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Prof. Michael Hudson's take on neo-liberalism and property grabs.
TRANSCRIPT: Is Thomas Picketty Right About The Causes of Inequality? The Real News
Baltimore
Published on Apr 29, 2014
Economist Michael Hudson discusses the popularity of French economist Thomas Picketty's recent book and says his work fails to link the financialization of the economy to the ascent of the 1%.
Jessica Desvarieus, producer, interviewer
The Hudson Report
Distinguished Research professor of economics at the University of Missouri, Kansas City. His two news books are 'The Bubble and Beyond' and 'Finance Capitalism and it's Discontents'.
This week we're going to be talking about the very popular book by French economist Thomas Piketty. It's a 700 page book that takes on the topic of income and equality. Why do you think so many people are talking about this book? What's in it that has people buzzing?
PROFESSOR MICHAEL HUDSON
Statistics: He shows that wealth and equality is actually much wider than income equality. Because if you earn income you have to pay taxes on it and rich people, the 1% don't like to pay taxes so they basically 'expense' most of their income. They expense it as interest. They expense it as depreciation. There are all sorts of expenses, but he (Piketty) shows statistically, in almost every country, not only that income and wealth are getting wider and wider apart - the 1% versus the rest of the economy. But it's not just the 10% that's richer than the bottom half or the bottom 20%, its the 1% that has the vast majority of the wealth and controls the world stock markets and the bond markets. Since 1980 there's been quite a turnaround and the 1% have bought government as if government were sort of like a factory that yo can make profits on and you can get much more profits by buying a government than you can ever get by buying a property or real estate.
So what we've been turning into is an oligarchy. Well a lot of people saw this but what Piketty did was show that in every country since 1980, since Reagan and Margaret Thatcher had the whole neo-liberal revolution. The revolution that's now being supported by the US government, by the Euro Zone, by the International Monetary Fund and the World Bank, that all of this neo-liberalism and so-called Free Markets is really just a property-grab by the rich. And it shows that, given this grab you're not going to be able to get more equality as long as all of this wealth that's accumulating at the very top of the 1% is inherited and passed down and grows and grows. And so, basicallyly, he's described the symptoms of what's wrong. People are very glad that he's described the symptoms that everybody knew but nobody had spent the 3 or 4 years that it took to make all of the charts that he's made.
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PROFESSOR MICHAEL HUDSON
The 1% have got rich by holding the 99% in debt. Basically, you have an economy where governments and businesses, homeowners, credit card users, and people getting an education all have to run into student debt, mortgage debt, credit card debt, government debt, corporate debt, - all to the 1%. So the 1% wouldn't be making all of this income and concentrating all of this wealth if they didn't hold the bottom 99% in debt to itself. So, yo have a polarity. You wouldn't have the 1% if it wasn't in an exploitative way - making the 99% more dependent on them.Now if the 1% made their money - you know, they call themselves 'job-creators' as if they're creating the prosperity. But they're not creating the prosperity, because what they're getting is interest and economic rent much more than profits. They're getting rich in an exploitative way - not in a productive way that helps the economy grow and raise it's living standards.
Q: What are some of the solutions that Piketty proposes?
4:14 PROFESSOR MICHAEL HUDSON
Well the first solution he proposes is that all this wealth at the top is being inherited and since the Reagan and Thatcher revolution they've got rid of inheritance tax. The 1% says, 'think of the small families that want to give a little bit of property to their children. Let's not tax them. And, by the way, let's make us completely tax free for all of our billions of dollars'. Just so middle-class families can end op with their house or so. They've hidden behind the middle-class to abolish the effective inheritance tax and so this wealth is being inherited to grow and grow. So the first thing he wants is an inheritance tax. The second thing he wants is more problematic. He says, well maybe there can be a world tax on wealth because, after all, the rich people in American hold their wealth off-shore or in Swiss banks on in the Caribbean, so he wants a general wealth tax. That's what he has been criticised for because he hasn't really gone to the root of what is creating this polarisation.
Q: Also how would you implement something like that, Michael?
5:29 PROFESSOR MICHAEL HUDSON
Well, that's why the neo-liberals love Piketty. It's why Krugman loves Piketty. And others. you can't implement it. So he's produced a book without any solution and the free enterprise boys like that. The 1% don't mind being criticised as long as there's no solution to the problem and that's why the critics have come out saying, 'wait a minute, there are a lot of solutions. For one thing, some kind of wealth is better than others. You don't want to tax people building factories, and improving living standards, like the 1% pretend that they do, but what you do want to tax is unearned income - economic rent, capital gains, Most rich people make their money not by earning income. They make it on capital gains, on stock markets going up, on bond prices going up, on all of the asset prices that Federal Reserves qualitative easing has been flooding the market with. So the first thing to do is to raise the capital gains rates much higher, closer to 100% because that's unearned. These are inflationary gains. Right now the economy is all about capital gains, so if you make a million dollars, as Warren Buffett said, he makes hundreds of millions of dollars, he pays a lower tax rate than his secretary.
