Debt Deflation and the Neofeudal Empire

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Michael Hudson
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Grumbine 2020`
Macro N Cheese – Episode 88

Michael Hudson

Who is the dumbest economic Nobel Prize winner? [Paul Krugman?] Paul Krugman. That’s right. He was given a Nobel Prize for not understanding what money was. If he would have understood it, that would’ve excluded him from getting the Nobel Prize.

Geoff Ginter

Steve Grumbine (01:34):
All right. And this is Steve with Macro N Cheese. Today, we are bringing on none other than Michael Hudson. Michael Hudson is the president of the Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street financial analyst and distinguished research professor of economics at the University of Missouri-Kansas City, UMKC, and author of “J is for Junk Economics,” “Killing the Host,” “The Bubble and Beyond,” “Super Imperialism: The Economic Strategy of American Empire,” “Trade, Development and Foreign Debt,” and of “The Myth of Aid,” amongst many others. And without further ado, let me just say thank you so much for taking the time to be with us today, Michael.

Michael Hudson (02:18):
It’s good to be here. And I look forward to it.

Grumbine (02:21):
We’re in some very troubling times and one of the things that has jumped out at us, you’ve been a longterm proponent of having a debt jubilee, and as we’re watching the crushing economic conditions that are being brought around based on the pandemic and lots and lots and lots of malfeasance that has gone on forever, it seems like a debt jubilee might be the most important thing for regular people that we could even think of at this point. Can you tell us a little bit about what a debt jubilee is and your research behind that?

Hudson (03:00):
Well, what my research basically is about is that the debt has grown so rapidly for the private sector, that if you don’t write down the debt, if you insist that all the mortgage debt and credit card debt and student loan debt be paid, then you’re going to have almost a constant depression. It’s called debt deflation. And I described that in “The Bubble and Beyond” and “J is for Junk Economics.”

The problem is that as people owe more and more debt service, they have less and less to spend on goods and services and so they’re not able to buy what they produce, and so employment shrinks and the economy shrinks. And part of the problem is not simply the growth of debt, but what the debt is for, and in the textbooks debt is supposed to be for productive purposes. The myth is that it’s for building factories and means of production and increases everybody’s prosperity, but that’s not what debt’s about. That’s what maybe stock issues are about, but it’s not what debt is about.

80% of debt is issued in the form of mortgages and they’re lent to real estate and the effect of real estate debt – making credit, loosening the credit terms more and more, lending more and more against properties, higher proportions, lower down payment, lower amortization rates – is that property prices are inflated. Housing prices are inflated. Commercial real estate prices are inflated.
So debt is being created for all the wrong things. It’s been decoupled from the economy at large, and it’s being taken on for things that really used to be considered public services like education. Used to be that all economies provided schooling free as a public service because they realized that education is how you increase productivity. But now, more and more, education is just to get a job sort of like a union card.

By getting a degree is a kind of criteria, has to be gotten. And even worse, getting an education is sort of like buying a house, just like a house is worth whatever a bank is going to lend against it. And as banks lend more and more money to people to buy houses, they’re lending more and more money to finance education as education has been privatized. So what you have is that in order to get a job, you have to get an educational degree. It’s a criterion.
 
And that means you have to go into very heavy debt and you have to go so deeply into debt that you don’t have any income left to pledge to the bank, to get a mortgage loan, to buy a home of your own. And the whole problem just crowds out all other forms of spending. The same thing occurs with medical debt because public health is not a social service here.

There is no public health because it’s been privatized and it’s been privatized on terms where if you get sick, there’s a high probability if you’re not wealthy that you’re going to have to declare bankruptcy. Especially when I think half of Americans reported to the Federal Reserve that they can’t raise $400 in an emergency. Well, $400 won’t even cover the cost of getting a COVID test here in New York these days.

So you can imagine the problems that people have, especially when they lose the job. So people lose the job, if they’ve borrowed to buy a house, they’re falling into arrears. Already mortgage arrears have been rising in the last six months. If you’re a renter and you can’t pay the rent, you’re in danger of being evicted. And the problem of homelessness is looming for sometime in December or January.

So what I’ve discussed about a jubilee is that if you don’t write down the personal debts, I’m not talking about mortgage debts or business debts. The jubilee left all of the commercial business debts in place. They were only the personal debts. And the logic for that was if you don’t write down the personal debts, way back in antiquity and Judaic times, and even before in Mesopotamia, if you didn’t write down the debts of cultivators who couldn’t pay because of a flood or disease or whatever problems were caused during the planting season, then they’d fall into bondage to their creditors.

