Published Nov 24
How Finance Capitalism Ruined the World – Dr. Michael Hudson & Dr. Steve Keen
Dr. Michael Hudson is an American economist, Professor of Economics at the University of Missouri–Kansas City and a researcher at the Levy Economics Institute at Bard College, former Wall Street analyst, political consultant, commentator and journalist. Dr. Steve Keen is an Australian economist and author. A post-Keynesian, he criticizes neoclassical economics as inconsistent, unscientific and empirically unsupported. Our conversation examines the false dichotomy of capitalism v. socialism and considers the true dichotomy, which is industrial capitalism v. finance capitalism. Hudson and Keen argue that the transition to finance capitalism, where unearned income is considered economic growth, has truly sown the seeds to ruin the world.
Michael Shilo DeLay
We came down to the idea that the best thing to do might be to get both of your perspectives on why capitalism functions the way that it does, how it functions first of all, as opposed to the way that it's ideally supposed to function, and then talk about why some of those myths persist about capitalism. And maybe, if we're really lucky, we will work towards a picture of something better in the future because that's what I'm personally obsessed with.So…
Michael Hudson
Obviously, there are different kinds of capitalism, a nd we're in finance capitalism. And What Steve and I are talking about really is the degeneration and reversal of industrial capitalism —away from its revolution into socialism, and toward finance capitalism, neo-feudalism, and global disaster. It's supposed to work. It's supposed to create a global disaster. So 1% of the population owns everything else and can take over the 99%. Isn't that what's supposed to work? Yeah, if you're one of the 1%. So, who's supposed to work for whom?
Michael Shilo DeLay
Let's unpack that history a little bit, from the grand ideal we started.
Steve Keen
Have we started?
Michael Shilo DeLay
Yeah, we started recording at the very beginning, and then, you know, we'll probably acts off the beginning until we get rolling.Exactly. But I honestly think we can just launch into it. I'd like to get both of your perspectives on how these events unfolded to the place that we're at.
Anastasia Bendebury
So before we get to the events that have unfolded, let's make sure that…
Michael Shilo DeLay
We need to do that.
Anastasia Bendebury
We do need to do in a way.
Michael Shilo DeLay
We have one more tactical thing
Anastasia Bendebury
Alright, that's a good call. Okay, so I'm going to clap here and then…
Michael Shilo DeLay
We use this title on the audio. So if each of you in turn, we can maybe start with Michael. If you could say something with a ‘P' like Karl Popper, perhaps…
Michael Hudson
Karl Popper.
Michael Shilo DeLay
Got it. And then Steve.
Michael Hudson
Peter picked up a pack of pickled peppers.
Anastasia Bendebury
Yeah.
Michael Shilo DeLay
Nice. Right?
Anastasia Bendebury
Okay.
Michael Shilo DeLay
I think that's how.
Michael Hudson
Get that explosiveness that pumpkins up.
Steve Keen
Yeah, that's all. How I'll go for Polanyi.
Anastasia Bendebury
Okay.
Steve Keen
So I'm not Popper.
Anastasia Bendebury
I want us to start with making sure that everyone is on the same page for what we're talking about. So when we say that capitalism is broken or it's not working, do both of you have the same vision for what that means? Or do you have slightly different perspectives or totally different perspectives on how it's going?
Michael Shilo DeLay
What that word means? It's such a huge, powerful word in this discussion. We should probably define it as vigorously as possible.
Michael Hudson
Well, first of all, that's the wrong question. ‘Working for whom?' It's working very good if you're one of the 1%. It's working very badly if you're one of the 99% or if you're living in a part of the world that the rising sea levels are going to make uncomfortable, or if you're a renter and not a homeowner, or if you're a debtor, not a creditor. So it's working. For whom is the first question?
Michael Shilo DeLay
What is it? What is capitalism? I know this is a very elementary question, but I think it's really important that we define that term up front.
Michael Hudson
The word ‘capitalism' was coined in the early 20th century by the chairman. I'm always plucking out his name right now.
Steve Keen
It's from Plato.
Michael Hudson
No, no, no. Who wrote ‘The Bourgeois'? Many of us. I'm blocking it all out. Right. Well, think what most people think of as capitalism is what Marx wrote about, describing industrial capitalism, where the distinguishing feature is wage labor. Industrialists will hire labor to produce a good to sell at a profit. And the idea is for capitalists in one country to undersell those of other countries and continually cut costs so that they can undersell their rivals. Modern finance capitalism is the opposite. Finance Capitalism or ‘Pentagon capitalism' aims to maximize the cost of production. In ‘Pentagon capitalism,' you're paid an automatic 10% or similar proportion of whatever you spend money on. So the objective of ‘Pentagon capitalism' is instead of making a $20 toilet seat, you make the famous $350 toilet seat because then you get a $35 10% commission. Is that capitalism? The kind of capitalism we have today?
If you want to say is capitalism, what we now have is finance capitalism, and that's the antithesis of industrial capitalism. Industrial capitalism sought to cut costs, and how do you do it? You do it by having the government play a rising role. The government would make sure that costs are not increased by monopolies because any natural monopoly is going to be taken into the public domain. Communications, health care, education, transportation—all of these were developed by the government and supplied to the private sector at a discount or even freely so that the wage earners who were hired by the employers didn't have to spend their wages on health care or education. And that enabled American and German wages not to include all of these extra costs because of government.
