Paul Craig Roberts on Michael Hudson’s Killing the Host

Yves here. Roberts provides an introduction to Michael Hudson’s latest book, Killing the Host. Many readers are Hudson fans, but if you are not familiar with his work, this article gives some background.

By Paul Craig Roberts. Originally published at his website

Michael Hudson is the best economist in the world. Indeed, I could almost say that he is the only economist in the world. Almost all of the rest are neoliberals, who are not economists but shills for financial interests.

If you have not heard of Michael Hudson it merely shows the power of the Matrix. Hudson should have won several Nobel prizes in economics, but he will never get one.

Hudson did not intend to be an economist. At the University of Chicago, which had a leading economics faculty, Hudson studied music and cultural history. He went to New York City to work in publishing. He thought he could set out on his own when he was assigned rights to the writings and archives of George Lukacs and Leon Trotsky, but publishing houses were not interested in the work of two Jewish Marxists who had a significant impact on the 20th century.

Friendships connected Hudson to a former economist for General Electric who taught him the flow of funds through the economic system and explained how crises develop when debt outgrows the economy. Hooked, Hudson enrolled in the economics graduate program at NYU and took a job in the financial sector calculating how savings were recycled into new mortgage loans.

Hudson learned more economics from his work experience than from his Ph.D. courses. On Wall Street he learned how bank lending inflates land prices and, thereby, interest payments to the financial sector. The more banks lend, the higher real estate prices rise, thus encouraging more bank lending. As mortgage debt service rises, more of household income and more of the rental value of real estate are paid to the financial sector. When the imbalance becomes too large, the bubble bursts. Despite its importance, the analysis of land rent and property valuation was not part of his Ph.D. studies in economics.

Hudson’s next job was with Chase Manhattan, where he used the export earnings of South American countries to calculate how much debt service the countries could afford to pay to US banks. Hudson learned that just as mortgage lenders regard the rental income from property as a flow of money that can be diverted to interest payments, international banks regard the export earnings of foreign countries as revenues that can be used to pay interest on foreign loans. Hudson learned that the goal of creditors is to capture the entire economic surplus of a country into payments of debt service.

Soon the American creditors and the IMF were lending indebted countries money with which to pay interest. This caused the countries’ foreign debts to rise at compound interest. Hudson predicted that the indebted countries would not be able to pay their debts, an unwelcome prediction that was confirmed when Mexico announced it could not pay. This crisis was resolved with “Brady bonds” named after the US Treasury Secretary, but when the 2008 US mortgage crisis hit, just as Hudson predicted, nothing was done for the American homeowners. If you are not a mega-bank, your problems are not a focus of US economic policy.

Chase Manhattan next had Hudson develop an accounting format to analyze the US oil industry balance of payments. Here Hudson learned another lesson about the difference between official statistics and reality. Using “transfer pricing,” oil companies managed to avoid paying taxes by creating the illusion of zero profits. Oil company affiliates in tax avoidance locations buy oil at low prices from producers. From these flags of convenience locations, which have no tax on profits, the oil was then sold to Western refineries at prices marked up to eliminate profits. The profits were recorded by the oil companies’ affiliates in non-tax jurisdictions. (Tax authorities have cracked down to some extent on the use of transfer pricing to escape taxation.)

Hudson’s next task was to estimate the amount of money from crime going into Switzerland’s secret banking system. In this investigation, his last for Chase, Hudson discovered that under US State Department direction Chase and other large banks had established banks in the Caribbean for the purpose of attracting money into dollar holdings from drug dealers in order to support the dollar (by raising the demand for dollars by criminals) in order to balance or offset Washington’s foreign military outflows of dollars. If dollars flowed out of the US, but demand did not rise to absorb the larger supply of dollars, the dollar’s exchange rate would fall, thus threatenting the basis of US power. By providing offshore banks in which criminals could deposit illicit dollars, the US government supported the dollar’s exchange value.

Hudson discovered that the US balance of payments deficit, a source of pressure on the value of the US dollar, was entirely military in character. The US Treasury and State Department supported the Caribbean safe haven for illegal profits in order to offset the negative impact on the US balance of payments of US military operations abroad. In other words, if criminality can be used in support of the US dollar, the US government is all for criminality.

