Steve Keen

And you’re talking about that going…

 

Steve Keen

That is such a dangerous thing to do. But what’s the most important foundational thing of a civilized society is education.

 

Michael Hudson

But you’re talking about education and something real. The fact is, if you and I were in a university, we couldn’t fit what we’re talking about into the curriculum. Right?

 

Steve Keen

I had to make my own break. I’m like, I succeeded. I went up as I went down, like I started off o the top university in Australia, where I led a student revolt against economic teaching in 1973. I then used the second one, where I got my pay, I’d say, until I sacked all the tutors. When there was a government decision in favor of employee employment permanency, they sacked all the tutors to get rid of having to give them permanent straight. And then I moved to a second-rate university of Western Sydney, where all the rebels ended up the mainly rebels. And so we had a progressive department there, and then Kingston. So I’ve been succeeding, going up for professorial scale, while the university I’ve been teaching, I have been going down, but all the top universities is taken over by neo classical they dropped.

 

Michael Shilo DeLay

That’s actually one of the really wonderful benefits of teaching out of the university that nobody knows anything about is that there isn’t a ton of oversight in terms of people telling me what I have to talk about in class. I actually sometimes sit in knock, and I’m like, I’m kind of like, Wow, this is amazing that I can sit here and talk about some of these subjects that I would never get away with. You know, back in New York, like at Columbia, where we were out for grad school, I just could, you know, it would have been this very structured curriculum that fit into the wider political landscape and so forth. And so that’s where you got to ask about, you know, if you can afford to do teaching as a public service as opposed to a career, then it’s quite nice for.

 

Steve Keen

So much about a lifestyle. Yeah, sure.

 

Michael Hudson

And you’re talking about the core curriculum. And what I meant you can’t fit what Steve and I are talking about into the core curriculum. Like at the New School, I wanted to teach about money in banking, and they really didn’t want that. It was the left wingers. It was Howard Bronner who didn’t want money in banking. They said that I was a critic of banking, not supporting it. And again, he didn’t want me to talk about debt. So the core curriculum Is now even worse? Now, as I said, there’s no history of economic thought in the core curriculum. There’s no economic history in the curriculum.

 

Michael Shilo DeLay

You know, history in the sciences either, which is really disturbing.

 

Michael Hudson

And I make history.

 

Michael Shilo DeLay

Yeah. Or lack of history. I feel like that’s a huge problem in innovation, too, is that people don’t have time to go back and study in the sciences, how people are arrived at the various ideas that are popular, and how much debate really persisted throughout the last few centuries. Right. A lot of the things people take for granted—you know, the equations they learned, they were fought tooth and nail over, and there’s still a lot of wiggle room that remains in some of those fundamental sciences. But no one would ever have the time to go back and check it out. Now, that’s a bit tragic.

 

Steve Keen

Yep. That’s wrong. It’s worse than economics in that sense. I mean, I remember being at the University of New South Wales in 1987—88, I think it was. And the. I think historians were so sick of how they were being treated by the economic staff that because what happened was they were forever having, of course, chopped off and replaced by caution, econometrics, some particular application of econometrics. So they made an arrangement to move to the faculty. And there was I remember the meeting quite vividly. They were pleading to be allowed to leave to go to the arts faculty, and the economics would not let them do that.

They didn’t want to trumpet called economics in the arts. Faculty were offended by it. And of course, ultimately, they shot down the Economic History Unit by association, economic, I should say, history, economic, social and history and Marxian economics. And they were both also shut down. So all the contemplative stuff disappeared. And the irony is now that neoclassical economists like, and I’m thinking specifically, people I know at Cambridge University have no idea even if their own history, let alone the history of the institution they read, let alone the history of the discipline. And that ignorance is where a huge amount of stupidity comes from in how economics develops further.

 

Michael Hudson

Well, the irony there is that it’s the orthodox economics that should be in the arts. Faculty is part of the science fiction of the little guy.

 

Steve Keen

No, no, no. We’re like religion. Religion.

 

Michael Hudson

Okay.