The ideal of industrial capitalism was revolutionary. It was to get rid of the rent seekers, to get rid of economic rent as unearned income, to get rid of the landlord class by taxing away land rent, to get rid of the monopolists by putting monopolies in the public domain, or at least regulating them. What happened was the rent seekers fought back and gave us modern economics. Modern economics said that government plays no major economic role. The one thing it picked up from industrial capitalism was to say any problem has a solution. The solution to every problem is one of two things: one, lower the wages of labor and its living standards; two, get rid of government and let the private market solve everything.
As long as the market is controlled by the financial interests. The ideal of finance capitalism is to replace economic planning away from the government towards the financial centers and to maximize economic rent. By the end of the 19th century, modern economics saying markets are ideal the way they are. Any attempt to change the natural market is an interference with the market. And the interference they meant was they didn't want socialism to develop, they didn't want economic regulation to develop, they didn't want anti-monopoly regulation to develop. They essentially wanted to create an economy run by the financial sector, making money by creating economic rent opportunities and deindustrialization.
The objective of finance capitalism is to make money quickly with the least effort possible. And that does not mean you invest in a factory and develop markets. You take over a factory or a corporation, break it up, deindustrialize, turn the office buildings or factories into gentrified housing. And you remove all of the taxes on economic rent, on land rent, on monopoly rent. Essentially, you create an economy that is overblown and in many ways is very much like the feudal economy—special interests, inherited rights, and the economy polarizes primarily by debt. And so this post-industrial capitalism has sort of created a new idea of economics as its advertising a public relations effort. And this neoclassical, anti-government economics says that the ideal of any economy is to make money quickly as it is measured in financial form. And what we're seeing today in the United States is a huge upswing in the financial wealth of the 1% of the population, while the 99% of the population is running into debt.
So if you read the newspapers in the United States these days, it's all about why don't Americans realize what a wonderful thing that President Biden has done? The economy is doing wonderfully. Why do people say it's not doing wonderfully? Why are they so unhappy with the economy? Well, the reason is it depends on who is the economy that you're talking about. Are you talking about the economy for the 1% or the economy for the 99%? And the 1% are making money so rapidly at the expense of the 99% that overall wealth is actually going up? And so people think that the economy is doing good, but it's a very polarized, concentrated economy, just the opposite of what industrial capitalism aimed at.
Michael Shilo DeLay
Steve, do you have a different perspective on the history?
Steve Keen
Well, I want to try. I can see you trying to absorb what Michael was saying there, and it's amazing to watch. A narrative will set how we think about a system, and Michael's narrative—you know, I think I have much agreement with Michael was saying. There are elements I disagree with moderately. But the overall narrative Michael's making is, you know, I think quite an accurate description of how capitalism, as it was originally saying, which was the industrial capitalism has been distorted into financial capitalism. And that has worked out very well for those who own the financial assets and extremely badly for those who work and to some extent extremely badly for those that manufacture as well.
So you do have that, I think, Michael, narrative is accurate, in other words. But I would also come back and say, well, what's the original distinction of capitalism from feudalism or from socialism? And that starts off with the private ownership of the major production. Now, again, I'm not going to agree on that one, but what you get out of that is in a modern society, there's no such thing as a perfectly private system, never, never existed. There's always been a mixture of private and public. And the question under capitalism, what would work better? And if you ask what would be better in general what Michael was talking about, where the government provides health, education, wealth, and the infrastructure, etc., etc., that means that workers are paying, as he said, aren't paying for the cost of transportation to make a profit for the owner of transportation.
They're paying a lower cost. They're getting free education. So the capitalists don't need to educate them, etc., etc. And what you get therefore, is a higher profit for those manufacturers. But financial capital is very much based on their classical economic thinking is that neoclassical economics didn't intend to be a defense for financial capital. But that's what's worked out. When I say deregulate, I mean remove controls on the finance sector. So therefore, I very much agree with Michael's perspective overall. But I think we have to and say, well, you know, let's look at the systemic level—feudalism versus capitalism, capitalism versus socialism. And the private ownership of the means of production is an essential part of that.
What you get—and this is in Michael's narrative as well—is a large part of what is done by the powers that be. And in capitalism, that makes it work less well than if they hadn't garage around with the system in the first place. And if you look back and say, what was the period where this is America's reference point, American population was happiest and I'd say the happy days period, the 50s and 60s, which, you know, the Happy Days show, captured that. And you could have a single male worker most of the time supporting a large family and having plenty of leisure time relatively.
They didn't have fancy things like this to talk on, conversations across the Internet, etc., etc., at the technological levels obviously lower, but you could support a family and have a reasonable family life and be working in an industrial setting as well. Have pride in what you are doing as a worker, etc., etc. So that's not America today. And so a lot of the sense of misery people get, even though you will get neoclassical economists in particular saying, ‘Oh, they're so much better off than they were back then,' because look at the cars as I drive, you know, of let's technological change and that side of capitalism is one worth discussing that's the main distinguishing feature in one sense between a feudal period and a capitalist, you have a greater right of technological development during capitalism. And to some extent that benefits everybody. But you've had a breakdown.
Financial capital has undermined what made capitalism great for the period that it was. And that's a large part of Michael's argument. And I've seen the data on that, too. If you look at the level of private sector debt, you got the booms and busts of private debt. What drives the apparent wealth and the final poverty of capitalism? We are now in the period of the highest level of private debt in America's history. And every time we get a high level of private debt like that, it's, you know, the old joke about if you owe the bank $100, you have a problem; you have a problem for the bank a million dollars.
