Michael Hudson on Financial Capitalism and Modern Monetary Theory
Summary
TLDREconomist Michael Hudson discusses the shift from industrial to financial capitalism, critiquing the technocratic approach that overlooks economic polarization. He emphasizes the exploitation inherent in financial systems, where labor faces a lifetime of debt for basic needs. Hudson contrasts the bloated GDP of the U.S., driven by rent-seeking activities, with China's efficient, non-financialized economy. He also addresses the role of government in money creation and the importance of avoiding dependency on rent-seeking economies, as exemplified by China's self-sufficiency in response to Western sanctions.
Takeaways
- π Michael Hudson is a highly influential economist, president of the Institute for the Study of Long-term Economic Trends, and author of numerous books.
- π¦ Hudson's perspective emphasizes the shift from industrial capitalism to a finance-dominated system, which has altered the nature of exploitation in modern economies.
- πΌ The traditional left has often overlooked the impact of financial interests, focusing more on the conflict between employers and workers rather than the broader economic framework.
- π Hudson critiques the idea of public-private partnerships, suggesting they often result in socializing losses and privatizing profits, to the detriment of the public sector.
- π₯ He points out the high costs of healthcare in the U.S. as an example of 'empty GDP,' which includes unnecessary expenses that do not contribute to the well-being of society.
- π‘ Hudson argues that finance is not a class issue in the traditional sense, as it operates outside the production and consumption economy, imposing costs on it.
- π He contrasts the U.S. economic model, characterized by financialization and high costs, with China's more efficient industrial capitalist approach, which avoids such financial bloat.
- π Hudson discusses the concept of 'rentier' wealth, which extracts income from the overall economy without being part of its productive process.
- ποΈ The role of government in economic planning is highlighted, with Hudson advocating for state-led investment in infrastructure and social services to support industrial capitalism.
- πΌ Modern corporations, according to Hudson, aim to expense everything to avoid income tax, which distorts the true picture of economic activity and profit.
- π Hudson touches on the geopolitical implications of economic models, suggesting that sanctions can backfire by forcing targeted countries to become self-sufficient.
Q & A
Who is Michael Hudson and what are his notable roles?
-Michael Hudson is a prominent economist, the president of the Institute for the Study of Long-Term Economic Trends, a former Wall Street financial analyst, a distinguished professor of Economics at the University of Missouri Kansas City, and the author of many books. He also co-hosts a show with Radhika Desai.
What is the main theme of Radhika Desai's book as discussed by Michael Hudson?
-The main theme of Radhika Desai's book, as discussed by Michael Hudson, is that socialism has been replaced by a technocratic view that avoids examining the economic polarization between the one percent and the 99 percent, focusing instead on the financial interests that have replaced industrial capitalism.
What is the difference between industrial capitalism and finance capitalism as described by Hudson?
-Industrial capitalism, as per Hudson, was about getting rid of rent-seeking classes like landlords and monopolists to create a more efficient economy. Finance capitalism, on the other hand, is characterized by predatory financial practices that impose unnecessary costs on the economy and lead to exploitation through debt.
How does Hudson view the role of finance in the economy?
-Hudson views finance as not a class issue but as an external factor imposed on the economy of production and consumption. He argues that finance has become the core of the economy, leading to predatory practices that exploit the rest of the society.
What is the concept of 'empty GDP' mentioned by Hudson?
-'Empty GDP' refers to the portion of GDP that represents unnecessary costs, such as healthcare expenses, interest charges, and rent-seeking activities. Hudson argues that these costs are exploitative and do not contribute to the productive capacity of the economy.
What is Hudson's perspective on the comparison of economic power between the United States and China?
-Hudson is skeptical about comparing economic power based on GDP alone. He points out that China's success lies in avoiding the financial bloat that has hindered the United States' competitiveness, and that China's focus on infrastructure and low-cost economy has made it more efficient.
How does Hudson describe the role of public-private partnerships in the current economic system?
-Hudson criticizes public-private partnerships for often leading to the socialization of losses and the privatization of profits. He suggests that these partnerships tend to benefit the financial sector at the expense of the public sector.
What is Hudson's view on the role of government in money creation and economic planning?
-Hudson believes that the government should play a central role in money creation and economic planning to ensure that resources are allocated for the benefit of the industrial economy and to avoid the predatory practices of finance capitalism.
What is the Modern Monetary Theory (MMT) and how does Hudson relate it to the discussion of finance capitalism?
-MMT is a theory that explains how money creation works, arguing that government money creation is not inherently inflationary. Hudson, as one of the founders of MMT, emphasizes that the focus should be on what the government creates money for, advocating for its use in promoting economic growth rather than for the benefit of the financial sector.
