Yves here. Michael Hudson describes the fealty of Biden and the Democratic party to neoliberal policies and how, as Biden himself said, nothing fundamental will change. Hudson agrees nothing much will improve for ordinary citizens as long as the current Democratic party is calling the shots. He lays out a way to tackle rentierism by promoting building of moderate-priced homes and setting strict terms for FHA mortgages.
Jim Vrettos: We’re waiting to see how the rhetoric of the new Biden administration will play out in actual policies.
Hudson: Biden’s long political career has been right-wing. He’s the senator from Delaware, the country’s most pro-corporate state – which is why most U.S. corporations are incorporated there. As such, he represents the banking and credit-card industry. He sponsored the regressive bankruptcy “reform” written and put into his hands by the credit-card companies. As a budget hawk, he’s rejected MMT, and also “Medicare for all” as if it is too expensive for the government to afford – thereby making the private sector afford to pay 18% of US GDP for health-insurance monopolies.
Hardly by surprise, Biden has chosen cabinet members as corporate lobbyists, including the new Secretary of Defense. And on February 9 he invited Jamie Dimon and other business leaders to the White House and asked them what they recommended. These billionaires said that they didn’t need $1.400, so why should anyone else? They pretended that spending money might cause inflation – yet we are in the midst of debt deflation and falling disposable income for most families.
Biden’s prejudices are why the Democratic National Committee pushed him as their candidate over Sanders, and why Rep. Jim Clyburn made his pharmaceutical industry backers happy by pushing Biden over the top in South Carolina, delivering the black vote in that state’s big primary.
What amazes me is the ability to attract this vote despite the degree to which Biden has sponsored legislation that hurts blacks and other minorities: his cutbacks in welfare spending, his anti-crime laws falling mainly on the black community, his bankruptcy laws, and of course his denial of universal public medical care to that part of the population with the highest death rates, shortest lifespans and worst medical care.
He has tried to cover up this history by appointing Neera Tanden as head of the budget, claiming that she’s a progressive presumably simply because she’s non-white. Yet she’s a leading opponent of Bernie Sanders’ Medicare for All proposals.
In our polarized economy, wages have stagnated since 1971 – home ownership rates have fallen as foreclosures, evictions and homelessness have jumped dramatically during the 2020-2021 Covid pandemic.
The big decline in home ownership was the result of Obama’s double-crossing his campaign promises by bailing out the banks and leaving all the junk-mortgage debts and other fraudulent loans on the books. This led to foreclosures and evictions of about 9 million American families, most of them Hispanic and black. Home ownership rates plunged from 68 to 61 percent of the population (an enormous and rapid 10% drop).
The covid epidemic is leading to enormous arrears mounting up – for renters and for mortgage debtors. Evictions have been suspended by moratoriums that expire in March or April, and unpaid mortgages have been added onto later due dates (with appropriate penalties making this remunerative for the banks).
So the question is whether Biden can outdo Obama in reducing U.S. home ownership rates by another 10% — say, to just 56% of the population.
Let’s look at what could be done – today and a decade ago. Obama and Biden COULD have written down the junk mortgages to realistic market prices (and thrown the mortgage brokers and bankers in jail for fraud). Instead, they supported the fraudsters against the voters who had been promised “hope and change.” Most of the millions of foreclosed homes were bought by absentee owners and turned into rental property. Companies such as Blackstone were major players. The evicted families entered the rent market – and U.S. rent charges have soared. So consumer income has been spent much more on real estate, finance and insurance than for goods and services.
It’s most severe and unstable at the bottom of the housing market where tenants who have lost jobs have amassed $11 billion in rental arrears — a broader measure which includes all delinquent renters puts the number at $53 billion.
There are two kinds of results. The first will be an enormous accrual of back-rent debts and mortgage arrears to be paid off. For commercial businesses such as restaurants, these arrears are so large that they probably will choose to go out of business rather than paying all the profits for the next few years to their landlords.
Unless these debts are written down, most of the population is too debt-strapped to buy goods and services. So corporate profits can come only from rising prices, or getting government subsidy,
A second result is going to be a rise in homelessness in many cities. Entire camps of evictees will be forming in tents, perhaps in the major parks – or on the subways as in the past.
Many properties will be sold – yet housing prices are still rising.