 

Steve Keen

I mean, I’ve got. I’ve got to get a break. Did you enjoy that paper I sent you a couple of days ago? That was a great book, David Graber. Okay, look, I’ll give you an idea of what it’s like. Give me a second. I’m going to find something on fiction. I’ll read it out to you because in 2000, the Chinese of the millennia, the leading the most influential journal, the Quarterly Journal of Economics. That’s right.

Number one out of the University of Chicago. The number of economists around naturally tried to write a survey of where economics was and what’s been the progress in the last century, and what can happen. I get and a guy is actually a nice bloke. I met him ultimately called Atlas Air; he became the chief economic advisor to Bush. So he was chief, and I was the president during the financial crisis. And he wrote a paper called Economic Imperialism. And it wasn’t a criticism. U.S. economics should be imperialistic because it’s the only social science. Well, then, you know, pride cometh before the fall because the financial crisis occurred. And when I caught up with him in 2009, he said to me and it was private conversation, but he’s dead now, so I can repeat it. He said, I don’t know why they appointed made chief adviser. I’m a labor economist. I don’t know anything about macroeconomics. I’ll find that quote. This will give you an idea of the ideology and economics factual.

 

Michael Hudson

All you’re looking for. If modern economic mainstream was correct, civilization never could have taken off. Imagine if there would have been a Milton Friedman or Chicago boy a going back to Hammurabi, going back to the Bronze Age, and said, No, no, you can write it. You cannot cancel the debts because that’s disturbs things. You have to let everybody collect the debts. You’d have the whole country living in poverty, as the biblical prophets described. What would happen if you didn’t have the Mosaic Jubilee year of Debt camp?

 

Steve Keen

And again, as Michael’s the expert here, but a huge part of the struggles because we read about the great man of history, the Caesars versus this ptolemies and so on, it was all, you know, say’s there was trust me, a wrong him, but Caesar was in favor of repaying reducing the debt.

 

Michael Hudson

Yes.

 

Steve Keen

And he was knocked off by the anti the the Victorian class, whatever they call it up against the tax. They didn’t want to abolish the debt. So huge parts of the struggles throughout history have been debtors versus creditors, and societies work best when the identities of one.

 

Michael Hudson

Well, they feared he was canceling the debts. And in fact, the only debts that he canceled were the debts owed by the rich people. The financial sector is all for canceling the debts that it owes, but not the debts that are owed to it. And that was one of Caesar’s failings. And if you look at the there were a lot of Roman debt cancellations, canceling back taxes, and they were almost entirely it was the large landowners and the large creditors that benefited, not the indebted population that had already lost its land through debt foreclosure.

Anastasia Bendebury

So go ahead.

Steve Keen

Oh, can I read this thing? This will give you an idea of what economics is like, because we’re likely not to do economics. This is the nature of economic thinking. This is a 2000 paper called Economic Imperialism. Economics has been successful because, above all, economics is a science. The discipline emphasizes rational behavior maximization, trade-offs, and substitutions and insists on models that result in equilibrium. Economists are pushed further to inquire because they understand the concept of efficiency and inefficient equilibria. Beg for explanation.

I should just there may be gaps in the underlying models. That created them, etc., etc. That’s why I rewrote it at the end. And that’s the first; there’s actually two paragraphs like that. So the economics of being successful because, above all, economics is a cult. Its dominant sex emphasizes rational behavior maximization, trade-offs, and substitution. And it’s just a model that results in equilibrium, thus insulating itself from the developments of 20th-century sciences. Economists push further into relevance because they are obsessed with the concept of efficiency. Inefficient equilibrium begs for dynamic and evolutionary explanations. I suggest there may be gaps in the brain. Wiring of economists should not understand this, but this is the world we’ve lived in. Yeah, and they think they’re being unscientific, and their definition of science should make a real scientist pure models that result in equilibrium. Which century are you from? But that’s the mindset inside economics.

 

Michael Hudson

Yes, And the same in international trade theory. All of the trade the Nobel Prize to Samuelson is that trade theory makes everybody all the proportions equal between capital and labor, and it’s just the opposite. If you have free trade, you polarize the economy, which is what the Americans realized when they decided to have a protectionist policy. That is what made them get so rich between the Civil War and World War One. So you’re right. It’s an economy is inherently polarizing and disequilibrium. But you know what? Equilibrium. When an economics professor falls trips and falls on his face flat on the floor. That’s the equilibrium. You know, I mean, when society collapses, that’s equilibrium. You know, what is he going to bring me?