How does Hudson perceive the impact of sanctions imposed by the United States on other countries?
-Hudson suggests that sanctions can backfire by forcing the targeted countries to become self-sufficient or independent, thus losing the market to the United States and Europe permanently.
What is Hudson's critique of the traditional left's understanding of exploitation?
-Hudson criticizes the traditional left for focusing too narrowly on industrial conflict between employers and workers, missing the broader point of financial exploitation through debt and unnecessary costs imposed by finance capitalism.
Outlines
π Introduction to Michael Hudson and Radhika's Analytical Framework
The speaker introduces Michael Hudson, highlighting his significant influence and achievements. Hudson discusses the main theme of Radhika's book, emphasizing the shift from socialism to technocratic views that ignore economic polarization. He critiques the focus on financial interests over industrial capitalism and the failure of Socialist movements to address the current economic exploitation. Hudson elaborates on the exploitation of labor through debt in modern society, contrasting it with Marx's vision of industrial capitalism evolving into socialism.
π₯ The Problem of Rent-Seeking in American GDP
Hudson compares the healthcare expenditures of the United States with other countries, labeling the excessive costs as 'empty GDP' or rent-seeking. He explains that rising prices in housing and interest charges contribute to the inflated GDP figures. Hudson argues that China's approach avoids such financial bloat, allowing it to compete more effectively by focusing on productive industrial capitalism. He emphasizes that the left's oversight of rentier wealth has contributed to this issue.
π¦ Financial Capitalism and Its Consequences
Hudson discusses the predatory nature of finance capitalism, using examples like the Savings and Loan crisis to illustrate how financial strategies lead to economic hollowing. He explains how debts owed by the economy at large benefit a small financial class, creating uncompetitive industrial economies. Hudson highlights Simon Patten's view on public infrastructure as a productive factor and critiques the neoliberal approach that prioritizes financial over industrial efficiency.
π° The Role of Government Money Creation
Hudson outlines the principles of Modern Monetary Theory (MMT), focusing on the role of government in money creation. He argues that government-created money should fund socially productive investments rather than financial sector gains. He criticizes the neoliberal perspective that centralizes planning in the hands of the wealthy and explains how government spending can lower production costs and promote economic independence, using China as an example of successful implementation.
π Sanctions and Economic Independence
Hudson examines the impact of U.S. sanctions on China and other countries, arguing that such measures force these nations to become self-sufficient. He explains how the loss of markets for U.S. companies leads to long-term economic independence for sanctioned countries. Hudson ties this dynamic to broader themes in Radhika's book, emphasizing the importance of understanding these economic strategies to avoid being co-opted by financial interests.
Mindmap
Keywords
π‘Technocratic view
π‘Financial interests
π‘Social Democratic parties
π‘Rent-seeking
π‘GDP
π‘Industrial capitalism
π‘Financialization
π‘Public-private partnership
π‘MMT (Modern Monetary Theory)
π‘Sanctions
π‘Economic independence
Highlights
Introduction of Michael Hudson as a prominent economist and author.
Hudson's focus on the shift from socialism to a technocratic view avoiding economic polarization.
The replacement of industrial capitalism by financial interests as the organizing force in capitalism.
Critique of social democratic parties advocating public-private partnerships that socialize losses and privatize profits.
Analysis of finance as not a class issue but an external imposition on the economy.
The role of finance in making economies uncompetitive through predatory practices.
Hudson's skepticism about comparing economic power based on GDP, highlighting the issue of 'empty GDP'.
Discussion on how financial costs and monopolies have painted the U.S. into a corner, affecting its competitiveness.
China's success in avoiding financialization and maintaining an efficient industrial economy.
The importance of distinguishing between exploitative financial practices and productive industrial growth.
Critique of the left for ignoring the role of rentier wealth and focusing solely on industrial conflict.
Hudson's analysis of how corporations in America aim to make no profits to avoid income tax.
Explanation of how financial capitalism operates through predatory practices, such as driving companies bankrupt for profit.
The role of government in controlling the allocation of credit and resources for economic growth.
Critique of Modern Monetary Theory (MMT) for not discussing class interests and focusing on money creation.
Hudson's perspective on MMT as a means for the government to promote economic growth through strategic spending.
The impact of sanctions on countries like China, which can lead to self-sufficiency and loss of market for the West.
The need for countries to become independent in essentials to avoid rent-seeking from the United States.
Reflection on why the left has not realized the importance of financial independence and economic self-sufficiency.