What are some of the specific racial effects of this housing and job crisis, what’s been the Bidden administration’s response so far and how does this relate to your own work on racial reparations measures?
The low rates of black home ownership reflect a vicious history of red-lining. Limiting the areas where non-whites can buy has gone together with charging much higher interest rates than white buyers receive.
Housing is the basic criterion for joining the middle class. And for a century, blacks were excluded, not only by banks but from the government mortgage-insurance programs dating from FDR’s reforms in the 1930s. That’s what made black buyers “more risky” and hence charged higher interest rates.
I grew up in Hyde Park, in Chicago. The University of Chicago and its property management companies were among the worst abusers. For them, a “free market” meant a market free of blacks. But in the late 1950s they saw that they could do “block busting,” that is, selling a home in a white neighborhood to a black buyer. This panicked the neighboring owners, who sold their homes. The buyers were largely the speculators, who flipped them to black buyers at marked-up prices.
That happened on my block, on 48thand Dorchester, a block from where Obama has bought his home. Once a few houses had changed hands, Mayor Daley condemned the block. My house was torn down, as were others, and the land is not gentrified.
To put the issue in perspective, think of the situation in 1945. That is when the great increase in middle-class wealth – today’s middle-class net worth – took off. It was limited to white people, because they were the only people who qualified for the great increase in net worth created by the house-price boom over the past 75 years.
The norm was that banks limited their mortgages to a level that would absorb up to 25% of a buyer’s salary. The buyer would get a self-amortizing mortgage, to be paid off in 30 years free and clear. This limit on debt leveraging kept housing affordable.
You and I have spoken about the issue of black reparations before. It’s very hard to pay reparations for slavery, because the enslaved families have died long ago. The reparations need to be paid to the living – and after all, it’s the living blacks who remain injured.
There is one way to make the black population economically as resilient as the white population has been. That is to give it the same deal that created most white middle-class wealth. The government should buy or build homes – private homes, just like white neighborhoods, not public housing. They should offer buyers the same deal that was given in 1945. Any black family would be given a home, with a mortgage of 25% of the household head’s income, to be amortized over 30 years.
Suppose the black buyer earns the minimum wage, or about $25,000 a year. Then 25% of this would be $6,250 – just about $500 a month. Over 30 years, the buyer would pay $187,500 – much of it in interest, guaranteed by the FHA.
As a practical political matter, of course, such a windfall would have to be offered to all Americans across the board. Hispanics and white poor would qualify.
That is the only way to create economic resilience of a class that has been excluded on racial lines, and which remains excluded today.
Without special subsidy of this sort, there cannot be any serious talk of equality. Minority buyers were the great victims of the junk-mortgage run-up and the Obama evictions.
In a recent N.Y. Times piece, David Leonhardt raises the question of why the U.S. economy has fared so much better under Democratic presidents than Republicans? In fact, he argues the gap is “startlingly large” when one measures annual growth rate, Gross Domestic Product growth rate, jobs, incomes, productivity – even stock prices.
Well, the New York Times has been the leader in “fake news,” not least for its support of real estate and financial interests, and of the Democratic Party.
The focus on growth rates as measured by GDP is a travesty of reality. Since 2008, GDP for 95% of Americans has actually declined. We are still in the Obama Depression – that was the state of affairs when the covid-19 crisis hit. Pavlina Tcherneva at the Levy Institute at Bard College has produced the statistics.
When debtors fall behind and have to pay penalty interest rates to banks and credit card companies, this is counted as an “increase in GDP,” classified as “financial services.” As if the banks are providing a service by charging higher fees to indigent debtors who are unable to keep current on their living costs.
About 7% of GDP is hypothetical “homeowners rental value” – what homeowners would have to pay themselves if they rented out their homes to themselves as tenants. As rents have risen (largely by absentee owners who bought homes that were foreclosed), this increases GDP. It leaves out minority owners, whose home ownership rate is much lower than that of whites.
What The New York Timesand others looking at GDP leave out of account is how unequal the distribution of wealth and income have become since 2008, and indeed since the 1980s. Economists are now talking about a K-shaped recovery: up for owners of stocks and bonds (about One Percent of the population owns something like 80 percent of these securities), and real estate. But wage earners are being squeezed. The “recovery” is not a recovery for them. It’s a boom for the wealthy, for the rentierclass, mainly in the Finance, Insurance and Real Estate (FIRE) sector.
