Micheal Hudson: "J is for Junk Economics"

[Winehole23]

When I went to school 60 years ago, every graduate economics student had to study the history of economic thought. You’d get Adam Smith, Ricardo and John Stuart Mill, Marx and Veblen. Their analysis had a common denominator: a focus on unearned income, which they called rent. Classical economics distinguished between productive and unproductive activity, and hence between wealth and overhead. The traditional landlord class inherited its wealth from ancestors who conquered the land by military force. These hereditary landlords extract rent, but don’t do anything to create a product. They don’t produce output. The same is true of other recipients of rent. Accordingly, the word used through the 19th century was rentier. It’s a French word. In French, a rente was income from a government bond. A rentier was a coupon clipper, and the rent was interest. Today in German, a Rentner is a retiree receiving pension income. The common denominator is a regular payment stipulated in advance, as distinct from industrial profit.


The classical economists had in common a description of rent and interest as something that a truly free market would get rid of. From Adam Smith and John Stuart Mill down to Marx and the socialists, a free market was one that was free of a parasitic overclass that got income without doing work. They got money by purely exploitative means, by charging rent that doesn’t really have to be paid; by charging interest; by charging monopoly rent for basic infrastructure services and public utilities that a well-organized government should provide freely to people instead of letting monopolists put up toll booths on roads and for technology and patent rights simply to extract wealth. https://michael-hudson.com/2018/12/guns-butter-the-vocabulary-of-economic-deception/

[Winehole23]

An economic fight ensued and the parasites won. The first thing rentiers – the financial class and monopolists, a.k.a. the 1% – did was to say, ‘We’ve got to stop teaching the history of economic thought so that people don’t even have a memory that there is any such a thing as economic rent as unearned income or the various policies proposed to minimize it. We have to take the slogan of the socialist reformers – a free market – and redefine it as a free market is one free from government – that is, from ‘socialism’ – not free from landlords, bankers and monopolists.’ They turned the vocabulary upside down to mean the opposite. But in order to promote this deceptive vocabulary they had to erase all memory of the fact that these words originally meant the opposite.

[Winehole23]

Reform used to mean something social democratic. It meant getting rid of special privileges, getting rid of monopolies and protecting labor and consumers. It meant controlling the prices that monopolies could charge, and regulating the economy to prevent fraud or exploitation – and most of all, to prevent unearned income or tax it away.


In today’s neoliberal vocabulary, ‘reform’ means getting rid of socialism. Reform means stripping away protection or labor and even of industry. It means deregulating the economy, getting rid of any kind of price controls, consumer protection or environmental protection. It means creating a lawless economy where the 1% are in control, without public checks and balances. So reform today means getting rid of all of the reforms that were promoted in the 19th and early-20th century.

[Winehole23]

Finance has accounted for almost all of the growth in U.S. GDP in the ten years since the Lehman Brothers crisis and the Obama bailout in 2008. The biggest banks at that time were insolvent as a result of bad loans and outright financial fraud. But the government created $4.3 trillion of reserves to bail out Citigroup, Wells Fargo and Bank of America, with Goldman Sachs thrown in, despite the fact that their fraudulent junk mortgage loans were predatory, not productive credit that actually increased wealth in the form of productive power. There’s a growing understanding that the financial sector has become so dysfunctional that it is a deadweight on the economy, burdening it with increasing debt charges – student loans are an example – instead of actually helping the economy grow.

[Winehole23]

But the rentier classes have taken over the National Income and Product Accounts (NIPA) to depict their takings as actual production of a service, not as overhead or a transfer payment, that is, not as parasitic extraction of other peoples’ earnings.


For instance, suppose you have a credit card and you miss a payment, or miss a payment on a student loan, electric bill or your rent. The credit card company will use this as an excuse to raise your interest charge from 11% to 29%. The national income account treat this rise to 29% as providing a ‘financial service’. The so-called service is simply charging a penalty rate. The pretense is that everything that a bank charges – higher interest or penalties – is by definition providing a service, not simply extracting money from cardholders, transferring income from them to itself.


