Capitalism

How Finance Behaves like a Parasite Toward the Economy

Economist Michael Hudson explains financial parasitism

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By Michael Hudson

Eric Draitser: Today I have the privilege of introducing Michael Hudson to the program. Doctor Hudson is the author of the new book Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy, available in print on Amazon and an e-version on CounterPunch. Michael Hudson, welcome to CounterPunch Radio.

Michael Hudson: It’s good to be here.

ED: Thanks so much for coming on. As I mentioned already, the title of your book – Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy – is an apt metaphor. So parasitic finance capital is really what you’re writing about. You explain that it essentially survives by feeding off what we might call the real economy. Could you draw out that analogy a little bit? What does that mean? How does finance behave like a parasite toward the rest of the economy?

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MH: Economists for the last 50 years have used the term “host economy” for a country that lets in foreign investment. This term appears in most mainstream textbooks. A host implies a parasite. The term parasitism has been applied to finance by Martin Luther and others, but usually in the sense that you just talked about: simply taking something from the host.

But that’s not how biological parasites work in nature. Biological parasitism is more complex, and precisely for that reason it’s a better and more sophisticated metaphor for economics. The key is how a parasite takes over a host. It has enzymes that numb the host’s nervous system and brain. So if it stings or gets its claws into it, there’s a soporific anesthetic to block the host from realizing that it’s being taken over. Then the parasite sends enzymes into the brain. A parasite cannot take anything from the host unless it takes over the brain.

The brain in modern economies is the government, the educational system, and the way that governments and societies make their economic policy models of how to behave. In nature, the parasite makes the host think that the free rider, the parasite, is its baby, part of its body, to convince the host actually to protect the parasite over itself.

That’s how the financial sector has taken over the economy. Its lobbyists and academic advocates have persuaded governments and voters that they need to protect banks, and even need to bail them out when they become overly predatory and face collapse. Governments and politicians are persuaded to save banks instead of saving the economy, as if the economy can’t function without banks being left in private hands to do whatever they want, free of serious regulation and even from prosecution when they commit fraud. This means saving creditors – the One Percent – not the indebted 99 Percent.

It was not always this way. A century ago, two centuries ago, three centuries ago and all the way back to the Bronze Age, almost every society has realized that the great destabilizing force is finance – that is, debt. Debt grows exponentially, enabling creditors ultimately to foreclose on the assets of debtors. Creditors end up reducing societies to debt bondage, as when the Roman Empire ended in serfdom.

About a hundred years ago in America, John Bates Clark and other pro-financial ideologues argued that finance is not external to the economy. It’s not extraneous, it’s part of the economy, just like landlords are part of the economy. This means that if the financial sector takes more revenue out of the economy as interest, fees or monopoly charges, it’s because finance is an inherent and vital part of the economy, adding to GDP, not merely siphoning it off from producers to pay Wall Street and the One Percent. So our economic policy protects finance as if it helps us grow, not siphons off our growth.

A year or two ago, Lloyd Blankfein of Goldman Sachs said that the reason Goldman Sachs’ managers are paid more than anybody else is because they’re so productive. The question is, productive of what? The National Income and Product Accounts (NIPA) say that everybody is productive in proportion to the amount of money they make/take. It doesn’t matter whether it’s extractive income or productive income. It doesn’t matter whether it’s by manufacturing products or simply taking money from people, or simply by the fraud that Goldman Sachs, Citigroup, Bank of America and others paid tens of millions of dollars in fines for committing. Any way of earning income is considered to be as productive as any other way. This is a parasite-friendly mentality, because it denies that there’s any such thing as unearned income. It denies that there’s a free lunch. Milton Friedman got famous for promoting the idea that there’s no such thing as a free lunch, when Wall Street knows quite well that this is what the economy is all about. It’s all about how to get a free lunch, with risks picked up by the government. No wonder they back economists who deny that there’s any such thing!

ED: To get to the root of the issue, what’s interesting to me about this analogy that we’re talking about is that we hear the term neoliberalism all the time. It is an ideology I that’s used to promote the environment within which this parasitic sort of finance capital can operate. So could you talk a bit about the relationship between finance capital and neoliberalism as its ideology.

MH: Today’s vocabulary is what Orwell would call DoubleThink. If you’re going to call something anti-liberal and against what Adam Smith and John Stuart Mill and other classical economists described as free markets, you pretend to be neoliberal. The focus of Smith, Mill, Quesnay and the whole of 19th-century classical economics was to draw a distinction between productive and unproductive labor – that is, between people who earn wages and profits, and rentiers who, as Mill said, “get rich in their sleep.” That is how he described landowners receiving groundrent. It also describes the financial sector receiving interest and “capital” gains.

