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Polarization, Then a Crash: Michael Hudson on the Rentier Economy
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Allied with landlords and monopolists, the finance sector is extracting economic rents from the economy that's impoverishing US government, industry and labor says Michael Hudson discussing the chokehold of pro-finance, pro-rentier capitalism reaching into the present COVID-19 crisis.
LYNN FRIES: Hello and welcome. I'm Lynn Fries producer of Global Political Economy or GPEnewsdocs. I am delighted to have Michael Hudson joining us today. He will be discussing how under a neoliberal shift from industrial to finance capitalism, today's most pressing economic conflict is not simply between labor and employers. It is a conflict in which rentier interests have the upper hand over labor, industry and government together. This is the political economy in which the COVID-19 economic shock is playing out with dire consequences.
Michael Hudson is a research professor of Economics at the University of Missouri, Kansas City, and research associate at the Levy Economics Institute of Bard College. A prolific author, Michael Hudson's latest book is "and forgives them their debts: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year. Welcome, Michael.
MICHAEL HUDSON: Good to be here, Lynn
FRIES: Michael, It has been argued that every successful economy has been a mixed economy, where the public sector places checks and balances on private sector power; specifically on the financial sector's power to indebt society in ways that impoverish it. Yet this kind of role for the public sector is being vilified under finance capitalism. So, what is your take on that?
HUDSON: Well ever since the Bronze Age you had the temples and the palaces providing basic needs. Because if you leave this to the private sector, then you're going to have a situation where the private supplier has a chokehold on the economy and can say: your money or your life.
There are certain things that governments are supposed to supply and which industrial capitalism wanted government to supply. Because they didn't want employers or their employees to have to pay for them. These are a number of things. Governments obviously have to supply military defense. You can't leave that private people but also healthcare, for instance. The conservative party in England, Benjamin Disraeli said: health is everything; we have to spend on health.
And you don't want to, in principle, make money off crime. But in America we're privatizing the penal system, the jail system. So you have increasing pressure on government, on governors, to arrest people, put them in jail especially on drug use, where you can employ them at 10 cents an hour. And lease them out to companies as low priced labor.
But most of all, government is supposed to provide the infrastructure: the transportation, the communication, the telephone system. And the idea is that if you leave like cable TV to private suppliers, they are natural monopolies. The idea throughout history from classical Greece and Rome, medieval times in Europe is that natural monopolies should be in the public domain.
Because you don't want to provide opportunities for monopoly rent. Because monopoly rent, like land rent and natural resource rent, is not a necessary cost to production. You want the necessary cost of production to be the material costs and normal profit. Because obviously you need people to have some incentive to do things. But the incentive is supposed to be normal profit, not super profits, not just a free lunch.
And so if you let transportation become privatized, then it is going to cost the workforce much more money to get to work and to get to a job. If you let the oil industry be privatized and the profits from the natural resource, and that's the patrimony of mineral rights, oil and gas is all going to go to the private financial sector not to be used as the tax base.
And if you have the land rent, essentially if the government, for instance, in New York City, they spent let's say a billion dollars on extending the second Avenue subway line up along the wealthy Upper East Side. That increased land values for landlords all by about twice the amount by about $2 billion. Because people now we're closer to the subway station, they didn't have to walk. They had better transport. All of this increase in land prices could have financed the extension of the subway and still been able to lower the subway fares for the rest of new Yorkers. Instead, the city let the landlords keep all of the gains in land value. And they just raised the income taxes and went into debt to pay for the subway.
So, you have a privatization of wealth that is not created by landlords, not created by individuals. Certainly the oil companies don't create the oil in the ground. And the mining companies don't create the mineral resources. All of these things are given away freely. The United States lets forestry logging companies and mining companies get whatever they can take from the public domain for free instead of getting the results of this publicly owned land to finance the public budget.
Taxes in the United States could be drastically reduced on wages and on profits, if you would just tax the unearned monopoly rent, the economic rent that is not necessary for production.
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