When it came to the economics of the situation, economic theory had not a clue. Neither trade flows nor direct investments were important in determining exchange rates. What was important was “errors and omissions,” which Hudson discovered was an euphemism for the hot, liquid money of drug dealers and government officials embezzling the export earnings of their countries.

The problem for Americans is that both political parties regard the needs of the American people as a liability and as an obstacle to the profits of the military/security complex, Wall Street and the mega-banks, and Washington’s world hegemony. The government in Washington represents powerful interest groups, not American citizens. This is why the 21st century consists of an attack on the constitutional protections of citizens so that citizens can be moved out of the way of the needs of the Empire and its beneficiaries.

Hudson learned that economic theory is really a device for ripping off the untermenschen. International trade theory concludes that countries can service huge debts simply by lowering domestic wages in order to pay creditors. This is the policy currently being applied to Greece today, and it has been the basis of the IMF’s structural adjustment or austerity programs imposed on debtor countries, essentially a form of looting that turns over national resources to foreign lenders.

Hudson learned that monetary theory concerns itself only with wages and consumer prices, not with the inflation of asset prices such as real estate and stocks. He saw that economic theory serves as a cover for the polarization of the world economy between rich and poor. The promises of globalism are a myth. Even left-wing and Marxist economists think of exploitation in terms of wages and are unaware that the main instrument of exploitation is the financial system’s extraction of value into interest payments.

Economic theory’s neglect of debt as an instrument of exploitation caused Hudson to look into the history of how earlier civilizations handled the build up of debt. His research was so ground-breaking that Harvard University appointed him Research Fellow in Babylonian economic history in the Peabody Museum.

Meanwhile he continued to be sought after by financial firms. He was hired to calculate the number of years that Argentina, Brazil, and Mexico would be able to pay the extremely high interest rates on their bonds. On the basis of Hudson’s work, the Scudder Fund achieved the second highest rate of return in the world in 1990.

Hudson’s investigations into the problems of our time took him through the history of economic thought. He discovered that 18th and 19th century economists understood the disabling power of debt far better than today’s neoliberal economists who essentially neglect it in order to better cater to the interest of the financial sector.

Hudson shows that Western economies have been financialized in a predatory way that sacrifices the public interest to the interests of the financial sector. That is why the economy no longer works for ordinary people. Finance is no longer productive. It has become a parasite on the economy. Hudson tells this story in his recent book, Killing the Host (2015).

Readers often ask me how they can learn economics. My answer is to spend many hours with Hudson’s book. First, read the book through once or twice in order to get an idea of what is covered. Then study it closely section by section. When you understand the book, you will understand economics better than any Nobel prize-winning economist.

Treat this column as an introduction to the book. I will be writing more about it as current events and time permit. As far as I am concerned, many current events cannot be understood independently of Hudson’s explanation of the financialized Western economy. Indeed, as most Russian and Chinese economists are themselves trained in neoliberal economics, these two countries might follow the same downward path as the West.

If you put Hudson’s analysis of financialization together with my analysis of the adverse impact of jobs offshoring, you will understand that the present economic path of the Western world is the road to destruction.

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  1. mike

    Both men give clear insights into the neo liberal agenda! No wonder the main stream does not want to give them any airtime! The game is rigged for the rich, the poor and middle class will continue to be more impoverished while the system is skewed in their favor!

    1. sharonsj

      Don’t you mean the conservative agenda? Isn’t it the Republicans who rush to the aid of the rich and big corporations?

      1. James

        For all intents and purposes, “neo-liberal” is synonymous with “conservative” — particularly in terms of agenda.

        As Noam Chomsky said, (paraphrased slightly) “Neo-liberalism is essentially libertarianism, which in the US is a kind of ultra-right anarcho-capitalism. If it were allowed to function, there would be total societal collapse.”

        Watch what happens over the next few years, and remember what these great men have been saying for years now. And hope that a better system will arise from the ashes of the current disorder.

  2. greg kaiser

    It’s been known for 4000 years that making money from money is a fraud that’s destructive to real economy. We must put out the FIRE that’s burning us down!