The first thing the neoliberal Chicago School did when they took over Chile was to close down every economics department in the country except the one they controlled at the Catholic University. They started an assassination program of left wing professors, labor leaders and politicians, and imposed neoliberalism by gunpoint. Their idea is you cannot have anti-labor, deregulated “free markets” stripping away social protections and benefits unless you have totalitarian control. You have to censor any idea that there’s ever been an alternative, by rewriting economic history to deny the progressive tax and regulatory reforms that Smith, Mill, and other classical economists urged to free industrial capitalism from the surviving feudal privileges of landlords and predatory finance.

This rewriting of the history of economic thought involves inverting the common vocabulary that people use. So, the idea of the parasitism is to replace the meaning of everyday words and vocabulary with their opposite. It’s DoubleThink.

Democratic vs. oligarchic government and their respective economic doctrines

ED: I don’t want to go too far off on a tangent, but you mentioned the example of Chile’s 1973 coup and the assassination of Allende to impose the Pinochet dictatorship. That was a Kissinger/Nixon operation as we know, but what’s interesting about that is Chile was transformed into a sort of experimental laboratory to impose the Chicago school economic model of what we now would call neoliberalism. Later in our conversation I want to talk a bit about some recent laboratories we have seen in Eastern Europe, and now in Southern Europe as well. The important point about neoliberalism is the relationship between totalitarian government and this form of economics.

MH: That’s right. Neoliberals say they’re against government, but what they’re really against is democratic government. The kind of governments they support are pre-referendum Greece or post-coup Ukraine. As Germany’s Wolfgang Schäuble said, “democracy doesn’t count.” Neoliberals want the kind of government that will create gains for the banks, not necessarily for se the economy at large. Such governments basically are oligarchic. Once high finance takes over governments as a means of exploiting the 99 Percent, it’s all for active government policy – for itself.

Aristotle talked about this more than 2,000 years ago. He said that democracy is the stage immediately proceeding oligarchy. All economies go through three stages repeating a cycle: from democracy into oligarchy, and then the oligarchs make themselves hereditary. Today, Jeb Bush wants to abolish the estate tax to help the emerging power elite make itself into a hereditary aristocracy. Then, some of the aristocratic families will fight among themselves, and take the public into their camp and promote democracy, so you have the cycle going all over again. That’s the kind of cycle we’re having now, just as in ancient Athens. It’s a transition from democracy to oligarchy on its way to becoming an aristocracy of the power elite.

ED: I want to return to the book in a second but I have to interject that one particular economist hasn’t been mentioned yet: Karl Marx. It’s an inversion of Marx as well, because Marx’s labor theory of value was that that value ultimately is derived from labor. Parasitic finance capital is the opposite of that. It may increase prices without value.

MH: Correct, but I should point out that there’s often a misinterpretation of the context in which the labor theory of value was formulated and refined. The reason why Marx and the other classical economists – William Petty, Smith, Mill and the others – talked about the labor theory of value was to isolate that part of price that wasn’t value. Their purpose was to define economic rent as something that was not value. It was extraneous to production, and was a free lunch – the element of price that is charged to consumers and others that has no basis in labor, no basis in real cost, but is purely a monopoly price or return to privilege. This was mainly a survival of the feudal epoch, above all of the landed aristocracy who were the heirs of the military conquers, and also the financial sector of banking families and their heirs.

The aim of the labor theory of value was to divide the economy between excessive price gouging and labor. The objective of the classical economists was to bring prices in line with value to prevent a free ride, to prevent monopolies, to prevent an absentee landlord class so as to free society from the legacy of feudalism and the military conquests that carved up Europe’s land a thousand years ago and that still underlies our property relations.

The concept and theory of economic rent

ED: That’s a great point, and it leads me into the next issue that I want to touch on. You’ve mentioned the term already a number of times: the concept of economic rent. We all know rent in terms of what we have to pay every month to the landlord, but we might not think about what it means conceptually. It’s one of the fabrics with which you’ve woven this book together. One of the running themes, rent extraction, and its role in the development of what we’ve now termed this parasitic relationship. So, explain for laymen what this means – rent extraction – and how this concept evolved.

MH: To put the concept of economic rent in perspective, I should point out when I went to get my PhD over a half a century ago, every university offering a graduate economics degree taught the history of economic thought. That has now been erased from the curriculum. People get mathematics instead, so they’re unexposed to the concept of economic rent as unearned income. It’s a concept that has been turned on its head by “free market” ideologues who use “rent seeking” mainly to characterize government bureaucrats taxing the private sector to enhance their authority – not free lunchers seeking to untax their unearned income. Or, neoclassical economists define rent as “imperfect competition” (as if their myth of “perfect competition” really existed) stemming from “insufficient knowledge of the market,” patents and so forth.