And if they fell into bondage, they couldn’t pay their taxes anymore. They’d owe their labor to the creditors, and they couldn’t work on corvee work to build basic public infrastructure, and they couldn’t serve in the army. So almost all the rulers of antiquity realized that if they didn’t write down the debt, number one, they’d create an oligarchy that would use its power to overthrow them, as occurred in Rome, or they’d find the population falling into bondage and next time they were attacked by another city, the population would go over to the side of the attackers who would promise to cancel the debts.

So that was the original jubilee. The jubilee today is basically writing down debts that can’t be paid without imposing bankruptcy and poverty on the population. Most of the attention has been paid to third world debt. And there’s a basic principle I think that should be written into international law: if a country cannot pay its foreign exchange debt without causing unemployment, without changing its society, without selling off its infrastructure, forfeiting it to creditors to pay the debt, then the debt’s considered a bad loan.

So a jubilee basically is based on writing off the bad loans and making the lender responsible for lending money that cannot be paid. Such loans are basically fraudulent. In the case of third world debt, I can guarantee you, having worked for years at Chase Manhattan Bank as their balance of payments analyst, I saw that countries could not afford to pay the debt except by either borrowing the money to pay, which they did either from the banks or from the government, or privatizing and selling off their national infrastructure. And that is basically a violation of national sovereignty.

But the debt system has been transforming the politics of international trade and international investment. And it’s transformed democracies into oligarchies throughout the world. And if there’s a debt deflation in the United States, which looks pretty much in the cards right now, it’s going to leave our economy looking like that of Greece.

And in Greece, maybe 10% of the population had to emigrate and neoliberal countries like Latvia over 25% of the population have had to emigrate to find work. And they’re the younger people and the economy’s left aging very rapidly, and the society is being torn apart by creditors’ demand for payments under conditions where this demand for debt service destroys the domestic market, destroys employment, and drives the population either to emigrate, or to get sick and die, or to commit suicide.

Grumbine (10:39):
Let me ask you a question. I’ve watched a lot of your older stuff, especially knowing that you’re one of the early MMT stars. I’ve seen so much of you from UMKC and so forth. What would be an MMT answer to a debt deflation scenario here? How might MMT step in and adjudicate this or inform us if you will, of solutioning? How could we maybe message that?

Hudson (11:08):
There are good ways and there are bad ways of doing it through MMT. To me, the bad way would be the way that Donald Trump just did it over the summer. He gave grants to… the $1,200 grant that he gave to all the Americans. The pretense was that this $1,200 was going to be used to buy goods and services and to help keep them afloat and to revive the economy. But most families used it to pay down the debt.

In fact, the credits were put into their bank account. And if they had an overdraft, whether for a credit card where the rates go up to 29% or whether they were just overdrawn in the bank account with overdraft fees, the money that was given – created by the government, simply by printing it electronically – it all ended up with the bank. So the wage earners that received this money simply were intermediaries to give the money ultimately to the banks, the same effect you could have done simply by wiping out $1,200 from everybody’s debt who owns the debt.

Of course, that would have penalized the banks and the government basically is run by the banks. So what you’ve seen under Donald Trump is nightmare MMT. You have MMT being created, not to spend into the economy, not to create new infrastructure, creating jobs, not to support labor, but to buy stocks and bonds to support the 1%. This is a perversion of MMT, the assumption and advocacy of Randy Wray and Stephanie and her whole gang has been, “Well, the government can run a budget deficit to spend money into the economy.”

But finance is not the economy, the stock market, the bond market, and the wealth market. Basically you can think of it as the finance insurance and real estate sector. The FIRE sector is external to the economy. It’s something else. It’s the economy of the 1%. And most of the MMTers come from a background where we’re for the 99%. But Donald Trump is probably the leading MMTer in the country, in a far more powerful position than Stephanie Kelton or myself, and he said: “I’m all for MMT. You’ve convinced me. We can create all the money we want. I’m going to give it to my campaign contributors, the 1%.” That’s nightmare MMT.

Grumbine (13:40):
Wow. Yeah, that is. My goodness. I love the way you put that too. So can you describe what debt deflation actually means?

Hudson (13:50):
Well, it used to be that when you would buy a house – when I bought a house in the 1960s – banks would lend you enough money and you had to put down 20 or 30% of the down payment yourself, and they would calculate the mortgage so it would absorb no more than 25% of your income. So they would say, Well, you’ll have to live within your means. Find a house that you can afford to buy and we will give you a mortgage, up to the point where – the debt service and mortgage rates were about 6% back then – it absorbed 25% of your income.
So it was sort of a standard idea that at least if you were a white person… Black persons were not allowed to buy. They were not allowed to get loans. They were red-lined. But if you were not a Black person, you were able to borrow enough to buy a house with 25% of your income. Well, by the time that Obama sort of oversaw the bank bailout by 2008, the Federal Housing Agency would permit banks to lend up to 43% of your income.