  3. Steve H.

    If I may expand beyond the individual to institution, the University of Missouri Kansas City is Hudson’s western base. UMKC is becoming important in the way University of Chicago was for neo- and MIT was/is for central banking. I know for a fact there are people on this site who can detail this better than I can; this is a seed.

    Institutions can leverage change in the way few individuals have been able to. I want to credit who put together the economics group at UMKC, the way an athletic director gets rockstar credit for putting together winning programs. Gee, I wish I knew who that was.

    1. Michael Hudson

      It was Warren Mosler who gave a grant to set up theUMKC heterodox department. My understanding is that Missouri was to put up a matching grant — but once they found that we were not card-carrying Republicans, they demurred, so the department is not well funded by the university.
      Randy Wray and Ian Kregel were key. I was just as happy to not be added to the teaching faculty there, as I stayed in New York (as I think Ian did too.) But they have a post-Keynesian conference every few years, and we’ve tried to publish the proceedings.
      UMKC graduates are now getting teaching positions at other universities, but not the top ones, which remain strictly monetarist and neoliberal.

      1. Steve H.

        Why, thank you sir, that answers questions I had not yet put to print.

        I’m an optimist, so I have hope explanatory value will be rewarded through paths not yet well-established.

        1. readerOfTeaLeaves

          Change will take more time to play out. But it’s happening.

          And Steve H — Another source that you may like is, which IMVHO supports the kind of new economic thinking being done at UMKC and INET.

          1. Robert Kadar

            Thanks for referencing I’m one of the founders! I’m a big fan of Hudson, Kelton, the UNKC school, and the MTT approach -you won’t see that on the site yet.. but we plan to communicate their ideas soon.

            Along with accurately explaining the mechanics of how monetary economies work, economics needs a new theoretical foundation – based on a synthesis of complexity and evolutionary theory. Even more, we need new narratives/communicators/marketers who can spread ideas to influential individuals in business, law and economic schools. Check out this post for a short overview of our ideas on a “new economics”

            1. readerOfTeaLeaves

              Well, that comment made me grin!

              I follow @yvessmith, plus @EvonomicsMag, on Twitter — so when I’m waiting in a line, or on my stationary cycle, I use Twitter links to find great stuff at

              With respect to: “…economics needs a new theoretical foundation – based on a synthesis of complexity and evolutionary theory”, I couldn’t agree more!

        2. jsn

          You should be aware if your aren’t already that Stephanie Kelton from UMKC is Sanders chief economic advisor.

          1. JustAnObserver

            Actually its a bit stronger than that. She is (or was ?) the Chief Economist for the Democrats on the Senate Budget Committee. When I saw that I wondered how an MMT’er got appointed to a mainstream-ish post like that ?

            Do I see the invisible hand of a certain E. Warren ?

            1. Cornelius

              Which leads me to ask, why Sanders is not answering the “how do you pay for it” question differently?

      2. Helmholtz Watson

        Thanks Michael, great to get a little history on UMKC. As someone else has noted, UMKC is becoming a leader of independent and critical thought in the field of economics. Just finished reading Ha-Joon Chang’s “Bad Samaritan” which is an excellent refutation of the neoliberal free trade/free market dogma that has dominated our lives for the last thirty years. I take some comfort in signs that things are changing but society has paid a terrible price and change is slow to come about. There are very powerful interests that benefited from the financialization of the economy.

        Personally, I am convinced we are the precipice of a monetary disaster that may bring the entire system crashing down. That is what is playing out right now, market forces versus the forces of the financial oligarchy that want to keep the entire parasitic, rent seeking apparatus intact. It will be interesting to see how it plays out.

    2. Pelham

      I’ll heartily second those thoughts. UMKC by its very name sounds like a second-rate educational institution when it’s actually and quite arguably the most important that we have. How did this come about?

          1. UMKC Student

            Perhaps, I’m a history major and the history department has been ruthlessly reducing the number of professors, particularly experts in non-western history. The gen ed requirements have been completely redesigned so that more classes can be taught by students. This is going while the school stacks up with more high paid administrators. Other comments pointed out how the econ department isn’t well supported by the university. The most support from the administration goes to the business school which is not heterodox. The support extended even to fraudulently reporting numbers to boost the business school’s ranking which was recently exposed. It’s great having men like Hudson and Bill Black who regularly drop truthbombs around, but that isn’t ground for blanket praise of UMKC.