The bank has a problem. Well, we've ended up with a bank dominated because we are the billion the trillion dollars. And the dominance of the finance sector, I think, is what's eroded the good side of capitalism. And that has been supported by conventional economic theory, even though they claim, of course, they're not doing that.
Michael Hudson
Okay. Now, based on what Steve has said, I can see the question that should have been asked. What direction is capitalism going in? And we could have said what direction was industrial capitalism going in. Everybody in the 19th century said it's going towards socialism. There were many kinds of socialism. And the whole argument in the last decade of the 19th century was what kind of socialism are we going to have? It's obvious that instead of having a post feudal ruling class, a post feudal landlord class to collect rent, post feudal monopoly class and a predatory banking class, we're going to have government playing an increasing role, including money creation and control of the credit system. So that was going towards socialism. There was a counter revolution, and that's the revolution that we've been having for the last century towards neo classical neoliberal economics, and that's finance capitalism, and that's going in the direction that precisely what Steve just pointed out.
What is really growing under finance capitalism is finance is debt. And the debt of the population as a whole is credit on the opposite side of the balance sheet. So while people now are talking about the growth of debt and the debt problem. The debt problem has a twin on the other side of the balance sheet that grows proportionally. The debts of one group are the assets of another. So when Steve and I have both written about how the modern economic picture ignores debt and money because they say we owe the debt to ourselves, but who's the ‘we' and who is the ‘ourselves'? The debt that we owe, or the debt the 99% to ourselves, the 1%? So we're really getting a narrative by the 1%. And it's very largely a fictitious Orwellian doublespeak or narrative.
Anastasia Bendebury
Was this kind of transition away from the happy days of the 50s and 60s inevitable because there was more money in the world and there was a greater need to put it somewhere where it would continue to accrue? What accrued value?
Michael Hudson
That's the kind of question an economist would ask you if you apologize for that comment.
Anastasia Bendebury
I am learning of total years for long enough.
Michael Hudson
Every economic tendency politicizes itself. And the problem is that the financial class gets richer, what does it do? It takes over government and it takes over policy making, especially in the United States. You privatized the election process by the Citizens United ruling where the nomination of political candidates is based on who can raise the most money from the donors. And so the head of every congressional committee, whether it's the military or financing the heads of the financial committee and the members, are all received donations from the banks and the financial classes, the heads of the military committee. So get a subsidy by the military industrial complex. So this is the magic of the marketplace is political as well as just economic. That's what has changed things.
The law has changed. The application of the law has changed. The culmination of finance capitalism peaked with President Obama, who had the largest bank fraud in American history and not a single bankster was sent to jail because the banksters nominate the judges. The banksters nominate the lawmaker. So you have economics is not simply the growth of debt or the growth of income. It's a mode of economic power translates itself into political policy, regulation and who staffs the regulators?
Michael Shilo DeLay
It seems like the political aspects feed back upon the financial structures as well. With things like, you see, the rise of ESG is being priced into corporate decision making. Is there a feedback loop at play there as well, where politics start to drive some of the financial decisions?
Steve Keen
I'll fight finance, roads, everything. I mean, we know the expression ‘the military-industrial complex' that was actually coined by General Dwight D. Eisenhower, president-general. So, I think Eisenhower pretty much in his last day in office and he was a general and certainly see not just from the point of view of the president, but having been in the military himself, the extent to which the industrial complex generated the strength of the military sector and that ran American politics. What we have today, I think I call the financial-political complex.
The financial sector is the only part of the economy that has the ear of politicians. Politicians are persuaded by very self-serving arguments which, you know, look convincing, but they're cut beneath them and they're self-serving. And all the reforms, so-called, are about liberating finance. I just want to share, can I actually share my screen with you? Because I want to show some data because most people have got no awareness of the level of private debt in America and they try.
Anastasia Bendebury
Hold on. I have to change a couple things. Pardon the interruption, dear listeners, but we must ask you for a favor if you like what the Demystify side podcast does. Consider coming over to our Patreon. It is that patreon.com/demystifysci site and there you can contribute a couple of dollars a month to help us keep the ship running and allow us to continue our investigations into the most interesting ideas that are out there about nature, humans, history, the future, technology, economics, all of the things that we do on the podcast. In return for your donation, you get both of our episodes for the week early. You get to join our fantastic patron chat that meets weekly on Sunday mornings to talk about everything that is interesting in the world and the direction that the podcast should take. And you get to have the satisfaction of contributing to something that you think is important in the world.
If you can't contribute right now, that is totally fine. We understand. I have been in that boat for many, many years. But what you can't do without spending a single penny is come to our discord, come to our Facebook, come to our Twitter, come to our Instagram, like comment and subscribe. Because by helping us with the algorithm, you help us grow and really super passive way. And if you've already joined the patron, just do all that other stuff too. For now, back to the conversation.
Steve Keen
You're going to see the top graph is the ratio of private debt to GDP in America from 1947 to today. Okay. And it starts about 50% of GDP back at the end of the Second World War, and then it just explodes cyclically, but it slows from 50% to 170% from the financial crisis in 2007 2008 occurred because the rate of growth of that debt turns from positive to negative. It went from a Ponzi scheme, the whole subprime thing, etc., etc. Ultimately, that fell over because people could miss a payment. Suddenly, they go bankrupt. And the growth of debt goes the opposite way, and drives house prices in the opposite direction. And you can see what I've done down here is I've taken the change in debt.