Transcripts
I have the enormous privilege of being
able to introduce Michael Hudson
um an enormous influence on me and I
think one of the most important
economists today he is the president of
the institute for the study of long-term
economic Trends he was a Wall Street
financial analyst a distinguished
Professor a distinguished research
professor of Economics at the University
of Missouri Kansas City and the author
of many books
um and he and radhika also host a show
together that I am honored to host over
a geopolitical economy report so with
that said Michael the floor is yours uh
I want to talk primarily about the
political points and the analytic frame
that radic has used uh and I think the
basic theme of her book uh is that what
used to be socialism has been replaced
by a very technocratic view that avoids
looking at today's economic polarization
uh between the one percent and the 99
uh in terms of class interests uh she
focuses uh as I do on the financial
interests that have replaced industrial
capitalism is the organizing force uh in
in today's capitalism is very different
from uh what occurred in Marx's day and
what he was uh analyzing and the world
has not uh turned out as optimistically
uh as Mark said hoped that industrial
capitalism would evolve into socialism
uh instead of uh advocating the
socialization of infrastructure you have
today's Social Democratic parties uh uh
advocating sort of a public private
partnership uh now uh our Atticus point
is that this kind of partnership is not
really going to have much uh for the
public sector except as they say and
socializing uh the losses and
privatizing uh the profits and the uh
the financial gains uh but if you look
at public health education credit
creation what used to be Social
Democratic uh and uh labor parties have
turned thatcherite do they've they've
followed the British slave favorite
party uh and going even more to the
technocratic rights uh and largely this
is because uh Finance has become uh the
core now this is difficult to fit into
most people's class analysis of society
because uh Finance is not a class issue
as such Marx pointed out that interest
bearing debt and bank money creation are
external to the economy of production
and consumption uh they're imposed on it
uh and that's why he said economies
don't need a raunchier class economies
don't need a landlord class they don't
need a banking class uh uh and the role
of industrial capitalism to Marx was to
get rid of the rent-seeking classes to
get rid of the landlords to get rid of
the uh monopolists and uh get rid of the
uh predatory Banking and basically to
make all of this part of the industrial
economy uh and instead that hasn't uh
worked and the Socialist movements have
not analyzed uh how seriously this is
not worked uh and uh really what's that
issue is
what is exploitation today uh and how
has it gone beyond what uh the
traditional left has uh analyzed and
that's I think what uh radic is uh
focusing on uh labor is not only
exploited by being employed and having
the employer the capitalist sell its
products at a markup uh today Labor is
exploited by having to go into a
lifetime of debt if it uh wants to buy a
home of its own uh or to get an
education to get a job or to borrow to
buy a car to drive to the job uh and or
to pay for it for the medical bills all
of these things that were expected uh to
be uh socialized and uh under a rantier
economy that's dominated by the Banks
and landlords and monopolists uh you
hate you do have a rantier class that
obtains income uh at the overall
economy's expense and is not part of it
that's why I'm very dubious about uh uh
the idea of measuring American versus
China's uh economic power in terms of
GDP uh since uh a lot large part of
Veronica's book is how societies have
cope with the core the uh the virus uh
the coronal virus uh look at the fact
that in the United States uh Medical
Care and Health Care is 18 of GDP this
is more than any other country uh why in
other countries it could be maybe five
percent of GDP uh it's much lower in
China so all of this is what I think of
is empty GDP it's a rent seeking it's
exploitative it's unnecessary costs what
Marx called the faux Fray the false
costs of uh production so uh uh it's
bloat uh and do we really want to say
well Amir beta China and the race to
have a bloated economy
the largest part of the American GDP
turns out to be rent-seeking classes uh
how uh rising in the price of housing is
coated as part of GDP uh interest
charges are part of GDP if you're making
a credit you're late in your credit
cards and you interest rate those up
from 19 to 30 that's all added to GDP
America's winning that part of the GDP
uh uh race but it says empty GDP and uh
China's success is doing what uh a good
industrial capitalist country was
supposed to do and avoiding this bloat
uh getting uh avoiding the whole kind of
superstructure of financialization that
has prevented the United States from
actually uh competing uh with China
there's no way that somehow the United
States can say we're going to isolate
China and that's going to enable us to
go back to uh producing our own uh cars
and consumer goods and uh chips uh
nothing is going to enable the United
States to do it because of its high uh
Financial costs is how real estate costs
as high health care costs and it's a
Monopoly cost it's painted itself into a
corner uh and that's what uh somehow the
left has been part of this uh product uh
process because it's ignored uh the role
of rontier wealth uh and and it focuses
on uh industrial uh conflict between
employers and their workers and that
certainly is a very important point but
it misses uh the big Point uh the sort
of vulgar Marxist of you that really