Classical economists would have subtracted this financial rake-off from output, counting it as overhead. After all, it simply adds to the cost of living and doing business. Instead, the most recent statisticians have added this financial income to the Gross National Product instead of subtracting it, as the classical economists would have done or simply not counted it, as was the case a generation ago.

[Winehole23]

Most reporters and the financial press donít get into the nitty-gritty of these national accounts, so they donít realize how lobbyists have intervened in recent years to turn them into propaganda flattering bankers and property owners. Today’s ‘reformed’ GDP format pretends that the economy has been going up since 2008. A more realistic description would show that it is shrinking for 95 percent of the population, being eaten away by the wealthiest 5% extracting more rentier income and imposing austerity.


If you look at the national balance sheet of assets and liabilities, the economy is becoming more debt-ridden. As student debt and mortgage debt go up, and penalty fees, arrears and defaults are rising. The long rise in home ownership rates is being reversed, and rents are rising, while people also have to pay more for medical care and other basic needs. Academic economists depict this as ‘consumer choice’ or ‘demand’, as if it is all a voluntary choice of the ‘market’. The GDP accounting format has been modified to make it appear that the economy is getting richer. This statistical sleight-of-hand is achieved by counting the takings of the rentier 1% as a product, not a cost borne by the economy at large.

[Winehole23]

I think that interest and rents should be taxed, not wages and legitimate profits. The FICA wage withholding now absorbs almost 16% of most wage-earning income for Social Security and Medicare. But wealthy people don’t have to pay any contribution on what they make over than about $ $116,000 a year. They donít have to pay any FICA contribution on their capital gains, which is how most fortunes are made. The rentiers’ idea of a free market is to make labor pay for all of the Social Security and Medicare – and then to give so much to Wall Street that they can say, ‘Oh, there’s no more money’. The system’s short, so we have to wipe out Social Security, just as so many companies have wiped out the pension commitments. As George W. Bush said, there’s not really any money in the Social Security accounts. Its tax on the lower income brackets that was used to cut taxes on the higher income and wealth brackets. The economy has been turned into a grab bag for the rich.

[Winehole23]

If you look at the books that almost everybody wrote in the 19th century, they called it political economy because economics is political. And conversely, economics is what politics has always been about. Who’s getting what? Or as Lenin said, who-whom? It’s about how society makes decisions about whoís going to get rich and how they are going to do it. Are they going to get wealthy by acting productively, or parasitically? Eeverything economic turns out to be political.


The economy’s new central planners on Wall Street pretend that what they’re doing is not political. Cutting taxes on themselves is depicted as a law of nature. But they deny that this is politics, as if there’s nothing anyone can do about it. Margaret Thatcherís refrain was ‘There is no alternative’ (TINA). That is the numbing political sedative injected into today’s economic discussion.


The aim is to make people think that there is no alternative because if they’re getting poorer, if they’re losing their home by defaulting on a junk mortgage of if they have to pay so much on the student loan so that they can’t afford to buy a home, or if they find that the only kind of job they can get driving an Uber car, it’s all their fault. It’s as if that’s just nature, not the way the economy has been malstructured.


The role of neoliberalism is to make people think that they are powerless in the face of ìthe market, as if markets are not socially and politically structured. The 1% have hired lobbyists and subsidized business schools so as to shape markets in their own interest. Their aim is to control the economy and call it ‘nature’. Their patter talk is that poverty is natural for short-sighted ‘deplorables’, not the result of the predatory neoliberal takeover since 1980 and their capture of the Justice Department so that none of the bank fraudsters go to jail.

[Winehole23]

Debt leveraging means buying an asset on credit. Lending for home ownership in the United States is the leading example. From the 1940s to the 1960s, if you took out a mortgage, the banker would look at your income and calculate that the mortgage on the house you buy shouldn’t absorb more than 25% of your income. The idea was that this would leave enough income to pay the interest charge and amortize – that is, pay off – the mortgage 30 years later, near the end of your working life. Minsky called this first credit stage the hedge stage, meaning that banks had hedged their bets within limits that enabled the economy to carry and pay off its debts.


