By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College
From Hudson’s presentation at the Italian MMT Summit, which was also recorded by Bonnie Faulkner of Pacifica Radio’s Guns and Butter show
Suppose you were alive back in 1945 and were told about all the new technology that would be invented between then and now: the computers and internet, mobile phones and other consumer electronics, faster and cheaper air travel, super trains and even outer space exploration, higher gas mileage on the ground, plastics, medical breakthroughs and science in general. You would have imagined what nearly all futurists expected: that we would be living in a life of leisure society by this time. Rising productivity would raise wages and living standards, enabling people to work shorter hours under more relaxed and less pressured workplace conditions.
Why hasn’t this occurred in recent years? In light of the enormous productivity gains since the end of World War II – and especially since 1980 – why isn’t everyone rich and enjoying the leisure economy that was promised? If the 99% is not getting the fruits of higher productivity, who is? Where has it gone?
Under Stalinism the surplus went to the state, which used it to increase tangible capital investment – in factories, power production, transportation and other basic industry and infrastructure. But where is it going under today’s finance capitalism? Much of it has gone into industry, construction and infrastructure, as it would in any kind of political economy. And much also is consumed in military overhead, in luxury production for the wealthy, and invested abroad. But most of the gains have gone to the financial sector – higher loans for real estate, and purchases of stocks and bonds.
Loans need to be repaid, and stocks and bonds receive dividends and interest. For the economy at large, people are working longer just to maintain their living standards, which are being squeezed. Women have entered the labor force in unprecedented numbers over the past half-century – and of course, this has raised the status of women. Mechanization of housework and other tasks at home has freed them for professional life outside the home. But on balance, work has increased.
What also has increased has been debt. When World War II ended, John Maynard Keynes and other economists worried that as societies got richer, people would save more. For them, the problem was to keep market demand high enough to buy all the output that was being produced.
And indeed today, markets are shrinking in many countries. But not because people are saving out of prosperity. The jump in reported “saving” in the National Income and Product Accounts (NIPA) in recent years has resulted from repaying debts. It is a negation of a negation – and hence, a statistical “positive.”
Paying off a debt is not the same as building up liquid savings in a bank. It reflects something that only a very few economists have worried about over the past century: the prospect of debts rising faster than income, leading to financial crashes that transfer property from debtors to creditors, and indeed polarize society between what the Occupy Wall Street movement calls the 1% and the 99%.
What also was expected universally fifty years ago – indeed, until about 1980 – was that governments would play an increasingly important economic role, not only as forward planners but as direct investors in infrastructure. To Keynesians, government spending served to pump money into the economy, maintaining demand and employment in cyclical downturns. And for hundreds of years, governments have undertaken basic infrastructure spending so that private owners would not use monopoly privileges to charge economic rent.
Nearly all observers expected the fruits of technology to trickle down, not be siphoned up to the top, to the banking sector whose “financial engineering” played no directly technological role in the production process. Textbook models describe – or rather, assume – that rising productivity will be passed on to labor in the form of lower prices (reflecting falling costs of production, enabling wages to buy more) or, if prices are “sticky,” higher wages.
According to what the textbooks called Say’s Law, there is a circular flow between producers and consumers. Workers must be able to buy the results of what they produce. This correlation between output and consumption goes back to the Physiocrats prior to the French Revolution, who created economics and account keeping. Their founder, François Quesnay, was a medical doctor and a surgeon. He created the basic format of national income accounting on the analogy of the circulation of blood within the body. An increase in production had to find its counterpart in increased consumption, creating its market by paying workers who spent their wages on buying the products they produced.
Working Harder, Producing More, but Going into Debt to Buy It
After World War II many women stayed home and raised families. But since the 1950s they have been forced increasingly into the labour force for what are called two-job families – and now, three-job families (with only two family members). If you project labor participation rates, by the year 2020 every woman will have to work 18 hours a day or economic trends will falter.
What was applauded as a post-industrial economy has turned into a financialized economy. The reason you have to work so much harder than before, even when wages rise, is to carry your debt overhead. You’re unable to buy the goods you produce because you need to pay your bankers. And the only way that you can barely maintain your living standards is to borrow even more. This means having to pay back even more in years to come.
That is the Eurozone plan in a nutshell for its economic future. It is a financial plan that is replacing industrial capitalism – with finance capitalism.
Industrial capitalism was based on increasing production and expanding markets. Industrialists were supposed to use their profits to build more factories, buy more machinery and hire more labor. But this is not what happens under finance capitalism. Banks lend out their receipt of interest, fees and penalties (which now yield credit card companies as much as interest) in new loans.
The problem is that income used to pay debts cannot simultaneously be used to buy the goods and services that labor produces. So when wages and living standards do not rise, how are producers to sell – unless they find new markets abroad? The gains have been siphoned off by finance. And the financial dynamic ends up in austerity.
And to make matters worse, it is not the fat that is cut. The fat is the financial sector. What is cut is the bone: the industrial sector. So when writers refer to a post-industrial economy led by the banks, they imply deindustrialization. And for you it means unemployment and lower wages.
Financial Dynamics vs. Industrial Dynamics
The accumulation of payments on interest-bearing debt leads companies to search for new loan markets, just as industrialists seek out new markets for their expanding output. This search means looking for assets in place to be pledged as collateral. The largest asset in any economy is real estate – mainly the land’s site value. So about 80 percent of bank loans are mortgage loans. But by 1980 property prices had turned down as interest rates rose during the Vietnam War and the general Cold War buildup throughout the world. Overseas military spending obliged the Federal Reserve to raise interest rates to borrow abroad to prevent the dollar’s exchange rate from declining.
So in the 1980s banks found a new market: corporate raiders treated companies much like real estate, to be bought on credit and managed to create a capital gain. The rise in interest rates to 20 percent by 1980 forced most states to revoke their usury laws, and credit card companies played states against each other in a race to the bottom when it came to protecting consumer rights. So the high-interest junk bond was born, largely at the hands of Michael Milken’s gang at Drexel Burnham.
American industry began to be financialized (and in the process, criminalized). But running a company to make a financial gain is different from running an industrial firm to expand production. Cash flow that was not paid to bankers and bondholders for the credit to buy out stock holders was used for purposes other than direct capital investment – above all for stock buybacks to support their price, and for mergers and acquisitions to acquire yet more companies.
The aim was not to increase production but to increase balance-sheet wealth – while extracting revenue from companies much like landlords bleeding a building. That is the time frame of finance capital, in contrast to industrial capital. It is short-term, not long term. This is why it is extractive rather than productive. The revenue has no counterpart in new direct investment in output, but rather in overhead debt extracting a rising flow of interest from the economy.
“Wealth creation” by debt leveraging – that is, asset-price inflation – was celebrated as a post-industrial economy, as if this were a positive and natural evolution. But in reality it is a lapse back into a rentier economy, and even into a kind of neofeudalism. The post-2008 bailouts have vested a new rentier elite to lord it over the 21st century, thanks to the fact that most gains since 1980 have gone to the 1% – mainly the financial sector, not to the 99%.
In the end this shrinks the economy – and that means that more and more loans will go bad, until crisis levels are reached at the point where lenders realize that there is no more room to extract more, and stop lending. But in the absence of government budget deficits, bank lending is the only support for demand – so the financial rug is pulled out from under the economy. That is the point at which banks demand bailouts – giving them the money, rather than giving the economy the revenue to spend and pull itself out of depression. So government debt is increased by giveaways to the banks, not by spending into the “real” economy.
Economics textbooks teach supply and demand curves. Every marginal increase in supply lowers the price of what is being supplied. For the job market this means that the higher the unemployment rate, the lower wages will fall. Conversely, the more workers you hire, the more you have to pay to attract workers. Government officials and bankers are indoctrinated in these textbooks and conclude that the less employment there is, the more wages will fall – thereby presumably leaving a wider profit margin, assuming that the goods can still be sold at a steady price. So employers seek to earn more by keeping employment low enough to prevent wages from rising. This maximizes the power of wealth over labor.
Economists conclude that to make economies more competitive, they need to keep wages low so as to undersell other countries. So a race to the bottom develops. But what seems to help countries compete actually hurts their domestic market.
Back in the 19th century this was called the reserve army of the unemployed. Unemployment keeps labour down. And even more important, to the extent that incomes do rise, they are paid out as debt service. A dynamic is put in place in which debt keeps labor down – not only by eating up its wages in debt service, but in making workers suffer sharp increases in the interest rates they have to pay or even risk losing their homes if they miss a payment by going on strike or being fired. Alan Greenspan explained that unemployment was not needed to keep labor down these days. All that is needed is to traumatize and disable them politically by debt leverage.
This is why, despite the fact that productivity has risen so dramatically, the real economy and its wage levels have tapered off in an S curve. The magic of compound interest has increased debt (and the savings of the 1%) to more than absorb the productivity gains. And this financial overgrowth has accrued to the 1%, not to the 99%.
Finance is what makes today’s economy different from that of 1945. We are at the end of a long cycle. Back in 1945 the private sector in every country was relatively free of debt. There was little civilian output for consumers to buy during the wartime years. Companies had little reason to invest, except for the government’s military demand. So most families had little debt – and a lot of savings, and good job opportunities after the return to peace. But today the economy is in reverse. Savings have been run down and consumers, real estate and industry is left in debt.
Untaxing Land Rent and Monopoly Rent so that It Can be Paid to the Bankers, not to Government
To stop this reversal, it is necessary to understand its causes. They are not only financial. The banking interests have gained sufficient power to distort tax policy, creating a dual fiscal-financial problem. Taxes have been shifted off the major bank customers – real estate and monopolies – onto labor and consumers. In the United States, two-thirds of state and local tax revenues in the 1930s came from the property tax. Today the proportion has fallen to only one-sixth. States and cities replaced property taxes with income and sales taxes. Europe and the post-Soviet economies have adopted the most anti-labour tax of all – the value added tax.