Well, just imagine if instead of paying 25% of your income, you had to pay 43% of the income. Then that leaves much less money available to pay taxes, buy food, buy goods and services, and pay your credit card debt and your student debt, and pay for other things. So the idea is that the more you pay in debt service and the more you pay for a mortgage or for your rent, the less you have to pay in goods and services. And the money that you pay for debt service to a bank isn’t spent back into the economy.

The bank bond-holders are basically the 1% of the economy. They’re rich enough so they’re not going to take all this extra money they get – this interest and fees – to buy more goods and services. They’ll buy maybe trophy art and Andy Warhol junk, but they won’t spend it into the economy. And so all this money is sucked out of the production and consumption economy and siphoned off into the wealth economy, into the financial market economy and to finance and real estate.

Grumbine (16:06):
How would we as a nation be able to address, if you will, this situation of debt deflation… And most people truly have no idea what’s going on in the macro economy. It doesn’t ring true to them. They just think as a household budget and they think, Hey, I don’t have enough money in my bank, better get a loan, or whatever. How do we message something like this?

Because I think that this is catastrophic because each time there’s a hiccup in the economy, we realize just exactly how frail we are. Just exactly how exposed to ruthlessness we are. You think we’ve substituted, not necessarily truths about the economy to explain away things that we don’t fully understand. How do you think messaging this needs to happen?

Hudson (16:57):
Well, that’s the big problem because what we’ve been discussing is what classical economics used to be all about in the 19th century, Adam Smith and John Stuart Mill and [Alfred] Marshall and Thorstein Veblen were all talking about – at that time the problem wasn’t so much debt, it was landlords – and David Ricardo pointed out that if you keep making the laws favoring the landlords, then all the money that the economy makes is going to be charged by the landlord as rent: as agricultural rent, as housing rent.

And he said, this is like the Wagnerian Ragnarök. It’s the end of the economy. It’ll grind to a halt when all the money ends up in the landlord class. And so Smith and Ricardo and Mill and Marx, and the others all discuss the concept of economic rent as unearned income. And they realized that the aim of what they thought that industrial capitalism was going to do was to get rid of the whole legacy of feudalism.

It was going to get rid of the landlord class either by taxing away the rent or by simply nationalizing the land and charging whatever the rent was worth. And most governments were taking over education and providing it freely or on a subsidized basis. They were taking over public health. And this is the conservatives that were doing this in England. It was the conservative prime minister, Benjamin Disraeli, that said health is everything; you have to have that. So there was an idea that you didn’t want to create health monopolies to be privatized. You didn’t want a landlord monopoly.

You didn’t want pharmaceutical monopolies or all of the other monopolies. You didn’t want monopoly rent or land rent. And they also saw credit as being basically a public utility. And the idea was that if credit and banking was a public utility, then banks would lend for socially worthwhile purposes like China lends money to create factories and to put in place the whole last 30, 40 years, takeoff that has enabled it to catch up and overtake the United States.

But World War I changed all of that. And after World War I, instead of banking being industrialized industry was really financialized. Banking followed the Anglo-American practice of lending only against collateral. It lends to buy stock, it’ll lend corporate raiders money to take over a company and then pay the creditor by emptying out the company pension fund, squeezing labor, downsizing, and breaking up the company. It’ll lend people to buy real estate at higher and higher prices.

So today, unlike in Ricardo’s day, instead of the landlords getting all the money from people paying for housing, rent is for paying interest. And the banks get all the money for housing that landlords used to get. So we’ve democratized property, and home ownership, and even commercial building ownership, but we’ve democratized it on credit. And so today’s creditors play the role that landlords played in the 19th century.

In the entire 19th century, all of classical economics fought to get rid of landlord rent, and fought to get rid of monopoly rent, and fought to make credit productive, not unproductive. And all of that failed and was replaced by a very predator-oriented economics curriculum, where they don’t discuss debt or money at all. When we were at Kansas City, I think we were the only university, maybe Colorado also was teaching Modern Monetary Theory.

And when I had to go to get my PhD at NYU, they said, no, no, it’s completely impossible for banks to create credit. And there was a wonderfully famous interview that I bet your listeners have heard. It’s a debate between Steve Keen and, uh, the Nobel Prize winner… blocking it out… Who is the dumbest Economic Nobel Prize winner?