So this is the level of debt, which are the dollars we owe, that's currently running at about $40 trillion, I think, in America's current level. This is the annual change in debt that's credit. The dollars per year that you borrow or the financial sector encourages you to take on as debt. And that peaked at over 15% of GDP just before the crisis began. It went down to minus five. Now, that's repeating his part of history that's been a part of America, right back to the 30s. You had the Great Depression, which was a more extreme version of this, and the panic of 1837, which was more extreme again. But the level of debt has never been as high as it is this time round. And that's why we still live in a financial-loss economy. And the numbers scream it.
Now, what do you get out of mainstream economic theory as one of the. Well, this is the way in which Michael and I first bonded because we always approach the same issue from different directions. And we were about the only people and non-orthodox economists arguing the level of private debt mattered. And credit was driving the economy. And I remember, Michael, you remember this conversation. I'm sure I stayed in a hotel in a cabin in New York, and you came to visit me. And we were driving away in my hotel room, and you finally said to me, what is aggregate demand? And I answered, Now, technically, I'm slightly wrong here. I've since improved the argument. I answered it straight. They pay plus change in debt. And you said, why can't other people see that? And it is, in fact, now what it is. Credit is part of aggregate demand and aggregate income. And I've proven that analytically as well.
So we now have the correct answer. If you leave credit out, if your analysis of aggregate demand in our program, you are not made whole in capitalism. And mainstream economics is lifted out all the way through and argues you don't need to look at it. Now, that's the reason I've done this bottom shot here, because the red line is the level of credit as a percentage of GDP mapped on the left-hand side of the chart. And the dotted line is the unemployment rate now. And that you can see, one goes up, the other goes down. Rising credit gives you falling unemployment, and vice versa. And the correlation between 1990 and 2015, which is the height of both the bubble, the burst, and then the aftermath. The correlation coefficient is greater than minus point nine. I ask was about point-out steroid.
Anastasia Bendebury
And so what and credit in this chart is just is personal debt that's being carried by people or.
Michael Hudson
Mortgage corporation.
Steve Keen
Oh yeah, everything. It's household debt and corporate debt of the of the non-financial sector to the banks. Okay, so it's even worse when you look at the internal financials that the level is actually higher, but the data is badly designed. I just gave up on trying to include that data in my analysis, but this is how indebted the real economy is, so to speak, households and firms out of the financial sector. And because we've let the debt get this high, we've got you know it's trebled, more than trebled.
So the happy days when debt was kept under control. And if you look at all the controls that came in after the Great Depression and the Second World War, they were to limit the capacity of the financial sector to do what they'd been allowed to do in the 50s, 60s, and out through to today. So we want to change financial capitalism because if you want to have a decent capitalism, you want industrial capitalism, not the financial sector going crazy. I'll just I'll stop my sharing now. But that's you know, it isn't just words. In other words, we're both good talkers, Michael. Better than me. We're both good talkers, which we're a good pair.
Michael Hudson
But we're best when we talk to each other and we bounce ideas off each other.
Steve Keen
Yeah. The data screamingly supports us. I mean, I used to teaching it before I met Michael. I was working over in the University of Western Sydney in Australia, and I was first starting to look at this information, and I would say to my students. I wouldn't dare make up the numbers that I actually find in the statistics. If I was trying to make the case that I believe. In other words, the data is overwhelmingly stronger than I would dare to pretend it was if I didn't actually know the data. And so Michael and I went with that, led the battle in non-Orthodox economics.
I have got to focus upon the financial capital. The level of private debt and its effects and they have caught up with us to some degree. But, you know, we definitely led the battle on that front. And it means that, you know, we understand that capitalism, which we have now, is a perverted version of what it started as and what it should have stayed. And Marx actually put it beautifully. This is in I think it's in the third volume of capital. I said talk about centralization, the banks and the money lenders, and the parasites that surround him.
Occasionally, got the capacity to dominate the industrial capitalism. And this gang knows nothing about production and should have nothing to do with it. And he called them the roving Cavaliers of Credit. And that is what we've let take over. And Marx was right in that if you'd had much better capitalism, we would never have got the garbage we have got now. He had a naive vision of what socialism would be, but he would have kept the financial sector under control. And that's what we need to do to have a decent version of capitalism.
Michael Shilo DeLay
It occurs to me that there's the sort of false dichotomy set up in most people's minds which regards the division between capitalism and socialism. But what we're talking about is the nuances of government restraints on the different industrial and financial sectors. Like there's a more nuanced dichotomy that should be at the center of people's attentions.
Michael Hudson
Well, the answer is yes. And Steve points out that he and I are almost the only people that continue to talk not only about debt, but the fact that the economy cannot recover until you cancel the debt. Well, the reason that economists don't want to talk about debt, if they're representing the status quo is the old phrase, the devil wins at the point that people believe he doesn't exist. The financial sector winds at the point where people think debt doesn't matter. Debt problems don't exist. Don't regulate it.
There's nothing to see here, folks. Keep on moving. What I should have said is that in does at the very beginning is that industrial capitalism ends at creating profits, and it creates profits by employing labor to sell at a profit. And making profits means minimizing economic rent and minimizing predatory finance. Finance capitalism doesn't look for profits. That's why we're deindustrialization.
It looks at economic rent-seeking and financial gains. So the objective of these two forms of capitalism are diametrically opposite. And if you look at where they're going, this really is the problem. Are we going to have a society based on profits and wages and rising feedback between rising wages, higher productivity, and higher capital investment? Or are we going to have the finance capitalism just looking at how to get a free lunch at the economy's expense?