That sector is the main audience for The New York Times. And most of the Democratic Party’s donor class comes from the FIRE sector. Despite this, the Democratic success at identity politics has created a political situation in which only the Democrats can enact anti-labor and anti-black policies, because their politicians are able to deliver the labor and black votes.
I don’t see how there can be real progress unless the Democratic Party is replaced, at least with the DNC leadership that has turned its politics into demagogy. Its identity politics is based on every identity exceptbeing a wage-earner.
Central to Biden and America’s neoliberal vision of world order is an economic philosophy of privatization and financialization. How do you think this will play itself out in the Biden administration’s foreign and economic policy of military spending and arms sales and use of military threats and force if necessary, to enforce U. S. international dominance and technological hegemony?
Biden has spent his career defending the financial sector, and its leading policy is to privatize basic infrastructure. That means blocking governments from providing basic services at cost or on a subsidized basis – education, health care, roads and communications. Yet that is how America became the leading industrial economy from the late 19thcentury onward. Financialization and privatization have left it a high-cost economy, uncompetitive in world markets. that is why the economy is de-industrialized.
Privatized and financialized economies are high-cost. America spends 18% of its GDP on health care – far more than any other country. And then there is the military budget. A year ago January, Bidenwrote an article in Foreign Affairsin January 2020 promising that his incoming “foreign policy agenda will place the United States at the head of the table.”[1]
So what is he going to lead? He’s already said that he’s not going to negotiate with Iran, but to keep the Trump administration policies in place. He’s appointed neocon hawks to leadership positions, especially Victoria Nuland and other anti-Russians. Biden seems to want to use sanctions to isolate countries he sees as rivals or enemies – which is turning out to be a rising share of the world’s population, from Russia and China to Venezuela and Iran.
The reality is that the United States is isolating itself! It is trying to block Europe from importing Russian gas, and insisting on U.S. IT monopolies directed against China. And Biden has as little respect for treaties as Trump had – that’s why he’s retaining Trump’s withdrawal from the Iran deal.
Even if Biden makes a new treaty, Congress would have to approve it. But Congress has remained firm that no foreign countries can set policy for the United States. It therefore insists on not subjecting itself to any international rule of law not drawn up by its own political donors and corporate
The looming global fracture is becoming a fight against the most basic organizing principles of economies throughout history. All successful economies have been mixed. And to promote survival and prosperity, it is necessary to subordinate private gain-seeking to public objectives benefitting the 99 Percent, not just the One Percent.
That isn’t Biden’s policy or any other Democratic or Republican policy.
You see a basic conflict between financialized rentiereconomies and democratic-socialist ones that seek to promote public objectives benefiting the 99 percent, not just the one percent.
Privatized economies are high-cost economies. This is mainly because basic infrastructure is a natural monopoly: roads and other transport, communications, the post office. When they are privatized, they are run for a profit – consisting mainly of monopoly rent, over and above normal profits, plus capital gains as these rentierclaims are capitalized into stocks and bonds at rising prices.
The policy of American industrial capitalism in the 19thcentury is the same as that of socialism: to minimize the cost of living and doing business. Privatization is largely responsible for de-industrializing the U.S. economy. While leaving 95 or 99 percent of the population to stagnate, it has been a bonanza for the 5 to 1 percent.
Could you expand on what you mean by that conflict and where you see the Biden administration heading on it?
The conflict often is put by juxtaposing Wall Street to Main Street – that is, the FIRE sector to the industrial goods-and-services economy. Wall Street’s objective is to increase wealth. This is done largely by capital gains, not by hiring workers to produce more goods and services – such investment is done mainly abroad by today’s multinational firms.
How does the $1.9 trillion stimulus aid package fit into this debate?
I don’t think you should call it a “stimulus.” It’s disaster relief. The idea is to catch up. The aim should be to at least put the economy back where it was before – that is, still in the Obama Depression.