Grumbine (21:10):
Paul Krugman?

Hudson (21:10):
Paul Krugman. That’s right. He was given a Nobel Prize for not understanding what money was. If he would have understood it, that would have excluded him from getting the Nobel Prize. But he insisted that the banks could not create credit. And Steve said, “Wait a minute, when you go into a bank and you take out a loan, the banker will add something to your account and you’ll give the bank an IOU. So the bank’s balance sheet will balance, but the bank didn’t have this money before. It just created credit.”

And Paul Krugman said he never heard of any such thing. Well, obviously he inherited so much money that he didn’t have to ever go into a bank, just lived off whatever he had. But the whole interview just shows the ignorance that was being taught in most universities. And it was just the most wonderful debate… It was like Bambi meets Goliath. And so students can’t really go to a university and find out what the role of debt is in the economy.

And even when we’re trying to do statistics. I had a group that is doing a statistical study of debt and rent and the health service in the economy, and the figures from the Federal Reserve don’t make any sense at all. The statistics for the US and the Federal Reserve say that for poor people, the middle class, the upper class, nobody pays any more of their income today for rent than they did in 1980.

These figures are fake and they’re fake because real estate lobbyists and the bank lobbyists behind them have gotten in charge of perverting the national income accounts – the GDP accounts – to conceal how much debt service there really is. It’s almost impossible to get accurate debt service figures. And they’re misrepresented.

For instance, if you pay money to a credit card and, you know, they’d normally charge maybe 17%, but if you fall behind, even if you fall behind in your electric bill and you’re downgraded, your interest rate goes up to 29%, but this is not reflected in the interest figures published by the Federal Reserve and the GDP account. They’re called “financial services.”
So when banks charge you a late fee, that’s considered providing a service and that’s added to the GDP. The GDP is growing by the banks providing you a service of having to pay them 11%. And that’s maybe 4 or 5% of GDP growth. And it gets even worse. 8% of the GDP is implicit homeowners’ rents. In other words, if you bought a home, you’re asked by various government agencies, well, if you had to pay rent for your house, how much would you have to pay rent?

Well, needless to say, as housing prices have gone up, so have rents. And people have said, “Well, yeah, it used to be, I would have had to pay maybe a thousand dollars a month for this house, but now I’d have to pay $3,000 a month in this market.” Well, all that is added to GDP. No money has changed hands. So there’s a lot of fake GDP in almost all of the growth.

I can say all of the growth, and more, of US GDP in the last 10 years has been fictitious growth. It’s financial returns, it’s capital gains treated as rent. It’s monopoly rent. When you’re charged more for your cable service, they say, well, okay, GDP goes up: the cable service is charging you more for their monopoly and their monopoly’s worth more.

All of these changes to make it appear as if the economy is growing. And so people are asked, well, who are you going to believe the statistics or your eyes? And they say, Oh, I’m a scientist. I believe the statistics, not my eyes. They’re just big fools. Gotta believe the statistics. They’re professionals. They have Nobel Prize winners saying that they’re all professionals.

Grumbine (26:02):
We had Bill Black and Patrick Lovell and Eric Vaughan come on here to discuss the documentary series that they created called “The Con,” that talked about the liars’ loans and the incredible amount of corruption that is in the banking industry, it’s in the mortgage industry, that really is these JP Morgan’s and the Jamie Dimon’s and all the rest of them. “Too big to fail.”
And just listening to it and watching the death and destruction that it causes, the suicides and so forth, it is so repulsive and revolting to me that this is not like number one, that we’re going after in general. Obama prosecuted absolutely no one. Bill Clinton actually went ahead and got rid of Glass-Steagall. And we have not had any champions – in forever – that have actually stood on this, short of people like Bill Black, and yourself, of course, and all the rest of the folks that got their eye on the prize here.
I guess my question to you is this: in talking with Georgists and others, the concept of a land value tax seems to be the type of thing that would do away with this rent-seeking behavior to begin with. I know that this is probably one of those things that there’s just not an appetite for, but it seems like a solution, at least part of it anyway, to this problem. What are your thoughts on a land value tax?

Hudson (27:24):
Well, that is exactly what Adam Smith was for. It was what John Stuart Mill was for. Every classical economist was for a land value tax because they said the natural form of taxation should be the rise in real estate prices. And if you do not tax it away, then this rent is going to be available to pay the banks. And who should get the benefit of land prices going up?
Like when New York City built a new subway system on Second Avenue, rents went up by maybe $5 billion all along the upper East side. The values of land went up so much that the city could have built the entire subway system just by taxing the increased land value that it costs. So all of classical economics was a justification of taxing away land rent, along with other economic rent. So what happened about a century ago, 1890s?