Most rent theory was developed in England, and also in France. English practice is more complex than America. The military conquers imposed a pure groundrent fee on the land, as distinct from the building and improvements. So if you buy a house from a seller in England, somebody else may own the land underneath it. You have to pay a separate rent for the land. The landlord doesn’t do anything at all to collect land rent, that’s why they call them rentiers or coupon clippers. In New York City, for example, Columbia University long owned the land underneath Rockefeller Center. Finally they sold it to the Japanese, who lost their shirt. This practice is a carry-over from the Norman Conquest and its absentee landlord class.

The word “rent” originally was French, for a government bond (rente). Owners received a regular income every quarter or every year. A lot of bonds used to have coupons, and you would clip off the coupon and collect your interest. It’s passively earned income, that is, income not actually earned by your own labor or enterprise. It’s just a claim that society has to pay, whether you’re a government bond holder or whether you own land.

This concept of income without labor – but simply from privileges that had been made hereditary – was extended to the ideas of monopolies like the East India Company and other trade monopolies. They could produce or buy goods for, let’s say, a dollar a unit, and sell them for whatever the market will bear – say, $4.00. The markup is “empty pricing.” It’s pure price gouging by a natural monopoly, like today’s drug companies.

To prevent such price gouging and to keep economies competitive with low costs of living and doing business, European kept the most important natural monopolies in the public domain: the post office, the BBC and other state broadcasting companies, roads and basic transportation, as well as early national airlines. European governments prevented monopoly rent by providing basic infrastructure services at cost, or even at subsidized prices or freely in the case of roads. The guiding idea is for public infrastructure – which you should think of as a factor of production along with labor and capital – was to lower the cost of living and doing business.

But since Margaret Thatcher led Britain down the road to debt peonage and rent serfdom by privatizing this infrastructure, she and her emulators other countries turned them into tollbooth economies. The resulting economic rent takes the form of a rise in prices to cover interest, stock options, soaring executive salaries and underwriting fees. The economy ends up being turned into a collection of tollbooths instead of factories. So, you can think of rent as the “right” or special legal privilege to erect a tollbooth and say, “You can’t get television over your cable channel unless you pay us, and what we charge you is anything we can get from you.”

This price doesn’t have any relation to what it costs to produce what they sell. Such extortionate pricing is now sponsored by U.S. diplomacy, the World Bank, and what’s called the Washington Consensus forcing governments to privatize the public domain and create such rent-extracting opportunities.

In Mexico, when they told it to be more “efficient” and privatize its telephone monopoly, the government sold it to Carlos Slim, who became one of the richest people in the world by making Mexico’s phones among the highest priced in the world. The government provided an opportunity for price gouging. Similar high-priced privatized phone systems plague the neoliberalized post-Soviet economies. Classical economists viewed this as a kind of theft. The French novelist Balzac wrote about this more clearly than most economists when he said that every family fortune originates in a great theft. He added that this not only was undiscovered, but has come taken for granted so naturally that it just doesn’t matter.

If you look at the Forbes 100 or 500 lists of each nation’s richest people, most made their fortunes through insider dealing to obtain land, mineral rights or monopolies. If you look at American history, early real estate fortunes were made by insiders bribing the British Colonial governors. The railroad barrens bribed Congressmen and other public officials to let them privatize the railroads and rip off the country. Frank Norris’s The Octopus is a great novel about this, and many Hollywood movies describe the kind of real estate and banking rip-offs that made America what it is. The nation’s power elite basically begun as robber barons, as they did in England, France and other countries.

The difference, of course, is that in past centuries this was viewed as corrupt and a crime. Today, neoliberal economists recommend it as the way to raise “productivity” and make countries wealthier, as if it were not the road to neofeudal serfdom.

The Austrian School vs. government regulation and pro-labor policies

ED: I don’t want to go too far off on a tangent because we have a lot to cover specific to your book. But I heard an interesting story when I was doing a bit of my own research throughout the years about the evolution of economic thought, and specifically the origins of the so-called Austrian School of Economics – people like von Mises and von Hayek. In the early 20th century they were essentially, as far as I could tell, creating an ideological framework in which they could make theoretical arguments to justify exorbitant rent and make it seem almost like a product of natural law – something akin to a phenomenon of nature.

