He began by pointing out that financial reform and tax reform must go together to be effective and illustrated how far awry the banking industry has gone, moving from a business-supporting role to a business-destructive role. The original idea of the 19th century economists, Hudson said, was to have the banks align with industry, wherein instead, they now primarily speculate in the derivatives markets, or even buy back their own shares. The recent rise in stock prices -- as opposed to top-line revenue -- is in many cases simply due to near zero interest rate loans being used by companies to finance stock buybacks, which primarily benefit large stockholders, significantly including the occupiers of the C-suites. Small wonder. The stock market, thanks to the Fed's liquidity infusion primarily, has doubled in the last three years, while commodities have in some cases done better than that. Of course, the bailouts and guarantees are well known by now. This continues a trend begun even in Jimmy Carter's time, accelerated by both Republican and Democratic Administrations since then. The net result: who would want to make a 30-year loan at 4% under those conditions, when you can double your money in 5, and even get bailed out if you bet wrong? None of these changes, supposedly in the name of "efficient markets" has much helped the 99%, or at least not the bottom 80% or so. This distortion of the banking model would be impossible under a Georgist system that taxed resources and prime locations accurately, returning that rent to public rather than private hands.
Hudson points out in a speech previously cited that even today's implementation of Georgism is far too tepid, taking 1% of market price instead of a more appropriate 10%. However, assuming for the moment that truly committed Georgists would swallow hard and then go along with this, along with untaxation of labor, then bank mortgage loans, currently comprising 80% of all bank loans, Hudson tells us, the other 20% being for corporate takeovers , itself a dubious use of money, except for those holding stock options, would be just on houses, not on the land beneath them. This is about half the typical loan.
The bankers, Hudson said, have aligned themselves with the landowners, becoming one and the same in many cases, discouraging taxes on Land while encouraging taxes on labor, thus raising the price of labor, though not the return to labor. This recent alignment may come as a surprise to some in the mostly young Occupy movement so prevalent at the Left Forum, but it is, according to Hudson, a recent development. The labor theory of value, he tells us, was meant not only to determine prices, but also to isolate that portion of surplus that was economic rent.
But, beginning from when the landed aristocracy siphoned off land for itself, the banks have seen where the money is, and as always, they "follow the money." Ricardo, still taught, unlike George, was a "lobbyist for the banking class" Hudson says, unwilling to speak against his benefactors. This is where things began to go wrong, he says. For example, the Ricardo brothers devised the first Greece loan, at high interest, that was unpayable. The result, says Hudson, is that for the first time in history, going into debt, as opposed to saving, is seen as the way to make one rich. Of course, this only works if various debt bubbles, the biggest being on land, continue to rise. Clearly, this has not happened. What has happened is that the financiers have been allowed to borrow at well less than 1% - through 2014, according to the most recent Fed chairman promise -- and loan out money at a higher rate, if they loan it out at all, and don't simply plow it into the derivative markets, as previously described. Hudson said that except for the University of Missouri, where he teaches, the theoreticians don't believe that what has happened can happen, and they even have the mathematics to prove it! (This naturally brought some laughs from the audience, who knows much better than the egghead economists). Hudson said he had to stop teaching at the New School some 40 years ago, because he had been told by his bosses that he was "confusing" his students, with all his talk about Land Rent and that he was "just as bad as Henry George"! Well, maybe, I think, he was just as good! [iv]
Although in the past, the State Department had asked him how the dollar standard was making other countries pay for the exchange disadvantage and to finance American imperialism, they said it would be an unfriendly act -- to them -- for him to publish his findings in his book, Superimperialism . He did so anyway, marking him as an iconoclast.