 

Steve Keen

Well, what it means is they haven’t got they haven’t been able to develop evolutionary thinking. They suppress it because, for an equilibrium, there’s no point evolving any further equilibrium, which they think is scientific, has locked them out from all the developments from Lorenzen and complex systems and Chaos theory, and so on. And that’s that’s why you will not get progress that locked themselves into a dead end. Incredibly complicated, not complex. Mathematics is what they do.

 

Michael Hudson

Well, that’s because if you talk about evolution, you’re talking about the economy as a system with feedback. And all of the mainstream economics is what they call partial equilibrium. You can have just change 1 or 2 variables, and the whole context remains unchanged. But any kind of evolution, any kind of a system, there’s feedback that continually trend self transforms the system. That’s why Marx wrote at the very beginning of capital: he wants to look at the laws of motion of capitalism. Well, economy says we don’t want an emotion. We don’t want anything to change. We’re in the ruling class right now, and we don’t want to change it. We don’t want to look at any law motion that’s going to reform and revolutionize society and take away what we’ve grabbed.

 

Anastasia Bendebury

I wonder. Okay.

 

Michael Shilo DeLay

Well, I wanted to pivot a little bit back. So I’m hearing I’m hearing revolution from Michael and collapse from Steve. And I want to be able to imagine what comes after that. Are these changes things that can be implemented at the constitutional level if there is a new state, say, that appears, or what sort of reconstruction ideas could go into a better state in the future?

 

Anastasia Bendebury

Like after the Mad Max period?

 

Michael Shilo DeLay

Yeah, after the Mad Max.

 

Anastasia Bendebury

Okay, we have Mad Max. What happens? Is somebody rises from the ashes and is like, Let’s write a new document?

 

Michael Shilo DeLay

Well, let’s assume that neo-feudalistic financial capitalism is a dead end and an inevitably fails in whatever way that it does. What should we expect, you know, as the partners of a new constitution? Is this something that can be fixed at the outset?

 

Michael Hudson

Well, that’s what you’re having in the whole international economy. That’s what the BRICs Plus is all about. The world is polarizing between the garden and the jungle. You have the whole Shanghai Cooperation Organization, the whole China, Russia, the whole global majority is realizing that what they call dollarization isn’t simply not using the dollar. It’s creating a new kind of an alternative to the International Monetary Fund, an alternative to the World Bank, an entirely new system of international relations. Multipolarity is what they’re talking about. So you’re saying that you’re not seeing that, and the revolution is not occurring in the West. You have the counter-revolution here.

The revolution is now in Eurasia. That’s where the revolution is. And you’re going to see a China-type mixed economies are going to take off because that’s where the industrialization is. The trade, the research, the rising living standards. You’re going to have the Eurasia and the global South unify into exactly where industrial capitalism seemed to be going in the 19th century. And you’ll have the United States and Europe and the post-industrial society, meaning a left back into neo-feudalism. So until finally, you know, presumably the garden is going to decide to let the jungle in and to have the mixed economy that the classical economics has expected all along but which you’re only finding in Eurasia now. And they call it socialism.

 

Steve Keen

That’s the optimistic view. Because I’m working on climate change, and I’m reading what the climate scientists are talking about and reading what economists are bullshitting about. I expect a total breakdown of society. And it’ll be a question of which societies survive through their whole process. It’s not going to be like a global collapse, just like climate change is not going to be an instantaneous thing everywhere. It’s going to be something where some societies can cope and others don’t, depending on the challenges we face.

We’re already seeing, you know, absolutely crazy weather in the last three years, getting more crazy every year. You know, this month, October, last month, rather, was 1.8 degrees above pre-industrial average. We’re talking about staying below 1.5. We’ve had three months in a row. We’re above 1.5 quite substantially. And so, according to economists, that will have a trivial impact upon the economy, but also, according to economists and this is there’s a survey by … I don’t know who the heck.