MH: The key to the Austrian School is their hatred of labor and socialism. It saw the danger of democratic government spreading to the Habsburg Empire, and it said, “The one thing we have to stop is democracy. Their idea of a free market was one free of democracy and of democratic government regulating and taxing wealthy rentiers. It was a short step to fighting in the streets, using murder as a “persuader” for the particular kind of “free markets” they wanted – a privatized Thatcherite deregulated kind. To the rentiers they said: “It’s either our freedom or that of labor.”

Kari Polanyi-Levitt has recently written about how her father, Karl Polanyi, was confronted with these right-wing Viennese. His doctrine was designed to rescue economics from this school, which makes up a fake history of how economics and civilization originated.

One of the first Austrian’s was Carl Menger in the 1870s. His “individualistic” theory about the origins of money – without any role played by temples, palaces or other public institutions – still governs Austrian economics. Just as Margaret Thatcher said, “There’s no such thing as society,” the Austrians developed a picture of the economy without any positive role for government. It was as if money were created by producers and merchants bartering their output. This is a travesty of history. All ancient money was issued by temples or public mints so as to guarantee standards of purity and weight. You can read Biblical and Babylonian denunciation of merchants using false weights and measures so see why money had to be public. The major trading areas were agora spaces in front of temples, which kept the official weights and measures. And much exchange was between the community’s families and the public institutions.

Most important, money was brought into being not for trade (which was conducted mainly on credit), but for paying debts. And most debts were owed to the temples and palaces for pubic services or tribute. But to the Austrians, the idea was that anything the government does to protect labor, consumers and society from rentiers and grabbers is deadweight overhead.

Above all, they opposed governments creating their own money, e.g. as the United States did with its greenbacks in the Civil War. They wanted to privatize money creation in the hands of commercial banks, so that they could receive interest on their privilege of credit creation and also to determine the allocation of resources.

Today’s neoliberals follow this Austrian tradition of viewing government as a burden, instead of producing infrastructure free of rent extraction. As we just said in the previous discussion, the greatest fortunes of our time have come from privatizing the public domain. Obviously the government isn’t just deadweight. But it is becoming prey to the financial interests and the smashers and grabbers they have chosen to back.

ED: You’re right, I agree 100%. You encounter this ideology even in the political sociological realm like Joseph Schumpeter, or through the quasi-economic realm like von Hayek in The Road to Serfdom.

MH: Its policy conclusion actually advocates neo-serfdom. Real serfdom was when families had to pay all their income to the landlords as rent. Centuries of classical economists backed democratic political reform of parliaments to roll back the landlords’ power (and that of bankers). But Hayek claimed that this rollback was the road to serfdom, not away from it. He said democratic regulation and taxation of rentiers is serfdom. In reality, of course, it’s the antidote.

ED: It’s the inversion you were talking about earlier. We’re going to go into a break here in a minute but before we do I want to touch on one other point that is important in the book, again the book, Killing the Host: How Financial Parasites and Debt Bondage Destroyed the Global Economy, available from CounterPunch – very important that people pick up this book.

MH: And from Amazon! You can get a hard copy for those who don’t want to read on computers.

Finance as the new mode of warfare

ED: Yes, and on amazon as well, thank you. This issue that I want to touch on before we go to the break is debt. On this program a couple of months ago I had the journalist John Pilger. He and I touched on debt specifically as a weapon, and how it is used as a weapon. You can see this in the form of debt enslavement, if you want to call it that, in postcolonial Africa. You see the same thing in Latin America where, Michael, I know you have a lot of experience in Latin America in the last couple of decades. So let’s talk a little bit, if we could, before we go to the break, about debt as a weapon, because I think this is an important concept for understanding what’s happening now in Greece, and is really the framework through which we have to understand what we would call 21st-century austerity.

MH: If you treat debt as a weapon, the basic idea is that finance is the new mode of warfare. That’s one of my chapters in the book. In the past, in order to take over a country’s land and its public domain, its basic infrastructure and its mineral resources, you had to have a military invasion. But that’s very expensive. And politically, almost no modern democracy can afford a military invasion anymore.

So the objectives of the financial sector – of Wall Street, the City of London or Frankfurt in Germany – is to obtain the land. You can look at what’s happening in Greece. What its creditors, the IMF and European Central Bank (ECB) want are the Greek islands, and they want the gas rights in the Aegean Sea. They want whatever buildings and property there is, including the museums.

Matters are not so much different in the private sector. If you can get a company or individual into debt, you can strip away the assets they have when they can’t pay. A Hayek-style government would block society from protecting itself against such asset stripping. Defending “property rights” of creditors, such “free market” ideology deprives the rest of the economy – businesses, individuals and public agencies. It treats debt writedowns as the road to serfdom, not the road away from debt dependency.