The rationale is that it is easy to collect. But it falls on consumers, not on the economy’s free lunch of economic rent as advocated by classical free market economists. The value added tax adds to consumer prices and shrinks the market, preventing labor from buying the goods it produces. This is done simply to free more land rent, natural resource rent and monopoly rent from taxation so that it can be paid to bankers as interest.
When voters threaten to elect politicians to pursue less bank-friendly policies, the EU announces that the country needs a technocrat to impose more taxes to bail out the banks for their bad loans. It is all in vain without changing the system, because today’s financial business plan cannot work for more than a short time. Being extractive rather than productive, it leaves a swath of bankruptcy in its wake. Yet it is the banks that the technocrats are saving, not labor and industry, the “real” economy’s employment, social spending and public wealth.
Changing Social Security from Being Paid out of Progressive Taxation to a Regressive Labor Tax
In 1982, bank lobbyist Alan Greenspan was appointed to head a U.S. commission to shift Social Security out of the public budget (where it was funded largely by progressive taxation) and fund it by user fees that fall on employees and employers. The aim was to privatize it Chilean style. Wall Street’s dream is to turn wage set-asides over to money managers to buy stocks and create a stock market boom (and in the end, siphon off commissions and push contributors into high-risk bets on the losing side of the deal with large financial institutions, Goldman Sachs style). In effect, Mr. Greenspan’s position was that Social Security should not be a public service. It should be a user fee, so that prospective retirees would pay for it in advance. Their savings were to be lent to the government to enable the Treasury to slash taxes on the higher income and wealth brackets. So the effect was to reverse the long trend toward progressive taxation.
The upshot of the Greenspan tax increases (only on labor, not on wealthy earners) was to create a budget surplus for the Social Security Administration, enabling the government to cut taxes on real estate, on finance, and for the rich in general. Capital gains taxes in particular were cut in half. And real estate investors (absentee owners, not homeowners) were allowed to pretend that the value of their holdings were depreciating rather than rising in price, by junk accounting based on junk economics.
The end game came when the Bush and Obama administrations announced, in effect, “We’re broke. So now we have to balance the budget by cutting social spending and raising the Social Security tax further. We’ve cut taxes on the rich by so much that the workers have not paid enough to cover this give-away, not to mention fighting the Bush-Cheney war in Iraq and the Obama Administration’s war in Afghanistan – or for that matter, the class war against labour.
Under Pension Fund Capitalism, employees are encouraged to think of themselves as capitalists in miniature – and provide for their retirement by employee stock ownership programs rather than saving up their wages themselves or having pensions financed on a pay-as-you-go basis out of future production. The idea is to make money from money (M→M’), not by producing commodities (M-C-M’). In America, half the employee stock ownership plans (ESOPs) have gone bankrupt, mainly by being grabbed by the corporate employers. Corporate raiders borrow credit from bankers and bond investors to fund management buyouts. The plan is to buy out stockholders, pledging the earnings to pay out as interest. And not only earnings; they loot the employee pension plans. George Akerlof won the 20– Nobel Prize for describing this. But novelists have recognized it more than economists. It was Balzac who said that behind every great family fortune is a great theft, often long forgotten to be sure.
Today’s economy is based on theft under the euphemism of “free enterprise.” It’s sometimes called “socialism for the rich” because they receive most government subsidy. But it’s not the kind of socialism that people talked about a hundred years ago. It is a travesty of social democracy and socialism. In a word, it’s oligarchy. But we’re living in an Orwellian world. No party calls themselves fascist today, or even anti-labor. They call themselves social democracy. But it’s the opposite of what social democracy meant in the 19th and early 20th century.
Social Security has not yet been privatized, but education has – not only privatized, but financialized. Students no longer get free or low-priced education. In order to qualify for professional jobs in America, they have to take out loans that put them deeply in debt. Then, when it comes time to start a family, they have to take on a lifetime 30-year mortgage debt. They need to take out an auto loan to buy an automobile to drive to work, especially where public transportation has been dismantled as in Los Angeles. And when their paychecks are squeezed more, they can maintain their living standards and social status only by taking on credit card debt.
Paying the carrying charges on this debt diverts spending away from the goods and services that employees produce. The result is debt deflation. Employees have less and less ability to buy what they produce – except by taking on even more debt. That’s why banks and bondholders have ended up with the increase in productivity – almost synonymous with the 1%. They are the core of the Finance, Insurance, and Real Estate (FIRE) sector that now absorbs most of the economic surplus in the form of various types of economic rent: land and natural resource rent, monopoly privilege and financial overhead.
The Inversion of Classical Free Market Reform to its Diametric Opposite
Classical political economy sought to mobilize democratic government to tax the rentiers: landlord, monopolists and bankers. The objective was to create an industrial surplus and, in the process, raise productivity, wage levels and living standards. To keep prices low and hence national economies competitive, governments were to undertake society’s largest spending programs: basic infrastructure such as transportation, power production, communications – all of which happen to be natural monopolies as well. So the aim was not only to provide basic infrastructure needs freely or at subsidized prices, but to prevent private owners from erecting tollbooths on roads and charging monopoly prices for power, phone systems (as in Telmex in Mexico or similar phone monopolies in the post-Soviet kleptocracies).
Post-classical economics (deceptively called neoclassical) seeks to untax the rentiers, and shift the costs of government onto labor and even onto industry. To achieve this, democracy is rolled back to oligarchies. But this time they are controlled not by landlords as in the case of Europe’s landed aristocracies, but bankers and financiers. And their aim is to privatize the public domain with its monopolies. Bankers advance the credit to buyers, who install tollbooths and raise prices for basic needs. By paying out their revenue in a tax-exempt form, as interest, they keep their income out of the hands of government – forcing national treasuries to tax labor and industry, consumers and producers rather than finance, insurance and real estate. Governments thus become the protectors of monopoly and its financing.
It is a short-term policy. By raising domestic price levels, financialized economies price themselves out of global markets – unless than can create a world order in which all economies are symmetrically debt-burdened. This is where the International Monetary Fund, World Bank and World Trade Organization are brought into play – to financialize globalization, excluding countries as pariahs if they do not join this self-destructive and self-terminating system.
An object lesson of the shift from classical democracy to post-classical oligarchy is a country that is held out to you as a success story: Latvia, where neoliberals had a completely free hand, as they did in Russia. What they call a neoliberal paradise turned out to be debt-ridden kleptocracy. The country has a set of flat taxes on employment of 59 percent – and only a 1 percent real estate tax.
You can imagine what happened with real estate taxed so low and labor taxed so high. Employment was high-cost – but there was a real estate bubble. When I was Research Director at the Riga Graduate School of Law, I visited the government agency in charge of property assessments, and asked how they got the 1 percent. I was told that they based it on the most recent real estate appraisal they had. This turned out to be back in 1917, before the Russian Revolution. (The lead assessor had written her doctoral dissertation on this survey.) Whatever the tax collector gives up and relinquishes in taxes, is available to be paid to the banks as interest. So housing prices are bid up in price – on credit – while the tax collector has to turn to labor and industry for the revenue that has been given up. Instead of paying taxes, new homebuyers pay interest to the bankers. The upshot is that the banks end up with the rent that used to accrue to the landed aristocracies of Europe. This is making bankers the new aristocracy.
When I headed an international investigative economic team in 2010, we visited Latvia’s bank insurance agency and were told that they had anticipated a collapse of the bubble. Their response was to advise banks to back their mortgage loans not only with the property as collateral, but to get as many family members as possible to co-sign the loan. That way, if and when default occurred, the parents, siblings or other relatives would be personally liable.
The bank regulators did not urge the government to tax real estate more. That would have squeezed homeowners on their bank loans – and left less new rental income to be capitalized into new bank loans. But it would have enabled the government to reduce its heavy taxes on employment. This was not the bank regulators’ concern – and bankers themselves saw their main business in lending to fuel real estate, not industry, given what the neoliberals did to Latvia’s economy and that of the other Baltic states!
Unfair? Economically polarizing and destructive? Of course. But the bank insurers said that their task was to protect bank solvency, not create an optimum economic structure.
One result is that a recent EU survey found that one-third of Latvia’s population between the age of 20 and 35 either had emigrated or was planning to do so. As of 2012 the country’s population recently has shrunk by 15 percent. Marriage and birth rates are falling off, as they are throughout the post-Soviet economies. After all, who can marry and buy a house when your wages are taxed at 59 percent and you have to take on a debt?
Iceland provides another object lesson. Even more than Latvia, it became a rogue banker’s paradise – and also one for vulture banks. Their loans are indexed to the consumer price index – which means in practice to the foreign exchange rate. The krónur plunged after the banks crashed in 2008. The result a 1,000 krónur debt has become perhaps 1,800 – against property that has fallen from the equivalent of 1000 krónur down to perhaps 400 krónur. This leaves many families in negative equity. And they are personally liable.
When the crooked banks of Iceland went under (and they’ve only recently begun to arrest some of the crooks) the government took them over and, on European advice, sold them to vulture investors, for around ten cents on the dollar. Despite the fact that Iceland’s constitution said that they were not allowed to increase debts by indexing, this is just what the banks did. If the government had taken over, it could have written down the debts to the ability to pay. But the new vulture banks have not done this. And the Social Democratic government backed their rights to make as much as they can, rather than giving priority to the welfare of the Icelandic people.
What I find so striking is how far to the right wing of the political spectrum the Social Democratic and Labour parties have moved. Iceland’s Social Democratic leadership explained that it wanted to be part of Europe. But this meant acting on behalf of the British and Dutch bankers, not democratically on behalf of Icelanders. They acted on behalf of the emerging financial oligarchy.
I’ve known many of the social democratic leaders of America and the world since I was a young boy. My father was a socialist labor leader and political prisoner from Minneapolis, which was the high point of American labor history as a result of its great General Strike in the 1930s. I was told by a Socialist Party leader (Terence McCarthy) in the early 1960s that the travel and hotel expenses of nearly every member of the Socialist International (the Second International, of which Dmitri Papandreou of Greece is President as of autumn 2011) was paid for by the CIA or its front organizations. I watched the Socialist Party in America come to support the Vietnam War, and Michael Harrington ban criticism of the war in its youth magazine – driving it to quickly lose most of its members.
