Michael Hudson: America’s Deceptive 2012 Fiscal Cliff, Part IV– Why Financial and Tax Reform Should Go Together

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. His latest book is “The Bubble and Beyond.”

Taxes pay for the cost of government by withdrawing income from the parties being taxed. From Adam Smith through John Stuart Mill to the Progressive Era, general agreement emerged that the most appropriate taxes should not fall on labor, capital or on sales of basic consumer needs. Such taxes raise the break-even cost of employing labor. In today’s world, FICA wage withholding for Social Security raises the price that employers must pay their work force to maintain living standards and buy the products they produce.

However, these economists singled out one kind of tax that does not increase prices: taxes on the land’s rental value, natural resource rents and monopoly rents. These payments for rent-extraction rights are not a return to “factors of production,” but are privatized levy reflecting privileges that have no ongoing cost of production. They are rentier rake-offs.

Land is the economy’s largest asset. A site’s rental value is set by market conditions – what people pay for being able to live in a good location. People pay more to live in prestigious and convenient neighborhoods. They pay more if there is local investment in roads and public transportation, and if there are parks, museums and cultural centers nearby, or nice shopping districts. People also pay more as the economy grows more prosperous, because one of the first things they desire is status, and in today’s world this is defined largely by where one lives.

Landlords do not create this site value. But speculators may seek to ride the wave by buying property on credit, where the rate of land-price gain exceeds the interest rate. This “capital” gain is the proverbial free lunch. It is created by public investment, by the general level of prosperity, and by the terms on which banks extend credit. In a nutshell, a property is worth whatever a bank will lend, because that is the price that new buyers will be able to pay for it.

This logic was more familiar to the public a century ago than it is today. A property tax to collect this “free lunch” rent is paid out of the rent. This leaves less to be capitalized into new interest-bearing loans – while freeing the government from having to tax labor and industrial capital. So this tax not only is “less bad” than others; it is actively desirable to reduce the debt overhead. Rent levels are not affected, but the government collects the rent instead of the property owner or, at one remove, the mortgage banker who turns this rent into a flow of interest by advancing the purchase price of rent-yielding properties to new buyers.

Real estate was the major source of rising net worth and wealth for America’s middle class for over sixty years, from the return to peace in 1945 until the 2008 financial collapse. Rising property prices were fueled largely by banks providing mortgage credit on easier terms. But by 2008 these terms had reached their limit. Interest rates were seemingly as low as they could go. So were down payments (zero down payment) and amortization rates (zero, with interest-only loans) and property values were becoming fictitious as a result of a tidal wave of fraud by the banking system’s property appraisers, while the income statements of borrowers also was becoming fictitious (“liars’ loans,” with the main liars being the mortgage writers).

If the rise in real estate prices (mainly site values) had been taxed, there would have been no financial overgrowth, because this price-gain would have been collected as the tax base. The government would not have needed to tax labor either via income tax, FICA wage withholding or consumer sales. And taken in conjunction with the government’s money-creating power, there would have been little need for public debt to grow. Taxing rent extraction privileges thus would minimize debt levels and taxes on the 99%.

The next leading form of economic rent is taken by oil, gas and mining companies from the mineral deposits created by nature, as well as by owners or leasers of forests and other natural resources. Classical economics from David Ricardo onward defined such income received by landlords, mining companies, forestry and fisheries as “economic rent.” It is not profit on capital investment, because nature has provided the resource, not human labor or expenditure on capital – except for tangible capital investment in the buildings erected on the land, saws to cut down trees, earth-moving equipment to do the mining, and so forth.

The basic contrast is between a productive industrial economy and a rent-extracting one in which special privileges, monopoly pricing and economic rents divert spending away from tangible capital investment and real output. Classical economists defined economic rent generically as “empty” pricing in excess of technologically necessary costs of production. This would include payments to pharmaceutical companies, health management organizations (HMOs) and monopolies above their necessary cost of doing business. Much like paying debt service, such economic rent siphons market revenue away from tangible production and consumption.

It was to demonstrate this that Francois Quesnay developed the first national income statistics, the Tableau Économique. His aim was to show that the landed aristocracy’s rental rake-offs should form the basis for taxation rather than the excise taxes that were burdening industry and making it uncompetitive. But for the past hundred years, commercial banks have opposed property taxes, because taxing the land’s rent would mean less left over to pay interest. Some 80 percent of bank loans are for real estate, mainly to capitalize the rental value left untaxed. A property and wealth tax would reduce this market – along with the government’s need to borrow, and hence to pay interest to bondholders. And without a fiscal squeeze there would have been less of an opportunity for the financial sector to push to privatize what remains of the public domain.

Today’s central financial problem is that the banking system lends mainly for rent extraction opportunities rather than for tangible capital investment and economic growth to raise living standards. To maximize rent, it has lobbied to untax land and natural resources. At issue in today’s tax and financial crisis is thus whether the world is going to have an economy based on progressive industrial democracy or a financialized and polarizing rent-extracting society.

The Ideological Crisis Underlying Today’s Tax and Financial Policy

From antiquity and for thousands of years, land, natural resources and monopolies, seaports and roads were kept in the public domain. In more recent times railroads, subway lines, airlines, and gas and electric utilities were made public. The aim was to provide their basic services at cost or at subsidized prices rather than letting them be privatized into rent-extracting opportunities. The Progressive Era capped this transition to a more equitable economy by enacting progressive income and wealth taxes.

Economies were liberating themselves from the special privileges that European feudalism and colonialism had granted to favored insiders. The aim of ending these privileges – or taxing away economic rent where it occurs naturally, as in the land’s site value and natural resource rent – was to lower the costs of living and doing business. This was expected to make progressive economies more competitive, obliging other countries to follow suit or be rendered obsolete. The era of what was considered to be socialism in one form or another seemed to be at hand – rising role of the public sector as part and parcel of the evolution of technology and prosperity.

But the landowning and financial classes fought back, seeking to expunge the central policy conclusion of classical economics: the doctrine that free-lunch economic rent should serve as the tax base for economies seeking to be most efficient and fair. Imbued with academic legitimacy by the University of Chicago (which Upton Sinclair aptly named the University of Standard Oil) the new post-classical economics has adopted Milton Friedman’s motto: “There Is No Such Thing As A Free Lunch” (TINSTAAFL). If it is not seen, after all, it has less likelihood of being taxed.

The political problem faced by rentiers – the “idle rich” siphoning off most of the economy’s gains for themselves – is to convince voters to agree that labor and consumers should be taxed rather than the financial gains of the wealthiest 1%. How long can they defer people from seeing that making interest tax-exempt pushes the government’s budget further into deficit? To free financial wealth and asset-price gains from taxes – while blocking the government from financing its deficits by its own public option for money creation – the academics sponsored by financial lobbyists hijacked monetary theory, fiscal policy and economic theory in general. On seeming grounds of efficiency they claimed that government no longer should regulate Wall Street and its corporate clients. Instead of criticizing rent seeking as in earlier centuries, they depicted government as an oppressive Leviathan for using its power to protect markets from monopolies, crooked drug companies, health insurance companies and predatory finance.

