Wednesday, December 30, 2020

Hard look

 "A Hard Look at Rent and Rent Seeking with Michael Hudson & Pepe Escobar":

"Michael Hudson:  . . . I think you have to frame the whole issue that China is thriving, and the West has reached the end of the whole 75-year expansion it had since 1945.

So, there was an illusion that America is de-industrializing because of competition from China. And the reality is there is no way that America can re-industrialize and regain its export markets with the way that it’s organized today. Financialized and privatized and if China didn’t exist. You’d still have the rust belt rusting out. You’d still have American industry not being able to compete abroad simply because the cost structure is so high in the United States.

The wealth is no longer made here by industrializing. It’s made financially, mainly by making capital gains. Rising prices for real estate or for stocks and for bonds.  In the last nine months, since the coronavirus came here, the top 1% of the U S economy grew by $1 trillion. It’s been a windfall for the 1%. The stock market is way up, the bond market is up, he real estate market is up while the rest of the economy is going down. Despite the tariffs that Trump put on, Chinese imports, trade with China is going up because we’re just not producing materials.

America doesn’t make its own shoes. It doesn’t make its own nuts and bolts or fasteners, it doesn’t make industrial things anymore because If money is to be made off an industrial company it’s to buy and sell the company, not to make loans to increase the company’s production. New York City where I live used to be an industrial city and, the industrial buildings, the mercantile buildings have all been gentrified into high-priced real estate and the result is that Americans have to pay so much money on education, rent and medical care that if they got all of their physical needs, their food, their clothing, all the goods and services for nothing, they still couldn’t compete with foreign labor because of all of the costs that they have to pay that are essentially called rent-seeking.

Housing in the United States now absorbs about 40% of the average worker’s paycheck. There’s a 15% taken off the top of paychecks for pensions, Social Security and for Medicare. Further medical insurance adds more to the paycheck, income taxes and sales taxes add about another 10%. Then you have student loans and bank debt. So basically, the American worker can only spend about one third of his or her income on buying the goods and services they produce. All the rest goes into the fire sector, the finance insurance, and real estate sector and other monopolies.

And essentially, we became what’s called a rent-seeking economy, not a productive economy. So, when people in Washington talk about American capitalism versus Chinese socialism this is confusing the issue. What kind of capitalism are we talking about? America used to have industrial capitalism in the 19th century. That’s how it got richer originally, but now it’s moved away from industrial capitalism towards finance capitalism. And what that means is that the mixed economy that made America rich. The government would invest in education and infrastructure and transportation and provide these at low costs so that the employers didn’t have to pay labor more to afford high financialized and privatized costs of living.

All of this has been transformed over the last hundred years. And we’ve moved away from the ethic of what was industrial capitalism. Before, the idea of capitalism in the 19th century – from Adam Smith to Ricardo, to John Stuart Mill to Marx – was very clear. Marx stated it quite clearly – Capitalism was revolutionary: It was to get rid of the landlord class. It was to get rid of the rentier class. It was to get rid of the banking class essentially, and just bear all the costs that were unnecessary for production, because how did England and America and Germany gain their markets?

They gained their markets basically by the government picking up a lot of the costs of the economy. The government in America provided low-cost education, not student debt. It provided transportation at subsidized prices. It provided basic infrastructure at low cost. And so, government infrastructure was considered a fourth factor of production.

And if you read what the business schools in the late 19th century taught like Simon Patten at the Wharton School, it’s very much like socialism. In fact, it’s very much like what China is doing. And in fact, China is following in the last 30 or 40 years pretty much the same way of getting rich that America followed.

It had its government fund basic infrastructure. It provides, low-cost education. It invests in high speed railroads and airports, in the building of cities. So, the government bears most of the costs and, that means that employers don’t have to pay workers enough to pay a student loan debt. They don’t have to pay workers enough to pay enormous rent such as you have in the United States.  They don’t have to pay workers to save for a pension fund, to pay the pension later on[1]. And most of all the Chinese economy doesn’t really have to pay a banking class because banking is the most important public utility of all.  Banking is what China has kept in the hands of government and Chinese banks don’t lend for the same reasons that American banks lend.