Harrington and his mentor, Max Shachtman, took this position because they believed that the West could not be persuaded to be Marxist until the world was freed from the Stalinist travesty that claimed to be Marxist. So the Social Democratic Party of America joined the Cold War effort. Politics was turned upside down by the triangulation of socialism, Stalinism and the ability of the United States to back and finance European social democrats to support the banks and “centrists.” This became the tragedy of the old non-Stalinist left in America and other countries. So the Social Democratic leadership imagined (or simply sold out to pretend to believe) that “free financial markets” would lead the world into economic progress.
This was just the opposite from the Progressive Era and indeed, what industrial capitalism promised. The Social Democratic parties of Iceland, Britain, Greece, Scandinavia and other European countries have adopted the position that the way to re-employ labor is to impose austerity. Budgets are to be balanced by lowering wages by 30 percent, and shifting taxes off the finance, insurance and real estate sector onto consumers.
Taxes on labor add to its cost. So competitive power would be maximized by untaxing labor and consumer goods, by getting rid of the value-added tax. But not all taxes are bad. The classical free market economists endorsed taxes on unearned income: land rent and natural resources, monopoly rent and financial privilege. These categories of income have no counterpart in a cost of production undertaken by the rent recipient. The more that governments can shift the tax burden onto land and property, the lower housing prices will be – and the less governments will need to tax labor by income and sales taxes.
Bankers back anti-government ideology because they want to obtain all of the untaxed rental revenue as interest. So taxes that otherwise would be paid to the government will be paid to the bankers. The result – what you’re seeing today in Europe and North America – is an economic grab that is in many ways like that which gave birth to European feudalism. But this time around it is financial, not military.
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Fund government spending solely through taxes, and a lot of what Hudson is complaining about would go away. But he won’t support this, and I know this because he doesn’t even understand that governments and banks are in a symbiotic relationship, not an antagonistic one.
If banks weren’t being allowed to counterfeit the currency there wouldn’t be any relationship at all with the government. Ban all currency counterfeiting and the question you raise doesn’t even exist!
See there, problem solved.. cut the bankers loose to lend their own money, without any bailouts from taxpayers.. and if they loan more than they have then they go to jail, with additional substantial fines which go back into the public coffers.
it’s not so much $$$$ banks loan at this point of “financialization”, it’s “securities” they leverage to borrow, to quadruple commodities-derivatives futures markets…
The question you disingenuously avoid, Yancey, is taxes on what? “Taxes” doesn’t mean anything if you don’t specify what is to be taxed. I believe most people would have little to no complaint if government taxed capital gains, land/real estate, insurance income, the top 1% of earners and luxury consumption at high rates, and increased those rates as needed to in order to finance government spending. But taxing the incomes of the bottom 99% for the bulk of government revenue is a disaster for a consumer capitalist society. It destroys demand, enslaves the people with debt-service, causes debt deflation, stalls production and massively increases poverty. As Hudson points out, this is what we are now experiencing in the western economies. How’s that working out for ya?
Of course the real question is why a government that is sovereign and can print its own money needs to “finance” its spending at all. Why should government that controls its fiat currency EVER have to pay debt service? The answer is it doesn’t. So no, government funding its spending from tax revenue is a dumb solution. And even if it wasn’t, the idea that “taxes” should fund anything when you don’t specify who and what is to be taxed, is even dumber.
Yankee Frank,
I don’t really care. Funding through taxation would be direct regardless of the “what” part, and would require societal consensus on whether or not politicians got money to spend in the first place. As it stands, politicians have found the best way of all to spend, and not one in a million understand this.
Actually, *banks* have found the best way of all to spend (print money!), they got the government to backstop them (Federal Reserve!) and yes, not one person in a thousand understands this.
More people understood it in the 19th century than now. I’d like the “Greenback Party” back, please.
I’d like the “Greenback Party” back, please. Nathanael
Amen to that! Greenbacks are at least part of the solution – to finance the universal bailout.
As it stands, politicians have found the best way of all to spend, and not one in a million understand this. Yancey Ward
SOME money creation is good. The true question is not how much money creation is good but who gets to create money and who (if any) must accept that money.
The solution is co-existing government and private money supplies per Matthew 22:16-22 (“Render to Caesar …”). Government money should only be legal tender for government debts and private money should only be acceptable for private debts.
Of course, there is the matter of restitution for the current unjust system so a universal bailout of the entire population with full legal tender fiat is justified till all “credit” is paid off. Then fiat should revert to legal tender for government debts only.
Its funny that your only gripe is that politicians get to spend money they don’t have. If there is any “money-spending that one doesn’t have” that is a danger to our society its NOT the government spending, its banks “spending” money into existence in the form of high interest debt in lieu of wage raises. That is the real problem, not your fantasy of government spending and OMG inflation! Sure much of what government spends money on is horribly destructive and/or socially useless. But we can change that and redirect government spending to worthy causes. What has truly ground our economic system to a halt is lack of demand caused by the people having no money to spend due to debt service payments. But you are probably one of those tea party types who only sees government problems as problems and corporate corruption and plutocracy as the mystical and magical “free market” at work. Ugh. Go post on a freeper or 10th amendment site. Thanks.
“I don’t really care.” -Yancey Ward
That is a refreshingly honest admission. You don’t care enough to educate yourself. You don’t care enough to think and engage with the subject matter. You don’t care enough to question your black-and-white simplifications of the real world. You don’t care enough to question the Overlords who feed you this tripe. If only you didn’t care enough to write your posts. At least you are honest.
Ultimately all taxes will be paid by those who can not avoid them, and the rich will always be able to avoid them or pass them on.
At the same time I am concerned about your grasp of reality if you think that the bulk of the cost of government is currently being paid by direct taxes on the bottom 99%.
Nearly half – the bottom half, pay no income taxes at all.
The top 1% pay more than 1/3 of all federal taxes.
The bottom 20% received more in tax refunds than the paid in taxes.
This kind of data, often repeated by “conservative” pundits, refuses to take into account the regressive nature of the other taxes that low income wage earners have to pay. When all taxes are considered (state, local, payroll, excise), the share of taxes paid by each fifth of households is similar to its share of total income. We could stand for a more progressive federal tax to make up for the growing inequality the current system propagates.
http://www.cbpp.org/cms/index.cfm?fa=view&id=3505
(sorry for double post, wanted this to be in its proper place on the thread)
“Fund government spending solely through taxes”… Ward
Please denote how and what is taxed and from whom.
Skippy… wind and sails, methinks.
I believe the correct expression is all “piss and wind”. Read agin with care, Ward.
skippy,
“Please denote how and what is taxed and from whom.”
Taxes don’t fund government (a la MMT). Government simply needs to print new currency and spend it. The problem is inflation which will need to be dealt with especially if peak fossil fuels is true.
Taxes will mostly likely be required (with peak fossil fuel) to curb private spending so the government can spend and not stoke inflation.
Note that private spending will need be taxed not private income.
In fact, my suggestion would be to abolish the income tax and have a consumption tax only. This means that un-spent and/or un-re-invested income will act as a “score” only (in the bank account) and will not put demands on the real economy. Letting people keep “score” this way will motivate them to work harder and produce more.
more at:
http://aquinums-razor.blogspot.com/2011/11/here-is-how-bankers-game-works.html
mansoor h. khan
The other purpose of taxation is to remove power from very, very rich individuals and groups who can otherwise use their money to “buy the government” and basically become noblemen.
This is a very important purpose. This is why a high estate tax on billionaires and a high income tax on very high incomes need to be in place.
If government is limited there is very little government to buy
But what little there might be could still serve special interests such as the usury class by, say, enforcing a gold standard, couldn’t it? And all in the name (LOLZ) of “honest money”?
The games the usurers play are becoming well known.
The most powerful thing you can buy from the government is access to the trained men with guns. Eliminate everything else, and that is still an incredibly valuable thing to buy.
So is your idea of “limited government” one which does not have a standing military, and also one where the police are unarmed? This is an interesting utopia.
The Founding Fathers believed that we shouldn’t have a standing army and there are prohibitions against it in the Constitution. (If Congress had the guts to fail to pass an Army Authorization bill for two years, the Constitution would require that the US Army be dissolved immediately.) So I’m sympathetic with that idea.
Britain doesn’t allow its ordinary policemen to carry guns, and that seems to work OK, so I’m sympathetic with that idea too.
However, the people who ramble on about “limited government” usually do NOT mean “abolish the military, take guns away from the police”. And a government with a military and armed police is certainly powerful enough to be worth buying.
While progressive taxation has many merits, don’t imagine it can protect the government from being bought. It’s extraordinary how little money is required to maintain the purchase of the most powerful govt on Earth.
Finally we’ve reached $1B prez campaigns, most of which is still paid by deluded 99%ers. The few hundred million ponied up by Wall Street, FIRE, Pharma, War Inc., Zionism, et al is just pocket change. The owners of Congress recoup their annual investment within days. There’s no way you’re going to tax the wealthiest to the point where they won’t snatch this incredible bargain with what they have left – if they can. And they could.
As FDR wrote to Colonel House (formerly Woodrow Wilson’s closest advisor and confidante, and his handler for J.P. Morgan and the Wall St boys), ‘You and I both know that this government has been owned by the money power since the days of Andrew Jackson’.
One of the fatal flaws in the Constitution is its silence on the political status of corporate and financial power. Of course, a number of the Framers were wealthy businessmen, slave owners, landowners and financiers. A pure state of economic freedom sounded good to them. Enter the bankers.
Sound monetary policy cannot do it all. There are many other opportunities for wealth and lust for power to destroy democracy. Skippy’s right. To fundamentally restructure an economy, you have to change the prevailing economic AND political paradigms. That’s why it generally takes generations to accomplish.