When I went to school, they were still teaching the history of economic thought, but now the history of economic thought has been excluded from the curriculum. So people have no idea of what Adam Smith said. People are told, you know, by the New York Times, and the Wall Street Journal, and the press, that Adam Smith and the classical economists were for free markets.

But what they were for was for a market free from economic rent, free from monopoly rent, and free from usury and predatory finance. So the whole history of economic thought has been rewritten and turned upside down to make it appear as if it’s the exact opposite. And the idea now for the last hundred years, taught in every university that’s financed by the 1%, is that there’s no such thing as economic rent; that everybody earns whatever they get.

And so the people who make the national income statistics don’t have a category there for economic rent. We’re talking about, for instance, the late fees from the monopoly of credit creation that credit card companies have. That’s considered GDP. If landlords raise the rents and people have to pay more for housing, that’s called an increase in gross national product because the increase in product is equal to the increase in rent. But classical economics said rent is a free lunch.

It’s not production. It doesn’t help the economy. It is simply a transfer payment from wage earners and renters to property owners and employers. And what they’ve done is essentially the whole fight against classical economics has been to prevent the logical conclusion of classical economics that led right into Marx. And most of the founders of MMT all came out of the Marxist tradition because that was the classical economic tradition.

hat was the tradition of Adam Smith and John Stuart Mill and the other critics of rent. And of course, Marx pointed out that employer exploitation of workers was a form of rent exploitation, too. And the fight against Marxism was also a fight against all of classical economics. So, it’s like it’s all expurgated. And people are given a false idea of the history of economic thought and therefore a false idea of economic history.

And they’re not given a statistical accounting format that describes how the real world operates and how the economy is shrinking for more than 90% of the population, and it’s only growing for about 10% of the population. The 10% is getting richer so fast. And the value of Andy Warhol junk is considered to be so great that it compensates for all of the decline of living standards of the 90%.
If you can imagine, the 90% knows that they’re in trouble, that’s why they take tranquilizers. They know that they’re being squeezed. They know that it’s harder and harder to pay the rent. They know that their debts and arrears are mounting up, but they blame themselves, and they don’t blame the system. And so what you need is a reality-based economics that shows them that the problem is in the system, not in themselves.

Grumbine (31:41):
I really appreciate that. I look down at Puerto Rico and I look at Detroit, even Harrisburg, Pennsylvania, where I’m at, and you’ve seen vultures come through. They’ve basically allowed these places to become feudal states and there are vultures ripping them apart and tearing them up for any value that they have. And you talked about a new feudalism in one of your recent writings. And I’m curious, what does that mean right now? Can you describe feudalism and how it’s kind of like a modern version of that right now?

Hudson (32:13):
Well, it basically means “your money or your life.” It means that in order to get the means of self-support, in order to make a living, you have to give the entire economic surplus to the landlord or the money lord or to the employer. And there are a number of ways of locking people in. It used to be that under feudalism, you were literally a serf tied to the land. You couldn’t move.
And when the land was sold the cultivators living on the land, the serfs, were sold with it. Well, once they got rid of feudalism, really by the 18th and 19th century… In today’s world, people can afford to live wherever they want, but wherever they live, they have to go into such deep debt to the banks to buy a home of their own or to the landlords to pay the rent, that they don’t have any money left over for subsistence.

So feudalism is where all of the growth in the economy accrues just to the small 1% layer at the top, not for the economy at large. It’s an economy run by the elites. And there are various ways of locking it in. In addition to land ownership and credit creation monopoly, now you have the public health system locking it in. And the reason right now that there’s such a fight by the Democrats and by Biden against public medicine and socialized medicine, or single payer, is because they need for privatized medical insurance locks workers into dependence on the employer.

If they complain about their job or they make a union, they’re fired on the spot. And if they’re fired, they lose their health insurance. And if they lose the health insurance, not only do they have to pay a fee, which I think in America, it’s about $6,000 to $12,000 a year for health insurance, but they are subject to being wiped out if they get sick.

And they cannot afford to complain about the job. If they’re fired or complain about the job and lose it, then all of a sudden they can’t pay their monthly credit card bill, and their credit card rates go up from 19% to 29%. So they’re completely at the mercy of the creditor class and the privatized monopolies such as healthcare. It plays the role today that the landlord class played in England and Europe in the Middle Ages.

