Below is my review of Michael Hudson's Killing the Host as submitted to the editor for the February, 2016 issue of the Sturbridge Times Magazine. I don't completely agree with the author, but his analysis is better than much I've read.
If you grew up in this country before
the 1970s, you experienced a world that is nothing like today. Back
in that other reality, there were factories in abundance employing
full complements of workers, sometimes in multiple shifts.
American Optical, with beginnings in
1833, was a powerhouse, with its great factory complex in
Southbridge. Once dominant in its field, it is now defunct, brought
out by others.
Driving along the Quaboag River on
Route 67 in Warren, you can see the Wright's Mill Complex. It seemed
like everyone knew someone who worked there. Since 2008, no more.
There are still factories, but they are
all too often, sans workers. How could our region, let alone country
go from having workshops everywhere, all highly productive, to the
point where they have almost died out?
One man has an answer, debt.
Michael Hudson is a research professor
of economics at the University of Missouri Kansas City. Your
reviewer discovered him accidentally. As a history nerd, I came
across his writing and was surprised to find out that his research
found the builders of the pyramids were not slaves but well paid,
skilled workers. It's too bad Charlton Heston and Yul Brynner are no
longer with us, as some corrections need to be made to their movie,
the Ten Commandments.
Mr. Hudson avers that the debts owed to
the FIRE (Finance, Insurance, Real Estate) sector were causing labor
and industry to suffer. American labor, squeezed by debt becomes
over priced as do American products. Debt is taking a greater and
greater share of revenues from non-financial businesses, and workers
have to pay more in interest such that they are on the way to debt
peonage.
According to Professor Hudson, we are
headed to the day when the parasite of a financialized economy will
kill the host, or the debts will have to be reduced or even forgiven.
Your average free-marketer might be scandalized by the idea, but it
is no more unfair than the bailing out of the banks in 2008.
The concept is one that raised its head
with the phenomenon of the Occupy Wall Street movement. Mr. Hudson,
among others, noted that student loans exceed credit card debt.
Paying that debt takes a toll on graduates whose salary prospects may
be less than what they can afford to service the loan.
As Michael Hudson states many times in
his book, “Debts that can't be paid, won't be.” The FIRE Sector
would want it to be for the debtors to sell off assets. As there are
less and less assets with enough equity, that is not going to be too
popular and one day it will be impossible. A reduction of debt or
even forgiveness would be inevitable as an alternative to national
ruin.
Many consider Hudson a bit of a commie
as he participates in Marxist conferences and has good words to say
about Karl. To be fair, he has some nice things to say about Adam
Smith and Classical Economics.
He has, however a special dislike for
free market economists. He sees them as champions of the FIRE
sector. Free market advocates would disagree with that
characterization. They would be adamantly against the existence of a
central bank and would claim the crony capitalist shenanigans were
only possible because there is a Federal Reserve. That discussion is
for another day. If there must be a central bank, the author's
points are well taken.
In his last chapter, he offers Reforms
to Restore Industrial Prosperity. Will they bring economic nirvana?
Some make common sense, such as writing down debts that can't be paid
and letting people stay in their homes rather than protect the second
homes of Goldman and Morgan execs.
His suggestion to tax economic rent to
save it from being capitalized in interest payments has merit in that
we should have a tax structure that promotes production over
financialization. Is his emphasis on land taxes as the way to do it
the right idea?
Revoking the tax deductibility of
interest has some good arguments, but will not go over too well with
every home buyer.
The public banking option, similar to
the Japanese Post Office banks is not a bad idea, but my local
savings bank provides most of those services. The Japanese system
had low interest on savings, but they had been tax free. Bring that
on any old time.
Funding government deficits by central
bank, and not by taxes, is, for a true believer in that system,
reasonable. Of course, if you are going to create money to cover the
shortfall, hey, why not fund the whole budget in the same manner. No
IRS or Form 1040 would make a lot of people happy this time of year.
Paying Social Security and Medicare out
of the general budget has some appeal as there are demographic
problems and the last deal raided SS for $150 million for the
Disability Trust Fund.
Keeping natural monopolies out of the
public domain is okay. Privatizers have taken over some water
departments and gouged the public. No, one, however, is remotely
thinking of trying to take the MBTA away from the government.
As most capital gains are in real
estate, taxing them at progressive rates should dampen speculation.
Hudson's desire to deter irresponsible
lending by making the creditor bear the cost of any loan that could
be considered a fraudulent conveyance is worthwhile. Many loans have
been made that there was no way that they could be paid without
looting assets. That should be stopped.
One question about his reforms is why
he did not propose a restoration of the Glass-Steagall Act separating
retail deposit banking from investment banking. It would seem if you
are not going to hang investment bankers from the lamp posts, you
would want to restore that law.
One might grant a federal reserve run
by Mr. Hudson or someone like him would establish policies that would
better serve the economy as a whole. It is hard to believe it could
be anything more than an interregnum as capture by interests is what
happens to bureaucracies.
Still, it should be given a try. It
would be hard to do worse. If it fails, we can bring in Ron Paul to
shut down the Fed.
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