Anastasia Bendebury
I don't know if you saw this World Economic Forum presentation where, at the end of it, they made this point that, in the future, you will own nothing and be happy. And it's really stuck with me because it feels like there is a massive force. That's kind of pressing on the lever arm of society to push people towards dematerializing their own lives, where….
Michael Hudson
I guess they have the Obama doctrine now. When he came here after the 2008 crisis, he said, we're going to start with nobody owning anything by evicting 10 million American families that have been fraudulently loaded down with junk mortgages. Let's first of all, reduce owner a land homeownership by the black and Hispanic population. Let's slash homeownership. And you've had since the Obama takeover, financial takeover, a plunge of ten percentage points in America's homeownership rate. Yes, we're moving towards the polarization, moves towards nobody will own anything, meaning nobody except the 1%. Well, on anything.
Steve Keen
But this what what we're caught up in, as well as a battle between reality and ideology. And ideology, is neoclassical economic theory and people who swallow it's arguments all the way through. And if you go back to the 70s and 80s, that was when you had the real switch shift from a Keynesian understanding, which is like a bastardized version of a Marxian understanding which at least appreciated classes exist and at least appreciated. You wanted to get income to the working class because the working class will spend faster than the richer.
So if you actually distribute money to the working class, it ends up going to the capitalists anyway ultimately. And you get, and this is actually what's called a classic is profit equation that says that if all you increase government spending ends up in the pockets of capitalists because you give it to workers, they'll spend it, and it ends up in WalMart, etc., etc.
Now, the thing is, if you do that, that's better than giving it to the capitalists directly, although certainly financial capital, they spend much more slowly. So what do you get out of it? Is even though, you know, it ends up being something which capitalists profit from, you get a better level of economic activity, a larger level of economic activity. If the goes through the workers in the first place, workers have to spend the money they've got very rapidly, capitalists and the bankers spend it very slowly, and they've got far more money.
So what's happened is a switch to the money going to the workers, which gave us the buoyant economy of the 50s and 60s, that the happy days capitalism, where it goes to the ultra wealthy now and they buy now. They used to buy Lamborghinis, now they buy top-level Teslas. They've got yachts everywhere. They compete over the size that they also have got. It's a much, much more, as I said earlier, a feudal-type economy we've generated. And the point I want to make, I'm going to share my screen again. By the way, this is a very heavy-looking piece of data here.
But one of the things which was sold to get a change, like we've got out of Thatcher and and Reagan, you've got to have something which gets the popular support so you get people voting for it. Part of that comes out of the Murdochs of the world pushing their views and so on. But what they were saying is get rid of trade unions, get rid of government interference, get rid of, you know, socialized medicine, and socialize education. And what we're going to get is a booming economy that grows much faster. And even though you won't have a welfare state holding your hand or putting a net beneath you, you're going to have a faster rate of growth. You'll be wealthier. Okay.
So what that tells you is their argument was the economy would grow faster if we moved from the. Type of capitalism Michael was talking about earlier, where the government covered a lot of those costs, to one where everything is privatized. That was supposed to increase the rate of economic growth. Now, I could show a screen. Was it worth trying again?
Michael Shilo DeLay
Yeah. You should be good to go.
Steve Keen
I think we got it. Give it a try. Okay, Just hang on a second. Let's share the same score. This is my software package. Ravel. By the way, Michael the Terminator. A lot of the shots on this one. But I want to just zoom in to show you the growth.
Steve Keen
Rate makes it all clear.Okay.
Steve Keen
So, what you can see, this is for America. And the growth rate from 1945 to 1975 was 3.24, roughly 3.25% per annum. Real economic growth for 75 has been 1.9%. Okay. That's virtually halving the rate of growth, which of course means that the level of economic activity now for many, many years is far lower than it would have been if we continued with the old, so-called inefficient Keynesian system. So they've sold us a product. We've bought the pump. And the trouble is, nobody realizes. Let's say I've got a few bucks for the stock, but I'll try going to another country here. Let's try Japan, for example, and see if I can upload the data.
Anastasia Bendebury
Well, while you're working that out, I wonder. So if the switch to financial capital has been this artificial method by which to grow GDP by seeking rent from, you know, the working class, why doesn't the growth of GDP reflect that calculation? Like, why does it slow down?
Steve Keen
The growth of GDP to growth, of ownership of capital, ownership of resources, and a concentration of wealth? So we've actually grown more slowly. If you go the money to the workers and they were spending on Happy Days form, there'd be a higher rate of economic growth. That's what they told us they'd get. They didn't get the higher rate of growth. We're now slumping, but they're much, much wealthier, and we're all complaining about it, and we're right and they're wrong. Michael
Michael Hudson
Well, two things about that. When President Biden gave money for the Covid people, I guess that was President Trump who did that. The workers used their money to pay down their credit card debt because what's brewing is debt. You've talked about the growth of GDP. And what's happened is that finance capitalism transforms the concept of GDP; it erases the distinction between what is the product and what is overhead. For instance, right now in America, as a result of this, growing death, arrears and foreclosures are increasing for housing, for automobiles and for credit card debt. Defaults of loans are rising.
Now, what happens when you default on a credit card loan? Your interest rate goes up from 19% a year to about 30% a year. And this the credit card companies now make more money and penalties than they make in interest. And what they make in penalties is recorded in the GDP is providing financial services. So the more you lose your money, you lose your house. You pay higher financial rates. This is considered economic growth, not overhead. And all of the money, the high wages that our CEOs pay themselves, the monopoly prices that are charged for Amazon and for the other companies are under federal prosecution right now for big monopolies. All of this is economic growth. What is growing is the financial tumor, not the economy as a whole, not the industrial economy. Again. That's why the US economy is deep industrializing. And they call that economic growth because the financial sector is making a fortune off deindustrialization.
