Hudson was not done castigating the banks; pointing to the growth in loans being almost entirely due to bank-to-bank loans, loans to pension funds, marketing in derivatives, but not bank-to-consumer loans. Capital formation these days is due to corporate retained earnings, and corporate commercial paper issued to mutual fund companies. Whereas formerly, capitalism was designed to: increase output, raise living standards, and expand the economy through increased industrialization, now it serves to: borrow money (buying debt from banks, the only product they sell), move production to cheaper locales offshore, and actually shrink the economy through debt repayments paid for with de-industrialization. [v]
Today, says Hudson, we have financial conquest instead of military conquest, though you must still have the military behind you (800 American bases). The military itself has been privatized as well. This model is in direct contrast to the Classical model, which was to tax the Land monopoly away. While Land has become more valuable, it has become also less taxed, taxes being levied on labor and capital instead. He concludes: Americans said, "we will pay labor higher wages, eliminate tariffs,' in disagreement with the British economists of the turn of the last century. Another disagreement concerns the use of the public sector, which historically was considered a "fourth factor of production" and the means by which a society would out-compete and undercut other nations, and not through privatization of infrastructure, which in reality does the opposite, by making costs of business higher.
Another interesting historical narrative was presented by Hudson wherein a choice was made to merge banking, industry and the government in Germany, which Marx-critic Herbert Somerton Foxwell (17 June 1849 - 3 August 1936) said would allow pre-WWI Germany to out-compete England and move towards Socialism. Despite this superior German-industrial banking model, however, the world moved towards the Anglo-American "Vampire-Squid" model, facilitated by military force in WWI and II.
Hudson said the parasite took over the host after WWI, gradually forcing us into a model whereby banks get money for producing nothing. Acknowledging the theme of the forum, Hudson said the Occupy movement basically has it right in fighting parasitism, and returning to Classical Liberalism, whereas Hayek had it wrong about progress leading to a shrinking government. Instead, government has expanded, being sold off and grown for the highest bidder. Landowners meanwhile, most often the banks, have profited from Balzac's observation: "Every family fortune is made by long forgotten theft." Hudson even went as far as to state a controversial position that America should have taken the side of Germany in WWI. This, of course, would have eliminated the cause of WWII, which was, as James Galbraith has said in a TV series (now on Youtube), perhaps not much more than a final major battle of WWI. As both Galbraith and Hudson observed, the severity and duration of WWI were greatly underestimated -- Hudson says expectations were that the war would be over in 6 weeks since the allies "would run out of money." It is telling that money materializes when it has to, and perhaps says more than anything about the priorities of the ruling banking class.
What banks ought to do, says Hudson, is make money by monetizing equity, not selling more debt. While America did learn the lesson of too much debt from WWI, and canceled the debt form Germany post-WWII, the banking class is now undoing the positive results of the Marshall Plan and seems determined to introduce a neo-feudalist society.
The rentier class fought back after WWI, untaxing land, mining, etc., and the result, as Hudson drew on the board, is a graph something where the FIRE sector goes in an ever increasing upward curve and the rest of the economy flat-lines.
This is, Hudson says, almost the exact opposite of everything the Classical economists, including George, talked about. The Occupy Wall Street group represent a rejection of neo-liberalism and are actually fighting for what Adam Smith fought for, taxing the Land and fighting against the rentiers.
Hudson concluded that despite recent anti-governmental denigration, the government must plan the economy or the banks will. The financial planning is to take over industry, decrease wages, increase output, squeeze out a surplus to pay their debts, and shrink the economy. This is the system we have today.
Kelley is not a theoretician like the previous two speakers. He is a businessman and adviser to perhaps the greatest progressive voice in Congress today, Dennis Kucinich. [vi] So, his observations and solutions tend to be more practical and political. This was part of an intentional mix as well, since I wanted to present something as a practical alternative, so familiar to these kind of Leftist meetings. After all, we had promised "tactics to fight the 1%" right in our title.
Kelley started off by gently chiding his co-author collaborator and saying "Michael was being naÃ¯ve" in not understanding the cost of wars $14,500/avg. for a family of 4, about this much for health care too. There was no way to deny the harm of the enormous shift in wealth over the past 40 years. Kelley and Hudson had previously worked out that the total income share -- including collected rent, dividends, capital gains, etc - of the top 1% has gone from 37.8% in 1979, to 57.5% in 2003, and finally to 66% in 2010. This result is, Kelley pointed out, without going into the nuanced financial sector breakdown of Mazzone and Hudson, an unsustainable "gushing of wealth to the top" [vii] . You cannot have incomes of workers stagnant for nearly half a century and expect a consumer society to continue, Kelley said. Breaking with partisan politics, Kelley said the answer is not the Democratic party, e.g. the suppression of options like universal health care -- which Kucinich has tried to introduce several times. The Democratic Party has been bought out, Kelley says. Bank of America was cited, referring to a recent Matt Tiabbi article (click here), as a criminal enterprise.
Kelley said that the banks have not grown too big to fail, they have grown too big to succeed - a finding demonstrated empirically, that beyond a certain size banks actually start to lose efficiency of scale. 40% of corporate finance is now in the FIRE sector, said Kelley, and they produce nothing but simply extract rent, while 120 million Americans are virtually sharecroppers. This set of profits should not be added to the real economy, but instead by subtracted from the total, as it really reduces the real economy. Interest charges and monopoly charges of rent reduce the real economy. Taking this to its logical conclusion, Kelley said "This means that if we get to 100% of profits from the FIRE sector, that's perfect. We manufacture nothing, we just have this (extractive) element. "It's a zero net sum game. This is ridiculous," Kelley said.
As another example, Kelley said a non-producer like hedge fund manager John Paulson, who famously made $12.9 billion shorting the housing bust on the way down, made what 855,456 minimum wage earners made in one year. Kelley asks us, as Henry George surely would have, whether one man laboring for four years is worth what nearly a million people laboring for 1 year makes. (Of course, this actually understates the damage, as many of those minimum wage earners were losing their jobs and possibly their homes, while Paulson was making a small-country sized fortune.) This is not only morally repugnant, says Kelley, but economically inefficient and unsustainable. This, perhaps more than any of the models and historical references presented by the previous speakers, drove home the harm caused by the elevation of the rentier class, to the audience, which gasped audibly. This message was in the best tradition of Liberation Economics, as practiced by Henry George.
Dave Kelley advised me, during the writing of this article, that he did not address a more basic problem in his example. The "wealth creation" of John Paulson was a zero-net sum gamble, which transferred wealth from one group to another. Of course, the group that guaranteed much of these loans was AIG, which was bailed out by taxpayers to the tune of $182.5 billion. Thus, taxpayers made good on the bets that Paulson had made with others. On the other hand, those 855,456 people were likely involved in producing real wealth, i.e. real goods and services. This makes the pay of Paulsen and the minimum wage cohort even more disturbing because, essentially, he got paid for gambling and the others got paid for productive (we assume) work.
Kelley pointed to the example of bailed out CEOs who failed, then lived to fail again, like John Meriwether, who bankrupted two companies. [viii] Although Kelley didn't use the term, I think he would agree this is a form of neo-feudalism, and certainly about as far from Georgism as it is possible to get.
Well, we know from George how to fix that, impose a Land Value Tax on the full rental value of the Land!