How do you accomplish this in the land of mind control?
PS Mr. Hudson refers to a past trend toward more progressive taxation. When the income tax was first collected 98 years ago, only millionaires were subject to it, at rates approaching 90% if memory serves (?!). FDR started broadening it and by 1941 virtually everyone had to file. During the 50s and 60s rates for the wealthiest declined while loopholes proliferated. Reagan and followers did the rest. The trend has been toward steadily LESS progressive taxation, including, as Mr. Hudson describes so well, at state and local levels.
Until they abolish all taxes, its a moot point. Anyway MMT, too me, is no better than mark to myth, under the currant conditions.
Skippy… the biggest problem is political. Until that is rectified I wouldn’t allow them that kinda power, jeez look what they did to the old one.
“Skippy… the biggest problem is political. Until that is rectified I wouldn’t allow them that kinda power, jeez look what they did to the old one”
The biggest problem is NOT political. The biggest problem is always proper understanding of how our economy (anything works) and how our currency system really works.
Once the populace has the correct understanding the “bad” actors will not be able to get away this bullshit for too long. Democracy is not perfect but over long stretches of time it does work and tends to wring out bad ideas out of the civilization.
Why? Because problems make us think and use our intellect and teach each other.
This process has been going on for thousands of years and it continues at warp speed today (thank god for this warp speed internet enabled learning that is going on because peak fossil fuels and climate change means we don’t have much time before total chaos is unleashed).
mansoor h. khan
“The bad actors actors will not be able to get away this bullshit for too long.”…. Mansoor.
History tells another story.
Democracy{?} where? Its a republic with voting rights, see citizens united (the re-instillation of property voting above citizens thingy) and a great way to mentally chain the chumps to preselected candidates (dog and pony identity show).
Skippy… if you care about the environment so much, why not embrace carrying capacity, slowing down human activity, cut military expenditure, etc, rather than opening the tap full bore. America, the country that ate a world and asked for seconds.
if you care about the environment so much, why not embrace carrying capacity, Skippy
Who can know what that is? And how do you propose to reduce the population if reduction is called for by your model?
slowing down human activity, Skippy
It is usury that requires exponential growth. Common stock as a private money form requires no usury but certainly allows it.
cut military expenditure, etc, Skippy
Agreed.
rather than opening the tap full bore. Skippy
You remind me of German vs Russian tank turret control systems in WWII. The idea is to get your gun on target before the target gets his gun on you. The “primitive” Russians used a simple full on – full off (bang-bang) approach while the Germans opted for more sophistication. It turns out the Russian solution was optimal so they typically could fire first.
America, the country that ate a world and asked for seconds.
correction: “requires no growth but certainly allows it.”
America, the country that ate a world and asked for seconds. Skippy
Asset-backed money is a powerful invention. It will work even better once it is implemented ethically.
Carrying capacity is easy enough to compute. The limiting factor is food production, where possible yields are limited by the efficiency of photosynthesis (known), and availability of various nutrients in each climate region (known). None of this has changed in centuries.
The main limiting factor for food production is the renewability of fertilizers (fossil fertilizers will run out). This is also known (though there’s a fellow working on renewable solar-powered ammonia production to boost yields). Global warming will reduce yields by changing climate zones for the worse, however.
The population needs to go down to about 4 billion. How to do it? Well, scientifically, two things are extremely strongly correlated with population reduction:
(1) Education of women.
(2) Availability of birth control.
This makes sense: given the opportunity, most women choose NOT to have huge numbers of babies, with the attendant costs and risks; the average drops to between 1 and 2, which will cause slow, steady population reduction. (Emancipation of women is presumably important too, but it’s heavily correlated with both 1 and 2, so it’s hard to break out. There are very few places with highly educated women, given access to birth control, but still prohibited from working or voting.) We can coast on our fossil fertilizers during the period when we are reducing population to the sustainable carrying capacity.
So basically the solution to this is known and fairly simple, and only evil sexist pigs are stopping it from happening. There are an awful lot of evil sexist pigs, ranging from the Pope to the Saudi royal family to the Republican leadership.
Well, scientifically, two things are extremely strongly correlated with population reduction:
(1) Education of women.
(2) Availability of birth control. Nathaniel
Well, I’ve heard that prosperity has a high correlation with reducing population growth. Poor women might still choose to have more than a few children as a form of social security even if they are educated and have access to birth control. However, I have no problem with (1) or (2) so long as (2) is not some form of “late term” abortion.
skippy,
America has also given a lot the world. For starters:
1) Pretty good management of the post-world war II world
2) The Transister, the computer, Object Oriented Software design, the iphone, standardized parts manufacturing (Henry Ford), business process design thinking, etc.
3) It legitimized the “melting pot” idea. Although, racism is still present it is less potent.
4) Democracy. The idea of freedom. We (humans) don’t need kings or clergy to tell us what is right and what is wrong. Now this one contribution is really, really big. This probably is the most important contribution because it (this way of thinking) opens people’s minds and forces them to think for themselves.
5) Jazz music, hollywood (movies like the ten commandments and the hunt for red october and Matrix).
etc.
mansoor h. khan
@Mansoor,
You need to take a road trip and meet the American people, try out their reactions to your new reality, in the flesh and not some armchair.
Skippy… Don’t blame the tool, see its user. Now if a responsible group could be found MMT, would be fine. Other wise, in my book, it gets exponentially worse.
PS. the asshats are actually getting twitchy, fearful, and put in a position where compromise or better could be at hand. Yet you[s would negate that advantage and surrender, nay, hand over the keys to the drug cabinet. Hay they won’t even share the drugs and prostitutes as it is… a bunch of bogart’s. You seriously need to spend some time in the real world… cough… present shaped reality of the last 40ish years. Maybe Stalin can help you with that generational change thingy.
skippy,
“present shaped reality of the last 40ish years.”
even the present reality of the last 40ish years is a lot, lot better than most (by far) places in the world. maybe my standards are low because I was not born here and lived in the indian sub-continent until high school age.
but yes (now and always) we should strive for continuous improvement and it won’t be a linear path. also, i don’t see humanity alone in this task I see god as a helper and a guider.
mansoor h. khan
I have no ideal what they put in the water you and beard drink, but, the both of you conveniently skip over a hole lot of Death, Murder, Rape, Genocide, the subjugation of peoples and the theft of their natural resources. All on going, it never stopped. For what you call a good life?
Then the two of you come out swinging for MMT, when in the end you want a corporate controlled world. Look I see you and beard all over the net, like tele – commentators, paid commentators, even your dialect is caned. The effort you two put in trying to play the nice guys, helping guys, caring guys, hell I’ve seen better skills in revival tents (and yes they drove Cadillacs, inference implied).
And why is it that anytime someone starts asking for fine detail we get, look at the pretty girls dancing or some verse out of chapter and book context. Start with the, you must love banks, hate people, laugh at the poor, were all doomed if you don’t BELIEVE you, asteroids, rhetorical attack. Your and beards shtick is B grade street corner hustling at best. Neither of you can except new or previously unknown factual information, beard being the worst. That is intellectually dishonest and speaks volumes about whom you are and how you operate… cough your preplanned agenda comes first, nothing else matters but your tripe dogma.
Skippy… Lets not forget whence the derivative abortion spawned from, and yet there is zero mention of compliance with is disbursements. Ummm… good way to fill the derivative holes methinks, a parlay to the emperor, yet no plan, just fountains of electrons raining down to water the dry grass?
PS. Corporations and Banks holding an orgy with Government and your offering lube? HAHAHAHAHAHA!!!!
yet there is zero mention of compliance with its disbursements… for MMT.
@mansoor,
Its a chicken and egg thing.
Skip here… classic side step. Why not just come out and say I disagree and support your argument, but, noooo. Can’t have an honest debate now can we, can’t expose the weakness inherent in your assertions (hell every thing has weak spots eh.
Skippy… please show me where in history where change was not political is the first order. Chicken and egg… please.
Mansour, I am concerned about your taste in movies.
Then the two of you come out swinging for MMT, when in the end you want a corporate controlled world. skippy
That appears to be a contradiction, doesn’t it? In fact, I want the optimum balance between government and the private sector so as to maximize human happiness.
Look I see you and beard all over the net, like tele – commentators, paid commentators, even your dialect is caned. skippy
Well, practice makes perfect but I can assure you that my conversation is spontaneous.
The effort you two put in trying to play the nice guys, helping guys, caring guys, skippy
Well, I don’t like misery. Who does?
hell I’ve seen better skills in revival tents (and yes they drove Cadillacs, inference implied). Skippy
I drive a 2000 Subaru Forester, the most expensive car I’ve owned to date. So it appears your inference is unjust.
skippy said,
“please show me where in history where change was not political is the first order”
please go study the biography of prophet Muhammad (start with “the Life of Muhummad by Martin Lings”)
real change must occur in the heart and mind first before it can take hold in law and politics.
mansoor h. khan
F. Beard:
“Well, I’ve heard that prosperity has a high correlation with reducing population growth”
Only when women are liberated. When the men are prosperous and the women are slaves (Saudi Arabia? Early Mormon Utah?) the results are usually huge numbers of babies.
You are right, though; once you have educated women who are able to decide not to have babies, prosperity makes them more likely to decide not to.
Hey, we agree on most things. :-)
@mansoor,
The The Warrior Prophet? You mean the guy that bypassed politics and went straight for butchery as a means to impose his ideology, that guy?
Sorry for not being clear, I meant with out killing people en mass.
@but, but, beard.
“I want the optimum balance between government and the private sector so as to maximize human happiness.” but, but beard.
Skip here…where do you get this stuff, seriously. *maximize human happiness* Oh yeah, old books based on slavery, murder, oppression of others for gain, priests from antiquity, blokes in smoking jackets stuck in armchairs, making stuff up too fit their bias world view, of which they had little or no empirical evidence to support their conclusions.
Skippy… the both of you are like Murder Inc… radio Disney Land style. Dyed in the wool corporatist cheer leaders.