This idea that a “free market” is one free for Wall Street to act without regulation can be popularized only by censoring the history of economic thought. It would not do for people to read what Adam Smith and subsequent economists actually taught about rent, taxes and the need for regulation or public ownership. Academic economics is turned into an Orwellian exercise in doublethink, designed to convince the population that the bottom 99% should pay taxes rather than the 1% that obtain most interest, dividends and capital gains. By denying that a free lunch exists, and by confusing the relationship between money and taxes, they have turned the economics discipline and much political discourse into a lobbying effort for the 1%.

Lobbyists for the 1% frame the fiscal question in terms of “How can we make the 99% pay for their own social programs?” The implicit follow-up is, “so that we (the 1%) don’t have to pay?” This is how the Social Security system came to be “funded” and then “underfunded.” The most regressive tax of all is the FICA payroll tax at 15.3% of wages up to about $105,000. Above that, the rich don’t have to contribute. This payroll tax exceeds the income tax paid by many blue-collar families. The pretense is that not taxing these free lunchers will make economies more competitive and pull them out of depression. The reality is the opposite: Instead of taxing the wealthy on their free lunch, the tax burden raises the cost of living and doing business. This is a major reason why the U.S. economy is being de-industrialized today.

The key question is what the 1% do with their revenue “freed” from taxes. The answer is that they lend it out to indebt the 99%. This polarizes the economy between creditors and debtors. Over the past generation the wealthiest 1% have rewritten the tax laws to a point where they now receive an estimated 66% – two thirds – of all returns to wealth (interest, dividends, rents and capital gains), and a reported 93% of all income gains since the Wall Street bailout of September 2008.

They have used this money to finance the election campaigns of politicians committed to shifting taxes onto the 99%. They also have bought control of the major news media that shape peoples’ understanding of what is happening. And as Thorstein Veblen described nearly a century ago, businessmen have become the heads most universities and directed their curriculum along “business friendly” lines.

The clearest way to analyze any financial system is to ask Who/Whom. That is because financial systems are basically a set of debts owed to creditors. In today’s neo-rentier economy the bottom 99% (labor and consumers) owe the 1% (bondholders, stockholders and property owners). Corporate business and government bodies also are indebted to this 1%. The degree of financial polarization has sharply accelerated as the 1% are making their move to indebt the 99% – along with industry, state, local and federal government – to the point where the entire economic surplus is owed as debt service. The aim is to monopolize the economy, above all the money-creating privilege of supplying the credit that the economy needs to grow and transact business, enabling them to extract interest and other fees for this privilege.

The top 1% have nearly succeeded in siphoning off the entire surplus for themselves, receiving 93% of U.S. income growth since September 2008. Their control over the political process has enabled them to use each new financial crisis to strengthen their position by forcing companies, states and localities to relinquish property to creditors and financial investors. So after monopolizing the economic surplus, they now are seeking to transfer to themselves the economic infrastructure, land and natural resources, and any other asset on which a rent-extracting tollbooth can be placed.

The situation is akin to that of medieval Europe in the wake of the Nordic invasions. The supra-national force of Rome in feudal times is now situated in Washington, with Christianity replaced by the Washington Consensus wielded via the IMF, World Bank, WTO and its satellite institutions such as the European Central Bank, backed by the moral and ideological role academic economists rather than the Church. And on the new financial battlefield, Wall Street underwriters have used the crisis as an opportunity to press for privatization. Chicago’s strong Democratic political machine sold rights to install parking meters on its sidewalks, and has tried to turn its public roads into privatized toll roads. And the city’s Mayor Rahm Emanuel has used privatization of its airport services to break labor unionization, Thatcher-style. The class war is back in business, with financial tactics playing a leading role barely anticipated a century ago.

This monopolization of property is what Europe’s medieval military conquests sought to achieve, and what its colonization of foreign continents replicated. But whereas it achieved this originally by military conquest of the land, today’s 1% do it l by financializing the economy (although the military arm of force is not absent, to be sure, as the world saw in Chile after 1973).

The Financial Quandary Confronting Us

The economy’s debt overhead has grown so large that not everyone can be paid. This poses the question age-old question of Who/Whom. The answer almost always is that big fish eat little fish. Big banks (too big to fail) are eating little banks, while the 1% try to take the lion’s share for themselves by annulling public and corporate debts owed to the 99%. Their plan is to downgrade Social Security and Medicare savings to “entitlements,” as if it is a matter of sound fiscal choice not to pay low-income recipients, in order to reward rentiers at the top, who have re-christened themselves “job creators.”

The problem is not Social Security, which can be paid out of normal tax revenue, as in Germany’s pay-as-you-go system. This fiscal problem has been falsely depicted as a financial problem, as if one needs to save in advance by a special tax on the 99%. The real pension cliff is with corporate, state and local pension plans, which are being underfunded and looted by financial managers. The shortfall is getting worse as the downturn reduces local tax revenues, leaving states and cities unable to fund their programs, to invest in new public infrastructure, or even to maintain and repair existing investments. Public transportation is suffering in particular – raising user fees to riders in order to pay bondholders. But it is mainly retirees who are being told to sacrifice. (The sanctimonious verb is to “share” in the sacrifice, although this evidently does not mean the 1%.)

The bank lobby suggests that the economy borrow its way out of debt. Their proposal to “stabilize” the financial system is for the government to bail do for the banks what it has not been willing to do for recipients of Social Security and Medicare, or for states and localities no longer receiving revenue sharing, or for homeowners in negative equity suffering from exploding interest rates even while bank borrowing costs from the Fed have plunged. The government is to supply nearly free credit to the banks, to lend debtors enough – at the widest interest-rate markups in recent memory – to keep paying the debts that were run up before 2008.

The problem is that this set of policies will further destabilize the economy rather than alleviating today’s debt deflation. What makes this a quandary is that the proposed moves to cure this instability will only make things worse. The Fed’s prime directive is to keep interest rates low – to revive lending not to finance new business investment to produce more, but simply to inflate the asset prices that back the bank loans that constitute bank reserves.

However, if the Fed keeps interest rates low, there is no way that corporate, state and local pension plans can make the 8+% returns needed to pay their scheduled pensions. But if the Fed lets interest rates rise, this will reduce the capitalization rate at which banks lend against current rental income and profits. That will lower prices for real estate, corporate stocks and bonds, pushing the banks even deeper into negative equity. So if the economy is saved, the banks cannot be. This is why the Obama Administration has chosen to save the banks, not the economy.