I think there might be commercial researchers, Howard, and saw them as, while I did a survey on 2021, getting the consensus of economists on climate change, and they predicted that seven degrees of warming in two centuries time. A trajectory towards that. So seven degrees by 2020 would reduce global GDP by 20% compared to what it would have been in the absence of global warming. And that would mean that rather than being 21 times the size of today’s economy, it’ll only be 17 times. So the actual impact on the rate of economic growth was a reduction in the annual rate of economic growth of 0.02%, which is one fifth of the accuracy with which economists can currently measure real change in GDP over time.

So in other words, trivial the way the science papers and there’s a paper saying in 2021 I’ve got I’ll find it necessary on my computer, what level of temperature increase over the preexisting level caused the previous six mass extinctions? And the answer is 5.2 degrees. So a 5.2-degree increase in temperature over the previous level triggered the last six major mass extinctions, where 85% or more of species went extinct. So economists think you can go two degrees higher than that and have a small direction in the rate of growth of economic growth.

That’s how ignorant they are. But the trouble is, politicians don’t know just how ridiculous their work is. They think this is based on scientific research. They don’t read the scientists. They read the economists instead. And so we’re blindly walking into this catastrophe. That’s why we’ve done nothing about global warming. So what I expect is and you also got politicians are charged who are narcissists. They’re not chosen for their skills or their decision-making process. They’re idiots.

So they’re going to make the wrong decisions anyway in response to all this. So I just see a period of massive chaos. Maybe a couple of societies will have a chance of surviving. China is one, though. China has a problem in that it doesn’t produce all its own food, which is a major issue. As we know, because you can’t feed your population, you can’t hold it together. So there’s a minority of countries which are food self-sufficient right now, major exporters, including America, as it happens. But I can’t see America holding together. So the small ones that don’t have America’s weapons problem might have a chance of survival. And then it’s a question of: What do we do to respond? Will there be massive geoengineering attempts, given what productive capacity we have in that situation? I think there will be, I think to save chaos and temperature levels. If you actually get successful geoengineering.

So I say a horrific if we’re lucky, 50 years, we’re unlucky. 500. And out of that, you get a civilization that develops. But my fear there is we’re going to get a civilization that is anti-technology. And you’d end up with a religious, you know, and seeing technology as the cause of the chaos we’re about to go through. When, in my opinion and from my reading of the literature, the blame lies with the economists who encouraged us to continue growing when the engineers and the engineers broke limits to growth. Not hippies.

Engineers 50 years ago were saying we have to take up, we have to reduce our rate of growth, we have to stabilize population, have to stabilize our energy. What would follow the engineers? We wouldn’t be in the situation we’re in, but the engineers will most likely get the blame, and you’ll likely get an anti-technical society coming out of that. So I think we’re going to be back wearing, you know, men wearing dresses telling us what to do. And maybe there might be have a lucky day. I might have a 500 million people listening to them because the other 7.5 billion aren’t going to make it.

 

Michael Hudson

All the economists are really just hired guns to promote this. I was working at the Hudson Institute in the 1970s, and one of the programs we had was a national security study of global warming that was run by the CIA. The CIA expected everything that you’ve talked about, Steve. And they said, and this is America’s interest because we’re a food surplus country, and this will a global warming will wreck the rest of the world and increase our power. We’re all for it.

We’re going to put all of our strength behind the oil industry. And one of the byproducts of that was Erda. The Energy Research Development Organization said we’ve got to develop the tar sands in Canada. That’s the most polluting source of energy in the world. We’ve got to speed up global warming to speed up America’s dominance. This is what the CIA was believing and telling, and hiring economists to produce. They didn’t circulate my study or the, you know, the internal studies for national security, but they hired your economists to be the public relations people for all of this. So they knew it. And it was the United States that was pushing the idea of global warming, thinking it will benefit because of its control of the oil industry.

 

Steve Keen

Yeah. I’m sure that was being part of it. But economists play their own role. Nordhaus destroyed the industry.

 

Michael Hudson

They played a role.

 

Steve Keen

The standing. But you did have some people in the oil industry who were saying this is going to be catastrophic over the long term. But in terms of the capacity, Americans assert themselves in the foot. I’m never going to argue against.

