Michael Hudson on Land, Banking and Socialism

[edh]

I read this yesterday, thought it was very good. I'm sure it won't be to everyone's liking...

I have posted recently about "financialisation" and continue to bang on about economic rent / wealth extraction. This describes it far better than I ever can, in particular with respect to banking.

https://www.nakedcapitalism.com/2017/10/michael-hu...

I think the "crony capitalism" concept that has been developed by some on the right is along the same lines.

Don't get too triggered by the "S" word

[loafer123]

A very interesting article on an excellent blog.

It does go too far in saying all the revenues from land have been converted into financial products which go to bankers. Bankers get their liquidity from the market, and therefore the market receives that return for pensions, investments and so on.

That being said, whilst the Inland Empire of California was the epicentre of the financial crash, I do think we see London, Sydney, San Francisco and other overvalued centres of capital gravity as the epicentre of the next crisis but not in quite the same way.

This time, the equity that has been created by QE, oligarchs and inflating house prices is susceptible to destruction as the liquidity for assets drops, credit is tightened and the screws are put on the markets.

It may well be that the “rentier” problem sorts itself out when the wider population decides the market has no sustainable basis, but we shall see. Certainly a guy I know who advises and controls tens of billions of assets for pension funds is of the view that the likely credit tightening in the next 18 months is going to have some substantial consequences.

[anonymous-user]

Thanks - v interesting!

[turbobloke]

edh said:

I read this yesterday, thought it was very good. I'm sure it won't be to everyone's liking...

I have posted recently about "financialisation" and continue to bang on about economic rent / wealth extraction. This describes it far better than I ever can, in particular with respect to banking.

https://www.nakedcapitalism.com/2017/10/michael-hu...

I think the "crony capitalism" concept that has been developed by some on the right is along the same lines.

Don't get too triggered by the "S" word

Not entirely convincing (diplomatically speaking); the reasoning by assertion e.g. "the alternative to socialist reform is stagnation and a relapse into neofeudal financial and monopoly privileges" and description of China as some sort of socialist beacon do it no favours.

Early economic reforms in communist China retained state dominance in terms of large-scale interests but more recently the privatisation of industry occurred rapidly, particularly during the 1990s, and continued albeit more slowly thereafter...fhe state's share of industrial production fell from ~100% in 1978 to below 40% by 2000 and was already approaching 30% in 2004. Their economy is now far more capitalist than socialist.

[anonymous-user]

turbobloke said:

Not entirely convincing (diplomatically speaking); the reasoning by assertion e.g. "the alternative to socialist reform is stagnation and a relapse into neofeudal financial and monopoly privileges"...

I trudged on for a bit past that and don't mind admitting skipped to the conclusion; "Markets have not recovered for the products of American industry and labor since 2008.". Except American industrial output had recovered the 2008 high by 2014 and is higher still today. Where is it all going if there's no market for it? Naked Capitalism is normally pretty good though

Edited by anonymous-user on Friday 20th October 23:32

[JagLover]

This theme of the article I entirely agree with

MH said:

The democratization of home ownership during the 20th century led middle-class voters to oppose property taxes – including taxes on commercial sites and natural resources. Tax policy in general has become pro-rentier and anti-labor – the regressive opposite of 19th-century liberalism as developed by “Ricardian socialists” such as John Stuart Mill and Henry George

This is a problem long identified by 19th century liberals and the response is not necessarily Socialism.

Public policy has tilted strongly towards taxes on income, in fact more specifically taxes on the incomes of those that cannot avoid it. Inertia means that people accept it as natural that incomes should be taxed as highly as 47% (when you include NI) but capital gains might be entirely free of tax (if a PPR) or taxed at a far lower rate.

There are vast stores of wealth throughout the western world that have arisen mainly due to passive wealth accumulation as credit bubbles and public policy decisions feed through into dramatic increases in wealth of the already wealthy. Meanwhile a young person trying to join their ranks faces near penal rates of taxation.

Some will say the answer is Socialism, despite the failure of a true socialist economy to ever produce sustained increases in living standards. However if the parties of the centre right do not realise what is truly happening and respond on behalf of ordinary working people we will have Socialism by default, as they will be the only ones seeing the problem even if their proposed solution is ineffective or even damaging.

[Carl_Manchester]

edh said:

I read this yesterday, thought it was very good. I'm sure it won't be to everyone's liking...

I have posted recently about "financialisation" and continue to bang on about economic rent / wealth extraction. This describes it far better than I ever can, in particular with respect to banking.

great article, thanks for sharing.

[edh]

turbobloke said:

Not entirely convincing (diplomatically speaking); the reasoning by assertion e.g. "the alternative to socialist reform is stagnation and a relapse into neofeudal financial and monopoly privileges" and description of China as some sort of socialist beacon do it no favours.

Early economic reforms in communist China retained state dominance in terms of large-scale interests but more recently the privatisation of industry occurred rapidly, particularly during the 1990s, and continued albeit more slowly thereafter...fhe state's share of industrial production fell from ~100% in 1978 to below 40% by 2000 and was already approaching 30% in 2004. Their economy is now far more capitalist than socialist.