So the tax system is all wrong. What Piketty does not suggest is getting rid of regressive taxes like the FICA wage withholding that everybody has to pay. That's no more than 15% of their pay check. This is a regressive tax that should be gotten rid of. Most of all, he doesn't talk about the whole restructuring that's part and parcel of this neo-liberal revolution of privatisation. He doesn't criticise privatisation. And most of this increased wealth by the 1% since 1980 has all taken as a result of privatising the public : public utilities - things that 100 years ago everybody expected banking to be a public utility, roads, railroads, public transport, telephone systems, broadcasting systems.
Now that these are being monopolised the rich are getting their money by monopoly rents [economic rent] and the solution isn't simply to let the rich exploit the 99% by raising the prices you pay for your cable, for bridges, for transportation, it's to de-privitize these assets and put them back in the public domain so that you can provide basic services to people at a very low price instead of an extortionate price that's all meant to pay the 1% that basically has been foreclosing on governments and grabbing the public domain.
Piketty quotes the French novelist, and English, of the 19c and points out 'why is it that novelists understand the problem that's happening in the economy more than economists? Economists all talk about the economy becoming more equal, but if you read Balzac, he said that the origin of almost every great families fortune is a great theft, often undiscovered and people think it's just a part of nature. It's thievery and theft, as Bill Black, who has often been on your show, also points out every week. You have essentially the de-criminalisation of fraud and what really pays is crime and it's the criminals that have risen most rapidly into the 1%.
It's the Wall St. bankers who've been doing the 'junk mortgages' and engaging in the kind of fraud that we've been hearing about on Wall St. This is not what Piketty discusses. He doesn't say throw the crooks in jail. He doesn't say have government regulatory agencies to prevent this kind of exploitation. He doesn't say reimpose anti-monopoly regulation to prevent monopoly profits from enriching the 1%. He doesn't say take all of these private - these public utilities that Margaret Thatcher privatised in England and Ronald Reagan did in America, and put them back in the public domains so that they can provide basic services to people at cost. All of this is a different topic from his book.
Hudson can be an interesting read, but like all economists, he is at least partially wrong most of the time. If one can come to his work with that in mind, there is every chance of learning a thing or two.
Income/wealth inequality is far more complicated in the US and will never be fixed. Here is why:
Republicans have cleverly taken on two issues: (1) Tax relief for the rich, and (2) Social conservatism, in particular, defense of "Family Values".
So what happens is that people who economically have nothing to gain, and in fact everything to lose, by voting in the Republicans, do so but only because they identify with the issue of Family Values. But of course the Republican politician they just put in office is really just the champion for the rich.
This is how the rich have truly gained sufficient political power to protect the tax and other advantages they have enjoyed and why it will be impossible to do anything about it. They are using religion and values as a Trojan Horse to steal the votes of a naive and easily swayed public. It is unfortunate that people do not see what is going on but the "family values" message is a powerful one. You have to hand it to the Republicans - this is a clever and devious plan. And it is working.
Hudson can be an interesting read, but like all economists, he is at least partially wrong most of the time. If one can come to his work with that in mind, there is every chance of learning a thing or two.
Income/wealth inequality is far more complicated in the US and will never be fixed. Here is why:
Republicans have cleverly taken on two issues: (1) Tax relief for the rich, and (2) Social conservatism, in particular, defense of "Family Values".
So what happens is that people who economically have nothing to gain, and in fact everything to lose, by voting in the Republicans, do so but only because they identify with the issue of Family Values. But of course the Republican politician they just put in office is really just the champion for the rich.
This is how the rich have truly gained sufficient political power to protect the tax and other advantages they have enjoyed and why it will be impossible to do anything about it. They are using religion and values as a Trojan Horse to steal the votes of a naive and easily swayed public. It is unfortunate that people do not see what is going on but the "family values" message is a powerful one. You have to hand it to the Republicans - this is a clever and devious plan. And it is working.
That sounds like the Conservative Party in the UK.
Hudson can be an interesting read, but like all economists, he is at least partially wrong most of the time. If one can come to his work with that in mind, there is every chance of learning a thing or two.
I would be more inclined to agree if you would be specific. Though I can forgive some of his slants because he is no economist. He is more like a political economist of old, and a far more honest title than "economist", as if the field was purely objective.
Income/wealth inequality is far more complicated in the US and will never be fixed. Here is why:
Republicans have cleverly taken on two issues: (1) Tax relief for the rich, and (2) Social conservatism, in particular, defense of "Family Values".
So what happens is that people who economically have nothing to gain, and in fact everything to lose, by voting in the Republicans, do so but only because they identify with the issue of Family Values. But of course the Republican politician they just put in office is really just the champion for the rich.
This is how the rich have truly gained sufficient political power to protect the tax and other advantages they have enjoyed and why it will be impossible to do anything about it. They are using religion and values as a Trojan Horse to steal the votes of a naive and easily swayed public. It is unfortunate that people do not see what is going on but the "family values" message is a powerful one. You have to hand it to the Republicans - this is a clever and devious plan. And it is working.