In antiquity, private individuals obtained labor services by making loans to families in need, and obliging their servant girls, children or even wives to work off the loan in the form of labor service. My Harvard-based archaeological group has published a series of five books that I co-edited, most recently Labor in the Ancient World. Creditors (often palace infrastructure managers or collectors) would get people into bondage. When new Bronze Age rulers started their first full year on the throne, it was customary to declare an amnesty to free bond servants and return them to their families, and annul personal debts as well as to return whatever lands were forfeited. So in the Bronze Age, debt serfdom and debt bondage was only temporary. The biblical Jubilee law was a literal translation of Babylonian practice that went back two thousand years.

In America, in colonial times, sharpies (especially from Britain) would lend farmers money that they knew the farmer couldn’t pay, then they would foreclose just before the crops came in. Right now you have corporate raiders, who are raiding whole companies by forcing them into debt, and then smashing and grabbing. You now have the IMF, European Central Bank and Washington Consensus taking over whole countries like Ukraine. The tactic is to purposely lend them the money that clearly cannot be repaid, and say, “Oh you cannot pay? Well, we’re not going to take a loss. We have a solution.” The solution is to sell off public enterprises, land and natural resources. In Greece’s case, 50 billion euros of its property, everything that it has in the public sector. The country is to be sold off to foreigners (including domestic oligarchs working out of their offshore accounts). Debt leverage is thus the way to achieve what it took armies to win in times past.

ED: Exactly. One last point on that as well. I want to get your comment on and we see this in post-colonial Africa, especially when the French and the British had to nominally give up control of their colonies. You saw debt become an important tool to maintain hegemony within their spheres of influence. Of course, asset stripping and seizing control, smashing and grabbing was part of that. But also it is the debt servicing payments, it is the cycle of debt repayment and taking new loans on top of original loans to service the original loans – this process this cycle is also really an example of this debt servitude or debt bondage.

MH: That’s correct, and mainstream economics denies any of this. It began with Ricardo, who’s brothers were major bankers at the time, and he himself was the major bank lobbyist in England. Right after Greece won its independence from Turkey, the Ricardo brothers made a rack-renting loan to Greece at far below par (that is, below the face value that Greece committed itself to pay). Greece tried to pay over the next century, but the terms of the loan ended up stripping and keeping it on the edge of bankruptcy well into the 20th century.

But Ricardo testified before Parliament that there could be no debt-servicing problem. Any country, he said, could repay the debts automatically, because there is an automatic stabilization mechanism that enables every country to be able to pay. This is the theory that underlines Milton Friedman and the Chicago School of monetarism: the misleading idea that debt cannot be a problem.

That’s what’s taught now in international trade and financial textbooks. It’s false pleading. It draws a fictitious “What If” picture of the world. When criticized, the authors of these textbooks, like Paul Samuelson, say that it doesn’t matter whether economic theory is realistic or not. The judgment of whether an economic theory is scientific is simply whether it is internally consistent. So you have these fictitious economists given Nobel Prizes for promoting an inside out, upside down version of how the global economy actually works.

ED: One other thing that they no longer teach is what used to be called political economy. The influence of the Chicago School, neoliberalism and monetarism has removed classical political economy from academia, from the Canon if you will. Instead, as you said, it’s all about mathematics and formulas that treat economics like a natural science, when in fact it really should be more of a historically grounded social science.

MH: The formulas that they teach don’t have government in them,. If you have a theory that everything is just an exchange, a trade, and that there isn’t any government, then you have a theory that has nothing to do with the real world. And if you assume that the environment remains constant instead of using economics to guide public and national policy, you’re using economics for the opposite of what the classical economists did. Adam Smith, Mill, Marx, Veblen – they all developed their economic theory to reform the world. The classical economists were reformers. They wanted to free society from the legacy of feudalism – to get rid of land rent, to take money creation and credit creation into the public domain. Whatever their views, whether they were right wingers or left wingers, whether they were Christian socialists, Ricardian socialists or Marxian socialists, all the capitalist theorists of the 19th century called themselves socialists, because they saw capitalism as evolving into socialism.

But what you now have, since World War I, is a reaction against this, stripping away of the idea that governments have a productive role to play. If government is not the director and planner of the economy, then who is? It’s the financial sector. It’s Wall Street. So the essence of neoliberalism that you were mentioning before, is indeed a doctrine of central planning. It states that the central planning should be done by Wall Street, by the financial sector.

The problem is, what is the objective of central planning by Wall Street? It’s not to raise living standards, and it’s not to increase employment. It is to smash and grab. That is the society we’re in now.