Grumbine (34:34):
You know, I was a fervent Bernie Sanders supporter. I worked my tail off to do anything I could to educate about his platform. And I see that he had the most votes in Iowa. He won New Hampshire, handily. Crushed Nevada. And then all of a sudden you saw the Chris Matthews of the world losing their mind and talking about Brownshirts and crazy assassinations and stuff in New York City’s Times Square, whatever.

And you look at the rabid anti-public purpose media, anti-public purpose servants. I cannot process it that this could possibly be: they just don’t know any better. They’re just ignorant. This seems like a coordinated, intentional suppression of the people. And I ask myself daily, is there a way of even voting ourselves out of this mess? Because Biden was what, fifth in Iowa? I don’t even think he placed. He did terrible in New Hampshire and then Clyburn and the gang all consolidated, wrapped themselves together, put the thumb on the scale, and all of a sudden Bernie was out and we’re stuck with Biden and Kamala Harris, quite frankly, who didn’t even get a single delegate the entire time she ran.

Nobody wanted her. But here we are staring down the barrel of a neoliberal, actually right-of-Reagan candidate on the Democrat side in Joe Biden, and the lady who literally laughed about arresting poor parents for truancy. And to see the video is so gruesome, it’s so depressing. Is there any way we, the people, can vote our way out of this or do we really need to look at sustained nonelectoral direct action? I know you’re an economist and I know this may not be your area of specialty, but I am curious, what do you think our course of action is here?

Hudson (36:25):
Well, actually it is my area of specialty. I was an advisor to Dennis Kucinich.

Grumbine (36:29):
I love it.

Hudson (36:29):
Here’s the problem. The reason you cannot vote your way out under the current system is that there’s a two party system in the United States, and it’s basically the same party with a little ethnic difference between them, but economically it’s the same party and there cannot be any alternative to this monolithic – we’ll call it the Republican Party with Democratic cheerleaders – there cannot be any progress made until you break up the Democratic Party.

That became apparent not only when they cheated Bernie Sanders out of the nomination four years ago, but this time, when Obama came up and stacked the deck and did everything he could to organize a stab in the back against Sanders. And Bernie Sanders showed himself to be a social democrat. And he said, “Well, I’d rather help my own career by helping the Democratic Party. It’s a gang, but I’d rather be a gang member than take on the gang.”

And so he’s dropped all of his support for public healthcare. He’s dropped all the social views and he’s joined the Democratic gang. What I would have liked to have seen him do, would be to say, “I will not support the Democratic nominee. I realize that it is awful to have to elect a Republican again, especially a Republican like Donald Trump, but no progress can be made until we remove the current Democratic Party leadership and take it over and make it a labor party. And we cannot do that until they realize that they will lose every single election until they give up and join the rest of the Republican Party.”

If America were like Europe, we would have a parliamentary system and new parties could get on the ballot, and the Democrats would be very much like the Social Democrats in Germany with maybe 6 or 7% of the vote, or like the Tony Blair Labourites, all sort of shrinking into nothing. But as long as the political system is controlled by only two parties, then the job of the Democrats is to make sure that the Republicans always get in or, as Obama put it, work across the aisle.

And that’s just what Biden has said. He said, “I’m going to work with Republicans. We’re going to have harmony. I’m going to work across the aisle.” Meaning he basically should be seen as the right wing of the Republican Party as is Harris. And they can call themselves Democrats, but it’s basically Republican. Without replacing the Democratic Party… Bernie Sanders realized there’s no way he could really start a third party and win.

And I think he was correct in that. I assume that he made the correct political decision because of the way you can see how the Green Party has been kept off the ballot in many States, by the Republicans and Democrats together. They’ve gimmicked the system so that a third party can not even get on the ballot significantly. And until you change the electoral system and either make it a parliamentary system, or you break the two-party, which is really a one-party monopoly, you’re not going to be able to have an alternative to Wall Street running the economy.

And the whole idea of government now – basically Wall Street has taken over the government. I know that Bill Black has talked about bank crime and financial crime, but the new motto is if the banks do it, it’s not a crime. It’s like President Nixon saying, “when a president does it, it’s not a crime.” Well, now the banks say, “if we do it, it’s not a crime.”

When Obama invited his campaign contributors to the white house, he said, I’m the only guy standing between you and the mob with pitchforks. He said, when you do it, it’s not a crime. And that’s what you’re faced with. And it’s becoming, really, a kleptocracy. Maybe I should use kleptocracy instead of feudalism. But then most wealth under feudalism was all made by grabbing the public domain, and the big prize in grabbing the public domain is to grab the banking system and the right to create credit.