  4. craazyboy

    You heard it here first! And it’s only 2016.

    Actually, I do recall having Scudder International Bond fund around the 1990 time frame. Also, it’s not non-predatory interest rates that are a problem. Taking on too much principal is the problem. (especially when banks kinda like that idea)

    Also, offshoring in discrete electronics began in the 70s. We followed Japan to Taiwan and Korea. Manufacturing began leaving in the 80s. Had to get competitive with Asian Exporters, even back then.

    1. craazyman

      that raises the question of what’s the best 5 bagger today. I’m still thinking precious metals once all this fraudulent capital implodes. maybe oil once it gets back to $18 and half the industry goes belly up.

      the only problem I have is where to buy the gold. You could go for one of those “we keep your bars in our Swiss Mountain vault under armed Gurka guards trained by psychotic ex-special forces dudes with tattoos to shoot for chest and then the head, to kill not maim” but I have this queasy thought “”what if my “gold” is just painted iron bricks, how would I know?” I wouldn’t know. They even tell you you can come and fondle your gold with your bare hands. You can’t do that with an ETF, but if the Ghurkas are that crazy they might shoot you, either for fun or because they just felt like it.

      that gives me pause. ther’s always GLD. that gets a bad rap but at least the big boys are doing the main buying & selling. If the dudes running GLD go down in flames, I’m not sure whether any gold anywhere would be worth anything. that’s something I do think about

      It’s like deciding whether to eat at Chipotle or that little hole in the wall in Queens that serves “family style Mexican” menu written in Spanish. In both cases you could get hammered.

      This is what happens when there’s too much bad debt. Your 5 bagger options get complicated. It boils down to this: You have to get lucky. That’s all.

      1. Jim Haygood

        So sad, that in the claustrophobic horizon of the NIRP era, dreams of ten-baggers shrink to five-baggers.

        Speaking of oil to $18, ironically that five-bagger might be right in front our very eyes. With crude oil futures contango’ed up the wazoo (Mar ’17 at $41.55, versus Mar ’16 at $31.00), you could make $10.55 per contract shorting the Mar ’17 to expiration, even if the spot price stays stone flat.

        And if spot actually did sink to $18 over the coming year — not all that improbable — it would be “KACHING, Goldman Sachs style” at the C-man residence, which would have to be expanded to hold all the new shoes.

      2. craazyboy

        Ya, how to buy and own gold worries me. The Chinese are gold plating tungsten bars too. They can never leave well enough alone. hahaha.

        In the old days you just gave it to a fortified monastery of honest Templar warrior monks. But those days are gone.

        I’m thinking bottom fishing in oil too, but the bottom could be a ways away yet. Or not. Depends on OEPC, Russia and US banks shutting down fracking. Then you gotta pick one that has solid finances, like Exxon. But that would be a 1/3 bagger at best.

        Making money got hard!

        1. OpenThePodBayDoorsHAL

          Can I suggest Bullion Vault in the UK, we’ve done very thorough due diligence on everything from their contract terms to IT procedures and they’re among the best. If you’re worried about confiscation in the UK you can choose to vault your bullion in Singapore, probably the safest jurisdiction.
          There are numerous scenarios where bullion gets a big price reset upwards: inclusion in the SDR basket, revaluation of the US gold from $42. Counterbalancing those moves will be their ability to put the dollar price of gold wherever they like at the (Crimex) Comex, but even criminal naked short selling venues may reach limits, and soon, the deliverable behind Comex is now leveraged > 500:1. We are in contact with people across the breadth of the gold supply chain, from producers to mints to vaults to dealers…and there is just no physical product available.
          I’d be careful with oil, it can easily go to the $10-20 range, where it sat for many years before the CB and Wall St games firmly took hold.