Originally published here.


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  • JeffMowatt

    “Capitalism has always comprised both predators and creators
    (locusts and bees) and if the recent financial crisis taught us
    anything, it is that crises occur when capitalism’s predators become too
    powerful – extracting value rather than creating it.” said Geof Mulgan

    Academics and business leaders who imagine a new form of capitalism share the belief that business should contribute more than it extracts from society. Here’s what happens when its put into practice:

    https://www.linkedin.com/pulse/capitalism-purpose-vs-profit-pollinators-predators-jeff-mowatt

    • John M Legge

      Anyone who knows anything about Branson would not be surprised to see him associated with astroturfing. I suspect that the same applies to several of the other actors Mowatt mentions. Unwinding 36 years of neoliberal dominance won’t happen without some friction. “Lord make me pure, but not just yet…” may be a prayer used by others than St Augustine.

  • This may be the most absurd piece I have read on this site. For example:

    “The first thing the neoliberal Chicago School did when they took over
    Chile was to close down every economics department in the country except
    the one they controlled at the Catholic University. They started an
    assassination program of left wing professors, labor leaders and
    politicians, and imposed neoliberalism by gunpoint.”

    If this is demonstrated to be true, I will reconsider my view.

    • Nicholas Gruen

      Yes, that was a pretty strange paragraph. Is there evidence of this?

    • John M Legge
      • That Wikipedia page does not support the quotation.

        • John M Legge

          It describes part of the assassination (and intimidation) process under the Chicago Boys in Chile. That is half of your objection. Perhaps you should reconsider half your position?

          Hudson does tend to hyperbole: I can’t find evidence in a quick Google search that other economics departments were shut down. Murdering their professors might constitute “shutting down” in one view but merely “re-educating” in another.

          • I appreciate the explanation with respect to Hudson and hyperbole. I note, however that a tendency to hyperbole is a not a great characteristic for an academic! 🙂

            To briefly address the substance, there is no doubt that the Pinochet dictatorship was brutal. Hudson states (or at least strongly implies) that the University of Chicago economists that advised the regime were responsible for assassinating local academics that disagreed with them. That seems false and slanderous.

            On a side note, can someone explain why Hudson refers to these economists as neo-liberal? Even Wikipedia describes these economics at “libertarian”. Is this a strained attempt by the hard left to tar neo-liberalism (which I associate with Michael Kinsley or the DLC) with the crimes of the Pinochet regime? That would require a lot of leaps. But I ask, because maybe there is something else going on.

          • John M Legge

            I am not a spokesman or apologist for the “hard left”. After leaving university I spent 28 years working in for-profit enterprises, towards the end in quite senior positions. After that I spent twenty plus years in higher education, teaching management, marketing and corporate finance. Nothing I did or learned disposed me to favour neoliberalism or the activities of the Chicago boys in Chile; assuming, as you seem to, that there was any difference.
            The “Chicago boys” voluntarily worked to advise a regime that murdered 3,000 of its suspected opponents and imprisoned, under oppressive and frequently tortious conditions, 30,000 of them. You regard associating the Chicago boys with the regime’s crimes as slanderous. I find it hard to agree with you.

    • Naomi Klein’s “Shock Doctrine” documents the entire episode with copious footnotes.

      • What is the evidence she cites for the proposition that the University of Chicago economists that advised the Pinochet regime were responsible for assassinating local academics that disagreed with them?

        • N. Klein discusses the shooting of students, the arresting of academics, and the suppression of the Universities from these sources: 1). Andre Gunder Frank, “Economic Genocide in Chile: Monetarist theory versus Humanity,” 1976; Marguerite Feitlowitz, “A Lexicon of Terror: Argentina and the Legacies of Torture,” 1998; Diana Taylor, “Disappearing Acts: spectacles of Gender and Nationalism in Argentina,” 1997; “Report of Chilean National Commission on Truth and Reconciliation,” 1993. There is a similar report from Argentina.

          She states, p104, “At the University of Chile, rival to the Chicago Boys’ home base, The Catholic University, hundreds of professors were fired for “inobservance of moral duties (including Andre Gunder Frank, the dissident Chicagoan who wrote angry letters home to his former professors). During the coup, Gunder Frank reported that “six students were shot on sight in the main entrance to the School of Economics to offer an object lesson to the remainder.”

          Klein discusses the killing and torture in the Southern Cone of South America – Chile, Argentina and Uruguay. She states, “Yet in the Southern Cone, the first place where the contemporary religion of unfettered free markets escaped from the basement workshops of the University of Chicago and was applied in the real world, it did not bring democracy; it was predicated on the overthrow of democracy in country after country. And it did not bring peace but required the systematic murder of tens of thousands and the torture of between 100,000 and 150,000 people.”
          Naomi Klein’s “Shock Doctrine,” is required reading, btw.

