This page has been archived and commenting is disabled.
Michael Hudson: Debt: The Politics and Economics of Restructuring
Michael Hudson: Debt: The Politics and Economics of Restructuring
Intro by Ilene
(Updated, originally posted at Phil's Stock World)
In the video below, Michael Hudson discusses how damaging "austerity" really is. It wastes labor and production, and leads to economic shrinkage. In the last 30 years, there's been a persistent widening of wealth disparity, an enormous redistribution of wealth between creditors and debtors. In the U.S., the top 1% have doubled their share of returns of wealth (interest, dividends, rent and capital gains).
PROBLEM: The winners will push economies into Depressions rather than give up their gains. They will continue "business as usual." The creditors will not write down debt. Instead, they embrace the notion of "austerity."
But austerity makes debts harder to pay. A shrinking economy has less tax revenue, and this exacerbates the budget deficit and leads to calls to cut back spending. Cutting back spending drains money from the economy, adding a tax drain to the debt drain. If you repay debt, the money doesn't get used to buy goods and services, markets shrink, and a declining spiral results. Without writing down the debt, the debt overhead and imposed austerity will shrink economies and polarize nations even further between debtors and creditors.
The choice: Write down debts or suffer a chronic, severe recession. There's no way to recover while the debt overhead remains in place.
That all debts can be repaid is an illusion.

Michael asserts that our economic models are quite flawed. In the U.S. 40% of the American labor budget goes to housing, about 15% goes to wage withholding for Social Security and medical care; other debt services (credit cards, student loans) is about 10%, and other taxes (income, sales) are about 10 to 15%. Of the take-home budgets of American workers, 75% is spent on non- goods and services. Only 25% is available for spending in the market. U.S. labor cannot compete with labor in economies that are less financialized, that have lower housing costs, where the government picks up infrastructure costs, and where the government basically has a lower cost structure.
The problem is POLITICAL. There's NO fair solution that everyone gains on.
We cannot grow our way out of debt with a debt burden as enormous as it is today. Someone has to lose. In the U.S. the banks are blocking a solution. Michael argues that under today's conditions in the U.S., we are robbing the 99% to pay the 1%. That is the political setting.
And that political setting is supported by a large portion of our population in terms of power and voice. Just read the comments to Bruce Krasting's "A Different Buffett Rule - One That Would Work" (posted at ZH) to see the strong reactions against Bruce's idea of taking some extra tax money from the richest folks to provide benefits to disabled people with devastating diseases - people qualifying for the Compassionate Allowance program of Social Security Disability.
The negative reaction seems to be based on the premise that the very rich fairly earned all their money, the poor are lazy, and the evil government should get out of the way.
But the system as it is operating now is stacked against the lower 99%; the playing field is hardly level.
And how is that? The government that dictates taxes also provides the framework, the laws and regulations governing our political, economic and financial systems. It created a system of crony capitalism that has enabled the 1+%ers to get to where they are and stay there. (I think the problem is at level higher than the top 1%, so I write 1%+.)
Charles Hugh Smith just posted an excellent piece that explores the tensions between the need for a central government and the corruption of that government in Crony Capitalism and the Expansive Central State:
"Crony capitalism arises when an expansive Central State dominates the economy. The Central State can then protect crony-capitalist perquisites, cartels, quasi-monopolies and financialization skimming operations of the sort which now dominate the U.S. economy's primary profit centers.
.
"If we step back, the larger context is the purpose and role of establishing a State to protect its citizens from foreign and domestic predation and exploitation.
.
"The Central State is granted the sole power of coercion by its membership (citizenry) to protect the membership from the predation of individuals, concentrations of wealth and other subgroups seeking monopoly. They grant the State this extraordinary power to insure that no subgroup or individual can gain enough power to dominate the entire membership for their private gain and to protect freedom of faith, movement, expression, enterprise and association.
.
"Granting this power to the State creates a risk that the State itself may become predatory, supplanting the parasitic elements it was designed to limit..." (This excerpt was drawn from Resistance, Revolution, Liberation: A Model for Positive Change)
The government provides the freedom and assistance (deregulation, failure to enforce laws, bills that help perpetuate quasi-monopolies) that enable the top 1%+ to continue accumulating more and more of the country's total wealth. It is also charged with keeping those at the top safe from the rage brewing at the bottom.
Within this context, the reality of the situation today, it makes perfect sense to take back some income (interest, dividends, rent, capital gains) from the wealthiest to help others who can't work to simply live.
As Phil observed in $105,637 for Me, $80 for You!:
"Isn’t this economy FANTASTIC?
.
"It sure is for those of us in the top 1% (1.4M) - people earning over $352,000 in annual income. We made $105,637 more Dollars in 2010 than we did in 2009 – thanks in large part to the Fed’s fantastic policy of printing more and more money, which lets us borrow cheaply or invest with leverage in inflating equity as the Dollar collapses.