The hypocrisy of the Republicans has now left me master-less, for I cannot join the ranks of the left and their equally hypocritical identity poltics. The only difference I suppose is that I can just call liberalism obviois stupdity and blatant wealth transfer, not to mention a perverse form of elitism where dysfunctional grants you title.
The problem with the modern right is that they do much the same thing, but its more of a swindle.
When I oppose their royalist, feudalistic oppression and out right da guberment privileged monopolies, they often times have the gall to accuse me of wealth transfer when it its they who have abandoned Capitalism.
CALLER: I've heard you describe yourself as a Georgist, a follower of Henry George, but I haven't heard much in having you promote land value taxation and his theories, and I'm wondering why that is the case.
W.F.B.: It's mostly because I'm beaten down by my right-wing theorists and intellectual friends. They always find something wrong with the Single-Tax idea. What I'm talking about Mr. Lamb is Henry George who said there is infinite capacity to increase capital and to increase labor, but none to increase land, and since wealth is a function of how they play against each other, land should be thought of as common property. The effect of this would be that if you have a parking lot and the Empire State Building next to it, the tax on the parking lot should be the same as the tax on the Empire State Building, because you shouldn't encourage land speculation.
Question: I find income tax totally antagonistic to true free enterprise. Can we run the country without income tax?
Dr. Friedman: There's a sense in which all taxes are antagonistic to free enterprise . . . and yet we need taxes. We have to recognize that we must not hope for a Utopia that is unattainable I would like to see a great deal less government activity than we have now, but I do not believe that we can have a situation in which we don't need government at all. We do need to provide for certain essential government functions - the national defense function, the police function, preserving law and order, maintaining a judiciary. So the question is, which are the least bad taxes? In my opinion the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago.
The next least bad tax is a flat-rate tax on income above an exemption. I could design my ideal tax system it would contain an income tax, but it would not be the kind of monstrosity we have now. It would be a flat-rate tax on all income, from whatever source derived, less only a personal deduction and strict occupational expense, and that kind of income tax I think would be the least inconsistent with a strong free enterprise system.
So if mainstream conservatism used to think like this then why is it now in exile somewhere in Kansas? Its because they are hypocritical scum, using the national wealth for their bath water all the while they declare themselves "capitalists" .
CALLER: I've heard you describe yourself as a Georgist, a follower of Henry George, but I haven't heard much in having you promote land value taxation and his theories, and I'm wondering why that is the case.
W.F.B.: It's mostly because I'm beaten down by my right-wing theorists and intellectual friends. They always find something wrong with the Single-Tax idea. What I'm talking about Mr. Lamb is Henry George who said there is infinite capacity to increase capital and to increase labor, but none to increase land, and since wealth is a function of how they play against each other, land should be thought of as common property. The effect of this would be that if you have a parking lot and the Empire State Building next to it, the tax on the parking lot should be the same as the tax on the Empire State Building, because you shouldn't encourage land speculation.
The economic rents of land is common property. It doesn't matter who hold the title, however land must be subject to monopolies prevention.
Question: I find income tax totally antagonistic to true free enterprise. Can we run the country without income tax?
Dr. Friedman: There's a sense in which all taxes are antagonistic to free enterprise . . . and yet we need taxes. We have to recognize that we must not hope for a Utopia that is unattainable I would like to see a great deal less government activity than we have now, but I do not believe that we can have a situation in which we don't need government at all. We do need to provide for certain essential government functions - the national defense function, the police function, preserving law and order, maintaining a judiciary. So the question is, which are the least bad taxes? In my opinion the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago.
The next least bad tax is a flat-rate tax on income above an exemption. I could design my ideal tax system it would contain an income tax, but it would not be the kind of monstrosity we have now. It would be a flat-rate tax on all income, from whatever source derived, less only a personal deduction and strict occupational expense, and that kind of income tax I think would be the least inconsistent with a strong free enterprise system.
I have little time for Freidman but he was right there. He never pushed Land Value Tax though.
The economic rents of land is common property. It doesn't matter who hold the title, however land must be subject to monopolies prevention.
I have little time for Freidman but he was right there. He never pushed Land Value Tax though.
Of course not. That is because both of them would lose their sponsors. One must join the one of the two hopelessly corrupt factions both of which are completely hostile to industry, and merely use legal means for their income . But that is just the in the lower ranks. The real agenda is feudalism on the one hand with the welfare state as riot control. It also divides, creating discord and jealously between the lower ranks. Whatcha do is pamper and grant privileges to the house slaves who will help spy on, oppress and rat on the ones that sleep in the barn. Even people from the same family will hate each other more than their masters. If three people conspire against you , send one of them a lavish present.
Hudson can be an interesting read, but like all economists, he is at least partially wrong most of the time. If one can come to his work with that in mind, there is every chance of learning a thing or two.
Michael Hudson's book, "Super Imperialism" basically forecast the current crisis and the financialization of everything, and the subsequent collapse from de-industrialization.
Fred Harrison also predicted the year of the crash many years before.
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