          • Not even your description supports the contention that that the University of Chicago economists that advised the Pinochet regime were responsible for assassinating local academics that disagreed with them.

          • Klein’s text is over 400p. The argument related to the coups and juntas in the Southern Cone are 2 long chapters. I have tried to inform you of certain facts that were not revealed until investigations began after 1998 when Pinochet was displaced. I am sure you have heard of the disappeared in that region – they did not reappear. The influence of Milton Friedman is directly connected to the University education of the Chicago Boys. I cannot read the texts for you. If you want the facts, you must investigate. Personally I am convinced that the most of Latin America was convinced or persuaded to adopt these neoliberal, politically coercive, tactics and have only recently been ridding themselves of them. Witness Brazil recently. But, there are other factors such as the alliances which the Chinese networks which Venezuela has embarked upon. Anyway, the proof of the liquidation of professors and others can be found in those references I provided earlier. The responsible individuals were tried and found guilty. There is a link below this post which also addresses the same problem.

          • As no new information is forthcoming and my response below answers your above post as well. This will be my last response.

            “To briefly address the substance, there is no doubt that the Pinochet dictatorship was brutal. Hudson states (or at least strongly implies) that the University of Chicago economists that advised the regime were responsible for assassinating local academics that disagreed with them. That seems false and slanderous.”

  • In free-market capitalism, capital generates income for the
    owners of the capital which in turn is used to create additional capital. This
    is very good. Sometimes, it can be actually too good. As capital continues to
    accumulate, its owners find it more and more difficult to deploy it
    efficiently. The business sector generally must interact with the household
    sector by selling goods and services or lending to them. When capital
    accumulates too rapidly, the productive capacity of the business sector can
    outpace the ability of the household sector to absorb the increasing
    production.

    The capitalists, or if you prefer, job creators use their
    increasing wealth and income to reinvest, thus increasing the productive
    capacity of the business they own. They also lend their accumulated wealth to
    other business as well as other entities after they have exhausted
    opportunities within business they own. As they seek to deploy ever more
    capital, excess factories, housing and shopping centers are built and more and
    more dubious loans are made. This is overinvestment. As one banker described
    the events leading up to 2008 – First the banks lent all they could to those
    who could pay them back and then they started to lend to those could not pay
    them back. As cash poured into banks in ever increasing amounts, caution was
    thrown to the wind. For a while consumers can use credit to buy more goods and
    services than their incomes can sustain. Ultimately, the overinvestment results
    in a financial crisis that causes unemployment, reductions in factory
    utilization and bankruptcies all of which reduce the value of investments.

    If the economy was suffering from accumulated chronic
    underinvestment, shifting income from the non-rich to the rich would make
    sense. Underinvestment would mean there was a shortage of shopping centers,
    hotels, housing and factories were operating at 100% of capacity but still not
    able to produce as many cars and other goods as people needed. It might not
    seem fair, but the quickest way to build up capital is to take income away from
    the middle class who have a high propensity to consume and give to the rich who
    have a propensity to save (and invest). Except for periods in the 1950s and
    1960s and possibly the 1990’s when tax rates on the rich just happened to be
    high enough to prevent overinvestment, the economy has generally suffered from
    periodic overinvestment cycles.

    It is not just a coincidence that tax cuts for the rich have
    preceded both the 1929 and 2007 depressions. The Revenue acts of 1926 and 1928
    worked exactly as the Republican Congresses that pushed them through promised.
    The dramatic reductions in taxes on the upper income brackets and estates of
    the wealthy did indeed result in increases in savings and investment. However,
    overinvestment (by 1929 there were over 600 automobile manufacturing companies
    in the USA)
    caused the depression that made the rich, and most everyone else, ultimately
    much poorer.

    Since 1969 there has been a tremendous shift in the tax
    burdens away from the rich on onto the middle class. Corporate income tax
    receipts, whose incidence falls entirely on the owners of corporations, were 4%
    of GDP then and are now less than 1%. During that same period, payroll tax
    rates as percent of GDP have increased dramatically. The overinvestment problem
    caused by the reduction in taxes on the wealthy is exacerbated by the increased
    tax burden on the middle class. While overinvestment creates more factories,
    housing and shopping centers; higher payroll taxes reduces the purchasing power
    of middle-class consumers. …”
    http://seekingalpha.com/article/1543642

    • Ormond Otvos

      Whole lot of unevidenced assumptions there. The most glaring is that the accumulated riches will be invested efficiently by the greedy, showoff rich, like Trump, and all the other yacht buyers…yachts, mansions, planes, travel at great cost, all waste.