Grumbine (40:33):
That is a great analysis. I was listening to hear whether my heart could get in line with that, and it’s right there with you. I watch people that I know and love and care about, and they really do believe that the only way to do this is within the Democratic Party. They assure me that the old guard is dying out and we’re going to take over and you know what? Maybe that’s true. All I know is…

Hudson (40:57):
It’s not true, because I’m 81 years old. I was sitting in meetings in the 1950s when people were saying that. And some of the labor leaders would say, why is it that they think we should automatically vote Democratic? There must be an alternative. And people were saying, “No, there are only two parties. It’s one or the other.” And so you’re in the situation you are today. It’s the same argument that I’ve heard for 60 years.

Grumbine (41:24):
So there’s nothing new under the sun. And really at the end of the day, you know, I sit there and I think nothing feels right. It’s all gaslighting. It’s all false hope. And it’s all false perspectives from the banking industry. And when the banking industry has literally captured government and you see that Wall Street has captured our elected leaders and you see that everyone that goes out there is captured.

Hudson (41:46):
Not really captured. They were front men from the beginning. They were brought up as front men. I mean, Obama had a long history of being a front man. If you’re looking at what he did in Chicago, tearing down the Black neighborhoods, essentially gentrifying for the wealthy real estate families that introduced him to Robert Rubin, who said, “That’s our guy. He can fight against his voters and they’ll still vote for him. He’s the guy we want.”

So they sort of nurtured him: “Let’s put him in the Senate right away. Let’s give him a speech at the convention. He’s a good speaker.” And so they sort of nurtured him. They didn’t have to capture him. He wanted to be captured. He was that way at Harvard.

Grumbine (42:24):
Wow. The hole gets deeper and deeper. I watched recently Movement for a People’s Party had a convention. They had Chris Hedges and you had Cornell West and Nina Turner and a few others – the former Bernie folks. But they all in unison basically said, “we’re voting for Joe Biden.”

And it left this weird feeling like: wow, that’s not exactly how I envision a third party working. And then on the flip side is I’m interviewing Margaret Kimberley, I’m interviewing Ajamu Baraka, I’m interviewing Glen Ford, all these folks from Black Agenda Report.

Hudson (43:01):
Yeah, Glen Ford’s wonderful. He gets it straight.

Grumbine (43:03):
Absolutely. And you listen to this and how can we live in such a bizarre world where very smart people are still thinking, somehow or another… Is it the Democratic Party itself, or is it the system in the United States that allows for this duopoly to exist?

Hudson (43:21):
It’s very largely the system. You have to be very smart to make a very big mistake. You have to be so smart that you can rationalize away reality before your eyes and create a huge complex system where reality just sort of shrinks into a little corner on the left. Dumb people can’t reason that way. And they can just say, Hey, the economy is in trouble.
And I think most people who have to work for a paycheck realize that they’re being squeezed, but that’s not what the politicians say. You know, “hope and change.” We’re going to change. And of course their real job is to prevent change and to smash hope. But of course, we’re in an Orwellian rhetoric period, where “hope and change” means no hope and no change.

Grumbine (44:02):
I talked to Steven Keen not long ago, and we talked about the climate crisis. And of course he’s been going after Nordhaus here recently with all the propaganda and the gaslighting his work has pushed forward. And you’re watching as coastal communities are dissipating and we’re watching drought and fires in California and hurricanes in the East and all kinds of disruption everywhere. And you think about what…

Hudson (44:27):
You’re talking about an increase in GDP, you realize?

Grumbine (44:31):
Exactly.

Hudson (44:31):
When people get sick, this is a huge increase in GDP this year in medical services. The economy’s becoming more profitable. And all the fix up of the fires, that’s all added to GDP.

Grumbine (44:43):
Wow. It’s just amazing. There’s a guy named Phil Lawn, who’s in Australia. I’m not sure if you know Phil, but he’s got this Genuine Progress Indicator…

Hudson (44:52):
Oh yes.

Grumbine (44:52):
…that he’s trying to use as a means of evaluating the real benefit of economies. And he’s somebody who actually believes in negative growth as opposed to growing. I’m just curious, what are your thoughts on what a fair way of measuring real economic output and its benefit?

I know Steve Keen talks frequently about the soil, basically, and all the extract from the environment, and everything that goes into the economy. It’s far more than just the dollars and numbers on a balance sheet. It’s the energy consumption. What do you think is the right way of measuring?

Hudson (45:26):
All of this was done in the 1840s in the United States. And in my book, “America’s Protectionist Takeoff,” I have at the appendix, the origins of the Department of Agriculture. And it was formed by Northern protectionists to show the degree of soil depletion resulting from plantation agriculture in the South, the degree to which cotton and tobacco planting depleted the soil, forcing an abandonment of the soil, and moving constantly westward, grabbing Indian lands and essentially Andrew Jackson genocide.