came out of uh uh stalinism was just a
capitalists of exploitators exploiters
not uh the state not uh any other class
and uh the technocratic reformers uh
have looked at uh all of this in terms
of of profit uh I'm very wary of
comparing uh um the prophets of American
uh industry uh to uh profits of other
countries because uh the aim of a
corporation in America today is not to
make a profit it's to make absolutely no
profits at all everything is expensed
and counted as part of a GDP so that
there's no income tax on profits they do
this by uh offshore accounting by uh
Offshore Banking centers by uh fake fake
costs like a depreciation for Real
Estate uh if you look at the actual
statistics of what goes into how the GDP
sausage is made uh you find quite a
different uh picture uh than you get and
uh what's really an issue is what's
going to be the role between uh
government uh and the financial sector
and the industrial uh sector and I think
towards the end uh at the end of the
book radica makes the points of let's
compare the analysis that she's using
and that I use to what uh other people
that
represent What's called the left are
saying she quotes Maria uh masicato is
urging a private public partnership uh
for a greater efficiency without profit
but profit's supposed to be the aim of
the private sector what is the private
sector after and uh uh when it makes a
deal with the uh the the government uh
public-private partnership like Thames
Waters uh you have in tamed water nearly
bankrupt uh but it's made a fortune for
its privatizers by going going bankrupt
uh
under Finance capitalism you make a
profit by driving a company bankrupt and
leaving it as a shell Thames Slaughter
borrowed an enormous amount of money
what did it use the money for it did not
use it to produce clean water uh and uh
make a capital investment and fixing the
leaks and all of its water pipes or
doing what it promised to do it borrowed
money and it paid it to itself as a
dividend as a special dividend as a
management fees uh it borrowed money
paid to itself leaving a bankrupt shell
in its wake this is uh how the Savings
and Loan associations uh were looted in
the 1980s uh for instance uh and there
have been a lot of studies about how uh
making making money financially uh
because financed in uh the West is
primarily predatory making money by
Finance leaves the whole economy is an
emptied out shell where there's an
enormous amount of debt that's owed by
the economy at large to maybe the one
percent of uh the financial class that
still isn't looked at as a financial
class uh and uh leaves the economy
uncompetitive as an industrial economy
uh that's what China has uh trying to
avoid and that's really the task uh
before Russia uh before other countries
and I'm surprised that uh uh masutaro
didn't discuss someone like Simon Patton
uh he doesn't appear in today's
discussions very much but he was
America's first economics professor at
the first business school the Wharton
School at the University of Pennsylvania
in the night in the 1880s and 1890s and
Simon Patton said that public
infrastructure should be looked at is a
force factor product action
government spending but the aim of this
factor of production is not to make a
profit uh it's not trying to make wages
or rents or uh profit at a capital it's
trying to help the rest of the economy
uh make higher real wages higher uh
profits for Capital by providing the
basic needs uh education uh
Transportation uh Public Health at a
loss and if the government's role and
infrastructure is to provide Public
Health uh at a loss then corporations
don't have to pay it and uh if they
provide uh Transportation at a loss then
uh labor doesn't have to pay uh bear the
cost of Transportation in getting to
work uh the capitalists don't have to
bear uh the cost of Transportation the
whole idea of public uh infrastructure
of socializing medicine
socializing education socializing uh
transportation and Communications is to
help industrial capitalism and that's
why it was the Industrial capitalists
themselves in the United States and
Germany uh in every successful
Industrial company that moved towards uh
socializing uh uh the basic needs in
order to create a low-cost economy that
could undersell and compete with other
capitalist economies more efficient in
the most more efficient uh economy would
be the one that can undersell uh its
opponents by being more socialist than
they were and that's what led Marx and
the Socialists of the 19th century to
think well industrial capitalism is
going to evolve into socialism uh and uh
they their assumption was that
industrial capitalists would act in
their own self-interest that hasn't
happened that what has happened is a
financial capitalism that is not in the
self-interest of the dynamic of
industrial capitalism it's become
something entirely different it's become
a rantier a financialized society it's
become what we call Finance capitalism
instead and the Victory of Finance
capitalism is basically to undo the
whole industrial capitalist Revolution
to free economies the free markets from
the landlords from the banks from the
monopolists and uh produce a low-cost
economy that was the whole idea of
efficiency that socialism was supposed
to be a
efficient by creating its own uh markets
uh and I think uh radica makes that
point very clearly in her book uh the
one uh I think she's a little unfair
when she uh critiques mmt uh I I think
her discussion is too partial uh and as
one of the uh uh founders of mmt I I
have to uh point out
well what I mean by it and what most of
us mean by it uh it's it's Point uh it
doesn't discuss class interests as such
uh that's uh radicals uh critique and
she's absolutely right it's not a