Steve Keen
And this is actually a problem with how the the flow of funds tables are defined way back in the in the 40s which Copeland, who designed the statistician Michael, and I both have a lot of respect for. But the mistake he made was he decided to record industrial capitalism. You can report the number of cars going out the factory door times the price. If you get a physical measure of the profit, you go the capital, you purchase the machinery, you've got all these prices, and it's all solid and real. But how do you call it the finance sector? And he decided simply to call the contribution of the finance sector's GDP the sum of the finance sector.
All the wages that are paid, all the bonuses, all the profits that are that are made. So if you pay double the pay of a CEO, you increase their they pay. Now, that's wrong. We should have said, let's look at it and say one of my students way, way back at my university, western Sydney, put it better. He said, Is finance a profit center or a cost? And the answer is it's cost of doing business. It's not a profit center. We have made the mistake of saying it was being creative. And therefore, and that's also, unfortunately, the way the companies often does accounts rather than having a negative for the financial sector, which would have made sense.
You made it a positive, as if it adds to profit, adds to GDP. And what has happened? Of course, it's grown enormously. So the financial sector is going for something of the order of. I don't have the exact numbers, but say like about 5% of GDP to 15% of GDP. And we've counted that as growth. But as Michael said, it's not a growth. It's a tremor past a certain level. You do need finance to enable, you know, all the transactions that we do on a daily basis. And you need borrowed money if you're going to buy a large item like a house or a car, etc., etc. It does make sense to have a certain level of financial debt in a capitalist economy, but not three times what it was in the 50s.
Michael Hudson
And then this financial bias is the denial that there is any such thing as economic rent. Post-Industrial capitalism theory says everybody earns whatever income they get. So, as I think I said it on the earlier broadcast on our show, when the head of Goldman Sachs says, our partners are the most productive workers in the American economy. Look at how much our partners are paid.
As we rob companies, pull them apart, create international crimes by stealing Malaysia's foreign money, the most money is to be made in crime. We know that. And we're the best criminals. There are financial criminals, which is why they were prosecuted. Well, if you say that everybody earns what they get, no matter how they earn it, there is no such thing as unearned income, no economic rent. Then you you've negated the entire 19th-century political economy.
All of the value and price theory of the 19th century that was the essence of industrial capitalism was to distinguish earned from unearned income so that they could free capitalism from the landlord class, from the monopolies, and from the predatory bankers, and the counterrevolution that began a century ago and in which we are still living, denies this distinction. So that again, the devil has made himself invisible.
Steve Keen
You look back at Ricardo because people would know Ricardo for the theory of comparative advantage. Now, that was one of the can I call it the shows. And Patrick, because he managed to deceive everybody. And the Economist that that's been the one, the one horse, the one trick pony that economist economics have been since is using the idea of specialization. But what his real purpose for putting that argument forward was that he argued that workers get the means of subsistence.
Capitalists you want they want capital to get a profit. Those capitalists will invest. And if you want to had a longer period of growth before what he saw as being a stationary site in the future, then you want to get as much money into the hands of the capitalist. So go in this and as little as possible. And so the landlords. So if you read him carefully, he says, My purpose in this book has been to show GW to show that wherever.
Rents go down, profits go up effectively. And I haven't got the quote right there. But what he's saying, if he can reduce the amount that goes to rent, you'll get a higher rate of growth and you'll have a longer period of prosperity before the stationary state. So he was anti-landlord, which is hilarious because he actually was a landlord. But nonetheless, that was the flavor of Smith. It was the flavor.
Ricardo certainly, Marx's on the whole idea was to minimize raunchier behavior. And if you look back and see what the feudal system was, that was the ultimate of frontier behavior. So that's where the anti-feudal, pro-capitalist elements exist in all the classical schools, and the neo-classical had this fantasy view of capitalism to begin with. But they're the ones who threw away the distinction. And then that, of course, very much suited the wealthy. And so, Michael, you probably know a lot more about this than I do.
But the takeover of economics in the 1870s, from the classical school to the neoclassical school, where virtually in about a decade you went from the classical school being the dominance and the neoclassical being the undergrowth to all the professors of economics being a neo classical.
Michael Hudson
So it was largely in the 1890. John Bates Clark in America, and similar the Austrians abroad, it was a whole counter-revolution. That's basically what you had?
Steve Keen
Yeah. And that meant we went from a generally fairly realistic picture of capitalism under the classical school of economic thought and then one that ends up with the type of capitalism we had in the 50s and 60s, which was largely an accident, more than deliberate, to the financial capital side. And the neoclassical economic theory justifies all that by saying that the ludicrous pay being paid to manage people, managing financial organizations because they have a high marginal product. Well, since capitalism a meritocracy, which is bullshit.
Steve Keen
Well, since Steve mentioned Ricardo, well, when our generation went to school, they still taught the history of economic thought that is now stripped away from the curriculum. The one thing they don't teach is that there ever was a theory of economic rent. They don't talk about Ricardo or the whole 19th century.
They've replaced the history of economic thought with mathematics, as if you can just mathematics. The existing statistics that have all been, as Steve pointed out, restructured so as to deny that there's any distinction between the financial economy and real industry. So you have economists being turned out that are very smart mathematically, but they don't know what to be smart about because they've never been exposed to the idea that there is such a thing as economic rent, unearned income, and debt crises.