 

Michael Hudson

Okay.

 

Anastasia Bendebury

There’s been an interesting push for special economic zones, where people are seeing that this is starting to collapse. And I think that they’re looking to history, and they’re saying, okay, well, one of the greatest vessels for change is the ability to go to a place where rules have not been set up yet, where things are not yet calcified into the old systems, and to begin again. And so I know people that are part of various projects. Oftentimes, they’re libertarian projects.

I know that Peter Thiel is in the background talking about, you know, like sea civilizations. And that, to me, feels like an on one hand, I think it’s destined to fail. But on the other hand, I also look at it as being the only possible way to start to cede something that can run and grow in parallel to the systems that we have. Because if you’re right, and if it does, just shake itself apart. That’s the worst possible outcome. Like if you always are always use the same example.

If you build a new bridge like there was, the Bay Bridge in San Francisco needs to be rebuilt. They didn’t wait for the bridge to fall and then build a different bridge. They built the new span directly next to it. And when the span was built and tested, they redirected traffic to it and took apart the old one. And so are special economic zones a possible way to rebuild the span while the other one is busy collapsing? Or is that just a pipe?

 

Michael Hudson

Not now.

 

Steve Keen

You need the climate supports is a dangerous civilization, and we’re generating one that doesn’t support a sedentary civilization. This is not like London at the moment. It didn’t have as much damage that they thought it would cause, but the storm around was actually a Category three cyclone went through London. Now, they’re lucky about the way that the storm. Well, the damage was distributed. London didn’t get totally destroyed or anything like that.

It’s fairly minor, apparently, and landing pretty damn dramatic on the coast of Brittany. But if those things those the storm comes through like that, you know, if you happen to be in the region where you’re trying to build your bridge and then you get a cyclone like that or a period of high temperature that destroys the grain or hailstones that destroy your greenhouse, etc., etc., you’re going to have to persuade for on a an incredible industrial scale to be in any sense immune to that. And you’re going to need people. You’re going to need skilled people who are going to be willing to work for you when the fact that you have money is no longer relevant. So to me, you know, it only do it if you have a real egalitarian, survivalist society. And what I’ve been saying so far isn’t egalitarian.

Michael Hudson

All ideological moves have been made in economic collapse. It’s a lot quicker to make a fortune in economic collapse than in a non-economic collapse. And I can guarantee you, there are a lot of financial speculators looking at what is written and saying, okay, there’s going to be a crisis, environmental crisis. How can we make money off this?

 

Steve Keen

And they’re not going to happen. But they’re just too crazy. Too crazy.

 

Anastasia Bendebury

I wonder if you have been exposed at all to what’s called the dumber optimist community.

 

Steve Keen

No, I was brought up. I know quite a few communities in the area. So tell me about them are optimists.

 

Anastasia Bendebury

And optimists are basically people that I would bet agree with you largely on the course of human events in the way that the industrial system is going to collapse. And in the shadow of the collapsing Megalodon, they’re basically scavenging parts of it in order to be able to build family- and community-based systems that are going to be able to weather the collapse and be sufficiently robust to operate in the absence of money, like you say, because you’re exactly right. If money disappears, the thing that you need is an ideological commitment to the system that you’re building. And it seems like this is the time for the emergence of these kinds of groups, because lots of people are realizing that capitalism can’t keep going the way that it’s going.

I think everybody’s very pessimistic about reform. And so the only possible alternative is to build these systems. And a lot of them are farm-based. A lot of them are buying properties in, you know, Ecuador and Costa Rica and in places where they’re going to be largely protected against giant temperature increases because, from everything that we’ve learned in talking to climate scientists, the greatest temperature increases are going to happen away from the equator. So the equator is going to stay about the same. And so if you move to the tropics, then the impacts will be significantly less. And a lot of these people are moving to Central America.

There’s also the massive changes in climate zones that might happen, like 5000 years ago, the Sahara was a green paradise. And so if you have climate change and Europe becomes inhospitable, covered with an ice sheet, it might be that Northern Africa suddenly becomes the paradise in the garden. And so you do have to see a massive shift of people. But it’s not that this species goes extinct; and the people who will flourish in the condition. By necessity, will have to be the ones that embrace technology. Right. Because how could you not embrace technology and survive that?