@But, But, beard.
Shiny car at a poor people *mind take over event*, cough tent revival.
Skippy… pick their minds and pockets and leave them with a smile… precious.
“… The biggest problem is always proper understanding of how our economy (anything works) and how our currency system really works….”
And that’s not political? I’d say that “proper understanding” is the very essence of the political. There’s a field called “political economy” that the neo-liberals derided for very good reason of their own self-interest and aggrandizement.
And just to reiterate your point, I’ll repeat the final paragraph:
For the electeds and government to have become so captured by finance is a travesty. It’s like a war in which one side (the electeds) arrived with slingshots and arrows, while the other arrived with surveillance equipment, laser guided rockets, and night vision technology.
The electeds and the policy makers need to get a lot smarter and tougher.
Oh, and just to underscore the points made on this thread, Nicholas Shaxson’s Treasure Islands blog has a link and synopsis to Guardian reporting about David Cameron’s family wealth — built in part on Panamanian-based tax havens. When people (Bushes, Camerons) whose wealth and power derives from finance become the heads of governments, it’s not surprising they implement policies and administrations that further financialize economies.
http://treasureislands.org/uk-cameron-family-the-tax-haven-connection/
Finally, in Elizabeth Warren’s 2003 book, “The Two Income Trap”, she notes that in 2001 the Fed lowered interest rates 8 times, but banks did *not* lower their interest rates in correspondence. Instead, the banks kept the difference, which in that single year of 2001 amounted to about $10,000,000,000 on credit card debt alone.
The incentives to control government appear to increase in velocity and intensity as financialization becomes a larger part of the economy (kind of like increasing storm intensity in response to global warming).
The electeds and policy makers REALLY need to get smarter and harsher. Even if they don’t care about the 99%. They are flunking the advice of Machiavelli. They are failing the lessons of history. Kleptocracy cannot endure; if you want a system where the elite rule over the masses, *the elite have to learn to temper their desires* and make sure the proles have their bread.
Emperor Augustus bragged about how many people he had on welfare, all of whom were personally loyal to him. That’s sustainable as a system. The current “impoverish everyone until they are starving and homeless” approach is NOT.
Lambert Strether said,
“And that’s not political?”
ok. it is a chicken and egg problem. The new way of thinking has to spread before it can be implemented in law. That is what I meant.
mansoor h. khan
Sorry previous comment in wrong place, amends.
@mansoor,
Its a chicken and egg thing.
Skip here… classic side step. Why not just come out and say I disagree and support your argument, but, noooo. Can’t have an honest debate now can we, can’t expose the weakness inherent in your assertions (hell every thing has weak spots eh.
Skippy… please show me where in history where change was not political is the first order. Chicken and egg… please.
agree with skippy . . .
the problem is political. democracy is not functioning, and even were the question education as you posit, i believe a political answer would be necessary to solve an education question of the scale you describe.
i’ve been getting into the more Zen commentary going on here recently. I think its a nice addition, given that most of us here would in safe places (this is one, right?) admit we’re likely irredeemably screwed as a species, and if we aren’t, there is little to do as an individual to ensure otherwise.
taunger,
“we’re likely irredeemably screwed as a species, and if we aren’t, there is little to do as an individual to ensure otherwise.”
If you really believe that why blog?
mansoor h. khan
Yancey, Taxes don’t fund government spending, but this article is obviously lost on you, and no matter what anyone says you’ll stick to your own ideology.
As usual an excellent article by Mr Hudson.
Hilarious. Simply hilarious.
Taxes don’t fund government spending.
No, not hilarious. It is something that everyone knows, that children know, until moron-economists uneducate them with insane theories that make no sense and have nothing to do with reality.
You can pay your taxes or buy stuff from the US government with a dollar bill. How did you get the dollar bill? Ultimately from the US government, which just printed it. “Just printing” is the only way anyone has ever created any money, and the only way the US government does it now.
That’s all. That’s how simple it is. That is how it has always worked, everywhere, for millennia. Everything else is just BS designed to confuse you into thinking up is down, that the government, the politicians, need tax money in order to spend money. Governments need to tax in order to make its money worth something, which is completely different.
I believe that “just electronically” is the way private banks create “money,” every time they make a loan. No printing involved. Debt money accounts for many, many times the amount of Federal Reserve Notes in circulation and is the basic reason we have a monetary system that demands the creation of ever-increasing Debt. This Debt Money scheme is a classic example of a system that is not sustainable.
I am speaking of “just electronically” as a type of “just printing”, because IMHO thinking in terms of printed notes is easier to grasp and makes what is going on most visible. The “just electronically” crediting of a bank account is exactly the same as a bank handing you old-fashioned bank-notes (or a cashier’s check) it printed. Federal Reserve Notes or Treasury bonds are debts of the government, exactly as bank accounts or bank notes are debts of the bank.
Nothing Hudson says is wrong, but he misses an essential point, at least regarding America. Not only have the people completely swallowed transparent propaganda and worked actively to destroy anyone with the slightest interest in helping them, but the majority have freely chosen debt as a way of life. Nobody forced them to pay absurd prices for education, houses, shitty cars, junk food, mindless fashion and entertainment. At least for those not chewed up in our patriotic wars, it was possible during the past 65 years to save and grow decently rich. Lots of people did it; you just don’t read about them. Yes, the herd has been led into debt slavery, but that generally happens to those listening to pied pipers.
Today’s young people can opt out of the consumerist madness. I expect a minority of them will, and it would not surprise me if quite a few will become rich too, assuming civilization doesn’t blow itself up first.
There is always hope for individuals who think for themselves. What’s the alternative, voting?
Sorry but we are all brain washed since birth and habits are hard to break
Multiple choices are an illusion. Your brain, depending on its wiring and programming, will only see one solution, making all the other choices irrelevant even if there.
Moneta,
“Sorry but we are all brain washed since birth and habits are hard to break”
Yes. Old habits are hard to break but not impossible. Peak Oil/fossil fuels and global warming will force people to change habits. Reality is an excellent motivator.
mansoor h. khan
jake: thanks for a bit of moderation. the commentariat at this site gets
a bit feverish at times, if not downright disgusting: see ackerman’s first
reply.
Unfortunately jake, your narrative doesn’t hold water. The American people, in the main, are not in debt due to some consumerist madness as you claim. The vast majority of Americans do not earn enough for even the basics, and are in debt for things like fixing the beater so they can get to work, patching the leaky roof before it falls on their heads, paying for health and child care and putting food on the table.
People like you love to have an arrogant, superior answer that absolves you from having to think about how screwed up things really are. Stagnant earnings coupled with commodities and asset inflation at the hands of the bankster class have done way more to burden the American people with debt than purchasing fancy electronics, clothes and vacations. Most Americans don’t even take vacations. Its all too clear that you really have no idea how the bottom 60-70%, the majority, actually live. So keep your glib, smug silliness to yourself. Its not original and its not true. Its really just boring.
Concur.
As usual, the truth lies somewhere between the poles. Where I live, people typically drive about 3-5 times the car they can really afford, not some beater, hence the loan they’re paying on. They do this, I think, to keep up socially with their friends and relatives. And, I don’t know how people vote, but they talk very much counter to their own economic interests (It’s all the gub’mnt regulations.) (Of course, it doesn’t help the “progressive” point of view to continually disparage the mores of white, rural-type Americans as being stupid and evil in a low way, but I digress.)
As usual? The truth is in the middle of Ptolemy’s and Kepler’s model for planetary behavior? I don’t think so.
That’s confusing the truth with one particular method — “splitting the difference” — for arriving at the truth. The two are not the same, and the method you advocate is not necessarily the best one.
Well, I’m talking about in your typical casual discussion or argument, which, I guess, we could call these threads. My point was that both of the arguers in this case are right to an extent. The financial elite ARE stealing, and many, if not most of us are NOT paying attention, kind of like athletes or entertainers who end up broke because their money managers ripped them off.
Of course you’re right.
There’s some tricky choices in getting a car when you need one. Beaters can cost more in repairs than the cost of getting a more expensive car. Low fuel-efficiency cars can cost a fortune in gas.
Most people are not able to figure out the exact optimal car, and work with “rules of thumb”. People buy new cars rather than used to avoid “unpleasant surprises”.
…its clever of you to specify the past 65 years, rather than the past 35 years, as your time frame. Everything Hudson is discussing in this post began in the 70s, 30 years after your timeframe began. And from what I’ve seen, many young people are having a hard enough time finding any job, let alone one that will allow them to save a penny after paying rent on a crappy studio in a ghetto neighborhood, paying student loans and eating something other than mac’n cheese and ramen noodles.
Its also silly that you claim to agree with everything Hudson says, yet deny that this state of affairs is actually a problem. All you are doing is pushing a trite and boring notion of virtue based on parsimonious living and hard work. As if hard work and thrift are virtues practiced only by the debt-free. You clearly have never experienced a serious illness, or had a loved one you had to leave a job to care for, or been fired from a job due to someone else’s corruption, only to find yourself unable to land another position that paid even half what you earned before. There are a million reasons people wind up in debt, and only one of them is because they are greed-addled consumerist fools, you tool.
YF,
Sorry to push one of your hot buttons. You obviously think it has been easy for me to dodge war, avoid corporate idiocy, live a sane life in a country populated by fools absorbed in suburban procreation, lawn care and televised sports, where successful people think Larry Kudlow is an intellectual. It hasn’t been. I was dead broke and twice divorced at forty. Politics just ain’t a real alternative. If you don’t know this now you will realize it soon enough. Stay angry if you like but try to use your head. In the end it’s really all we’ve got.
Look jake, you got the full blast of my anger for something I’ve read too may times on too many sites, and you didn’t deserve all of it. I just don’t like pretend virtue and scolding of people one doesn’t know for imagined crimes one doesn’t understand. Its just too easy for us to lump everyone together and say its their fault. And the air of superiority one acquires from making such statements grates on me because its not really earned. At least its not earned from making a comment on a message board. The sad truth is we have mendacious and corrupt leaders. The people knew we needed a real change in 2008 and Obama fooled a lot of people into thinking he believed it too. People who are generally honest generally believe others are too. Its a mistake but one I’d rather live with than without. We likely differ in that regard.