      • Lance

        In an interview about the proposed “Buffett Rule”, T.J. Rogers the CEO of Cypress Semiconductor Corporation (NASDAQ:CY) inadvertently illustrated the potential perils of overinvestment for an economy. Warren Buffett the CEO of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) had proposed the “Buffett Rule” which would impose a minimum tax of 30% on incomes above one million dollars. Rogers explained to Larry Kudlow on CNBC’s Kudlow Report on May 16, 2012, why he opposed the Buffett Rule. Rogers said that he spends less than 1% of his income on his living expenses and invests the other 99% in creating new businesses and increasing the productive capacity of the businesses he already owns. If he had to pay taxes pursuant to the Buffett Rule he would not be able to invest as much. Clearly, someone who invests 99% of their income will see his wealth grow exponentially as long as his investments are at all productive. It would not take too many members of the top 1% investing 99% of their income before they would be unable to deploy their capital productively. This would be a classic example of capital accumulating faster than consumers’ incomes. Consumers would not be able to buy all the goods and services produced by the over investment…”

  • He could have mentioned that other stakes pertain to Greek shipping, the largest shippers in the world. The odd thing is that the Greek shipping magnates pay no taxes as per their 1968 Constitution. The ECB and the IMF may be holding Greece hostage for control over their shipping industry. However, if the Greek shippers would pay some taxes, the Greek debt could be significantly reduced!

  • Hugo Spinoso

    capital creates capital, and this is the main problem, not only for the investor but for the system in general, the main drawback is monopoly, wich in turns will eliminate free trade, and then it will create other problems.

    As he mentioned unregulated free trade is impossible as it will eventualy create the same system is trying to avoid, except that now is in hands of the private sector and a few people instead of a goverment. but the control will be the same or even worst as the monopoly grows,so both extremes lead to the same result, regardless of if its the goverment or the private sector.

  • Ormond Otvos

    Watch the glorious nitpicking and deflection in the comments above. Confirmation bias, anyone?

  • Unfettered Fire

    Imagine if the human body operated from the Randian concept – organs vying for their own survival at the expense of other functions, then the infighting of cells within each organ.

    The human organism is fiercely struggling for self-preservation and survival, yet it innately recognizes its utter dependence on the autonomy of all interconnected systems working in tandem within itself.

    Randism is antithetical to life itself. It promotes pure (self-justified) reason while dismissing the instinct of protecting the whole.

    Evolution is the advancement of reason and instinct. If one foot is nailed to the floor, humanity walks in circles, as it is doing now.

    The question is, do neoliberals even WANT to evolve? They seem to be perfectly happy being trapped in the stagnancy of the past.

    And the day came when the risk to remain tight in a bud was more painful than the risk it took to blossom. ~ Anais Nin

    That day is here.

    • Unfettered Fire

      “The point I wish to make about the going entitlement myth, is that the dedication to the common good which arises from our human instincts, values, and virtues and forms the human covenant which enables joint power and prosperity is there for everybody to contribute to and, when the need arises, benefit from. If you want to call this “entitlement,” so be it. I’d rather call it a human right (like the right to receive care when one becomes wounded or sick), as well as a human duty for anyone wishing to live in a healthy civilization.

      I would call this alleged “entitlement thinking” nothing less than being human; and I would make the claim that something we all are “entitled” to in a healthy human society is no “entitlement” to begrudge those who have fallen on hard times or make up the weakest layer in our society.

      This mutual care is something we ALL have a right to benefit from when the need arises and a duty for us all to contribute to when we can. It is not an unjustified, special entitlement like the wealth and luxury available to only a privileged few in the upper class who did nothing to deserve it (or just enough to deserve merely a fraction of it, in the rarest of cases). In reality, it is the obscene luxury and wealth expectations of the billionaire class, and some of their millionaire disciples (say, in Congress), that merit the label of a disgraceful and wrongful “entitlement.””

      https://beanstocksworld.wordpress.com/2017/06/30/entitlement-happens-not-at-the-bottom-but-at-the-top/

  • BetterFailling

    Let me be the devil’s advocate and point out that the ‘best’ parasites are the symbionts…
    It’s not that the banking industry is useless but that it had organized itself in a quasi-monopolistic way and we’ve allowed this to happen by standing idle when the Glass-Steagall legislation was dismantled…
    https://nicichiarasa.wordpress.com/2017/07/03/social-construction-of-reality/