Either way, the financial system cannot continue along its present path. Only debt write-offs will “free” markets to resume spending on goods and services. And only a shift of taxes onto rent-yielding property, finance and monopolies will save financialized prices from being loaded down with interest charges as banks lend to raise the economic overhead rather than for production and employment.

The solution for Social Security, Medicare and Medicaid is to de-financialize them, treating them like government programs for military spending, beachfront rebuilding and bank subsidies, paid out of current tax revenue and new government money creation, which is what central banks are supposed to facilitate, after all.

Governments shy away from confronting these lines of solution mainly because the financial sector has sponsored an economic tunnel vision that ignores the role of debt, money, tax philosophy, and the phenomena of economic rent and asset-price inflation that are the defining characteristics of our financialized age. The focus of government policy is to save a financial system that cannot be saved more than temporarily. The economy will shrink as a result of income being diverting to pay credit card debt and mortgage debts. Students without jobs will remain burdened with student debt (over $1 trillion), with the time-honored safety valve of bankruptcy closed off to them. Many graduates are still living with their parents as marriages, and family formation (and hence, new house-buying) turn down.

Now that the debt build-up has run its course, the banking sector is left to put its hope in gambling on mathematical probabilities via hedge fund capitalism. So Casino Capitalist has become the stage of finance capitalism following Pension Fund capitalism, and preceding the insolvency stage of austerity and neofeudal property seizures.

Austerity will deepen rather than cure the public budget deficit. Unlike past centuries, this deficit is not being incurred to wage war, but to pay a financial system that has become predatory on the “real” economy of production and consumption. The collapse of this system is what caused today’s budget deficit. Instead of recognizing this, the Obama Administration is trying to make labor pay. Pushing wage-earners over the “fiscal cliff” to make it pay the costs of Wall Street’s financial bailout can only shrink of the domestic market more, destabilizing the economy by pushing into a fatal combination of tax-ridden and debt-ridden fiscal and financial austerity.

What is held out as the technocratic hope of “deleveraging” means diverting yet more income to pay the financial sector rather than to resume economic growth and restore employment levels. Yet the recent lesson of European experience is that despite austerity, debt has risen from 381% of GDP in mid-2007 to 417% in mid—2012. That is what happens when economies shrink: debts mount up at arrears (and with stiff financial penalties). Yet the aim of Obama Administration of Tim Geithner, Ben Bernanke, Erik Holder et al. seems to be to make America look like Europe, wracked by rising unemployment, falling markets and the related syndrome of adverse social and political consequences of financial warfare waged against labor, industry and government together.

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  1. from Mexico

    I certainly don’t disagree with any of Hudson’s conclusions and policy prescriptions, but I wonder if classical economics serves as a good moral and philosophical basis for getting there.

    When the industrial capitalists sought their liberation from the mercantilists and landed aristocracy in the late 18th century, the ideology of classical economics lent moral and intellectual legitimacy to their struggle. But even though labor was mentioned, it really didn’t have a place at the table at this stage, and therefore got short shrift in Adam Smith’s formulations. The fact that the “invisible hand” did not render a rational distribution of resources became evident in the early history of industrial capitalism, when industrial capitalists themselves proved quite adept at “monopolizing the economic surplus.” It really wasn’t until Marx came along that labor got a formidable advocate, ideologically speaking at least, as Christian socialism wasn’t up to the task.

    There is no doubt that financial and monopoly capitalism are the most pathological and vitatiated manifestations of capitalism. And I suppose there is no doubt that the industrial capitalists and labor joined hands in the United States in the 1930s and 1940s to roll back the devastating economic and political devastation wrought by the orgy of financial and monopoly capitalism that occurred during the 1875 to 1929 period. But while it can be argued that labor and industrial capital should renew this alliance, I don’t believe one should be lured into complacency regarding the tension that exists between labor and industrial capital.

    1. michael hudson

      Quite right. Financial reform is not a panacea that will cure labor/capital relationships.
      The contribution of classical economics is above all to distinguish rent (unearned income) from earned income (wages and profit). This provides a tool for seeing how industry itself is being corroded by predatory and extractive credit. So if industrial investment and employment shrinks, so does labor’s position.
      This is DIFFERENT from the jockeying for income between wage earners and employers. But if the economy is de-industrialized by financial asset stripping, there won’t be any surplus value created to fight over.

      1. David Lentini

        “But if the economy is de-industrialized by financial asset stripping, there won’t be any surplus value created to fight over.”

        Which leaves us where? Serfdom? Slavery? Revolution? I’d like to see that discussion.

        And was one of the Chicago School’s great innovations the destruction of the Depression- and War-era alliance between labor and management through the “alligning” of managerial and stockholder interests by tying compensation to share price and the use of equity as a key component of compensation? Indeed, as I recall one of the early claims for the value of business schools was the idea that “scientifically” trained “professional” managers, who were well compensated in cash, would outperform the narrow-minded owner-managers. The ’80s revolution in management compensation turned that thinking on its head.

    2. jake chase

      We no longer have industrial capitalists, only rent seeking executives who live to loot. Thank the Harvard Business School for teaching them how.

      1. NotTimothyGeithner

        Much of the problem of the industrial capitalists can be solved by sensible taxes on the wealthy. JFK and Carter* both pushed major tax cuts on the wealthy and dramatically increased defense spending on mysterious toys**, and the result was Nixon and Reagan when the Reptile brain was awash with money once again.

        *Democrats have pretty much always been the same as they are today.
        **IKe may not have been perfect, but his distribution of cash for the Pentagon was much more sensible and innovative. The Pentagon threw a hissy fit when Ike decided to save money by not building fleets of bombers and opted to build submarines to get the same coverage for way less money.

  2. jake chase

    Can’t disagree with a word of this. Henry George would have loved it. Finally, there seems to be an economist who understands the economy.

    Let’s hear trenchant criticism from all you trolls who continue to blow smoke up the public’s rear.

  3. David Lentini

    Another execellent installment in an excellent series.

    For years I’ve been wondering why and how economics took such an intellectual nose-dive into the realm of superstition and fantasy; this article has done much to confirm my supsions that what we call “economics” has become the dominion on con-artists and useful idiots. The con-artists include the likes of Uncle Milty, who deliberately carried the water of the New Deal-hating fascists, corporatists, and industrial aristocracy by creating those great intellectual Potemkin Villiages called “libertarianism” and “neo-classical” economics. The useful idiots were their students and the gullible public, who swore their allegiance to the idea that greed and avarice made a sound society in order to justify their own selfishness. Together, the con-artists, useful idiots, and their rich sponors used the Cold War to purge all intellectual honesty from economics and business schools by selling inane ideas like the Efficient Market Hypothesis to relive everyone from the burden of thinking and caring about anyone by themselves.