In the second credit stage, banks lent more and loosened their lending standards so that mortgages would absorb much more than 25% of the borrower’s income. At a certain point, people could not afford to amortize, that is to pay off the mortgage. All they could do was to pay the interest charge. By the 1980s, the federal government was lending up to almost 40% of the borrower’s income, writing mortgages without any amortization taking place. The mortgage payment simply carried the existing homeownerís debt. Banks in fact didn’t want to ever be repaid. They wanted to go on collecting interest on as much debt as possible.


Finally, Minsky said, the Ponzi stage occurred when the homeowner didn’t even have enough money to pay the interest charge, but had to borrow the interest. So this was how Third World countries had gotten through the 1970s and the early 1980s. The government of, let’s say Mexico or Brazil or Argentina, would say, well, we don’t have the dollars to pay the debt, and the banks would say, we’ll just add the interest onto the debt. Same thing with a credit card or a mortgage. The mortgage homeowner would say, I donít have enough money to pay the mortgage, and the bank would say, well, just take out a larger mortgage; we’ll just lend you the money to pay the interest.


That’s the Ponzi stage and it was named after Carlo Ponzi and his Ponzi scheme – paying early buyers out of income paid into the scheme by new entrants. That’s the stage that the economy entered around 2007-08. It became a search for the proverbial ‘greater fool’ willing to borrow to buy overpriced real estate. That caused the crash, and we’re still in the post-crash austerity interim (before yet a deeper debt writeoff or new bailout). The debts have been left in place, not written down.

[rmt]

Wanna heard the other side of rent - what to do about a tenant who is already 3 months behind with the Christmas season/bills coming up - what are the chances that he won't pay rent next month and will fall even further behind forcing me to start eviction. After all, I have bills to pay including over 5k of property taxes last Nov (highest discount) and there is now no last month's rent or security deposit (in effect, he would be behind 2 months).

[Will Hunting]

Wanna heard the other side of rent - what to do about a tenant who is already 3 months behind with the Christmas season/bills coming up - what are the chances that he won't pay rent next month and will fall even further behind forcing me to start eviction. After all, I have bills to pay including over 5k of property taxes last Nov (highest discount) and there is now no last month's rent or security deposit (in effect, he would be behind 2 months).
Maybe the laws are such in Florida but not sure why you’d wait that long to start the eviction process.

[Winehole23]

Wanna heard the other side of rent - what to do about a tenant who is already 3 months behind with the Christmas season/bills coming up - what are the chances that he won't pay rent next month and will fall even further behind forcing me to start eviction. After all, I have bills to pay including over 5k of property taxes last Nov (highest discount) and there is now no last month's rent or security deposit (in effect, he would be behind 2 months).you'll still have an asset that creates a revenue stream once you've rid yourself of your impecunious tenant.

pity about the hassle to you but you'll be fine, you chose to be a landlord, right?

[boutons_deux]

"Guns & Butter: The Vocabulary of Economic Deception"
iow, America is fucked and unfuckable, because the only countervailing power against the ruling overclass oligarchy is govt, and one party of US govt is actively defending/enabling the oligarchy, while the other party is passively letting the oligarchy have its way.

iow2, there is no power in USA that can take down the oligarchy, which will continue to amass Capital (power) and to fuck the non-oligarchy worse and worse.

"3 months back rent"? goddaman, you're fucking stupid.

[rmt]

Maybe the laws are such in Florida but not sure why you’d wait that long to start the eviction process.

He's a really sweet old man - his wife, daughter and son and their children live with him - just can't keep up with the rent. Nothing wrong with the eviction laws in FL - I could have posted eviction notice 5 days after he first missed rent. There is always the danger of tenants destroying the house but I know the routine - he has to save to get 3 month's to go somewhere else.