 

Steve Keen

Is the problem we have scale? So, look, I agree that is more likely to be a survivable system, but it has to be what Nate Hagens ? I’m pleasure you know Nate Hagens calls a great simplification because you’re not going to have computer chips in that world. You may have to go back to resistors and try to have valve-based computers, something you can manufacture on a small scale, because the extent to which we have the scale of manufacturing is beyond most people’s comprehension today.

You know, the one company that makes the machines that make the chips, the advanced chips, which is a Dutch company, I think, was $450 million per machine. And there’s only one company making it. So they won’t have a market to make those machines. If you’re down to a population of, you know, scattered populations of between 500,000 and 50 million surviving in wood plastic around the equator, ironically, I think you’re quite right about that. So they’re going to have to be technological, but it’s going to have to be a bit like, if you know, the old Kiva. It’s survival technology. It’s not large-scale industrial technology.

I hope something like that happens because the thing that I fear most about what we’re going to through is the loss of knowledge. As much as we criticize capitalism in this conversation and given the amount we know about the universe and you guys are in a better position to be aware of that than we are in that we know about, The universe is amazing, and I think we might lose all that and go back to a primitive level of knowledge and actually an anti-technology world. I think it’d be a greater tragedy than the loss of people we’re going to face, frankly. So I want to find ways to keep that technological dream alive. And as you say, you’re going to have to be technological to survive in that world anyway. From global knowledge. You’re not not logical.

 

Anastasia Bendebury

From everyone that I’ve talked to, I think that the answer is to start carving things into stone.

 

Steve Keen

As to what?

 

Anastasia Bendebury

Is to start carving instructions into stone because stone will survive the cataclysm?

 

Steve Keen

I know one of my colleagues who I never got around to writing a third edition of Deep Economic, but he wants to publish that on parchment so that it will not decay. And I think that’s a great idea. I’ve got to change my direction. From writing a third edition of Debunking Economics to attacking the idea of economists have done the work on climate change because, again, it’s raising a warning before a crisis, which is what I did before the financial crisis in 2008. Too bad. And everything to write right blog posts about the coming financial crisis.

This is the coming ecological crisis. And the trouble is, you could have even bad economic management could reverse the damage that could minimize the damage of a financial crisis. But there’s nothing that can minimize the damage we’re going to do to the productive capacity of human civilization by the degree of climate change we’re generating right now. By the time we realize that it’s going to be too late to do something on a global scale, so it comes down to local initiatives. Some countries may be able to do it. The small, fairly authoritarian countries like Thailand is a possibility. Cohesive, maybe China, parts of China, though I worry about the food production issues there. But yeah, your little communities may be a bit like the monasteries of the Dark Ages, keeping knowledge alive while the rich turn into a primitive world.

 

Michael Hudson

I don’t think quite barometer out to keep your books going. Baked ceramic tiles. Ceramic tiles on a wall and a pyramid.

 

Steve Keen

I’ll give it a try.

 

Michael Shilo DeLay

So I didn’t quite get an answer to my question about what a new state that was more effective and had safeguards against these kind of corruption would look like. Is that something that can actually be established other constitutional level?

 

Michael Hudson

Well, if you realize that economies tend towards a crazy financial polarization and a debt crisis, then you need a regular debt cancellation. You had that for thousands of years in the ancient Near East. That’s why I wrote and forgive them their debt. So, yes, it’s been done before. But if you realize that the ten tendency of economies is to polarize for disequilibrium, not equilibrium, then you have policies that are going to deal with this inevitability of polarization and disequilibrium. So you need a different mathematical basis of economics than you have today. And if you have the right diagnosis, then you have the remedy that’s indicated by it.