Hudson traced the historical roots of the crisis back to the medieval era. Under free trade imperialism, workers were taken care of to keep prices low, and to make manufacturers competitive. Prior to the 13th century, Hudson says, the banks followed Christian doctrine and didn't charge interest, after that they charged agagio -- a fee for foreign exchange conversion commission. However, in the nineteenth century, Ricardo took this 500-year old theory and turned it against the landlord by a "thoroughly wrong-headed" idea of the soil having original and indestructible powers; fertilizer wouldn't help, neither would mechanization -- nature provide all. Ricardo, Hudson says, is where "it all began to go wrong" and extractive rent started being charged.
The bankers realized that to make money you needed a division of labor, while they financed industry. But this did not stop the financialization of industry.
Hudson does see some silver linings in the clouds, in terms of recent British banking reform, but he says the Americans are opposing this, so it may not last.
Hudson has a less benign view of the reason for America's post-WWII growth than Mazzone, pointing to the adoption of the dollar as the monetary standard world-wide. This, he says, forced the world's poorer countries to pay up for U.S. goods in U.S. dollars. In a different time and place, Mazzone has agreed that the dollar is in many ways, based on oil. Since oil and its derivative products are now indispensable for modern life, this does have the effect of making oil-based dollars better than gold-based dollars. Now, however, partly as a result of shortages due to peak oil -- though oil demand has actually declined in the U.S. -- and peak demand world-wide, the weakening dollar, and, perhaps most of all, the speculative element in the oil futures markets, oil has again topped $100/barrel. The last time it did this was the summer of 2008, when it hit a record $147/barrel, only to collapse 7 months later to just $35, even though world-wide demand had gone down less than 10% in that time, not by 3/4, as implied by the price drop. I wish the panelists had addressed the damage from speculation a bit more, to counter the ever-repeated mantra that commodity prices are due simply to supply and demand and the magic of "price discovery" (perhaps this is more "magical thinking" than actual magic?). Thinkers and regulators from Robert Reich and Senator Bernie Sanders (D-VT) (http://community.nasdaq.com/News/2012-03/wall-street-to-blame-for-high-gasoline-prices.aspx?storyid=126703) to CFTC Chairman Gary Gensler have all said that speculation is now a significant part of commodity prices, though they fall short of the 60% (and above) figure cited by Global Research and others (http://www.globalresearch.ca/index.php?context=va&aid=8878).
This speculative excess, whatever the true percentage of final costs, is responsible for a struggling middle class in America, and outright starvation elsewhere (http://www.globalresearch.ca/index.php?context=va&aid=8778).
Hudson broke down the typical American blue-collar family budget this way:
40% - Rent
15% - FICA -- (FICA is 6.2% for employer and employee = 12.4% + 2.9% for Medicare = 15.3% FICA is capped at $110,100)
10%-15% - Interest on credit card debt and other loans. It's worth noting that credit card debt is among the most usurious in the world and would have been banned during most points in human history, when debt rarely exceeded 8%.10% - Other taxes. Income/Excise/Sales taxes -- these would of course disappear under a Georgist system.
This totals to 75%-80% of take home pay, leaving very little for everything else -- gas, clothes, education, etc. These extractive expenses also make it impossible for the American worker to compete. It is not the high wages workers take home that is the problem, it's the high extractions from those wages. When Alan Greenspan -- whom Hudson says he once had to fire -- asked why the laboring class is struggling so badly despite being in a recovery, this is the answer. Again and again in the presentations, it was made clear that the destructive ability of the rentier class to absorb all surpluses and simultaneously create ever-greater universal debt cannot be over-emphasized. This includes credit-card debt, education debt -- which, Hudson pointed out, is over a trillion dollars and which cannot be wiped out in bankruptcy. The economy, says Hudson, is loaded down so much that it cannot compete. Hudson contrasted the situation in America with that of Germany, where only 20% of income goes to rent, where health care is free, construction costs are half ours but the quality is much better, the economy is generally less criminalized, and workers less unionized (this last one puzzles me as to why it should make workers better off, but I am willing to concede that there are other ways to enhance workers' lives than by union-striking and demands, at least in other countries). Germany doesn't have much of a FIRE sector either, which is, Hudson says, what comprises most of the American economy today.
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