    1. Beppo

      That’s a good question, and you basically answered it. Capitalist scumbags used the “think tank” to fog the air of any real thoughts, and spent so much money that sudenly, becoming a professional propaganda producer for capital was a viable career choice. Yasha Levine and Mark Ames has written about it. There’s a nice Adam Curtis blog post about it here:

  4. Ellen H Anderson

    Really great article. I have been wondering why we haven’t heard more from Michael Hudson. I am looking for forward to the discussion.

  5. Max424

    Every one of my fellow sheep-serfs should be made to read this piece, for if they did, there would no longer be any need for a hyphen, as we would only be serfs.

    Don’t you see, my mutton headed brothers and sisters, we can rise to the level of serfdom! And as serfs, we would be one step removed from being mostly free! It’s a one in a million chance to be sure, this quest for mostly freedom, but are not long odds better, than no odds at all?

    All is all that is left to us, if we remain sheep-serfs now, lamb-slaves later, is to graze for the shortest of jiffs in the fields of ignorance, before we are ignominiously butchered, then braised and smoked.

    At the very least, aren’t as you tired, as I am, of our sad incapacity for comprehending our lowly predicament, all borne out of our self-imposed abstinence, the one where we refuse to digest the simplest of words, let alone whole, spicy and dynamic, paragraphs?

    So hear me, my ignorant sheepie brethren! As we stand, we can only ingest cud, bleat at each other, and cry baaaaaaaaaaa toward the existential void. But there is more to this cloven hoofed life I swear!

    Believe, comrade lambs, that the road to serfdom is open. All that it is required, is modicum of concentration, an untapping our sixth grade reading skills, and a turning off our hand-held bleating devices –for no more than a few hours a week.*

    *Unless they are being used for vital, inter-serf communications. But please let’s have no more of this wasteful and counterproductive, sheepbooking and eyefonebaaaaaaing.

  6. Tom

    Thank you Michael Hudson for putting out what everyone should read.
    I recommend the following as required reading by all here – they are all available as PDF documents through google books

    I suggest that Progress and Poverty by Henry George be a required read by economists.

    My top recommendation, because this is where a real battle in taxation and the public, private, monopolies, rent-extraction rights occurred in the USA
    Read not only for entertainment but, for how it details what is going on today.

    Tax Facts – put out by the Los Angeles Single Tax League, Tax Relief Association of California in the 1920s

    Also, and I don’t have the link – – is the following paper that details the corruption, by the rentier class, of the economic thought and foundations we see today – an excellent read –
    Neo-classical Economics as a Stratagem
    against Henry George
    Mason Gaffney

    Thank you again Michael Hudson for bringing into light what has been hidden from economic literacy for too long.

  7. Norman

    And a happy new year to you too Max! What are you smoking today, that gives us commoneers such enlightenment? Goodness, not to sound snarky, but I can’t really follow your train of thought here. Maybe it’s the cat food i’m eating instead of real people food? Oh well, at least I still have what passes for reading/writing abilities.

    1. michael hudson

      Please do NOT read Henry George’s Progress and Poverty or other books.
      I don’t see how you can imagine that what I’m writing about has anything to do with his idea. He depicts an economy working on BARTER. He expelled everyone from his sectarian party who tried to bring up the problem of interest and debt. When he went to Britain, and his hosts said that they had hoped to finance his work, but why didn’t he speak about debt problems, he huffed and said, “You should have read my writing, and you’d know that all I talk about is land rent.”
      Unfortunately, he never defined rent, and was an ignoramus when it comes to classical rent theory. As a popular journalist, he dummed it down — and his followers have avoided studying any economist EXCEEPT George.
      So you’d do just as well to read L Ron Hubbard as George — or better yet, his contemporaries Madame Blavatsky and Mary Baker Eddy. they have as much to say about banking and debt as George.
      Please do NOT use comments on my articles to promote such anti-academic sectarian garbage. The Georgists are right wingers, most are lobbyists for the construction industry (the two raters) and they’ve long been taken over by Austrian gold bugs and assorted kleptocrats.

      1. Tom

        I do appreciate your response – I will aim to broaden my perspective as I have no doubt what you say is accurate – So yes – I will dispense with george and his malformed or basic back-woodsiness. Although – I see components of land rent and other basic problems the rent extraction side of the equation have produced – The increasing in costs of basic needs suffered by a majority of the population because of rent extraction as opposed to actual investement in production and consumption economy.
        Still picking up my understanding and appreciate your guidance

      2. jake chase

        Michael, now you are making a mistake. Not everyone who reads Henry George is a Georgist, or a right winger, or a gold bug, or anything else. Some of us began reading fifty years or so before you began writing. Stay with the stuff that is well thought out and don’t throw stones at people who basically agree with you.

        Are you trying to be the Pope?

      3. Mark Hilgenberg

        I am disappointed how you are trying to divide as opposed to unify. I like a lot of what George has written, I am a big proponent of LVT, I am anti-capitalist pro markets libertarian, I am against a gold backed currency and for debt free currency and an end to fractional reserve banking.

        Stereotyping will never get us anywhere.

      4. Nate Blair

        You have us wrong, not totally wrong, but wrong anyway. You sound like a bitter old man using grudges from the past to divide yourself from your natural allies. We are a diverse group; nobody gets everything right, not you, George, or Georgists—I am not a “single-taxer”, but I am a “Georgist”. So it behooves you to pay attention to shifts… there is a young, and very motivated, and *progressive* group of Georgists hard at work. Maybe we need to rebrand, but you are not helping anyone with this nonesense.

      5. citalopram

        Michael – thank for your telling the truth in language we non economists can understand. You’re doing a very valuable service for the country.

    2. Yves Smith Post author


      For the record, that is a completely unacceptable comment. All unsubstantiated name calling.

      1. Max424

        I don’t mind the name calling. But I haven’t been smoking (honest). I was a little upset with that.

        My comment apparently was indecipherable. I blame sobriety.

        1. fallawayjumper

          Your comment would be best described in my circle of aging, inebriated frat boys as ‘poetry’ Max. Although the fact that i understood every word does concern me mildly but how can one not admire wonderful metaphors like sheep grazing in fields of ignorance and resolutions to upgrade one’s status to serf from sheep-serf…? We should all have such ambition…

          Keep writing prose Max and as for Mike Hudson–bravo…long been a fan…
          Can you start a think tank Yves with Hudson, Whitney and Dean Baker…?
          I’m certain a few thousand ‘serf wannabees’ would chip in…

          1. Max424

            The fallaway rainbow for a deuce.

            Nothing better. Though I gotta admit, the modern step back too is a beautiful thing.

            We had the fade and fallaway when I was a kid, but not the step back. I wonder who invented it? Imagine going to the patent office with that creation.

            “I have new dribble-pop move, Big Gov, and I don’t want anyone to copy it, at least not for a little while. I need you to grant me a stitch of time, to get it just right.”