80% of American bank loans are mortgage loans to real estate and the effect of loosening loan standards and increasing the market for real estate is to push up the cost of living, push up the cost of housing. So, Americans have to pay more and more money for their housing, whether they’re renters or they’re buyers, in which case the rent is for paying mortgage interest.

So, all of this cost structure has been built into the economy. China’s been able pretty much, to avoid all of this, because its objective in banking is not to make a profit and interest, not to make capital gains and speculation. It creates money to fund actual means of production to build factories, to build research and development, to build transportation facilities, and to build infrastructure. Banks in America don’t lend for that kind of thing.

They only lend against collateral that’s already in place,because they won’t make a loan if it’s not backed by collateral. Well, China creates money through its public banks to createcapital, to create the means of production. So, you have a diametric opposite philosophy of how to develop between the United States and China.

The United States has decided not to gain wealth by actually investing in means of production and producing goods and services, but in financial ways. China is gaining wealth and the old-fashioned way actually by producing it. And whether you call this, industrial capitalism or a state capitalism or a state socialism or Marxism, it basically follows the same logic of real economics, the real economy, not the financial overhead.  So you have China operating as a real economy, increasing its production, becoming the workshop of the world as England used to be called. And America trying to draw in foreign resources, live off of foreign resources, live by trying to make money by investing in the Chinese stock market or now, moving investment banks into China and making loans to China, not in actual industrial-capitalism ways.

So, you could say that America has gone beyond industrial capitalism, and they call it the post-industrial society, but you could call it the neo-feudal society. You could call it the neo-rentier society, or you could call it debt peonage. But it’s not industrial capitalism.

And in that sense, there’s no rivalry between China and America. These are different systems going their own way."

"Michael: Well, here’s the problem right now, they know that Biden is pushing militarily aggressive people in his cabinet. There’s one kind of overhead that China is really trying to avoid and that’s the military overhead because if you spend money on the military, you can’t spend it on the real economy. They’re very worried about the military and they say, how do we deter the Biden administration from actually trying a military adventure in the China sea or elsewhere. They said well, fortunately America is multilayered. They don’t think of America as a group. They realize there’s a layer and they say, who’s going to represent our interests. 

Well, Blackstone and Wall Street are going to represent their interests. Then I think one of the, Chinese officials last week gave a big speech on this very thing, saying look, our best hope in stopping America’s military adventurism in China is to have Wall Street acting as our support because after all, Wall Street is the main campaign contributor and the president works for the campaign contributors.

The politician works for the campaign contributors. They’re in it for the money! So fortunately, we have Wall Street on our side, we’ve got control of the political system and they’re not there to go to war so that helps explain why a month ago they let a wholly owned US banks and bankers in. On the one hand, they don’t like the idea of somebody outside the government creating credit for reasons that the economy doesn’t need. If they kind of needed it, the bank of China would do it. They have no need for foreign currency to come in to make loans in domestic currency, out of China.

The only reason that they could do it is number one, it helps meet the world trade organization’s principles and, number two especially during this formative few months of the Biden administration, it helps to have Wall Street saying; we can make a fortune in China, go easy on them and that essentially counters the military hawks in Washington."
and (on financing Belt and Road):
". . . China says, you know you don’t have to pay currency for this debt. We didn’t build a railroad to make a profit and you want, we can print all the currency we want. We don’t need to make a profit. We made the Belt and Road because it’s part of our geopolitical attempt to create what we need to be prosperous and have a prosperous region. So, these are self-reinforcing mutual gain. Well, so that’s what the West doesn’t get – Mutual gain?  Are we talking anthropology? What do you mean mutual? This is capitalism! So, the West doesn’t understand what the original aim of the Belt and Road was, and it wasn’t to make a profitable railroad to enable people to buy and sell railway stocks. And it wasn’t to make toll roads to sell off to Goldman Sachs, you know. We’re dealing with two different economic systems, and it’s very hard for one system to understand the other system because of the tunnel vision that you get when you get a degree in economics."
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