And they wanted to include soil the depletion in the GDP. And they were going to do it under Harrison who, in 1848, unfortunately died rather quickly. So the Patent Office report came out with an idea saying if you’re going to measure national output, you have to measure the cleanup costs, the costs of replenishing the soil, the cost of replenishing the environment for all this. And the whole idea of environmentalism and ecology was developed by the Americans in the 19th century.

It’s not in the textbooks now. Literally, all of this has been expurgated. But obviously if you included in the national statistics, disease and destruction and the costs of oil pollution, you’d see that to make just a few million dollars for an oil company, they’ll cause a billion dollars worth of environmental pollution, global warming, rising sea levels, and all of this. If you took into account what economists call externalities, you’d find that indeed the world’s getting worse.

But economists call that externality. And of course it’s not really an externality, because it’s real. It should be internal. It should be part of the model. But economists say, if it doesn’t show that the 1% are saving society, it’s external to the analysis. We’re only looking at what the rich people do that helps society. We’re not looking at what the rich people do that hurts society because that wouldn’t be economics anymore.

Grumbine (47:29):
I want to finish with this thought and get your take on it. Stephanie Kelton oftentimes will say, it’s not a matter of, can we afford it? Of course we can afford it. The question is, can we resource it? And this is a resource issue as well, even though there’s political constraints in terms of whether we can resource these great programs. The reality is is that beyond whether or not the government says it’s okay or not, there is an ecology there. There is a resource constraint there.
And it sounds to me like this should very much be included in the national or the international discourse, because we all live on one planet. What would you say to a public that is just trying to get by and eat right now, in terms of how to measure prosperity through understanding the resource constraints and so forth? How would you message that?

Hudson (48:21):
There have to be a number of economic measures. There’s no one measure of growth. On the one hand, you can measure the economy’s flow of income. On the other hand, you can measure the economy’s growth in personal wealth. And on the other hand, you can have a separate set of accounts for – here are the externalities of growth. Here’s how much wealth we’re going to lose, and what it will cost us to clean up, or to build dykes like they have in Holland, to prevent the water level rising and just flooding the cities.
You have to have a number of different accounts for different purposes. And if you keep trying to make one-size-fits-all, then it’s not going to work. But the 19th century, basically the classical economists, had it right. They divided income into productive and unproductive income, socially necessary income – wages and profits – and what was unnecessary – rent and interest. And essentially, that approach led them to promote democratic reform in order to get rid of the House of Lords and other Upper Houses of Parliament that were blocking land taxation and were blocking progressive reform.

All of that was what economics is all about. The classical economists were reformers. They were revolutionists because they said industrial capitalism is revolutionary. Industrial capitalism is going to get rid of feudalism. And instead feudalism has made an upsurge, but the landlords sold out, put their money into finance, and now they’re the financial class, not the landlord class. So you have to teach people to look at the economy as a system, not as this sort of tunnel vision idea that they teach in economics courses today. You really need a new discipline.

Grumbine (50:02):
Inputs, outputs, tools, and techniques. I mean, it’s all right there ITTO’s are a great way of, for me… I’m a project manager by trade and all the people that know me will laugh at me afterwards that I found a way to slip that into the interview. But this to me is a really important thing. It is a system and I love what you said there.
I do want to say on the air, our friend Tuan Nguyen had been a fan of yours, had oftentimes asked me to see if I can get you onto our show. We also have a another person, who goes by a pseudonym named “TheCanMan Can,” and he has been begging me to get you on. And I just want to say, after all this time, what a joy it’s been to have you on. You’ve been amazing, and I really appreciate the time you spent with me.

Hudson (50:46):
Well it’s been a fun discussion.

Grumbine (50:49):
So where can we find more of your work, Michael?

Hudson (50:55):
I have my own internet address, Michael hyphen Hudson dot com [michael-hudson.com] and I have all of my articles and interviews that I do, right there. So if you just google Michael Hudson, you’ll see my picture and it’ll put you pretty quickly into michael-hudson.com, and you can see all of my articles, going all the way back.

Grumbine (51:11):
Fantastic. I can’t tell you how much I appreciate this. I hope we can do it again real soon.

Hudson (51:18):
Good. I look forward to it.

Grumbine (51:18):
Awesome. Folks, this is Steve Grumbine with Michael Hudson from Macro N Cheese, telling y’all to have a great day. We’re out of here.