          2. jonboinAR

            More OT:
            Didn’t Michael use the step-back? On my favorite team, the UCLA Bruins, our mid-range-jump-shooting center, Travis Wear, uses the step-back to good effect. I wasn’t aware that it was a modern innovation.

  8. Michael Jones

    Thanks for this great series of expositions Dr. Hudson. I have no doubt that you will be proved to be correct in your analysis, and the sooner that becomes a part of the dominant paradigm, the better off we will all be.

  9. km4

    “if the Fed keeps interest rates low, there is no way that corporate, state and local pension plans can make the 8+% returns needed to pay their scheduled pensions. But if the Fed lets interest rates rise, this will reduce the capitalization rate at which banks lend against current rental income and profits. That will lower prices for real estate, corporate stocks and bonds, pushing the banks even deeper into negative equity. So if the economy is saved, the banks cannot be. This is why the Obama Administration has chosen to save the banks, not the economy”.

    Bingo !

    1. Susan the other

      My favorite paragraph too. It’s a Gordian Knot. And one of the proposals for cutting through it is seignorage coins denominated in the trillions and minted at the demand of the Treasury which is run by a banksters’ bankster. Is this the final coup – whereby limitless money is there and Congress makes the decisions how to spend it and we all know Congress will be bribed by the banksters and spend it all on them. Dr. Hudson is right: we need to write off all the debt and pass new legislation controlling the banks. Not print up more money for the banks to siphon off BEFORE we take control, legally, of our own public money to finance public deficits, not finance the banks.

  10. ScottA


    This is one of the clearest explanations ever published on the economic mess we’re in
    – and how the enemies of Modern Monetary Theory got us into it,
    with their two-fold strategy of:

    – taking THE POWER OF CREATING MONEY *AWAY* from the 99% (We The People, the great unwashed, however you want to refer to us);

    – pushing THE OBLIGATION OF PAYING TAXES *ONTO* the 99% (taxing labor, and *not* taxing interest gains and rent extraction)

    In the words of Bernard Lietaer (see video link below):
    “Political democracy without monetary democracy just doesn’t work.”

    there IS an alternative, and there IS such a thing as a free lunch after all!
    Who knew?!?

    Michael Hudson is a great writer and economist.
    Michael Hudson is a landmark thinker and expositor in the history of Economics.

    I often ask my friends: “Where are the Galileos or Newtons or Darwins of our era? So much science and learning and sharing and discoveries – especially now with a proper communication system these past 10 years or so: a social internet.”

    And we really, really need a few new thinkers now. This is not a time for complacency, as our economies and ecologies appear to be heading towards very real “cliffs” – or may already be in the process of falling off them.

    It is patently ridiculous that fraudulent prizes such as the “Nobel for Economics” are being passed around – yes, the “Nobel” for Economics is patently fraudulent: it has nothing to do with Lord Alfred Nobel and in fact his hiers have protested the use of his name with this fraud masquerading as a legitimate prize: the so-called “Nobel” in economics is an invention of some of our friends from the 1% : a bunch of central bankers, who hijacked the “Nobel” brand-name to engage in shameless propaganda by ONLY awarding it to economists who “toe the line” of NOT TALKING ABOUT THE PROCESS AND THE PARTIES INVOLVED IN MONEY CREATION – seriously, Google it or listen closely to Bernard Lietaer in the little video below, I did last week and I was shocked:


    Meanwhile all the important economic writers – who really DESERVE to be in the public eye, to have the public ear and be in the public forum – are exiled to the Siberia of Academia – in friggin’ LATVIA and KANSAS of all places!!!

    Listen up, you 1%, you:
    – rent-extracting central bankers,
    – rent-extracting land-owners and rent-extracting oilfield-owners
    – (and rent-extracting airwave-owners I might add),

    – and rent-extracting “bond-holders”
    who “lend” money INTO EXISTENCE
    for WE THE PEOPLE,

    thank you very much


    DON’T YOU HAVE ENOUGH????????????????????????

    You, the 1%, have a monopoly on
    – our money-creation powers,
    – our natural resources (our land, our airwaves, our oil, our food and our drugs)

    So what do you want on top of this FREE LUNCH?

    You want to be TAX-FREE as well?

    It should be recalled that reason democracy works better (or less bad) than other forms of governance lies in the fact that it provides collaborative, participative, social mechanisms for widely distributed decision-making on the “big issues”: such as allocation of assets, resources, capital. (Ye Olde Invisible Hand and Ye Old “Mr. Market” who are supposed to magically, stochastically make sure money is optimally invested.)


    Because (just like “it doesn’t matter who VOTES, but who COUNTS the votes”)

    It doesn’t matter what MR. MARKET allocates.
    What matters is:

    Because printing-of-money and paying-of-taxes there will always be.

    And the fundamental question in Economics is: who shall be permitted to do the former, and who shall be forced to do the latter?

    This is the fundamental discovery whcih great thinkers like Bernard Lietaer and Michael Hudson have now showed us. Now that they show us, it does seem rather obvious. But we may be excused for never having figured it out yet on our own – thanks mainly to the obfuscative efforts of certain giant vampire squid who somehow think they have a monopoly on using ink.

    Of course, it would be expected for there to be a great amount of obfuscative squid-ink being squirted by vampire squid one-percenters as they run their private money-printing presses and simultaneously attempt to prevent the public from asking this question which Michael Hudson so clearly and simply answers here: about who enjoys the power of printing money (and on whose shoulders the burden of taxation should thus most heavily fall. Duuh! On the money-printers! Hello?!?)

    However, as politics would have it, in most formerly great (now collapsing) nation-economies (and ecologies), the rent-extractors have used their unholy unnatural monopolies – on OUR land, OUR airwaves, OUR oil, OUR food and OUR drugs, and on our POWERS AS CREATORS OF MONEY – to do away with their last shred of social responsibility: *THEIR* DUTIES AS TAXPAYERS – on their incomes, AND ON THE MONOPOLIES GRANTED TO THEM.

    Jeez, where the hell else SHOULD the government’s money come from? If you continue to tax LABOR forever, then we will end up a planet of slaves (which is where we’re heading, with China leading the way, and the rest of the world merrily following in the “race to the bottom” in terms of worker and environmental protections).