doctrine of class interest it's a
doctrine of how money creation Works uh
and its point is that government money
creation is no more inflationary than
private sector lending uh to finance a
budget deficit that government's running
a budget deficit pump money into the
economy uh and every economy needs money
and credit to operate on and if the
government does not provide this credit
by running a budget deficit then uh the
economy is going to have to do what it
did in the late years of the Bill
Clinton administration is going to have
to borrow from the commercial Banks uh
and uh at interest and uh an enormous
interest and it's going to have to uh
do what banks lend uh money for and that
is things that helped the financial
sector not to help the industrial uh
economy grow so uh mmt is a way of
government uh controlling the allocation
of uh credit the allocation of resources
and foreign
forward planning and if the government
does not take the lead uh in uh as
planner then uh the the neoliberal idea
of getting rid of government is uh means
uh a kind of uh
uh privatization it means that the
center of planning is going to be in
Wall Street in the financial sectors
that's what the libertarian philosophy
is it's a central planning much more
centralized than any any democratic
government because it's centralized in
the hands of the one percent the
Libertarians and uh the neoliberal left
want a centralized planning in the hands
of the wealthy people because they say
most wealth is created financially so if
we want an efficient economy let's
create wealth and you can create much
more wealth financially by uh
cannibalizing an industrial firm and
actually investing in uh
and uh uh uh industry so uh the whole
point of mmt is how is money created by
the government
well uh that's not the whole of mmt
analysis because it's true that's uh
Stephanie uh Kelton uh who she
criticized it doesn't discuss class
interest in the talk and uh she just
explains uh what it is uh uh what money
creation is but uh mmt we've gone around
the world together and her role is to
give the introductory technical uh
discussion at mmt and then uh my role is
to come on second and say the key is
what are you going to create money for
you can create money in the way that
Donald Trump uh and uh Vice President
Dick Cheney created money you can create
money to go to war you can create money
to bail out the banks uh as Obama did
you you can create uh money for tax cuts
As Trump did or you can create money by
actually spending money on
infrastructure on on labor on employment
on social uh socially productive forms
of investment so
this is the whole point of the mmt is is
that money should not be uh created for
the use by the financial sector to do
what radica quite rightly create uh uh
criticizes the financial sector for
money should be created by the state to
promote economic growth that is what is
enabled China's economy to become so
much more efficient than the US economy
because it's treated money as a public
utility uh it is not commoditized money
like occurs in the United States and in
the west uh and is uh the neoliberal uh
left wants to do is treated uh if the
government creates money then it can
decide what do we want to create money
for to lower the economy's cost to
production to increase capital
investment and to uh to become
economically independent uh as China's
become independent and I like to comment
before that was made about uh Huawei uh
the United States has imposed sanctions
uh on uh uh China thinking that well if
we impose sanctions on Russia and China
then uh they're going to be they're
going to uh uh be crowded out of uh this
field and what they don't realize is
that imposing sanctions on a country has
the same effect as this country produce
a an acting protective tariffs on itself
it forces the country either to become
self-sufficient or to become dependent
on the United States that would love to
monopolize uh computer chips and high
technology uh and as intellectual
property rights to yield Monopoly rent
uh and what happened that countries
obviously uh the uh the global majority
today uh wants to realize is the need to
avoid becoming uh dependent on
rent-seeking the United States by being
uh independent and Essentials and so
everything that the West the United
States and Europe imposes as a sanction
ends up losing this Market forever
because once other countries become
independent creating their own computer
chips or whatever technology you're
using they don't need to import anymore
no uh the point has been made that
China's spent has been spending more
money on importing computer chips than
on importing oil well just imagine this
whole Market has been lost to the United
States and Europe and that means that
instead of uh successfully consolidating
control and centralizing it in the
United States companies and com and
companies that are under U.S control
it's lost it's lost the market it's lost
uh everything forever and that is a
basic Dynamic that uh Reddick and I talk
about in our uh our program that I think
that's uh the basic Dynamic uh in that
she described in the book why hasn't the
left realized that this is the way to go
uh what what
why are they suddenly let themselves be
hijacked uh I think uh and indeed uh to
save the rest of society from this what
what is really important and
understanding economy that I think is
what the the book uh is a great
contribution for and to me that's the
whole point of it
thank you I'm Michael Hudson I'm
appearing here for the international
Manifesto group if you like this video
and once you like it please subscribe
for more information go to the address
on the screen
[Music]
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