27 August 2015

Michael Hudson: Killing the Host, With Reckless Disregard

"In Killing the Host, economist Michael Hudson exposes how finance, insurance, and real estate, also known as the FIRE sector, have seized control of the global economy at the expense of industrial capitalism and governments. The FIRE sector is responsible for today’s extreme economic polarization, the 1% vs. the 99%, via favored tax status that inflates real estate prices while deflating the “real” economy of labor and production.

Hudson shows in vivid detail how the Great 2008 Bailout saved the banks but not the economy, and plunged the U.S., Irish, Latvian and Greek economies into debt deflation and austerity. Killing the Host describes how the phenomenon of debt deflation imposes punishing austerity on the U.S. and European economies, siphoning wealth and income upward to the financial sector while impoverishing the middle class."

I have not yet read Michael Hudson's soon to be released book Killing the Host.   However we do have some highlights of his thoughts coming out of his existing body of thought which I have followed, and also in this recent interview with Democracy Now which is included below.

I cannot agree completely with Mike Hudson's take on China in this interview.   No surprise, since we are two different people with different viewpoints and perspectives.  I think we also are from different economic schools of thought.  However I see much merit in most of what he is saying.

There was and is still a very dangerous speculative bubble and misallocation of capital that has been going on in China, that is often due to mismanagement, regulatory weakness, a surfeit of easy money, speculative fervor, and flat out corruption.   While China is working to correct many of those problems, their outlook is not all sunshine and rainbows.

And I would not say that they were just 'defending themselves' by building up enormous currency reserves that just happened to come there way.  I have not gone into this recently, but China took some very aggressive policy moves, including devaluing their currency against the dollar and then controlling it, and spread quite a bit of money in the right circles with regard to trade policy around Washington, to enable a mercantilist system in which they were able to build up their economy to some degree at the expense of the American middle class.  Although vast fortunes were also made by some of their all too willing partners in the West as well as their own emerging class of oligarchs.

But putting that aside, the outsized financial sector in the US, which was also enabled by a big money campaign for deregulation in Washington, marked by the overturn of Glass-Steagall, has certainly spawned a significant systemic problem of corruption and malinvestment, inequality reinforced by policy, and an eroding of democracy itself.

Until steps are taken to correct this, there will be no sustainable recovery.  People are fed up, and angry, and reaching for solutions some of which appear to be some rather poor choices made in extremis.   

And as for the wealthy, dumb, and distracted classes, busily keeping themselves out of any meaningful discussion with the amusing distractions of the triviata of their professions, while occasionally taking a fat stipend for spewing nonsense while nursing a steady share of the vig, the consequences of all this are going to roll over them like a tsunami at midnight.

And once again, 'who could have seen it coming.'

Related:  Of Bubbles and Busts:  Which Way For China (Oct 2009)