But I do agree with him, that the average American cannot seem to be bothered to educate him or herself worth anything. I know, I’m pretty sure that average Americans are all with whom I am aquainted. And most I know are really, really lazy with their finances, constantly trying to move up auto-wise and house-wise. It dispirits me a little to think about it.
but the majority have freely chosen debt as a way of life. Nobody forced them to pay absurd prices for education, houses, shitty cars, junk food, mindless fashion and entertainment. jake chase
Oh come on jake! To not borrow from the counterfeiting cartel, the banking system, is to be priced out of the market by those who do borrow. It is a “Tragedy of the Commons” situation.
Let’s not blame the victims, eh?
You can’t just “opt out” of an economy. There is no choosing involved, except to buy or not to buy. By choosing not to own a house, not to own a car, and not to get an education, you will have avoided the rent on these items, perhaps, but I fail to see how it makes you “rich.” Especially since you would therefore have no way to get to work, no work since you have no degree, and live with your relatives.
At every time in history there have been traps. Today’s traps are “higher education” and “home ownership”. The prices are insane in relation to the values. The only sensible choice is to not pay. Does this mean living with your parents and not working? Of course not. The two most sensible young men (under 40) I know have good trades and businesses. One also has a job two days a week. Both are doing just fine and at least one will be rich ten years from now if he just keeps doing what he has been doing now for ten or fifteen years. This is not to say that the country should be run in a way that requires this. But it is being run that way and people must figure out a way to live nonetheless.
You seem out of touch with the reality of today’s job market. Your friends were lucky to have come of age ten of fifteen years ago. Its a different story for the youth of today. The opportunities then compared to now are quite different. Back then you could get an entry level job without the experience that is now required for a good job. Entry level jobs now are primarily minimum wage and no benefits, with little upward mobility.
“Both are doing just fine and at least one will be rich ten years from now if he just keeps doing what he has been doing now for ten or fifteen years. This is not to say that the country should be run in a way that requires this. But it is being run that way and people must figure out a way to live nonetheless.”
read: They don’t have jobs for which they needed to show credentials to an authority figure; they have small businesses for which they drummed up customers.
Now read that if all their neighbors decided to do that too, there would be a race to the bottom in their local lawn servicing market (or whatever!), most of them would go out of business, run through careers like some people run through wives, and end up in school in middle age.
All high school graduates trying to flock to “the trades” is as dumb as all high school graduates trying to flock to Swarthmore.
Ritholtz has a hopey changey article in the Washington Post today. He speaks about the “creativity, business acumen and technical insights” of the new generation of young tech entrepreneurs.
“The future is driven by people who are young enough that they still want to change the world. They have the ideas, the venture financing, the technical acumen and the creativity to push us forward.”
http://www.ritholtz.com/blog/2012/04/step-aside-old-man-let-imagination-lead-the-way/
Incidentally, I can attest to the fierce competition going on in the lawn care business. This year we saw price cuts of 40-50% as the services in my suburban neighborhood compete for business. The cheapest quote was from a recent high school graduate in the neighborhood who is willing to do the work that was previously dominated by hispanic workers.
Let’s face it: Not everyone is college material, or able to run a business of their own. Read “In the Basement of the Ivory Tower,” by Professor X, for a look at who’s in school in the US these days. Professor X will tell you that they are people from all walks of life returning to school because they need a degree just to do jobs they are already doing, or that pay barely liveable wages, or both. They can’t afford to pay for school, they are not prepared for college, but they don’t have an option. Yes, trades are nice, but there are no such things as paid apprenticeships anymore; you study your trade in a two-year program at an accredited school if you want to get licensed. As I said, you can’t just opt out of an entire economy.
I know several who have had to go back to get either a BA or MA for the job they were already doing. The stupid degree wouldn’t help them perform their duties one whit, but would satisfy some company regulation. It’s ridiculous.
…and they still have student loan debt when they’re ready to collect Social Security. Their SS benefit will be garnished. I know several people in this situation. Nice to see you here, Jon.
Yep. And wait ’til DHS border controls make currency arbitrage an order of magnitude more difficult.
The propaganda is tough to fight. I was speaking to a friend of mine last night that is sending his very smart and, so far, well-educated daughter off to college in Sep. He mentioned that she was down to two choices, one of which I had attended many years ago, B.U. (Boston), and NYU.
I asked, “How much does it cost nowadays?” and when he told me $65,000.00/yr for either one, not including travel to and from the West Coast, or books and other expenses, I all but had a heart attack and (privately) thanked God I’ll never have to worry about kids in college.
I asked, “Loans?” and he said yes, it will be worth it ’cause “she’s a smart kid” (she is) and “you can’t get anywhere without college today”.
And there, in a nutshell, is the consequence and the shame of the propaganda and financialization; “My kid is smart and will make it”.
A lot of smart kids will never consider it, a waste, of those that can, some won’t make it, and of those that do “make it” most will be so dragged down by debt for a majority of their prime earning years that in the end it won’t be worth the education they received.
I paid $7K 40 years ago, and this is what the exponential function looks like:
http://www.wolframalpha.com/input/?i=7^x+%3D+65
Scary, non-supportable, and obviously doomed.
I’ve been telling parents and high school students these days: *learn some foreign languages, and apply to Canadian and European universities*. That way you can get good higher education at a reasonable price.
It’s the ONLY way to get it. There are NO downsides.
For an example of what Hudson says about the social democracy movement in Europe, look at the British Labour party, now calling itself New Labour. Its leader is Ed Miliband, the privileged upper middle class son of a leading light of the New Left, whose principal competitor for his position was another son, his own brother. Christ, how medieval is that?
And what does he use his position to do? Apart from supporting British involvement with US foreign occupations, he says things like this speech, with phrases like “hard graft”, “wealth creators”, “decent people”, “the right people with the right values”. This is the rhetoric of neoliberalism, that says what the workers need to do is work more, and if they won’t, screw ’em.
A real labor movement recognizes that the labor class is working too hard for too little already. The answer isn’t to promise to take them up into the privileged class if they’ll only work a little harder.
One can see the same in Norway, that ever since Brundtland the “workers party” (Arbeiderpartiet) have become more and more right-ish in its politics (making the claims of a certain terrorist even more odd).
It’s not all the bankers fault: Industry did create new factories, in developing countries. However instead of creating new consumers (in those developing countries) they produced solely to sell in developed countries. Low wages and high selling prices created such an easy and enormous profit, that in a way forced the creation of the whole debt Industry.
The IMF doesn’t seem to have any difficulty raising capital – $430b in the latest round, and the first thing they did was issue a statement warning countries to stay on the trail of wreckless impovishment. $430 billion that will go not to anything socially useful, but to pay down debt owed to the same agencies that blew the disorting bubbles in the first place.
What must the peripheral nations think when they see Iceland accessing capital markets today?
What must they think when they see Japanese debt ratios with no adverse consequences in the capital markets?
What must they think about never EVER being able to undertake large sovereign infrastructure improvements without being attacked by tics and leeches.
How, again, is the Euro helping them?
I guess we’ll never know because it’s always a technocrat that steps forward to answer these questions.
(Job interview of a technocrat)
Q. It says here that you were fired from your last job for habitual deception (both laugh). But seriously… what were the specifics of the allegations?
A. I don’t have to dignify that with an answer… but I will: you have your facts wrong.
Q. Excellent answer. So why did you leave your last job?
A. I left because of inappropriate conduct.
Q. That’s ridiculous. I think I remember reading about that. She was just a maid, correct?
A. And black.
Q. The nerve. So… why do you deserve this job?
A. Look – you need to fill this position, and you need to fill it fast. I can fill it. If you don’t fill it, it will be looked upon with great disfavour… probably leading to immense hardship for you and your family. The consequences would be dire.
Q. Outstanding. I think I can safely say you have the job. Do you have any questions?
A. Yes. I want this office. How long until you can vacate?
Heh heh.
“…what you’re seeing today in Europe and North America – is an economic grab that is in many ways like that which gave birth to European feudalism. But this time around it is financial, not military.”
Hmmm…Financial Feudalism. Not bad. Has a certain ring to it.
Excellent piece, MH.
Michael Hudson has left out the complex sequence which led to European feudalism. We are indeed in the first stage of it, parallel to the Roman Empire in its decaying phase.
But as the kleptocrats dismantle the legal system the second stage will start. The second stage involves charismatic people who can assemble huge armies of personally loyal people (because without a legal system, personal loyalty is the way to power). If we’re lucky these new charismatic leaders will be people like Gandhi, if we’re unlucky they’ll be people like Hitler.
Military feudalism may follow. “Financial feudalism”, kleptocracy, cannot last; military feudalism, in contrast, is fairly stable.
And if luck has nothing to do with it we will get people like Obama.
Trying to tax finance these days is like trying to catch roaches with a flashlight. They just scurry off to a new dark place…
“reserve army of the unemployed”
I think you mean
“Reserve army of labour” = floating + latent + stagnant
Great post! I’ve gotten this far:
Their response was to advise banks to back their mortgage loans not only with the property as collateral, but to get as many family members as possible to co-sign the loan. That way, if and when default occurred, the parents, siblings or other relatives would be personally liable. Michael Hudson
In the Bible, co-signing is referred to as “surety”.
Excellent post. But finance capitalism? Why can’t we call it what it is: kleptocracy. The reason I keep pounding away at this is that kleptocracy puts the focus where it belongs on the criminal nature of what is being done.