    So the obvious solution is what Michael Hudson is proposing: TAX RESOURCE RENT-EXTRACTION (at its fair “green accounting” value also: ergo, a tax on CARBON-BURNING MONOPOLIES would be verrrry verrry high)

    There are only 2 outcomes to the current unsustainable course of action:

    (1) The MURDEROUS MIS-ALLOCATION of capital ends up killing: the 99%, and pretty much all living creatures on this planet in the next 300 years, and finally the 1% as well (because who the fuck is gonna feed you after all the BACTERIA are dead and gone – the DARK LIFE of the BIOSPHERE which the ÉCUME on the TOP is BLIND TO, oh you Crème-de-la-skimming-Crème, you fucking IDIOTS) – bringing down the what may well have been the biggest Empire in this corner of the galaxy: YOURS, OURS, TERRA, PLANET EARTH – which a stupid late-stage-capitalist hyper-financialized rigged rent-extracting tax-avoiding casino mafia is sending off a REAL CLIFF: THE *CLIMATE* CLIFF:

    Climate Change Is Simple – David Roberts Remix

    I dare any member of the 1% to watch this video and tell us what the NPV Net Present Value of all your wondrous wealth and works will be in the year 2300, ye mighty Ozymandias retards.

    (2) Now that brilliant creative THINKERS like Michael Hudson and others have EXPOSED the RAGGEDY-ASS GENOCIDAL LIES of the 1%, we need to IMPLEMENT their ideas. Perhaps this will involve bypassing the fraudulent central bankers and their fraudulent Nobels and their fraudulent money-printing monopoly and rent-extracting tax-avoidance schemes – and INVENTING A *DISTRIBUTED* MONEY-CREATION system and RESOURCE-ALLOCATION system (favoring taxation of RENT-EXTRACTION rather than taxation labor – with the long-term goal of creating more LEISURE than LABOR in our long-suffering “civilization”).

    Ya know, something that actually lives up to the soothing fairytales of “Mr. Market” and “the invisible hand”.

    This might involve a money-creating and resource-allocation approach along the lines of Banco Palmas, a project in Curitiba which was implemented in real-life based on some of Bernard Lietaer’s complementary currency ideas: solving a pressing problem by creating a currency and paying people to solve it:


    Click the 23-minute video on in the right-hand sidebar above, or watch on YouTube here:

    “Political democracy without monetary democracy just doesn’t work.”

    It might also involve some innovative money-creation and -distribution ideas in this creative futuristic tale about Italy:


    The greatest challenge facing humanity today is fixing our broken systems of money creation, resource allocation, rent extraction and resource allocation. This is the only hope we have of pulling our fragile cradle BACK from the very real economic cliff and ecologic cliff which we are about to fall off.

    “The systemic PURPOSE of TAXES is to GIVE VALUE to the CURRENCY which is being requested.”
    – Bernard Lietaer

  11. Tom

    I think if you copy and paste into search you will find:
    Progress and Poverty


    Tax Facts


    Stratagies against Henry George


  12. ScottA

    What I want to read is Bernard Lietaer’s “Creating Wealth” – which he says is a handbook for implementing alternative currencies.

    Ironic that you have to pay for such a book in dollars or euros!

    1. Mitch

      I’m reading a copy of “Creating Wealth” (which, BTW, I got–at no charge in dollars or Euros–from the local public library). I’d highly recommend it, along with a report Lietaer co-authored for the Club of Rome, entitled “Money and Sustainability: The Missing Link,” available online for free at this link:

      One of the report’s basic theses is that today’s dominant economic theories are fundamentally flawed and should be replaced by an ecological perspective that treats the economy as a complex open system (a.k.a., “complex flow network”) rather than a closed system (which is a fundamental assumption of today’s dominant schools of economics). This new approach recognizes the need for a balance between “efficiency” and “resilience” (per complex systems theory), whereas neo-liberal economics focuses almost exclusively on maximizing efficiency, a focus that leads to financial crashes, unsustainable environmental impacts, a tendency toward monopolization, wealth concentration, etc.

      I see the brittle/vulnerable state of our public infrastructure (financial, energy, telecom, healthy food and water supplies, healthcare, transportation, etc.) as one general category of symptoms of this imbalance and lack of resilience, as is the trend toward privatization and monopolization in so many sectors of the economy, and the related issues of increased inequality in wealth, and chronic and expanding levels of unemployment and underemployment. As the book explains, a key element of the problem is reliance on bank-debt money as the only source of currency used in the economy.

      As I read and think about Lietaer’s books, I find myself imagining an economy supported by a network of community-owned fiber optic networks (an area in which I’m involved) and an enriched ecology of “currencies” (some local, some focused specifically on things like food, carbon/energy, healthcare, education, etc.) that do a much better job of matching real unmet needs to underutilized real resources, while also more fully developing these resources and sustainable systems of economic development and exchange. And, importantly, the use of such currencies can help reduce the real economy’s reliance on the chronically out-of-control and increasingly crash-prone and “extractive” financial system that’s been massively built up around the global system of bank-debt money.

      The result would be a healthy rebalancing between resilience and efficiency in what we call the economy (which—as Lietaer explains–is a subset of our social systems which in turn are a subset of the natural ecology). The result would be increased sustainability of the entire system and a moderation or even reversal of the extreme and unhealthy tendencies we’re now seeing.

      I’m a supporter of MMT and also of the arguments that Dr. Hudson makes so strongly here regarding economic rents, etc. But it seems to me that making the changes they advocate requires strongly progressive actions by the national political machinery. While I hope that is achievable, I remain somewhat (increasingly?) skeptical of the prospects.

      After reading (and watching) Lietaer, I see more locally focused efforts to develop complementary currencies as an important area of initiative that can enable sustainable economic development that is relatively independent of the corrupt and dysfunctional system that Dr. Hudson and others (including Lietaer) describe so well.

      If nothing else, it seems that this will enable sustainable and humane economic systems to develop from the grassroots, while the macro-level political struggle continues. If and when the latter succeeds, it will have these grassroots initiatives as an economic (and lessons-learned) foundation to build and expand upon.

  13. michael hudson

    I’ve got to say, this is a lot of crap. Mason’s article is a repeat of a much better one written a century ago by Simon Patten in the Journal of Ethics, Vol. I, explaining that post-classical thought of J B Clark et al was an attack on the theory of economic rent as unearned income. He discussed Clark vs George in these terms. Clark’s claim was that everybody earned whatever income they could extract and whatever wealth they had.
    Balzac was much better realizing that behind every family fortune was a great theft.
    The Georgists attacked Patten, accused him of never reading George, to clear the way for their sectarians to claim that their cult followers should only read THEIR critiques.
    So Bob Andelson wrote an awful compendium, “Critics of Henry George,” published by Schalkenbach, attacking Patten as an opponent of George rather than defending the idea of land rent against the anti-classical rentier reaction. The problem for Georgists is that Patten was an economic professor at Wharton, and thus inappropriate for an anti-academic, anti-intellectual cult.
    I therefore feel I should warn readers of this list against georgist propaganda. I want to make sure that I am not associated with them in any way. I’m all for taxing the land. But I don’t think they are. (It’s a long story. On my website, you can read my “Political Critics of Henry George” from their own journal, American Journal of Economics and Sociology.