What WAS a “stimulus” was the $6 to $8 trillion created by the Federal Reserve t buy stocks and bond, including junk bonds, to fuel the Wall Street boom. That is the essence of the K-shaped recovery. Rising prices for wealth, falling wages and net disposable income for living labor, after deducting the payments to the FIRE sector that families have to pay off the top – rent and debts, medical insurance contributions, FICA paycheck withholding (the most regressive tax), and monthly payments to privatized utility monopolies.
The $1.9 trillion checks of $1,400 or $2,00 actually should be sent out monthly, not part time. Europe pays its laid-off work force 80 percent of their normal wages, so that they will not be plowed under by the covid shutdowns.
There’s profound disagreement about how to handle increased bankruptcies here and in Europe.
Biden himself is largely responsible for the bankruptcy problem. He was the politician who steered the regressive bankruptcy reform through Congress, making it harder for low-income families to wipe out their debts – and making it impossible to wipe out student debt through bankruptcy.
In that sense, he “owes” it to the economy to make up for his opportunistic water-carrying for his campaign backers in corporate-run Delaware.
Will he do it? Can he do it? He’s a deficit hawk, and has appointed deficit hawks such as Neera Tanden to his cabinet. He also promised that “nothing will change.” This is just how the Obama administration was run (demagogically running on a slogan of “hope and change”). So will Biden be Trump 2.0 or Obama 3.0? It really doesn’t matter much. Because both Obama and Biden were basically Republicans running with a different ethnic profile for the voters that they delivered to their campaign contributors.
Chapter 11 bankruptcy filings in the U.S. rose in the third quarter to the highest level since the 2010 financial crisis. In the last week 900,000 Americans have filed new unemployment claims.
John Williams’ Shadow Statistics puts the real unemployment rate at 20 percent. Many people have dropped out of the work force, as no jobs are available, at least, no jobs for them.
The rent moratorium has enabled many unemployed or low-income workers to remain in their homes. If they’re evicted and become homeless, how can they work? The real crisis is scheduled to fall in March and April. Small businesses such as restaurants and stores will give up and close.
Europe has been more receptive in extending national programs to keep troubled businesses afloat, but there too a sharp debate exists as to whether a strategy of protecting businesses and workers “at all costs” will cement a recovery or whether it will leave economies less competitive and more dependent on government aid when the pandemic recedes.
Europe and other countries are trying to avoid disaster. U.S. policy is to see disaster as an opportunity. It’s easier to make fortunes in a disaster than in normal times, at least if you are wealthy, liquid and have access to bank credit to buy up distressed businesses and properties.
The aim of Europe – and of economies through the ages – has been to provide resilience. That is what is missing here. The doctrine of “individual responsibility” is a euphemism for letting the financial classes take control of economic and social planning. And their objective is their own self-enrichment, not that of economies as a whole.
What is it that can be “recovered”? To most politicians, it means that creditors – the economy’s top One Percent – can “recover” the money that is owed to them by the indebted 99 Percent.
In Europe’s system of parliamentary politics, third parties can arise to promote a social policy of economic resilience. That isn’t possible in the United States, because of the two-party duopoly. Duopolies resolve themselves into monopolies, which is what we really have today: pro-Wall Street and anti-labor, pro-creditor and anti-debtor.
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[1]Gideon Rachman, “Biden’s Flawed Plan for World Leadership,” Financial Times, November 17, 2020.
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I really like the idea of a policy of charging no more than 25% of a worker’s pay for a mortgage, regardless of income level. I am struggling to work through the practical implications. would it lead to massive decreases in home prices across the board, and an inevitable backlash from the current home owning class?
Would there also need to be restrictions on private equity ownership of homes?
It seems like there are several changes needed to enable this to have the intended effect.
Should not that be the policy of the mortgage issuers? Perhaps the issuers should have their money on the line rather than selling them off. If they simply stick to 25% a lot of people would not get mortgages meaning they would not qualify for one and prices would have to drop massively. The only reason the prices are climbing so high is because the federal government is backing the mortgages. If the buyer of the house walks, for example in California, they owe nothing and the bank gets the money from Uncle Sugar. Home buying and student loans are two examples of what the government should not be guaranteeing loans for. Rent security laws would be the right way to go with all sorts of securities for renters regarding increases etc. Rent should be a viable way of living as well. Housing should be for living and not getting rich. I realize one reason Blacks have less money is because of housing restrictions in the past but the solution is not to prop up a stupid model so on this I don’t agree with Hudson. His analysis of the election is spot on as is the rest of what he says. Here in Germany most people rent and it works. Basically rent increases are limited and no one is priced out. Then again there are very few McMansions although with time and mass brown young male immigration the better off want to get away from the cities and towns in a McMansion in an SUV dependent area just like in the US. This is mostly driven by manufactured fear in women since the individual cases get a lot of press. That is a cost of a heterogeneous society.