        2. animalogic

          What’s the ratio of “paper gold” to real gold ? Is it somewhere around 200 paper oz to 1 oz of metal ?
          PCR has been detailing the various gold scams for years.
          As to were to put your gold ?
          I don’t know…god, WEAR it (or your wife), bury it, even…just get some: (not to sound too prepper-ish) but it’s as much insurance as investment.

  5. tegnost

    Excellent article/book recommendation, thanks. Also clarifies the ACA for me as before it made no sense at all.

      1. tegnost

        Yeah, you know where you’re required by law to pay a lot of money for nothing, and if you want something, then of course you have to pay too much for that, as well as surrender all your worldly goods to blackstone upon your demise. Neoliberal perfection apparently…

  6. Damian

    I am about one third thru the Book – a very good read – I have enjoyed Mr Hudson’s presentations at the Left Forum as well and the discussions at Yves events where Michael has attended

    If Michael is still listening could he answer the following question which I have thought about for some time and as I read your Book:

    Marginal Tax Rates on Labor vs Capital especially capital gains

    Labor – why should there be a tax on labor – physical or intellectual – when humans have a “finite” life span – if they live for 80 years they are luck if they get 40 productive years with compensation.

    Capital – compounds “infinitely” since it has unlimited life span.

    Shouldn’t all taxes be reversed and tax labor lower than capital because of limited productive lifespan of labor and infinite productive compounding of capital?

  7. Jim Haygood

    ‘What was important was “errors and omissions,” which Hudson discovered was an euphemism for the hot, liquid money of drug dealers and government officials embezzling the export earnings of their countries.’

    For a concrete application of this insight, see the first chart in yesterday’s post “Capital Bleeds From Emerging Asia.” It shows “errors and omissions” swinging from positive to deeply negative over the past couple of years, indicating accelerating capital flight — not only from “drug dealers and government officials,” but also from Ponzi scheme operators.

    How does China spell relief? D-E-V-A-L-U-E.

  8. TheCatSaid

    Paul, thanks for this great overview on Michael Hudson’s background and work. You’ve explained things very clearly. I look forward to more posts about Hudson’s recent book.

    Would the “debt”-related problems be less if governments and banks created debts with an interest rate of 0%? IOW, is the problem the “debts” or the fact that debts have interest compounding? Is interest the main fuel for our current dysfunctional economic system?

    In theory, could some form of debt forgiveness be used to reduce or eliminate prior interest-bearing debts (in combination with 0% lending, or something close to it).

    I’d love to know what solutions the Babylonians came up with!

  9. TheCatSaid

    The following example fits in with Hudson’s understanding of how financilization is used to plunder developing countries:

    After spending about $6.4 billion so far and in another few years with between $4-6 billion more invested, RIO will be able to extract Mongolia’s mineral wealth through an elaborate and sinister financing scheme that may enrich them and their investors while leaving Mongolia with precious little more than a hole in the ground and sovereign debt. When RIO talks about a “mining development partnership”, this is code for leveraging a nascent democratic government and an ill-informed population for the purposes of extracting financial – not mineral – returns. If it’s a “responsible and prudent” plan to supply the world with copper that they want, why is it that this same RIO, after years of environmental and social degradation in Panguna, Bougainville, Papua New Guinea is trying to pawn off its majority ownership of Bougainville Copper Limited to the already grossly over-leveraged PNG national government (or any other buyer) that can distance it from its violent past and present environmental negligence liabilities?

    [from David Martin’s current post at Inverted Alchemy; emphasis mine]

  10. cynic

    A poet has already explained it:


    wool comes not to market
    sheep bringeth no gain with usura
    Usura is a murrain, usura
    blunteth the needle in the the maid’s hand
    and stoppeth the spinner’s cunning. Pietro Lombardo
    came not by usura
    Duccio came not by usura
    nor Pier della Francesca; Zuan Bellin’ not by usura
    nor was “La Callunia” painted.
    Came not by usura Angelico; came not Ambrogio Praedis,
    No church of cut stone signed: Adamo me fecit.
    Not by usura St. Trophime

    Not by usura St. Hilaire,

    Usura rusteth the chisel
    It rusteth the craft and the craftsman
    It gnaweth the thread in the loom
    None learneth to weave gold in her pattern;
    Azure hath a canker by usura; cramoisi is unbroidered
    Emerald findeth no Memling

    Usura slayeth the child in the womb
    It stayeth the young man’s courting
    It hath brought palsey to bed, lyeth
    between the young bride and her bridegroom

  11. readerOfTeaLeaves

    I got to the 4th paragraph and went to iBooks. In less than 40 seconds, I bought a copy (love that high speed FIOS pipe ;-)

    Will read this in conjunction with Turner’s “Between Debt and the Devil”.
    For any reasonable public policy, it is essential that far more people understand the role of property and interest rates.