The article says "China is the leading example of socialist success in a mixed economy." but I think is more concerned with preventing rentier effects not ownership of industry

I don't pretend to understand China, but it appears to be neither capitalist nor socialist but some sort of state capitalist hybrid. Appears that you can only function with the approval of the state.

He covers a lot of ground in a short 'ish article - hard to discuss the economy of USSR without reference to the waves of imprisonment and murder of tens of millions, the failures of central planning, or in China's case the lunacy of the "great leap forwards" for example..

fblm said:

I trudged on for a bit past that and don't mind admitting skipped to the conclusion; "Markets have not recovered for the products of American industry and labor since 2008.". Except American industrial output had recovered the 2008 high by 2014 and is higher still today. Where is it all going if there's no market for it? Naked Capitalism is normally pretty good though

I had a quick look for some data. I found the Fed's Industrial Production Index - is this what he's referring to? - as ever it all depends.... looks like there was a peak in 2014 (~107) & it has dropped again (currently ~105) to below Dec 2007 high of ~106.
http://www.macrotrends.net/2583/industrial-product...

I like NC, ...no party line apart from healthy scepticism, with informed contributors (I thought the series of articles on uber, and on autonomous vehicles, were very good) I think i first read it after following a link that you posted on here some years ago

[W124]

JagLover said:

This theme of the article I entirely agree with

MH said:

The democratization of home ownership during the 20th century led middle-class voters to oppose property taxes – including taxes on commercial sites and natural resources. Tax policy in general has become pro-rentier and anti-labor – the regressive opposite of 19th-century liberalism as developed by “Ricardian socialists” such as John Stuart Mill and Henry George

This is a problem long identified by 19th century liberals and the response is not necessarily Socialism.

Public policy has tilted strongly towards taxes on income, in fact more specifically taxes on the incomes of those that cannot avoid it. Inertia means that people accept it as natural that incomes should be taxed as highly as 47% (when you include NI) but capital gains might be entirely free of tax (if a PPR) or taxed at a far lower rate.

There are vast stores of wealth throughout the western world that have arisen mainly due to passive wealth accumulation as credit bubbles and public policy decisions feed through into dramatic increases in wealth of the already wealthy. Meanwhile a young person trying to join their ranks faces near penal rates of taxation.

Some will say the answer is Socialism, despite the failure of a true socialist economy to ever produce sustained increases in living standards. However if the parties of the centre right do not realise what is truly happening and respond on behalf of ordinary working people we will have Socialism by default, as they will be the only ones seeing the problem even if their proposed solution is ineffective or even damaging.

A well considered post. It’s very difficult, in politics, to separate the diagnosis from the proposed treatment. These are complex issues and readily misunderstood.

The answer of the market, ‘leave it to the market’ essentially, is a very easy sell, not because it is a good answer but because it is immensely easy both to disseminate and understand. ‘Do nothing’ is a simple and attractive message.

‘Do something’ is a bugger of a thing to get across.

And then there is the issue that clear diagnosis of mistakes in policy or perversions related to the accumulation of capital are often correctly diagnosed and explained by people who then go on to suggest dreadfully counterproductive answers to them. See: Jeremy Corbyn. Yet, how could it be any other way?

The truth is that generating a functioning society that is broadly fair and equable is a desirable aim. But how you get there, and the dreadfully slow speed you would need to do this to not spook the horses, means that the forces of reaction will always win. Especially considering both the simplicity and familiarity of their message and the considerable bias of capital and resource in their favour.

[anonymous-user]

edh said:

looks like there was a peak in 2014 (~107) & it has dropped again (currently ~105) to below Dec 2007 high of ~106.

You're right. Not bad from memory though . In my defence and in the context of recovery from the lows I think it's fair to say output has recovered but fair call none the less.

[anonymous-user]

JagLover said:

This is a problem long identified by 19th century liberals and the response is not necessarily Socialism.

Public policy has tilted strongly towards taxes on income, in fact more specifically taxes on the incomes of those that cannot avoid it. Inertia means that people accept it as natural that incomes should be taxed as highly as 47% (when you include NI) but capital gains might be entirely free of tax (if a PPR) or taxed at a far lower rate.

There are vast stores of wealth throughout the western world that have arisen mainly due to passive wealth accumulation as credit bubbles and public policy decisions feed through into dramatic increases in wealth of the already wealthy. Meanwhile a young person trying to join their ranks faces near penal rates of taxation.

Some will say the answer is Socialism, despite the failure of a true socialist economy to ever produce sustained increases in living standards. However if the parties of the centre right do not realise what is truly happening and respond on behalf of ordinary working people we will have Socialism by default, as they will be the only ones seeing the problem even if their proposed solution is ineffective or even damaging.

Good post. Taxes on income instead of wealth are somewhat perverse if we want to even pretend we live in a meritocracy. Good luck persuading a nation of (mostly unmortgaged) homeowners that we should switch to taxing the wealth they accumulated despite income taxes though...

Edited by anonymous-user on Saturday 21st October 14:24

[richie99]

fblm said:

Good post. Taxes on income instead of wealth are somewhat perverse if we want to even pretend we live in a meritocracy. Good luck persuading a nation of (mostly unmortgaged) homeowners that we should switch to taxing the wealth they accumulated despite income taxes though...