Anastasia Bendebury
So I want to talk about the way that….
Steve Keen
I wouldn't call them smart.
Michael Hudson
Clever. What shall we say? Oh, idiot. Savants.
Anastasia Bendebury
Numerate. They very numerous.
Michael Shilo DeLay
Quantitatively reasonable.
Anastasia Bendebury
Quantitatively able.
Michael Hudson
Sounds as if Robert McNamara was running the economy like you ran the war.
Anastasia Bendebury
I want to understand better why debt is so stifling. Because in the back of my mind, I'm kind of like, Well, why can't it just continue to go on eternally? Like, why can't we just have this thing?
Michael Shilo DeLay
About national debt.
Anastasia Bendebury
National debt, personal debt, economic debt, Just like, why can't it just perpetually grow and grow and grow? And if everybody's debt is growing and everybody's kind of looking at it and is like, well, it's just that's just that's just the thing that grows fine.
Steve Keen
It's growing faster than everything else. This is the problem. If debt grew at the same rate of GDP, we wouldn't be having this conversation. And government debt is different. So that's the point worth elaborating on shortly. But private debt, a private debt was growing up faster.
Today, probably the same ratio, and therefore, you'd be right; it could continue growing. What we're talking about, the ratio has grown dramatically. And then, what's happened? It's gone from being a servant of capitalism to a parasite of capitalism. And it's slowed down the capacity of the industrial capitalism to develop new products. And like the first example we ever saw, that was actually Japan, because if you go back to the postwar period for Japan, you got the enormous Japanese miracle, as they call it. Dramatic growth in the economy. And then, between 1980 and 1990, they had what they called, they literally call it the bubble economy. Where people were speculating on the value of houses in in Tokyo so that the Imperial Palace, which I think has got an area about ten square kilometers roughly. Maybe less than that was worth more than California.
Steve Keen
You had the Nikkei reach almost 40,000 points on the 31st of December, 1989. It since fell to about 7000 points. But this financial bubble took over. Now, up until that point, up to 1990, you would see movies like what was it called The Rising Sun. A classical that was Denzel Washington was adorable. A very classic movie about Japan taking over everything. And we had Walkmans, etc., etc. What happened?
Well, Japanese corporations tended to operate as connected with the church. So rather than being equity-financed, they were largely debt financed. There was a symbiotic relationship, but also independent at the same time. Well, those Japanese corporations have so much debt that they've spent most of the period since 1990 paying off that debt. And the industrial development, the technological development that we associated with Japan died in the US. And so that's what got rid of them. And wait.
Anastasia Bendebury
Who did they owe their debt to?
Steve Keen
But the Japanese cooperation under two Japanese banks, the level of private debt in Japan went from about 30% of GDP and sort of fairly flat for quite some time through the 70s and 80s. Rose 225% of GDP. And then, after the crisis, and now back down to about the same level as America, which is about 170% of GDP. So when you let that get out of hand, you stall. You stifle everything in the real economy. Investment. Technological development and happiness.
Michael Hudson
This can easily be charted. You have the key for financial debt that grows by compound interest. I can send you that. And while the economy grows an S-curve, it tapers off. And the reason it tapers off. As debt grows at compound interest, there is a gap. And more and more of the output of wages and profits have to be paid to the creditors is interest. And the more you pay in interest and amortization to the creditor class, the less you have to pay on goods and services. This is the most sophisticated mathematical model of this, was in Babylonia in 1750 B.C. The Babylonians had a very clear model. Because we have, what are the textbooks that they taught for their scribes? They asked, How fast does a debt grow at a compound interest?
Well, at 20%, every debt doubles in five years. It quadruples in ten years and multiplies eightfold in 15 years and on. But the economy they have, how fast does a herd of cattle grow? And they have a tapering off. And when modern translators first looked at these, they thought, Oh, this must be just actual statistics. But they actually taught it in the model that the rate of debt exceeds the ability to pay. So what what do you do with such a model? Well, it's very simple.
Hammurabi wiped out all of the personal debts four times during his rule. Not commercial debts. Commercial debts owed by businesses to each other stayed in place. But you need a debt write down. If you look at the statistics that Steve just put up on the growth of debt, the only way in which you can prevent this debt from causing a chronic depression, what Irving Fisher called debt deflation in the 1930s, is to write down the debt.
Well, if you look at today with a former head of the Federal Reserve, Ben Bernanke, was given the Nobel Prize for saying that there's no such thing as debt deflation. Irving Fisher was wrong. So they give the Nobel Prize. They think if we give enough prizes to idiots savants who mislead the economy, then we can maybe people will think if they have a prize, they're a celebrity and they know why listen to Steve and Michael, who are never going to get the Nobel Prize. Because if they gave us the Nobel Prize, they'd have to cancel all the prizes they've given for the last 50 years.
Steve Keen
And the Nobel Prize—I don't know if you guys know this is not a Nobel Prize. Are you aware of that?
Michael Hudson
Yes.
Anastasia Bendebury
In what's important ?
Steve Keen
I'll go to Congress. Why ask a Nobel? Alfred Nobel established the prize in chemistry, physics, literature. And I think it was those four prizes, not economics. And I actually specifically considered and said it wasn't a science. It shouldn't be given a prize. In 1969, the Swedish central bank, which it was fighting headed by neoclassical economists, was fighting a battle to prevent the social democratic politics that we tend to still associate with Sweden. And they came up with the idea of having a prize, which this call I can't pronounce the name of the bank in Swedish.