[Winehole23]

iow2, there is no power in USA that can take down the oligarchy, which will continue to amass Capital (power) and to fuck the non-oligarchy worse and worse.the Gilet Jaunes got Macron to back down on the fuel tax and they're not done yet -- the police may soon join the protesters at the barricades.

[boutons_deux]

the Gilet Jaunes got Macron to back down on the fuel tax and they're not done yet -- the police may soon join the protesters at the barricades.

the Gilet Jaunes are in France. There are no Gilet Jaunes in USA.

These and earlier "gilet jaune" equivalents actually affect French govt policy (eg, the French Revolution, "les evenements" of 1968, etc), while American history and culture are totally different, incapable of effective gilet jaune action.

Americans have been so pervasively lied to about America and Capitalism that no matter how fucked they are by the Capitalist oligarchy, they still believe America is godly, sacred, untouchable ...

So it's' "America Fuck Yeah!", and "USA Number 1" by Trash's koolaid cult (and most others),

so keeping God's Own Chosen Exceptional America just the way it is, is patriotic,

America is therefore not Gilet-Jaune-able.

btw, the New World Order is not the UN, NATO, Bilderberg, Davos, Soros, Jew-dog bankers, feminazis, non-whites

The NWO is Anthropogenic Global Warming, which is a planetary, supra-national, unstoppable power, aka Mother Nature, beating the fuck out her human attackers.

[Winehole23]

America is therefore not Gilet-Jaune-able.Eh, there has been in the past there might be again.

The Red Summer of 1919, the Bonus Army, the race and anti-war riots of 1967-1969.

It took a coordinated federal/local crackdown to put Occupy to bed.

Your hypothesis that history is static and that nothing ever changes is outlandish on its face.

[boutons_deux]

Eh, there has been in the past there might be again.

The Red Summer of 1919, the Bonus Army, the race and anti-war riots of 1967-1969.

It took a coordinated federal/local crackdown to put Occupy to bed.

Your hypothesis that history is static and that nothing ever changes is outlandish on its face.

Occupy? what changed from OWS' "gilet jaune" tiny moment?

any reduction in oligarchy's wealth and power?

They were crushed and finally ignored, of NO consequence.

BLM? Kneeling Kaep-ists? Women's March? Even the Bundy bastards were crushed.

None of the events you mentioned resulted in any serious reduction, let alone overthrow, of the oligarchy's power.

Now, decades later, the oligarchy's power and wealth is much greater from the events you mentioned, both parties are totally corrupted by BigDonor $$$,

the police/security state in fantastically more powerful, more "information rich", and primed to "Go Full Military",

on behalf of the oligarchy, on any dissenters,

eg, 6 states coordinated to shutdown the pipeline protesters and

eg, tiny Ferguson PD rolled out its military to crush the blacks.

I said nothing about "history", only about the current American oligarchy.

And if you want "history", note that historically, the only way previous "USA"s, over the centuries, were changed from "static" oppression by wealthy males, was by violent (bloody) overthrow.

The American Capitalist oligarchy with the support of the police state, the captured govt, the archaic, moribund, perverted, weaponized Constitution, BigCorp's compliant, captured media, sophisticated messaging/propaganda, simply will never yield wealth and power voluntarily, willfully. never has, never will

The FBI/NSA/CIA is without doubt sucking up everything we say here, ready to "denaturalize" and deport Larry if he doesn't hand over the real names behind our aliases (if ST server hasn't already been cracked and hacked by the police state).

[Winehole23]

Nothing lasts forever, Boutons.

Empires, dynasties, republics, all perishable.

If our political order lasted forever it would be the very first one.

[boutons_deux]

Nothing lasts forever, Boutons.

Empires, dynasties, republics, all perishable.

If our political order lasted forever it would be the very first one.

forever? did I say forever?

what's your timescale for USA's perishing? think USA as planetary "hegemon" is good for another 200 years? China says "fuck that"

AGW is gonna mix up the power structures, and USA is not guaranteed to come out on top.