Edited by fblm on Saturday 21st October 14:24

I'd be willing to be that the ones paying most of the income tax are also the ones with the wealth. We all know they will end up being screwed twice over. Progressive to me is just confiscating from those who work hard to fund those who don't.

[anonymous-user]

richie99 said:

I'd be willing to be that the ones paying most of the income tax are also the ones with the wealth. We all know they will end up being screwed twice over. Progressive to me is just confiscating from those who work hard to fund those who don't.

The point is, a huge amount of wealth has not been earned through hard work but simply accumulated as a result of being already wealthy, through asset bubbles. 'The first million is the always the hardest'... might normally be said in jest but it's obviously true. In a lower income tax/higher wealth tax environment more people should accumulate more wealth earlier in life and those not 'working hard'/earning will lose it faster. Of course in a mostly unmortgaged property owning democracy a shift from taxing income to wealth is, hopefully, unlikely. If you were designing a system from scratch though it makes a lot of sense. As Jaglover pointed out there's a danger Corbyn and his troop of clowns get a taste of power and then we get income and wealth taxes, which is good for no one.

Edited by anonymous-user on Saturday 21st October 16:16

[W124]

fblm said:

richie99 said:

I'd be willing to be that the ones paying most of the income tax are also the ones with the wealth. We all know they will end up being screwed twice over. Progressive to me is just confiscating from those who work hard to fund those who don't.

The point is, a huge amount of wealth has not been earned through hard work but simply accumulated as a result of being already wealthy, through asset bubbles. 'The first million is the always the hardest'... might normally be said in jest but it's obviously true. In a lower income tax/higher wealth tax environment more people should accumulate more wealth earlier in life and those not 'working hard'/earning will lose it faster. Of course in a mostly unmortgaged property owning democracy a shift from taxing income to wealth is, hopefully, unlikely. If you were designing a system from scratch though it makes a lot of sense. As Jaglover pointed out there's a danger Corbyn and his troop of clowns get a taste of power and then we get income and wealth taxes, which is good for no one.

Edited by fblm on Saturday 21st October 16:16

Yes, that is kind of the point. It’s tax on unearned wealth. There is no dispute that a meritocracy in a capitalist context is a decent system. The point is that we do not live in one. As wealth accumulates

What to do about this has defeated better minds than mine, I have to admit.

[loafer123]

One logical response is to encourage people to spend their wealth, and therefore redistribute it whilst having fun or passing it on through the reduction in inheritance tax thresholds.

Politically difficult, but probably easier than many think.

Personally, I would also do a flat tax regime for income, corporate and capital gains tax to encourage enterprise and make the system fairer and more transparent.

Whilst we are at it, a 80% cap on corporate leverage and no interest rates over 12% being tax deductible, and a replacement of the rates system for retail companies with some form of sales tax to level the playing field between physical and online retailers.

For the avoidance of doubt, some of the above would be financially disadvantageous to me personally, but I think beneficial for society as a whole.

[anonymous-user]

This one from Will Hutton is more polemical, but raises some questions about how wonderful some policies of the 80s really were -

https://www.theguardian.com/commentisfree/2017/oct...

[Luther Blissett]

Hudson is an interesting guy, his book "Junk Economics" is brilliant, his research into the history of banking is fascinating.

[James_B]

richie99 said:

I'd be willing to be that the ones paying most of the income tax are also the ones with the wealth. We all know they will end up being screwed twice over. Progressive to me is just confiscating from those who work hard to fund those who don't.

Those who have done what the state seems to advocate, use education and then career planning and sensibly applied effort to get ahead would be screwed again if we switched now to taxing wealth.

I come from a bog-standard Northern comp, and nowadays pay about 45% overall tax rate on my earnings. I was wiped out in 2008, but am back to doing well now, and continue to pay a huge bill for the good of society.

I'm not allowed to fund my pension, won't get child allowance, don't get a tax-free income tax allowance, but am still managing to save hard for my future.

I'd possibly like to give up the city job in a few years and live off what I've accumulated. I'll not be happy if the government decides to tax it again.

I'd likely take it away somewhere else, in fact.

[W124]

That's not quite what the article posted is about. I take your point though. It's very hard to see how increasing equality opportunity can be achieved without compromising equality of outcome. Very tricky.

[drainbrain]

I've probably got this wrong, but the guy seems to be trying to say that greedy selfish thoughtless fukkers are trying to perpetuate a system wherein they retain and accumulate almost everything by enslaving those not in their culture who have comparatively little and sometimes nothing at all.

Erm, isn't his essay just a posh way of stating the bleeding obvious?

Here's a fun game.

Imagine.....just imagine.....billions of microbes co-existing on a grain of sand in an endless desert. They haven't developed any means of existing on any other grain, so they are forced to co-exist on the one single grain.

How would they be best to organise themselves ? Should they strive competitively to each gain as much of the grain as they could accumulate? Or might it be better that each strove as best he could to better the existence of the whole community?

Work it out for yourself, and live accordingly.