 

Steve Keen

I think you also have to have a humanity has to respect life. And we haven’t. We’re destroying life. This is this my overall perspective is that we have to see our role as being custodians of life. And that means reserving a large part of the planet for non-humans. Wilson was talking about the 50% rule that half the planet. Humans should be excluded from half the planet. I actually think that’s excessive. I think there should be 80% of the planet should be excluded from humans. And we do what we can in the 20%. But we know this is the only planet we know of in the solar system, in the universe that supports life. And with what we know now in terms of what of the possibility of habitable worlds elsewhere, it’s extremely rare.

It may be so rare that we’re the only we could be the only one. We might be there. We might be another one, which goes through this whole process of take off, driven by fossil fuels, overwhelming, and collapsing again. Maybe this is the great filter we face in the future, but if we’re going to survive, we have to be aware that life is fragile and and we have to see ourselves. If we are the intelligent species, we have to prevent its breakdown. The long-term thing, as you both know, is sun will become a red giant. And in its evolution towards that, in about a less than a billion years its own, the energy we get from the sun will destroy the oxygen levels in the planet.

 

Michael Shilo DeLay

I mean, I see that, in some sense, as the main project of space exploration. Whether people realize that or not, you know, why are we interested in the moon? Because it’ll make a great industrial outpost for establishing longer-range spaceflights and even our search for life. It’s like really motivated by a search for habitable regions of the cosmos that we can explore and potentially set up a backup hard drive for ourselves here.

 

Steve Keen

I think we have to do that. Yeah, I agree. And then that’s like I’m a mushroom cloud on that front, because if you start with five, six, and whether or not the only way you could survive on Mars is by having a highly technological society and an egalitarian one as well, So whether we get there, I don’t think good timing is good. I think we’re going to fail on that one. But you have to ultimately see our role as being able to maintain life and intelligent life. And that’s we should be first and foremost, what humans do.

Everything else should be secondary for to be driven by that objective. And the trouble is that we are so caught up in our own squabbles and our own attempt to see everything as if there’s nothing other than our species on the planet that we’re ending up destroying our capacity to survive on this planet ourselves.

 

Michael Shilo DeLay

I feel like it’s very hard for the average person to care about these large issues of species diversification and so forth when they feel like they have a boot on their neck. Like they feel like they don’t have control over the governments. They feel like they don’t have control over the financial institutions. They need to invest in these financial institutions in order to fight inflation to begin with. And so there’s just like a real powerlessness. I mean, the best thing you can do to clean up the planet is to make poor people not poor. Right. You know, we know that people who are not completely under the thumb of privation, like they’re able to actually take care, that’s something they start to care about all of a sudden. And so, in some sense, it seems like the path to a more sustainable ecology is by making people less poor.

 

Steve Keen

Yeah, they’re having an egalitarian. I mean, for example, I was pitching as an Italian guy who’s in charge of attempting to design what would be the colonies on Mars. So I’m being interviewed about this. It’s a YouTube channel, obviously, and he was asked about the social structure. He said it has to be egalitarian.

You can’t have somebody on Mars having 10 or 100 times the space that the average person does. Engineering alone rules it out. And you want to have a society which regards its every person as contributing together. It has to be egalitarian. It has to be shared. And in the long run, that’s if we’re going to have a potential survival as a species, we have to extend that to all of life. And that’s we’ve been nowhere near thinking in that way as a species at the moment. And what worries me is that we won’t get there anyway, that you will end up with the, you know, the religious nutcases taking over again in the aftermath of an industrial collapse caused by climate change, which I blame on technology rather than seeing technology as the potential solution to avoid that world.

 

Michael Shilo DeLay

Well, interestingly enough, as Michael’s shown in his writing, that the more sustainable economies of, say, the Sumerians were headed by religious nutjobs. That’s quite interesting because they in some sense had a responsibility to some cosmic significance that was beyond the scope of individual sequestering of wealth. And so I wonder if there isn’t something useful about that way of looking at the world.

 

Michael Hudson

Well, all those low surplus economies, or, if not egalitarian, they had checks on egotism. They had checks against the accumulation of wealth. If somebody could get you to let people get wealthy, but you’d have to bury the wealth with them, it wouldn’t be transmitted to the family to become a hereditary wealth. And when people there’d be funerals, and you’d have wealthy people buried with all of their jewelry.