.
"Sure the Dollar collapsing hurts everyone – but an extra $105,637 keeps us ahead of inflation, right?
.
"I’m still jealous of course, as the top .01% (14,000 people) – who earn an average of $23.8M, were able to add another $4.2M to their annual incomes in 2010. That’s 52,500 TIMES the average $80 increase earned by the bottom 99%. (Chart above: source Thomas Piketty and Emmanuel Saez, NY Times.)
.
"That’s right, somehow, the riff-raff in the bottom 99% managed to grab 7% of the Nation’s total increase in income – clearly Congress needs to make immediate changes to prevent this travesty from happening again!
.
"Steve Rattner has a different opinion: 'The only way to redress the income imbalance is by implementing policies that are oriented toward reversing the forces that caused it. That means letting the Bush tax cuts expire for the wealthy and adding money to some of the programs that House Republicans seek to cut. Allowing this disparity to continue is both bad economic policy and bad social policy. We owe those at the bottom a fairer shot at moving up.'...
.
"Of course things seem fine if you are in the top 1%... and that means – very simply – less for the bottom 99%. When do we have the ideal amount? When we have 100% and the bottom 99% has zero? We already have 25% and in 2010 we captured 56% of the income gains, so our disproportionate share is, indeed, growing even more disproportionate every year...
.
"The top 1% have their own top 1%... the bottom 99% of the top 1% also got screwed, capturing just 1/3 of the gains for 1.4M while the top 14,000 took 66% of the pie.
.
"Just like in 1927, the stock market is roaring as the rich get richer and trickle their increased earnings into stocks and commodities, with commodities being the most fun as rich people get to buy things they don’t need..."
The structure of our economy needs to be taken down and rebuilt. This not just a problem of debt but a problem of theory.
Michael Hudson: Debt: The Politics and Economics of Restructuring
Courtesy of Jesse's Cafe Americain
Here is Michael Hudson's talk on Debt and Restructuring from April 13, 2012
- ilene's blog
- 7999 reads
- Printer-friendly version
- Send to friend
- advertisements -


"Of course things seem fine if you are in the top 1%... and that means – very simply – less for the bottom 99%. When do we have the ideal amount? When we have 100% and the bottom 99% has zero? We already have 25% and in 2010 we captured 56% of the income gains, so our disproportionate share is, indeed, growing even more disproportionate every year...
Never admit to being closed-minded. Makes ya look bad. And we all know that it's appearance that matters.
I believe we'll have some European countries which will demonstrate how austerity works.
That is really funny.... That is like saying "I'm stupid and proud of it!"!
People are people. I'll listen to your idea but if it isn't better than my idea, I'm sticking with my idea.
Your article is presented in the same vein.
The global economy was leveraged to accelerate an unsustainable increase in the collective standard of living for the many. That generated McMansions and trips to McResorts, located around the world. Now it's time to pay the piper.
Where would the world be without the leverage taken? Has there been any innovation created in the last 50 years that is worth mention?
It's time to tighten one's belt. It's time to live within one's means. That's my idea. What's yours?
"and that leverage was bailed out so it could continue again." go ahead..."demand austerity."
Do you believe that your children and grandchildren should "pay the piper" for those McMansions etc..?
I don't think you realize what has been lost or how it was taken, to bad it happened on our watch.
Grab a shovel and start digging. You can dig a hole or you can build a road. It makes no difference to me. My recommendation is you spend the effort building a road. Digging a hole won't get you anywhere.
Hudson simply digs holes. I do not expect he could manage any meaningful business with employees counting on him or customers relying on his products/services.
How can you say that? Warren Buffett says caves (a sort of hole) are more valuable than gold.
Your point is well made. We have 50 years of leveraging up to account for. It is easy to blame the banks, for they are to blame, but ultimately we were all he direct or indirect beneficiaries. In the US we let Kennedy (space program, Viet Nam), then Johnson (Great Society, Vietnam), Nixon (Vietnam), Reagan / Clinton / Bush (reduce taxes and spend more on defense and entitlements) and their Congresses spend whatever they wanted, all ultimately funded by the Federal Reserve. If one of them tried to raise taxes, he was voted out (George H.W.).
The result is the Debt Bomb, and it is ticking away. It would have exploded already but for the ridiculously low interest rates purchased temporarily by means of QE and other distortional policies by the Fed and ECB. The EZ is in worse shape than the US, and has not even recapitalized its banks so will likely fly apart in the first round of the race to the bottom.
The good news: we still have all the real, productive assets. The bad news: They are in hock, collectively, to pay for huge profits for the financial sector and retiree pensions, milk money for poor school kids, education, health care, etc., and the interest payments will grind everything down. The ZIRP and other monetary easing are just making the problem worse, as the US and other countries have actually leveraged up, in toto, since 2008, as a proportion of real GDP (corrected for real inflation, and subtracting the benefit in the US of an additional 5% GDP in federal deficits each year).