I think Hudson’s points about debt are excellent. It is also important to understand how unemployment is used to keep wages low and to disempower workers. But I would add to this Fed policy which from Volcker (that is beginning from when Carter was President) to the present has been used to prevent wage gains by workers by treating them as inherently inflationary. Another important point Hudson makes is how Greenspan’s “reform” of Social Security was nothing but a con directed against workers. The surpluses were just a backdoor tax upon them. The forward obligations, that is the future shortfalls in the Social Security system would still need some government funding mechanism to cover them even if the surpluses had never existed. Greenspan’s great idea for his con was to get them to pay twice for them, once in the past and again when they occurred. Since both political parties got to spend the money or distribute it as tax cuts to the wealthy in the run up to the shortfalls, that is from 1983 to 2017 (or possibly sooner due to Obama’s one off reductions in the payroll tax), they enthusiastically signed on. I agree too that what Hudson calls finance capitalism and I call kleptocracy needs to be viewed as a global phenomenon. It plays out somewhat differently in each of the major economic regions: the US, Europe, China, Japan, etc., but it is the dominant in all of them.
Finally, a realization I have had recently and which Hudson touches on is how McCarthyism and Cold War anti-communism used fear of the Stalinist USSR to undermine and discredit the American left most critically at the grassroots level. The loss of organizing skills and political consciousness set up not just the unions for gutting over the last 35 years but virtually all of the gains from the New Deal. It is why kleptocracy has been able to build up and consolidate over this period without any real opposition, and why it continues to do so, again unopposed, even after the disastrous housing bubble bust in 2007 and the meltdown in 2008, four and five years ago, respectively.
The other important thing about using the correct word, “kleptocracy”, is that it recognizes the *unsustainability* of the kleptocracy. The kleptocrats are *never satisfied*. Even if they establish an absolute monarchy Louis XIV style and get everyone to worship them as gods, they’re *STILL not satsified*, they need more.
This is why kleptocracy will always collapse. The question is what will replace it.
One possible replacement is tyranny by *smarter*, less greedy tyrants, ones who actually follow the rules in Machiavelli’s _The Prince_. We would like to avoid this, but it’s still better than kleptocracy, so if it happens, most people will breathe a giant sigh of relief.
The kleptocrats are genuinely insane. The ‘neutered’, co-opted Taft-Hartley unions were the best thing that ever happened to the elite, and they decided to destroy those unions in such a way that they will create wildcat unions, unions which can really hurt them. Just plain stupid.
I agree that “kleptocracy” advances a useful framework of criminality and legal culpability and that aspects of what Hudson is describing, given how they were instituted and institutionalized and normalized by the government (through deregulation and ostensible re-regulation under Dodd-Frank, for example) fall easily within the “kleptocratic” framework.
But I also think that “kleptocracy” can serve as a terminological screen that screens out the many varied specific menchanisms by which the wealth of nations have been looted in the financialized global economy.
ie., When people hear “kleptocracy,” they think “fraud,” but not all of the “looting” mechanisms of the financialized global economy are best characterized as something like “fraud” per se. Global labor arbitrage, for example.
So, I wouldn’t necessarily seek to substitute one framework for the other.
Anti-communism is still working for neo-libs. When you mention any kind of social policy around here you can watch the vision go across their eyes of Soviet Russia and government enforced godlessness.
Good article. Supremely dismal.
I see the situation as a form of hidden inflation.
The real wealth of the world is relatively fixed — land, population, water, minerals, etc.
Abstract social levers, among them money, command the efforts of the populations, which efforts in turn dig the minerals, pump the water, farm the land, and so on.
What has shifted is who has control of the abstract levers which command the efforts of the large mass of humanity.
Though the money supply has increased dramatically in the last 75 years, the average person has control of far less of it than previously, thus less ability to direct the efforts of others to his benefit.
If inflation is an increase in the proportion of money divided by stuff, there ought to be fairly big inflation right now. But there isn’t. In effect, the extra money is buried, like water in a deep well. The garden needs water, and there is lots of water, it’s just not accessible.
Between the labour of one man and the hunger of another, the skills of one and the needs of the other, rises an invisible structure of control which is seen by participants as “the job market,” “the finance industry,” “the government,” and so on. Actually, it’s one huge interlocked system of permissions and promises.
Abstract structures are what the human race is all about, it makes us amazingly rich, but if it is structured wrongly it merely harnesses the efforts of all to the benefit of a handful. There’s a technical term for that sort of structure — it’s called “evil.”
Noni
Hmm… I’m inclined to agree with the conclusion, “evil,” but isn’t that conclusion built into the premise, with “wrongly structured”? Wrong how? In its abstraction as such?
Hey Lambert,
Yes, the “wrongly” and the “evil” I guess are tautologies, and simply state my opinion that it is wrong for the majority in their billions to labour for little more (and often less) than sustenance, while the surplus of their combined productivity goes to a few thousands. Equally evil are the lies, fraud and force employed to keep this situation in place.
One of those lies, by the way, is to say economics is or ought to be free of values. Too often, this is used to imply that economic concepts and structures must not be used to establish better or worse* societies. That’s like saying medical knowledge shouldn’t effect human health. Not that you would say such a thing.
Cheers,
Noni
*there’s that word again. oh well.
The working of the structure is fairly simple and the details of it need to be firmly understood.
Consider the recent article by Krugman where he defended the actions of the Fed with regard to the bailouts and deficit. The cornerstone of this policy is printing 0-interest loans which are handed to the big banks and the government. The government simply taxes and spends more, repayment is mostly new borrowing. The big banks corner the markets and lending. These activities yield pure profit without producing anything. The real economy pays much higher interest rate when they are lucky to get loans at all.
It’s all “economics”… As Krugman explained, this was necessary for the good of everyone. He didn’t deny that money is being shifted from the bottom 99% to the top 1%. He defended the vast flow of money to the banks-government and he said it had to be done in order to keep the interest rate at its “natural” level. What is the natural level of the interest rate? According to Krugman it’s the level at which inflation is stable and there is full employment. Sounds good doesn’t it? Let’s see what kind of economy makes that definition good.
How about a Gulag? The bottom 99% are the inmates and top 1% are the guards. The bottom has to work to barely survive and instead of chains they are kept around with very low salaries. They can’t obtain any loans for building productive businesses. They are forced (by economic forces) to work for the guards who own everything. The guards are further protected by a slew of complex licensing and other regulations.
Let’s see… There is full employment – in this regard the Gulag passes Krugman’s definition with flying marks. Next, there is no inflation at all because there is a lot more production than consumption. The 1% guards are stuffing themselves like pigs but they can eat only that much. There is still glut of products… which the 99% inmates don’t have money to buy. This oversupply not only keeps inflation low, it virtually eliminates it. In that regard too, the Gulag is a perfect example of Krugman’s economy.
It’s official, there is a professional economist and a Nobel laureate behind it. How do you like it?
The thing is, financial feudalism has been tried before. It’s *inherently unstable* because of compound interest, the accumulation effect, etc.
In Roman times, when financial feudalism collapsed, the way this was “fixed” was to convert it to *actual* feudalism, which is substantially more stable.
This requires more political savvy on the part of the lords, however. They have to know enough to keep their serfs fed and housed, and in this day and age, to provide them with medical care.
I wonder what globalization would look like today if it had taken a different form from 1945 onward. If, from 1945 to the fall of the USSR in 1989, there had been an eye to a balanced sustainable world, then the mess that blew up beginning in the 90s would never have happened – maybe. It seems we in the US have never been interested in true globalization or true democracy. But it will happen anyway. My fear is that we are headed into a generation of more intentional malfeasance before we come out of this. The best decision we could make as a country now would be to retool the military. Sell off the surplus and clean up the environment. Openly and honestly.
I would have believed Michael right had I read this as an undergrad chemist in 1970. I regard it almost as trite now. What we need to know more of is why a small elite continue to need to have the trappings of power and keep the rest in such a subordinate condition.
It’s mental illness. Perhaps different members of the elite have different mental illnesses. Pscyhopathy — inability to think about long term risks combined with a strong motivation for short-term gains — is one of them. There are probably others.
Basic animal instinct and fear. It doesn’t have to be logical.
It is reasonable for any willful being to desire power, so that it can work its will. The reverse of the question — why to we need an elite to have the trappings, and keep us in a condition of subordination? — is the more difficult to answer.
Financialization is the terminal stage of Capitalism, one way or another.
Simply the best synopsis of the rentier era I’ve read. Sent the link to my kids. I’ve had them off credit for a few years now. Good to remind them why.
Yes, but the debt that people directly assume is only the tip of the iceberg. In fact, iterating it over and over again as so many have since 2008 can serve as a distraction.
What I get from the beginning of this article is that working people are not receiving the benefit of productivity gains because those are being vacuumed off by the finance economy (and those who benefit from it) at a million little checkpoints.
To take one obvious example, the non-financial businesses so many work for are not themselves taking full profits because, as in the case of retailers, they are sharing a portion of every credit card sale with (bailed out too big to fail) credit card issuing banks.
Retailers attempt to pass these costs along to consumers and so we all pay more for basic necessities at the grocery store—just because our neighbors are using their credit cards for ordinary transactions for the sake of convenience. That they virtuously pay the bill each month is immaterial.
I’m not saying it’s not relevant that so many people are in debt and directly pledging fealty to the financial sector, but that’s obvious. What I am saying is that even people who do not personally assume debt are having their earnings and savings capacity systematically undermined by the financial sector without being aware of it.
So, we’re not “off credit” even when we like to think we are. That’s what makes it a systemic, economic matter and not just personal finance.
The plutocrats have constructed a narrative that fixates on personal indebtedness in order to focus attention on (easily scapegoated) portions of the citizenry, rather than on the extractive practices themselves which impact everyone regardless of “guilt or innocence” with regard to personal indebtedness.
In other words, even if a worker is “innocent” of assuming “debt overhead”–say, they skipped college as so many were sagely advising on another thread here yesterday– that worker will still be carrying the financial sector around on their back.
I think we should shift the narrative somewhat off personal indebtedness to focus more on the system of financial extraction itself and the way that impacts earnings and costs in the non-financial sector, (among other issues).