    Where I live, and probably in most capitalist systems, the people who own large tracts cut it into parcels for sale.
    They also co-found the banks that lend the money for others to buy those parcels: the smaller the lots, the more ‘opportunity’ for interest payments.
    IOW, wealth concentrates at an accelerating pace.

    Failure to grasp these basic dynamics is driving public policy disasters in my region.
    It’s getting worse at an exponential pace.

  12. Masonboro

    “Killing the Host” gets high marks for content and message but desperately needs a proofreader (Kindle version anyway). The book appears to be assembled from a collection of articles and essays then quickly edited into a continuous narrative. Unfortunately there are a large number of missing words, duplicate words, incorrect verb agreement and other draft version errors that reached the final version making for somewhat difficult reading. Typical is where a word was changed during edit but both words are in the final version.

    A proofreader for one day would be a big help. Otherwise recommended.

    1. Fran

      I have read the book and am happy to have it, but I have to agree. It is terribly in need of proofing/ editing. It is really a shame. The information is so important.

    2. ex-PFC Chuck


      The book appears to be assembled from a collection of articles and essays . .

      Curious. Six or eight months ago I read Dr. Hudson’s previous book, The Bubble and Beyond, and IIRC he stated explicitly in the introduction that the book was indeed stitched together from individual essays he had written. And it showed, mainly in redundant base-line information in several chapters that was necessary in order to build the following text. I am now about two thirds of the way through Killing the Host and although it covers much of the same ground it’s flows in a much more coherent manner. In saying this I in no way intend to demean the author’s work and accomplishment. The breadth and depth of the insights he brings are simply awesome. If people of good will eventually are able to veer enough to the left in order to avoid crashing into the mountainside which we are now approaching at 500 knots it will be due to the works of people like Michael Hudson. And also Yves Smith.

  13. Harry Silverman

    Is there any realistic chance of finding common ground among right-wing populists on the financialization of the economy and its destructive effects?

  14. Synoia

    I differ from this:

    …you will understand that the present economic path of the Western world is the road to destruction.

    I believe slightly otherwise:

    You will understand that the present economic path of the Western world is the road to serfdom.

    There is a purpose to the program, and destruction may be a consequence, by serfdom is the objective. It is not vassalage, because that implies some obligation on the part of the aristocracy .

    Aux la barricades, mes ami, aux la barricades.

  15. jgordon

    Thanks. I am a great admirer of Dr. Paul Craig Roberts, and his introduction has convinced me to go ahead and buy the book. I look forward to it arriving in the mail.

    If you all want some incredible insights about the nature of US empire check out this amazing interview with Dr. Paul Craig Roberts:

  16. Dave

    I ordered five copies through my independent local bookstore. Still trying to get them to stock it and put it in the window.

    For years I begged a bond trader that I know to write a simple book, even a manga that I could illustrate, to explain economics to the uninitiated. This book does it, although it is really long and not all terms are explained.

    One defect in the book. There is no index. Mr. Hudson, thank you so much for this work. Please consider and index for the second addition.

    Love the concept: “the productive economy is being harnessed into debt payments instead of savings and further productivity.” Even a football stupored bowl fan could understand that.

    1. Jim Haygood

      Michael Hudson’s earlier book Super Imperialism, through which I became acquainted with his work a dozen years ago, provides a very broad-scope introduction to his ideas.

  17. shekar

    How does one get this book? Amazon is telling me that it is not in print yet and will be available on Feb. 12th.