There's a difference between the message and the messenger.
That people are going to suffer is not something that I nor most here would wish (except the folks pretending to play god).
The cows are out of the barn. It's no a matter of how we keep them in there, we've got to get them back in! That we're going to have to step in a LOT of cow shit is pure reality.
Those McMansions, what do YOU think should be done with them? I believe them to be the antithesis of sustainability, and while I would not want grandchildren paying for them, I also believe that they shouldn't live in them (and they won't either, because they won't be able to be maintained).
What would the grandchildren of the Easter Islanders do to rectify the disaster that was the end of their civilization, assuming that people would have survived? Should they view it as a LOSS? (oh, we didn't get to partake in statue-building, those before us fucked us!)
Better to read than listen to. He has more ahs than words.
Yeah, that is why I went looking for his paper, would love to hear a "un rushed" discussion with him
Theory. The man is a very bright and learned scholar. A lot going on in that head (Michael to himself "...make it stop, make it STOP....").
The explanation is Thermodynamics. It isn't the 1%ers. It isn,t the 99%ers. You can't create wealth. It simply can't be done and it's nobody's fault. Now start from there and see what you come up with.
Before you start with this logic you have to define wealth and it's relationship to Money, currency and debt........
Wealth is a total abstraction. If I were to attempt to place a description on it it would be a situation in which one had enough resources such that tomorrow didn't loom threatening. One who has to battle every day and continues to get another day is treading water, is sustainable. One who battles and becomes beaten day in and day out eventually succumbs; it is this position that is the antithesis of wealthy.
So, in short, "wealth" is that which is in "excess" of sustainable. Entropy and averages state that this cannot hold, just as the person who is impoverished cannot sustain.
The poster above is right, it's about energy. Energy is that which allows one to continue.
I like Michael and he follows a fairly simple formula. The financial sector should be structured to serve the broader, productive economy rather than the reverse which we have now. The financial sector achieves this with political connections and violence of one sort or another. Corporations, which began as a reasonable idea -- to create entities big enough and talented enough to execute grand ventures -- to TBTF entities (the squid) that suck up all the excess value in whatever community they operate. Debt peonage is the TBTF vision of our future.
Michael Hudson work is a pleasure to read, here is a link to the complete paper.
http://ineteconomics.org/sites/inet.civicactions.net/files/hudson-michae...
are u Hudson"s PR flack or something acting anonymously but without disclosure to the unwashed masses sucking all this up? Just askin'
At some level I can dialogue with Hudson, but there are more than enough inanities & blatant mistakes/misrepresentations, etc. in his presentation to make one pause before any full serious embrace.
the 1% are not interested in a bigger pie. they are interested in only getting more of the existing pie, whatever it is, even if the pie is smaller and getting smaller.
Archimedes
by "Twark Main"http://www.henrygeorge.org/archimedes.htm
Ilene, expect a flood of negative comments from the Zero-herd, especially since you (1) didn't use profanity (2) didn't blame Bernanke for every economic and social problem (3) didn't offer gold as the one true solution to greed and fraud (4) didn't brag about how many guns you own and (5) didn't end with "end the Fed" in bold, capital letters.
Don't be a dick. ZH is one of the finest conversations on the net. Profanity is necessary when describing the profane, numbnuts.
Sounds like you need to stop wasting time here then.
SkepticCarl ' the main reason Ilene is going to get stick here at ZH is he/she believes Govt cutting spending "drains money from the economy".. this is the old socialist bollocks that Govt spending is good for the economy and expands it ...very crap maths that
so if ilene (or Hudson?) can't manage to workout on his/her lonesome that ALL Govt spending is a drain on the economy, because it requires stealing wealth from the productive, then he/she can expect a long cue of acidic comments from ZH'ers for being so very bloody stupid (we're talking Paul Krugman and Ben Bernanke levels of economic ignorance)
All this assumes that you can positively label the "private" sector as being "productive." Would that be the financial sector? the one that govt is currently bailing out? Or, would that be APPL? the maker of the greatest non-productive shit ever?
The "defense" industry is "private" sector. I remember Ross Perot proclaiming the virtues of the "private" sector, this from someone who hailed himself a shining light of the "private" sector made much of his position from govt contracts.
I'd think that you know my position on the govt (I agree that it's NOT "productive"). I just don't believe that the "private" sector is all that folks think it is: yes, I'd prefer IT, though only in a smaller-business setting; but make no mistake, as long as the meme is perpetual growth on a finite planet, the "private" sector also will ultimately fail, though perhaps in a different way, but it WILL fail.
ZeroG said it better than I could. Spot on. +10 on you.
and unless it's the 200,000 of unrecorded history you are refering to....how's this 'no government' working out for you? and if not, and we are in the same 'i have a debt'/'my crop is coming up' era i think we are-
can't we all get along?