    1. JEHR

      Thank you, Dr. Hudson, for taking the time to read and answer the comments. You have taken a great deal of time to first explain what is going on and then to send people into the right direction for getting more information (or for avoiding the ugly information that is everywhere). We are certainly fortunate to have you as our guide. Thanks again.

  14. Trish

    Interest and rent need to be framed in terms of what they actually are “wealth extractors”. And when it becomes more profitable to do nothing than to do something, economies grind to a halt. The problem is that interest and rent depend on real wealth creation which happens when something of value is created, usually by someone’s labour.
    We had been hoodwinked into believing that inflation is bad for everyone, inflation is good for debtors as the real value of their debt is reduced, and bad for those holding cash as the real value of their money is eroded.
    The imbalance between those holding the cash and those holding debt grow greater in a deflationary environment and that is exactly what those promoting austerity want. High unemployment ensures cheap labour costs. The rich fiddle, while economies collapse.
    We need to promote pro-inflationary policies such as a living minimum wage and fiscal stimulus to the create jobs. We need create avenues to reduce the level of debt in the private sector, such as publicly funded programs to refinance student loans at 0% interest or outright debt forgiveness, public banks so that debt servicing could be used to fund the public purpose and offer an alternative to the usurious rates charged by the private banks.

    1. Susan the other

      The comments above about industrial-capital are interesting in that they limit the concept of capital. (I only read about this stuff here – so I’m sure everyone has thought about this already.) I was blithely thinking labor and capital are one. So this is part of a refined definition that needs to be applied. Breaking down the uses of capital. If we aggressively promote low-productivity jobs of high social value it will save us catastrophic debts to the environment – which cannot ever be forgiven or nullified.

  15. Susan the other

    I’m reading a text on art history in America, entitled America Framed, which is the all-time best account I have ever read on politics, and therefore economics. It’s discouraging because sanity is always so compromised, historically. We are left to be picked clean by the buzzards, or conned by the crackpots and fraudsters. We hardly ever get our shit together. I think it is evolutionary – forgetfulness allows us to get back up and survive. When people as terrifyingly sane as the crowd at UMKC come along, they hardly ever get traction. Maybe times are changing since, as Norman Mailer pointed out, we exhausted our fantasy of rugged individualism when we reached California. We just haven’t accepted that fact yet.

  16. commenter8

    How To Raise Taxes: Think Eisenhower!!!

    Quoting J.J. Goldberg at forward.com:  
    […] Eisenhower inherited a top marginal income tax rate of 92% from his predecessor Harry Truman when he entered the White House in 1953. He quickly lowered it to 91%, where it stayed until Lyndon Johnson lowered it again to 77% in 1964 and then 70% in 1965.  
    During his eight years in the White House, Eisenhower managed to reduce the federal deficit by 75% — down to a quarter of the size he inherited — while building the Interstate Highway System and launching America’s space program. GDP growth averaged 3% per year. Unemployment averaged just under 5.5%.  
    Reagan, entering office in 1981, inherited Johnson’s 70% top marginal income tax rate and immediately lowered it to 50%, then to 38.5% and finally to 28%. His theory was that high taxes stifle economic growth, while lowering taxes unleashes growth and creates jobs. It was a great national experiment, and the result was conclusive: It didn’t work. Growth averaged 3.4% per year during Reagan’s presidency, hardly better than Eisenhower’s, while unemployment averaged a shocking 7.43%, far worse than Eisenhower’s and hardly better than the much-maligned Obama record. […]  
    So the next time you listen to a presidential debate, remember that nobody up there is taking the Democratic side. The debate we’re having today is between a robust Reaganism and a faint, timid echo of Eisenhower Republicanism. In fact, when you get down to it, the Democrats can’t even bring themselves to take Eisenhower’s side with any conviction. We’re all touting variations on a flimflam theory that’s been tried and proven a colossal failure.


    How To Cut Spending: End Corporate Welfare!!!     
    As Rex Nutting of Marketwatch noted in his 12/18/2012 article “Why isn’t Obama demanding corporate welfare cuts?”, “$2.6 trillion could be saved […] It’s possible to achieve all the budget savings we need for the next 10 years simply by cutting the fat out of discretionary spending programs and tax expenditures [removing all of the corporate welfare] without raising tax rates on the wealthy or cutting the safety net at all.”     
    Oil and gas companies, which are raking in record profits, certainly don’t need $4 billion a year in subsidies, and even the oil company CEOs admit they don’t need it!     
    Why are cuts to Social Security and Medicare even being discussed while literally billions in corporate welfare are constantly spilling out of the Treasury? 
    White House petition to End Corporate Welfare: http://wh.gov/Qa6f

  17. charles sereno

    I have noticed more than once that the quality of the opening comments often predicts the overall quality of all comments. The present article is an example. Since NC uses editorial discretion in choosing articles, I think extending that discretion to the choice of the first TWO or THREE comments would not be considered censorship. All unmoderated comments thereafter could be published in the order received along with the usual time stamp. Sometimes a “peripheral” (to be kind) comment makes it first and it then attracts others of the same kind. When this happens, serious commenters (including the author) may be put off. I appreciate the opportunity to make a comment when the mood strikes me. I’d be only too happy to be moved down to make room for a more substantive comment.

    1. charles sereno

      Slow I may be, but I got your joke about “moderation.” Aristotle gets most of the press, but I think we all know about prior precedents. I searched for an antonym of “altruism” to bracket “moderation.” Funny, I decided on “meanness.” At first, it seemed too common but I got to like it real quick. I know I don’t talk proper, but, you know, you can always tell my lack of style because “but” is my favorite word, and that’s another way of saying “moderation.”

    2. JTFaraday

      I don’t think the first comment is peripheral at all; I think it is essential. There is a similar comment by Jim just below at 3:57pm, followed by one from Hugh at 12:17am on January 5.

  18. Don Levit

    Michael Hudson wrote:
    “The solution for Social Security, Medicare, and Medicaid is to de-financialize them, treating them like government programs for military spending, beachfront rebuilding,and bank subsidies.”
    He seems to be sugggesting that Social Security and Medicare
    be funded out of general revenues, on a pay-as-you-go basis.
    According to the Social Security Administration, this is already being done:
    From a paper entitled “SSA’s Estimates of Administrative Costs Under a Centralized Program of Individual Accounts:”
    Page 5 “Social Security payroll tax revenue is credited to the Social Security trust funds on the basis of liability, rather on the basis of taxes actually collected. Even in instances in which an employer fails to report earnings, workers who can provide evidence of those earnings have them credited to their record.”
    Don Levit

  19. charles sereno

    I was interested in this quote from Prof. Hudson —
    “Yet the recent lesson of European experience is that despite austerity, debt has risen from 381% of GDP in mid-2007 to 417% in mid—2012.”
    Is this the normal Debt/GDP Ratio?