But then, when the funeral is over, you distribute the judiciary all through the people. There are many the anthropology of it shows that all of these societies had checks on this and balances. Of course, some people are going to have big autism. You’re going to have people wanting to get rich, but you’re also going to have society protecting itself against this. And if you’re rich, you have a big feast and you provide food for everybody and and you get social, you get status by being generous, not by being selfish. Not where University of Chicago graduates would do well.

Michael Shilo DeLay

Well, I feel like we have covered a lot of ground. We’ve done three hours here. And one thing I want to ask you guys before you left was who we should be talking to to expand our perspectives on these issues. Who are people that you think are really worth talking to in order to make this an even bigger conversation?

 

Michael Hudson

I think you should talk to Steve Keane.

 

Michael Shilo DeLay

I was afraid he said was something. We definitely will.

 

Michael Hudson

I mean, it’s a dilemma, but there are certainly people like E.O. Wilson, as unfortunately, DOD people. I think Juergen Randers, who was the one of the two surviving members of the Limits to Growth study, Dennis Meadows, is still alive and kicking. People working on system dynamics. Microsoft would be embarrassed of I mentioned in here, but his daughter is the leading person in developing a capacity to think in a systemic way. And that’s our failure also to think about the overall system. So there are a range of people out there, but I’ve lost touch in a lot of ways because I’ve been forced to fight neoclassical economists so much. I’ve destroyed my own brain capacity and taking on those bloody idiots. And because you’re fighting this all the time, I’m not trying to track down people who are providing new ways of thinking. So I’m not, unfortunately, because I spend. But I have to fight that battle. I’ve lost touch with the people who are the inspirational thinkers about the future.

 

Anastasia Bendebury

Michael, are you in the same boat?

 

Michael Hudson

Oh, yes. I can’t think of. There’s no.. You really need a new science. Not economics, but something that does talk about the whole world as a system. And if you talk about the world of the system, you’ll realize just what Steve’s talking about with this global warming. And this is how economics began in the United States already in the 19.

In the 1840s, you were talking about this and the environmental overhead. Now that had to be included in the national statistics. And the free traders all oppose this. So there’s always been this opposition between reality. People who looked at this system and people who said, don’t look at the system, let us have a cover story. And there just are not many people doing what Steve and I are talking about today because they’re not a discipline. What do we call ourselves? Do we call it? I call myself an archeologist. I used to call myself a futurist when I worked with Herman Cain and Alvin Toffler, and these people. But. Maybe you should call us futurists, but not economists. What do we call it? I don’t know.

 

Anastasia Bendebury

We have Kate Ray was coming in a couple of weeks.

 

Steve Keen

Good. Which is good.

 

Anastasia Bendebury

Yeah, I think that’s going to be interesting. We’re also trying to get Nate Hagan’s, but he..

 

Michael Shilo DeLay

Met with them last week. We don’t have a podcast on the books yet.

 

Anastasia Bendebury

So if you see him, put in a good word for us.

 

Steve Keen

It will do well the night in our interests fairly regularly.

 

Anastasia Bendebury

Excellent.

 

Steve Keen

I’ll do that. Okay.

 

Michael Shilo DeLay

Thank you, gentlemen. This is been illuminating, and I feel like I get smarter every time I talk to either one of you. So I’ve learned so much.

 

Anastasia Bendebury

And I feel like I get smarter when I talk to both of you at the same time. Yeah.

 

Michael Shilo DeLay

Exponential.

 

Steve Keen

And I’ve got to, I still have not promoting for the function at all. And I’ve got to do that. I’ve just been overwhelmed. So I’ve got your things to help promote it. But, you know, kick me in the backside occasionally to get me to do something because I’ve just got too much work on.

 

Anastasia Bendebury

Definitely, we will. We’re actually taking a little break for a week, and so we’ll have some more bandwidth to think about that. And so we’ll send you some notes.

 

Steve Keen

Okay. Thanks again for the conversation. Good to see you, Michael.

 

Anastasia Bendebury

Thank you both so much.

 

Michael Shilo DeLay

Thank you. All right. Bye, everybody.

Jul 23 Michael Hudson on Debt, Empires, Oligarchs and a More Perfect State

 

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