I am certainly skeptical of the religious belief in home ownership as the sole path to the middle class. Many other societies have shown that is not true. The problem is that in the United States, it IS a religion, firmly kept vigorous by the clergy in the FIRE sector. I’m a little surprised that Dr. Hudson is an adherent… but only a little.
I subscribe more and more to the theory that in the U.S., the 99 percent can’t have nice things because then black and brown people would get some of them, and we certainly can’ have that! Ergo, no living wage, no M4A, no free college tuition. Until the working classes actually rise, together, against this, it will continue.
When I moved to London from Sweden in the 1980s, home loans were provided by ‘building societies’ which were based on savings from would be home owners. As they were the guardians of savers’ money, they were prudent and the basic formula was to agree a home loan of around 2X your income with a 25 year mortgage. You often had to have saved with a building society to be eligible for a loan and could only borrow up to a certain percentage of the market value of the property.
Then Thatcher encouraged the building societies to convert into banks (with the carrot of a lump sum to savers with an account, to vote in favour). There was a rush to do so, then the big banks swooped and swallowed then up and turned the whole system upside down, totally divorcing saving from borrowing and as MMT theory argues, created loans out of nothing on the books. There was huge competition to offer home loans and the entire 2X earnings over 25 years went out of the window, as did the loan to value ratio – some banks offered 125% of value, for example. The end result, massive inflation of homes, which was further fuelled by the ‘buy to let’ boom, where banks lent money to individuals to literally buy a home to rent out.
Can the geni be put back in the bottle? Very difficult to see how. Now people with ‘equity’ in their home thanks to price inflation, rely on that to downsize in retirement. The buy to let locusts are entrenched and the younger generations are stuck with renting until and if, their parents still have equity left when they die – now, private care homes offer places on a live now, pay later from selling your home when you die, and charge a fortune in the meantime.
Michael Hudson is always great.
But this interview was pretty depressing. Not sure I see a good ending for this any time soon.
yes, this pretty much sums it all up for me…
” So will Biden be Trump 2.0 or Obama 3.0? It really doesn’t matter much. Because both Obama and Biden were basically Republicans running with a different ethnic profile for the voters that they delivered to their campaign contributors.”
The assumption of meaningful differences between Democrats and Republicans is a quaint one. These political parties are for profit enterprises.
Choosing between them is akin to choosing between a Milky Way or a 3 Muskateers… A couple of 2nd rate candy bars and neither is good for you.
I see Biden as Bush jr 4.0 or Regan 7.0. He followed Bush’s “Ownership Society
which Bush jr used for his re-election.
I have mo doubt the Banks knew Bush’s Ownership Society program would result in millions of foreclosures. and that with Biden and other re-jigged the Bankruptcy and Student loan Laws to favor putting the borrowers under inflexible and extortionate conditions.
Obama had no intention but to claim credit at the last few steps of any program put out by Congress and the Senate. aka “This is the best we can do!”
All this appears planned and continued over multiple administrations.
If Biden were to be Trump 2.0, he would continue to destroy Administrative State functioning as much as he could. He aspires to be Obama Term Three, though it is doubtful he will reach that lofty standard.
Draculamala aspires to be Obama 3.0 and Beyond. Wall Street sure hopes she will be.
cocomaan: Think of it as a diagnosis. Also, we are in an interregnum between the sloppy end of the Trump administration and the future glory of the Biden administration that will come about with the ensconcing of Neera.
So it is time to change the discussion. This paragraph is valuable indeed: > The aim of Europe – and of economies through the ages – has been to provide resilience. That is what is missing here [U S A]. The doctrine of “individual responsibility” is a euphemism for letting the financial classes take control of economic and social planning. And their objective is their own self-enrichment, not that of economies as a whole.