  20. Jim

    Michael Hudson has argued that “ At issue in today’s tax and financial crisis is thus whether the world is going to have an economy based on progressive industrial democracy or a financialized and polarized rent-extracting society.”

    I would submit that the political/economic alternative to a polarized rent-extracting society will have to be something more than the mindset of progressive industrial democracy.

    When the populists were crushed in 1896, the then emerging progressive movement, although rhetorically articulating an egalitarian and often socialist impulse, seemed to have little confidence in the specific skills, intelligence and experience of the ordinary citizen.

    I believe that part of the reason for this sometimes not so subtle contempt by Progressives(see, for example, the writings of Walter Lippmann and Richard Hofstadter) for the capabilities of the average citizen–was the creation of a knowledge strata among this newly emerging middle class. This strata quickly developed professional aspirations in such fields as economics (American Economics Association) medicine (American Medical Association) law (American Bar Association) banking (American Bankers Association) and higher education (American Historical Association and the American Political Science Association).

    This knowledge stratum was also closely linked to the dramatic rise in urban industrial development which took place between 1900 and the late 1920s and the increasing prestige generated from the accelerating exclusiveness of their incrementally more powerful professional associations.

    In essence these new experts were perfectly trained for their contemporary role as both our watchers and managers– within a centralized bureaucratic concentration of power in both the public and private sectors

    By the turn of the 21st century it appears that many of our progressive knowledge experts no longer identify with local middle class or working class norms and instead have become a largely predatory professional grouping closely linked to the predatory plutocratic strata.

    What was once progressive has now become predatory.

  21. Conscience of a Conservative

    I don’t see this as a discussion about fincial burden or allocation of resources, although of course it should be. The right is trying to deprive the left of their programs(by defunding them) founded in the New Deal and the Great Society. The left is trying to protect those programs and stick it to the right.

  22. Hugh

    “Yet the aim of Obama Administration of Tim Geithner, Ben Bernanke, Erik Holder et al. seems to be to make America look like Europe, wracked by rising unemployment, falling markets and the related syndrome of adverse social and political consequences of financial warfare waged against labor, industry and government together.”

    There is really no “seems to be” here. This is the plan, a feature, not a bug. It is all about the looting. Our rich and elites have by epic Orwellian efforts transformed looting into the public good, and we can never have too much of the public good now can we? Labor and those who actually produce things in our society are characterized as a bunch of overpaid, uncompetitive whiners looking for undeserved handouts from government and their employers while the heroic rentier rich and elites are the true “job creators” and makers of the economy, no matter how many companies they destroy and jobs they send overseas.

    Again to quote my favorite passage of Niebuhr (first pointed out to me by DownSouth):

    The moral attitudes of dominant and privileged groups are characterised by universal self-deception and hypocrisy. The unconscious and conscious identification of their special interests with general interests and universal values, which we have noted in analysing national attitudes, is equally obvious in the attitude of classes. The reason why privileged classes are more hypocritical than underprivileged ones is that special privilege can be defended in terms of the rational ideal of equal justice only, by proving that it contributes something to the good of the whole. Since inequalities of privilege are greater than could possibly be defended rationally, the intelligence of privileged groups is usually applied to the task of inventing specious proofs for the theory that universal values spring from, and that general interests are served by, the special privileges which they hold. The most common form of hypocrisy among the privileged classes is to assume that their privileges are the just payments with which society rewards specially useful or meritorious functions.

    Our rich and elites have simply taken Niebuhr’s ideas to their logical extreme. They alone have merit. Their good is the only good. Therefore they deserve everything, and the rest of us deserve nothing.

    1. Don Levit

      Thanks for providing this quote from Niebuhr.
      I am not sure who provided a quote, maybe it was Down South, from Niebuhr’s book “Moral Man and Immoral Society.”
      I am reading it now, and it is fascinating.
      It is unbelievable the rationalizations people make in order to justify their positions, particularly if one is wealthy.
      Maybe there is a tinge of guilt there, which causes one to overreact in the oppposite way: “I did it all on my own, and you can, too!”
      Don Levit

    2. Robert

      I would’ve thought the passage of Michael’s you begin by citing conveys an entirely different message than the one you’re busy propagating, to wit that what is being pointed-to are failings of comprehension and/or of competence, not evildoing (though I’m not sure that Geithner can be acquitted of the latter).

      Yes of course elites (and not just elites – all Americans at one time, for instance) like to see themselves as – in the immortal words of the blessed Lloyd Blankfein – “doing God’s work”. What’s new?

      The only elites which didn’t were the warrior classes found in many societies (but even they had their own codes, embodying an ethic which sanctioned slaughter and conquest) for which the contemporary analogue might perhaps be the Mob or the drug-cartels. Or perhaps the “limited liability” (= morally unconstrained) business corporation? (sorry Lloyd)

  23. William Neil


    Very interesting piece, and I hope to get to your two latest books if I can surmount their prices. I have followed your writings at CounterPunch, though.

    Here’s my recommendation and comment on what you have just written, especially on taxing the rent-seeking unearned increment from the increase in land values, which you correctly attribute, setting aside the speculative component of bank lending, to value added by the growth of society itself: infrastructure that makes raw land “buildable”: roads, sewers, schools, police firefighters…court systems… Could you please ground this more for readers in light of the dynamics in California concerning the rise in property taxes which led to the passage of Proposition 13 in 1978, one of the seminal events in the rise of The Right. What went wrong with the property tax system in California; were not many “just making it” small property owners (with houses), esp. those on limited pensions and retirments, private and governmental, falling behind? In order to give greater credibility to you proposals about taxing land, you need to show us how to unravel the California catastrophe. Or are you aiming your tax at the pre-subdivision stage, where it is just raw land? Since this isn’t the case for most areas in the US, how do you sort through this problem; and NJ isn’t far behind California in its property tax dilemmas.


    1. William Neil

      I also wanted to add something I have written about concerning land values and the cycle of corruption between local officials and developers and land brokers, especially in light of my environmental experience in New Jersey in the 1990’s: is not the local governmental power to zone land, next to the power of the Federal Reserve, the greatest “wealth” creating force in the hands of government – although clearly your would dispute the value of the type of wealth it does create? For readers who don’t follow local zoning, the ability of – in NJ – local governments, not the counties – have the land-use powers, subject to state legislation for special areas and categories – have the ability to take land zoned at one house per five acres – a typical upper middle class surburban situation, and allow the owner to jump to 10 or 20 units per acre – condos!! That suddenly changes the value of the land, in itself and as bank collateral: voila, wealth creation at quite a multiplier…of course, this type of zoning density change doesn’t have as much value creating potential if it isn’t accompanied by funding for the infrastructure…No wonder environmentalists have such a tough time with enacting “social democracy” for people and nature by interventions into these markets, which has been successfully done at times in NJ: Pinelands, Hackensack Meadowlands and Highlands – but not along the Jersey coast, as I know you know!

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