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FRIES: Earlier in the conversation, you explained the financial sector essentially makes its money not by being part of the production and consumption economy but by siphoning off as much money from the production and consumption economy as it can. How is the unprecedented income and wealth that rentier interests have extracted from the real economy being redeployed?
HUDSON: Well, the 1% makes most of its money by lending money to the 99% and making the 99% pay debt service do itself. The 1% on most of the bonds of banks, meaning ownership of the banks. And they essentially use their income to buy more and more assets. They don't use their income to buy new factories or to make new means of production. They may buyout a company and then they'll downsize the labor force. They'll wipe out the pension obligations. They'll dismantle the factory and turn it into a gentrified housing.
For instance, New York City used to be a manufacturing city. What is now Tribeca, below Canal Street, and the Wall Street area there used to be low cost electronic stores there, the dairy industry. Now all of these buildings have been torn down or closed down and turned into luxury loft apartments for the financial people making enormous financial salaries to buy and drive out the rest of the economies from New York and paying very little money, very little taxes for this.
So instead of the progressive taxation that you had under say President Eisenhower in the 1950s, you have essentially regressive taxation. You've slashed the taxes on the upper incomes, very low. And you've made most of the upper income money tax exempt. If you're making money by financial speculation, you only have to pay 15% of your gains, not the full income tax that used to be 90% of the gains.
So essentially you've shifted the taxes off speculators, off the 1% that makes its money by capital gains on stocks and bonds and rising real estate prices. And you've, burdened employers and employees with it.
And that's the legacy of debt inflation that's leading to an accelerating shrinkage today without either political party making any discussion of how this is occurring. And without the economics curriculum even discussing debt.
Almost all the economic theories that have been sponsored by the business schools - the University of Chicago, Harvard - they treat the economy as if it all operates on barter. They're only looking at current costs. They're not looking at the balance sheet of the economy. They're not looking at the financial claims - the stocks, bonds, and loans - the whole superstructure of financial wealth that is extracting money from the economy. The whole way in which the Gross National Product, the national income accounts are created are not breaking out the distinction between making money by industrial capitalism or making money by finance capitalism.
And so people are not even aware of why they're being more and more squeezed, why they're getting poorer. The result is suicide rates are going up. Lifespans are shortening now for the lower incomes because people are blaming themselves. The whole doctrine of personal responsibility means it's not the system that's making you poor. It's not finance; it's your responsibility to survive. And so people who believe this actually look at themselves as failures. And you get very depressed and go on anti-depressants or sedatives as we see with OxyContin and end up dying.
That's what happened in Russia after the neoliberals did their reforms in the 1990s. It's what happened in Greece after the Eurozone insisted on Greece paying the IMF and the Eurozone for fraudulent depths that were run up by the financial class. It's something that's happening all over the world and yet this doesn't appear as an object lesson for countries to look at and say: do things really have to be this way? Is there really no alternative? And if you think there's no alternative, you're not going to look at all the alternatives you have.
There's very little discussion of what China is doing. And how did China pull ahead? It pulled ahead by very heavy government spending on building up buildings on subsidizing real estate and in paying for most of the costs of living and doing business that are privatized in the United States and have to be paid by employers. So there's a reason why China is becoming the largest economy in the world overtaking the U S.
And there's no discussion of that. That's, well that's communism, you don't want that. What it is, is industrial capitalism. So industrial capitalism is now called communism. I mean, that's the irony of the whole thing. Because that was where industrial capitalism was evolving towards. Is an attempt to minimize the cost of production and create an efficient economy.
FRIES: You published a book as a dictionary or a Guide to Reality in an Age of Deception titled J is for JUNK ECONOMICS. And in the book you define There Is No Alternative or TINA as : The neoliberal principle that if one can censor awareness of policy alternatives to austerity, people will believe that poverty, inequality and economic polarization are natural, not man-made. What else do pro-finance advocates mean in saying There Is No Alternative?
HUDSON: Well, when Margaret Thatcher said There Is No Alternative, and that was her famous quote, TINA, There Is No Alternative what she meant is the financial sector has put depth charges into the economy saying there's no alternative if you want to avoid a breakdown.
And the breakdown is right now the economy is a debt deflation. So much of American industry is closing down because of debt. For instance, let's look at the legacy of the coronavirus which has only catalyzed and accelerated that debt deflation. Imagine the restaurants that are closed since last March, the gyms, the bars. They haven't done business. So they have not been paying rent. And their employees have not been getting an income to pay their rent.
So what's happened is that let's say in January everything is going to go back to normal, although they say here, it's going to be a March or April. Well, the landlords are going to say: okay, we haven't been collecting rent for the last year and now you're going to have to pay all these rent arrears. Well, there is no way that a restaurant or a gym or a bar can pay a year's back rent and make enough profit to cover it.
So they're going to say: why should we work for the landlord without getting any pennies for ourselves? We're just going to go out of business. And so the restaurants are closed down. This again is a reason for the stock market booming. If you close down the privately owned restaurants and the privately owned bars, this is going to let the big food chains come in and take over the whole market. Just like Amazon took over much of the market for books and for things that people buy, the big restaurant chains will come in now that maybe 70% of the restaurants in New York City are expected to go out of business. [Inaud] are going to go out of business.
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