  18. Gaylord

    I would be very interested in learning Dr. Hudson’s insights into the symbiotic relationship between finance, military (& arms trade), the illegal drug trade, and resource extraction. There’s a long history of that, not only in the US but also in other empires such as the British. Making money from death and misery has become a finely tuned practice with many veils to hide the blood.

  19. none

    First time I heard of “Killing the Host” but it sounds great and I’ll look for it.

    I’ve been wanting to read “Debt: The First 5000 Years” which is also a historical look at debt that sounds like it reaches similar conclusions. Is anyone here familiar with both, who can make a comparison?

    1. readerOfTeaLeaves

      Graeber’s an anthropologist, who exposed some important, deeply fraudulent assumptions in neoliberal economics. He did extensive field work in anthropology, which involved paying close attention to how actual human beings interact with one another over time.

      Turns out that actual human beings are far more complex and nuanced than the economics models predicted. Surprise!

      Search the NC archives for some terrific interviews with Graeber when his book came out. He was very generous to keep answering reader questions – those threads were enough to keep a lot of NC synapses snapping at a dizzying pace ;-)

  20. Dick Burkhart

    Hudson is good, but my nominee for best economist in the world is Steve Keen (“Debunking Economics”). We need to reconstruct economics from the bottom up, to actually be a science instead of the ideologies that now masquerade as social science.

    1. jgordon

      Economics is not and can not be a science and will never be anything more than a “social science”. It’s a humanities subject with pretensions towards math and a self-righteous, dismal ideology.

      While Steve Keen’s work is certainly worthwhile and somewhat empirical, in economics we will always be dealing with inherently chaotic systems. And let’s just all acknowledge this fact and then move on: chaotic systems are by definition unpredictable, and even the most heroic and accurate models of chaotic systems can only ever be descriptive but never predictive.

      As an example: you could implement all Steve Keen’s and MMT theories to make global economics perfect and wonderful and everyone would live happily ever after with no more strife. But then an asteroid could come along and blow up the earth and all the models become worthless instantly. That sounds facetious, but it’s not. If not an Asteroid, then a solar flare. Or perhaps the break out of WWIII. Or just plain old vanilla flavor human corruption and depravity will cash-in the wonderful system.

      As Dmitry Orlov has said, people are very good at predicting who will win the presidential election, but they are very bad at predicting whether or not we will even have a presidential election at all. Economics is a “science” predicated on normalcy bias, along with various other cognitive errors we humans are good at fooling ourselves with. But ultimately it’s all makeshift, temporary, and not very much worth obsessing over.

    2. ex-PFC Chuck

      Choosing between Michael Hudson and Steve Keen would be like choosing between your two children. They are both essential to the movement.

  21. PBlacque

    It would be interesting to have Mr. Hudson or another MMT founder (Mosler / Wray?) give their views on the new Supply Side reforms now promoted by China (mainly in opposition to the “demand side” huge fiscal stimulus/deficits/debts of the past 8 years)… and to respond to Michael Pettis’ claim that China’s public debt needs to decline drastically to avert chaos. If MMT is correct and if China is a sovereign currency issuer, albeit with a pegged currency for now, can they not run higher deficits and debt levels without having the debt-servicing capacity constraints Pettis raises?

    1. JustAnObserver

      I think the problem with that is the other constraint that MMT (in my weak understanding) does recognise. To wit – inflation. The Chinese cannot afford to let it grow to any significant extent since then there would be pressure to increase wages and Bingo! bang goes their 30yr+ low-wage business/growth model. This model is, I believe, already under some serious cost driven pressure.

      1. PBlacque

        Yes and no. China has some wage growth but suffers from huge overcapacity in just about all industrial sectors. That is a result of the massive 2008 stimulus, local level banking/financing structure, and its decentralized political/administrative system. If it had a real inflation issue, it wouldn’t be the export power-house it is. One of the key Chinese supply side reforms is to reduce this overcapacity without creating unemployment, for both political and sectoral rebalancing issues.