Again, the American oligarchy is the immediate problem, not the forever problem. and everything the oligarchy is doing is making AGW much worse for non-oligarchy, because the incredible wealth of the oligarchy will immunize them from the degradation AGW will visit on the non-oligarchy. The billionaires are buying up NZ as their refuge.

[Thanos]

He's a really sweet old man - his wife, daughter and son and their children live with him - just can't keep up with the rent. Nothing wrong with the eviction laws in FL - I could have posted eviction notice 5 days after he first missed rent. There is always the danger of tenants destroying the house but I know the routine - he has to save to get 3 month's to go somewhere else.
If you don’t like doing your job, then get a different job.

[phxspurfan]

you'll still have an asset that creates a revenue stream once you've rid yourself of your impecunious tenant.

pity about the hassle to you but you'll be fine, you chose to be a landlord, right?

This is the value of professional property management. Sure, they take their 10%, but it pays off with accounting, maintenance handling, and tenant handling.

[Winehole23]

This is the value of professional property management. Sure, they take their 10%, but it pays off with accounting, maintenance handling, and tenant handling.Sure.

If you're good you get more work, if you're extra good you get somebody else to do it.

[Winehole23]

forever? did I say forever?

what's your timescale for USA's perishing? think USA as planetary "hegemon" is good for another 200 years? China says "fuck that"

AGW is gonna mix up the power structures, and USA is not guaranteed to come out on top.

Again, the American oligarchy is the immediate problem, not the forever problem. and everything the oligarchy is doing is making AGW... any timeframe would be pulled from the absolute air.

If the AGW changes come as quickly as suggested, facts will start to overrun the politics and the politics will change in unforseeable ways before the oligarchs bug out en masse.

[Winehole23]

The prognostication that China will be be the big dog in a way is the conventional take; another one is that it's a bit of a mystery why China, with its huge head start technologically and its untold productive power, isn't already. People were surmising the predominance of China about 100 years ago too.

[Winehole23]

( to put a somewhat finer point on it, Joseph Needham, the foremost scholar of Chinese science and technology, was mystified by China's "backwardness" even before Mao. )

[Winehole23]

One confusing thing about classical political economy is the definition of rent. We immediately think of the monthly rent for lodgings which is indeed a form of rent, but the broader meaning is unearned income, especially in the form of interest and dividends arising from financial instruments, and also from control of real estate and public utilities such as infrastructure, insurance and banks.

[Winehole23]

This is the value of professional property management. Sure, they take their 10%, but it pays off with accounting, maintenance handling, and tenant handling.What's charged on top of the costs of administration is unearned: nobody becomes a landlord to break even.

[boutons_deux]

also from control of real estate and public utilities such as infrastructure, insurance and banks.

... and health care.

You need health care? Gotta make enough to pay the Capitalists controlling for-their-profit health care.

You gotta pay Capitalists their profit: health care investors extracting Capital from human suffering.

[ElNono]

Thanks for sharing, good read

[boutons_deux]

Wanna heard the other side of rent - what to do about a tenant who is already 3 months behind with the Christmas season/bills coming up - what are the chances that he won't pay rent next month and will fall even further behind forcing me to start eviction. After all, I have bills to pay including over 5k of property taxes last Nov (highest discount) and there is now no last month's rent or security deposit (in effect, he would be behind 2 months).

why can't the renter pay the rent? lost a job? medical bills? trashed his car with insufficient/no insurance? got sued? 3 weeks in Cancun or Tahiti?

[rmt]

why can't the renter pay the rent? lost a job? medical bills? trashed his car with insufficient/no insurance? got sued? 3 weeks in Cancun or Tahiti?

He and wife living on SS, son (just started working) and daughter going to school (switched majors), taking care of grandchildren, hand surgery - it's been a slow falling behind - about 2 years ago, fell behind one month - then months later, Christmas - just gradually gets later and later. It's 3 generations so they need the space (4 bedrooms) and Miami has very high rent COMPARED to salaries.