Now is the moment to recognize “individual responsibility” as propaganda and foolishness, the moment to destroy the idea in the U S A, and to come up with a new, less inhumane way of responsibility. A good diagnosis and recommendation.
This sounds like it could dovetail (in a rather sinister way) with that mantra of the Great Reset: “You’ll own nothing — and you’ll be happy.”
My sentiments… Hudson clearly articulates some policies which in my opinion are “good” but we can all see how they appear to be politically impossible
Depressing interview, but truth is not always what we desire.
With moratoriums still in place I think the depression hasn’t started yet.
There is nothing government can do other than make things worse, economic cycles can be delayed but they eventually will run their course.
The outstanding amount of debt is staggering. Rough seas ahead.
There is nothing government can do other than make things worse, economic cycles can be delayed but they eventually will run their course.
Actually, a permanent Citizen’s Dividend, metered to just counter price deflation, should largely do the trick of preventing a depression.
Of course we need other reforms too.
Austrian Economist, are you?
You’re repeatedly violated site Policies, been banned, and kept jailbreaking. You now made a personal attack on a reader. I am ripping out the thread. Get your own fucking blog.
If government focused on making things worse for the upper classes in particular, that would be a default-improvement for the rest of us.
Another crisis is coming as the high-cost deindustrialized US attempts to assert power over Russia and China. It will be a huge political management crisis for our owners as support for intervention continues to crumble on both the right and left, and it is not clear yet that constant hate sessions will do the job. There is also the problem of a decreasing number of weapons produced at increasing costs that deliver less reliable performance, like the F-35. How Biden and The Blob can make hegemony happen while nothing fundamentally changes will be an interesting trick to watch.
I’m guessing the hype about AI, robots, and drones is supposed to be an assertion of power in the face of populace not interested in showing up for interventions.
I wish the US good luck with it coming wars, especially with China as its key supplier of parts. Chains.
Nuts and Bolts hold machines together. A fastener embargo would bring the US on it knees quite quickly.
Yes, I can never find the answer to “If you invade China they will clear the shelves in Walmart, stop making iPhones, and will halt making integrated circuits. How can an invasion work?” All they have to do is slow down manufacturing and the stock market will go into a panic. It’s almost as if they will never invade but give us all the taxpayer’s money anyway.
Reminds me of one of Isaac Asimov’s best pieces of snark (practically before any one but Rev. Dodgson had heard of the word) . . . the comment in the very first book (in writing order) in the Foundation series, about “the least-fought war in history”. . . .
I remember that Foundation story. The mothers and fathers of that society had no worries about send their sons out in old, leaky spacecraft to fight that war but as soon all their appliances and the like suddenly stopped working and their lives were being majorly inconvenienced, they all demanded that the war be brought to a halt.
So what is the real gameplan for all the rent and mortgage arrears?
That — is — a very scary question. I believe our betters are betting on up-funding the police.
> I believe our betters are betting on up-funding the police
They sure aren’t betting on improving your material conditions, that’s for sure.
(“Our bettors….”)
Hudson proves again that there are solutions to problems that seem intractable.
Building homes with this 25% income/30 year amort is genius. Adding infrastructure, reshoring manufacturing, universal & economical healthcare and educational attainment reform could go along way to providing redress to our fellow citizens who have felt the pain of falling behind due to a financial/political system that compounds against them. This is as much about race as it is class.
This interview of Michael Hudson on Radical Imagination deeply troubles me. Michael Hudson’s observations and analyses trouble me with their disturbing Truths. His very wise and reasonable proposals for remedies trouble me because he is proposing them on Radical Imagination. Michael Hudson’s proposals in this interview seem perfectly reasonable to me — not radical.
I listened to this YouTube stream after reading another of today’s posts:
“Housing and the American Dream: Is A House Still a Home?”. The contrasts in points of view between Michael Hudson and the Austrians Pirmin Fessler and Martin Schürz are jarring.
The Austrians are proponents of heraldic social organization from day one and the self appointed administration of the whole of humanity … it was written …
This is a great interview.
I think his idea for reparations is very good. Mine is a bit simpler, just give them a million bucks each.
> Mine is a bit simpler, just give them a million bucks each.
If I were vengeful, I would give land, starting with land owned by the descendants of slaveholders, but that’s a bit Deut 5:9. So money is better.