        The point I am making, however, is that Hudson and MMTers in general suggest that a sovereign issuer does not face solvency constraints and, to the extent it’s real resources (labor and capital) are not near full utilization, it can run higher deficits and debts to stimulate Demand and growth … whereas Pettis says that debts (and thus deficits) matter and once it reaches a certain debt-servicing capacity threshold, then it MUST deleverage … with or without inflation … and presumably with or without the benefit of being the issuer of its currency and debt…

        Thus Pettis and MMT seem to be at opposite sides and I thought it would be interesting to have Hudson et al. comment on the new Supply Side reforms in China and Pettis’ claims on debt – link here.

        1. financial matters

          MMT doesn’t claim that debts and deficits don’t matter.

          China is having a speculative debt problem with its shadow banking system similar to the US.

          Nobody would claim that it would be a good thing for the US to print dollars just to pay off speculative option contracts. (Other than the Fed in support of the banking system that is)

          1. PBlacque

            No one is saying that debt doesn’t matter. MMT and my comment above clearly stated that inflation (in both real resources) was the constraint to higher deficits and debts. China doesn’t suffer from that inflation level.

            It seems you are adding a new MMT budget deficit constraint… funding a speculative debt bubble. I agree that it is silly but it is technically feasible. As you correctly point out the Fed has done exactly that and yet we are far from runaway inflation. So if that is the case, MMT suggests that, as a sovereign currency issuer, we can incur even higher deficits and debts without running the risk of becoming insolvent… which is what Pettis is saying.

  22. templar555510

    Michael Hudson’s book is undoubtedly a ‘ must read ‘ , but so is Michael Rowbotham’s 1998 book ‘ The Grip of Death : A Study of Modern Money, Debt slavery and Destructive Economics ‘ . In it he explains carefully and precisely how the creation of money by banks ( out of thin air ) as debt – which now accounts for 97% , or thereabouts, of the money supply – has brought us progressively to the situation we now find ourselves in; neatly summed up in Michael Hudson’s oft repeated phrase ‘ debts that can’t be repaid won’t be ‘ . From all the previous comments under this piece it is clear there is a growing consensus that it is our thinking about money that needs to change radically ; the entrenched belief in money as a thing as opposed to a process, being – in my opinion – key to that change. Rowbotham does not shy away from dealing with the massively vested interests in ‘ money power ‘ and they will not give up any part of those interests without a fight .

  23. Tony Wikrent

    I would like to focus attention on Roberts’ and Hudson’s explanation of how and why the State Dept. and other USA government agencies encouraged the laundering and handling of dirty money in order to offset USA payment imbalances resulting from USA military spending overseas. I hope someday researchers will document this very carefully. I believe they will find numerous links to institutions in the City of London. The British empire did exactly the same thing with the opium trade it ran in the 18th and 19th centuries. To what extent did State and other agencies simply copy the British? Or was there a deeper level of cooperation between USA and UK, probably tracing back to OSS-MI6 cooperation during World War 2?

    Also, how did this reliance on dirty money affect the business culture in USA? My argument all along has been that the mergers and acquisitions and LBOs booms of the 1960s through 1990s was funded to a significant degree by organized crime and dirty money. How did the “legitimization” of dirty money redirect and reshape management thinking and behavior? I think this is a large part of the story of how a crimonogenic environment, as Bill Blacks calls it, was developed. Then, look at all this from the perspective of political economy, and the classical republican concepts on which the USA was founded, namely, civic and private virtue, and the constitutional mandate to promote the General Welfare.

    Another aspect of Hudson’s work is rescuing the American School of political economy from the historical oblivion neo-liberals and conservatives have tried to consign it to. Dr. Hudson explains in his 2010 book America’s Protectionist Takeoff: The Neglected American School of Political Economy that three major economic philosophies were developed in the nineteenth century, and contended for domination. :  (click table to enlarge)., and provides a spectacularly useful summary in a table:

    (In case the table does not render on NC, the link to view it is

    One of the most important revelations of Hudson’s work on the American School is that a central economic tenet was The Doctrine of High Wages. Perhaps is he visits this thread again, he might elaborate on this doctrine. I hypothesize that The Doctrine of High Wages was in no small part killed off by the influx of dirty money and the thinking and depraved morality behind it, to be replaced by the war on organized labor, and the incessant pressure driving down earnings.

    In sum, Chris Hedges is not exaggerating when he states the the criminal class has taken control.

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