To that end, Matt Taibbi’s “vampire squid” and “great American bubble machine” metaphors were helpfully suggestive, but too limited in that he focused on one (vanguard) corporate actor in the financial sector, when really those metaphors apply to the entire financialized economy from which there is literally no escape.
Wins the internet!
* * *
What oft was thought but ne’er so well expressed. I think there are a lot of people here who would agree with what you say, but it’s nice to hear it said in freshly realized language.
“True wit is nature to advantage dressed / What oft was thought but ne’er so well expressed.” Alexander Pope from http://wiki.answers.com/Q/What_oft_was_felt_but_ne%27re_so_well_expressed_was_this_Alexander_Pope
I would tend to agree – except that many places won’t even take checks – it’s cash or credit. So if they don’t like paying the credit card fees, why won’t they take a check? Too many ripoffs?
I pay off my balances every month but would prefer not to use cc’s at all. Merchants may bitch about the cc fees, but they still like the “convenience” – and that, i do believe, is how we get suckered into so much – we are such lovers of “convenience” …
This kind of data, often repeated by “conservative” pundits, refuses to take into account the regressive nature of the other taxes that low income wage earners have to pay. When all taxes are considered (state, local, payroll, excise), the share of taxes paid by each fifth of households is similar to its share of total income. We could stand for a more progressive federal tax to make up for the growing inequality the current system propagates.
http://www.cbpp.org/cms/index.cfm?fa=view&id=3505
“Nearly half – the bottom half, pay no income taxes at all.
The top 1% pay more than 1/3 of all federal taxes.
The bottom 20% received more in tax refunds than the paid in taxes.”
I’ve been arguing with people I know for a while now about raising property taxes to reduce land values and rents associated therein. Glad other people think the same way.
The Word Bank via the IMF and the FED hijacked everything under the guise of money lending. How they hid from the masses what they were doing was via many secrets, lies and deceptions so they could conquer us by all of this fraud they were committing. They hid the fact that they never lent anyone any money and they were funded and everything was paid for by the U.S. TAXPAYERS and in return they lent credit. They charged us interest on our money that we lent them. Their scam worked very well for them for decades and enabled them to get filthy richer and monopolize everything and buy our Government off of the backs of all of our hard work. It was a not so masterful plan that could only exist for as long as WE THE PEOPLE believed their lies. They ruled by secrecy for decades. The truth being revealed about their giant pyramid scheme with our wealth is what they have always feared. First they socialized all of the wealth of the people then they steal it and use our wealth to enslave us.
In order to maintain power they are sneaking in communism in order to maintain their power and steal our remaining wealth. Their aim is to weaken us in every way by causing fake fear and false debt enslavement brought about by their planned stock market crash and subsequent ongoing bailots, fraudclosure and many fascist tactics to enable their totalitarian bankster government to control us. Abolish the FED….Who is the enemy from within that takes on many forms.
The elite are not trying communism, nor are they trying fascism.
They are setting up feudalism.
Sorry Nathaniel but you need to go and do some homework. This is the Communist Manifesto they are sneaking in. Feudalism is the distraction from what they are really up to. Have you ever even been to fraud closure court? It is a dictatorship and so is the Obama administration. Next thing will be totalitarianism. People fail to see what is right in front of their eyes. That is what they are counting on. In my families case we lost our small business of 25 years when Wells Fargo took over WAMU and pulled our credit lines. We were able to rent out our property and pay the mortgage until COOK COUNTY doubled our property taxes from $16,000 to $32,000 out of no where. That left us $2000 a month short on the mortgage and because we lost our business and took a big paycut our house went into fraudclosure. You can call it feudalism but, I call it the definition of fascism.
where has the wealth gone?!?!?!?
how do you think we’ve gone from 2 billion people to 7 billion people in just FUCKING 60 YEARS.
you think human beings are created out of thin air?
uh…no. it takes wealth. which is farms+fertilizer+harvesting+distribution+STABILITY ( GOVERNMENTS THAT PAY FOR MILITARIES AND POLICE TO MAKE SURE PEOPLE DON’T JUST TAKE EACH OTHER’S SHIT LIKE IN ZIMBABWE with robert mugabe ) .
yea. that’s where the wealth went. into making the world have MORE people with some of those people enjoying a higher standard of liesure time. like the VERY interenet we are using right now.
that’s where the wealth went. into making the world have MORE people with some of those people enjoying a higher standard of liesure time. zeev
Consolidation of real capital for economies of scale DOES NOT require consolidation of wealth and power. US corporations, for example, would run just as well (if not better) if they were equally owned by the entire US population.
like the VERY interenet we are using right now. zeev
The US has a slower INTERNET than several other developed countries. How did that happen, pray tell?
Concentration of real capital is good but you confuse that concentration with concentration of wealth and power which isn’t good especially when that concentration has occurred by unjust means such as loans from the counterfeiting cartel, the banking system.
“According to what the textbooks called Say’s Law, there is a circular flow between producers and consumers. Workers must be able to buy the results of what they produce.”
But there is the converse – workers must be able to produce the things that they buy (consume) – or at least there must be a fairly local reciprocity. I do think that is the link that globalization broke – domestic workers are not producing what they are consuming, in countries rich and poor, and, having no hand in their production have no say in the conditions, including their own, of that production. I think that link was deliberately broken – to remove the leverage they had over capital – and that link must be restored – you sell it here, you make it here – to the greatest extent possible …
“In the United States, two-thirds of state and local tax revenues in the 1930s came from the property tax. Today the proportion has fallen to only one-sixth.”
You’ll have a hard time selling that to the populace who, by and large, are having a property tax revolt. As areas become more “upscale” and housing prices rise, folks on low or fixed incomes get forced out as property taxes rise. And, conversely as housing values fall and more folks lose their homes, the services that are funded by property taxes are cut or the rest of the populace is forced to pay a larger share – again hurting poorer folk. The problem is not, IMO, that property taxes, per se, are too low and must be increased – the problem is that too many properties are not taxed at all. An amazing % of properties are not taxed in many municipalities – religious, non profit, educational, and the biggest scam of all, the commercial properties that are given “tax breaks” for decades at a time to lure them in under the guise of “job creators”.
So i think Mr. Hudson has to make it clear who he is talking about when he says property taxes must rise – the poor retired schmuck living in his 40 year old cape cod on his little 1/4 acre lot in lower suburbia or the commercial tycoon who conned the local legislature into giving him 30 year tax breaks on his multimillion dollar %*!* mall (sorry, my computer doesn’t cuss very well …)
Mr. Hudson made it very clear — property taxes must rise. He did not qualify the statement himself; you introduced that idea. He is endorsing higher taxes on ALL unearned income, including land and building rent. While owner occupation does not produce income, carving out a special loophole for it would clearly give our nobility an unfair advantage toward resource accumulation. Think plantations and estates. The point is to undo those advantages.
Taxing the rentiers means taxing those who leverage their excess wealth, whether it be land, tools, buildings, money, or even power. So, is a first home excess wealth? That depends — on size, use, length of ownership, definition of relatives — on more variables than we can possibly imagine. Once we establish what we believe to be a definitive list, those wily homo sapiens will invent new variables to carve out new loopholes, which could not be predicted in advance. Think the Hawthorne Effect.
So the only solution is to tax all real property because it might potentially be leveraged. The upside is that corporations and landlords would suddenly have to pay considerably higher taxes, while homeowners would pay their higher rates on suddenly devalued properties and would not have their earned incomes garnished by the IRS. Would your “poor retired schmuck” end up paying more or less tax in the end? That would depend on how progressively or regressively the new tax code was written.
The idea is to tax those few who have managed to hold on over the edge so they get foreclosed upon also. For the greater good. And of course everyone knows that landlords do no work at all and that building maintenance and costs just happen by themselves.
Once you have redistributed the wealth so that all are equally clobbered except for the fabulously rich who always seem to escape these little “adjustments”, you then simply start the cycle anew with those in power becoming a little “more equal” each year.
(1) “Nearly all observers expected the fruits of technology to trickle down, not be siphoned up to the top, to the banking sector whose “financial engineering” played no directly technological role in the production process.”
I’m still puzzled. If technology increases physical output (food, goods, etc.) per capita, having channeled money in perverse ways doesn’t in itself explain where that physical output goes.
In other words, amassing purely financial wealth doesn’t deprive anyone else of goods or services, and in this sense, buying bonds isn’t at all like buying food, housing, dental care, or even gold. Where’s the stuff and service going?
(2) Isn’t the error in “Say’s ‘Law’” called “Say’s Loophole”?
Where’s the stuff and service going? Fundamental-ist
Where do the nutrients in a body go when the blood stops flowing and/or leaks out? They go nowhere and that is the problem.
Or to put it another way, those goods and services are not being produced because of a mere shortage of money in the right hands. The golden goose has been choked too hard.
It’s called the “Paradox of Thrift” and the thrift is needed to payoff debt to a government enforced/backed counterfeiting cartel, the banking system.
Whocouldanode such a thing could cause problems?
Property tax fraud has been going on for years in Cook County, Il. We are still being assessed at the bubble price and our homes and businesses our now worth less than half. Ex-Mayor Daley stated before leaving office that property taxes are going up $155 billion dollars by the year 2015 to cover all of the missing firememan’s and policeman’s pension money. If they can’t fraudclose they will tax us out of our homes and businesses. The debt fraud an corruption is unsustainable. People are barely making it now. If they increase taxes anymore its going to blow up in their faces. They already raise the toll fees to double overnite. From 80¢ to $1.60. Now Gov Quinn wants to cut. Medicare and close mental hospitals but give immigrants kids free college. These crooks need to be stopped in the only language they understand…everyone just stop paying the crooks. Then what will they do…? We have the power to stop this craziness.
None of these positions are really about “economics.” they are about man’s greed, quest for power, and the attendant sins of folks whose feet are clay.
The simple answers are present, in an honest read of history, Paul Johnson, Schweikert & Allen, are two sources, but it is too late for America. God will deal with you now.
Vinny BS, MBA, Ph.D, JD.