The Swedish Central Bank Prize in Economics in honor of Alfred Nobel 1969. That's when it started. Everybody there selected by a few as a handful of many rebels. So that I can sort of button down dispute occasionally. But it's been to strengthen the neoclassical vision all the way through.
Michael Shilo DeLay
So it strikes. Me as a bigger problem, too, with Nobel Prizes, which is, how do you walk back on something like, you know, science in general knowledge? The acquisition of knowledge is always changing. The way we see things is changing. And I don't know how you that's kind of one of the dangers of giving these monumental prizes—that you don't have the ability to change your mind anymore, which is really dangerous to progress.
Steve Keen
We can't withdraw a prize. I think there should, if it was possible, withdraw prize. The two prizes almost want to withdraw a William Nordhaus Prize in 2009 for the so-called comics of climate change. I only read his shit, and that's my technical description of what he wrote. I only read his shit after he got the prize and realized how bad it was. I'd read Bernanke's before the prize when I saw that, given that guy's been given the prize for an approach model, a model of lending, which the Bank of England said is garbage, In 2014, the Bundesbank said his garbage. In 2007 time, literature said the textbooks are wrong, and they give a price to this guy. Five years later, after the Bundesbank. Yeah. So it is just a sign of how it's an ideology. It's not a science.
Michael Hudson
But that's why it's given, and that's why it's named for a Nobel. Nobel invented dynamite, which is how I made the fortune to support it. The Nobel Prize is for intellectual dynamite. It blows up the understanding of the economy to leave devastation in its wake.
Anastasia Bendebury
Per Nobel.. I want to understand something about the way that profits become accumulated at the peak of the credit structures. Because we were talking about the way that debt grows and the financial system makes most of its profits off of servicing that debt. And I guess I'm trying to understand what actually happens to the money that's accumulating there.
Like, does it get paid out of salaries? Does it just live in the bank and then allow the bank to then progressively ratchet up its influence on the economy, or, like, what happens ? Like, if it's debt and it's being calculated as part of the economy and somebody is accumulating it, Is it real wealth that's getting spent, or is it just sitting on a ledger somewhere being accounted for but not being used?
Michael Hudson
Oh, you love to ask trick questions. What they count as profit is what anybody earns, whether they earn it or it's unearned economic rent, financial, let's say revenue, which is the word that the classical economists used, the financial revenue. What the banks do, they relend it and yet more debt.
That's why debt grows exponentially. All of the revenue of the banking financial sector earns is reinvested in yet more debt to invest in debt. the economy yet more, siphoning off yet more revenue from the from industry and from wage earners. So there's even less and less and less money to spend on the goods and services that they produce. And you create economic shrinkage. So if not industrial profit that grow, it's the profits of the ranters and the monopolists. And if you don't believe there's any such thing as economic rent or monopoly rent or landlord rent, or financial rent, then to you, it's all the same thing. There's no distinction at all.
Anastasia Bendebury
Can we break apart the distinction between economic, financial landlords? Like all of these different types of rents?
Michael Hudson
What they have in common is their unearned, and as John Stuart Mill said, landlords make their rent in their sleep. Well, so do financial investors who hold bonds for mortgages. They make their rent without enterprise, without earning. They play no role in the process of production, employment and reinvestment, and economic growth. They say they simply obtain a special privilege, a monopoly privilege, the privilege of being a creditor. And instead of having the government as the creditor, as you have in China. And as long as you are unearned.
Michael Shilo DeLay
But surely there is a role for rent, right? There must be a role. I mean, when kids come out of the house at 18, they're not to be able to afford a house under any economic structure that I can imagine. So do you imagine?
Steve Keen
There's a role for rental. But you also constrain it that there's a role for debt. But you have to constrain it. Michael's point earlier about the same area, and Michael knows this. This is his power, his expertise, not mine. But what you had in that vision was we had an agricultural society. You had physical bounds on your plots. So if you stop farming somewhere, you're going to reach the boundaries at some point. But if you're borrowing and you've got to pay really high compound interest, that's going to rise exponentially. And what happened? We're telling Michael's work, so pardon me, mine. I want to just elaborate only on your idea.
The debts of financial of corporate debt, people doing trading. That wasn't abolished. That was left as it was because that was a corporate decision. But most of these debts run up in made holes, or they were run up with values of crops, and so on. And there were such high rates of interest, they'd necessarily grow faster than the productivity of the fields that were actually supporting it. Now, the downside for the emperor at that stage was only free men could fight in the army. So the more debt that occurred, the more people became wage slaves and began work on the land as the landlord. And if that continued long enough, there'd be no army to fight all the other empires. And you'd collapse.
So there was a strong reason for the state to come in and say, we're going to abolish those debts. You could go back as been very free men back on the land you lost because of the debts you ran up in the middle or through failed harvests. And you'd replenish and regenerate. And if you look at this again as Michael's work, you look at the history of human civilization from way back those 3000 years, B.C., right through the Roman period to today, a huge part of what we see in all sorts of great men theories of conflict have really been struggle between debtors and creditors and the political power now and the hand of the creditors. And that's what gives you a society which ultimately undermines itself. And that's what we're seeing now.
Anastasia Bendebury
So it sounds like you're saying that if we bring back debtors prisons and we imprison the large majority of people that have debt, all of the sudden we'll create the incentive structure for canceling the debt because there's literally not going to be anybody to work any more people.
Steve Keen
If you cancel that in jail, I mean, yeah, you would. But it is the extent to which political power rests with those who want the money. And if you let them, then they are their own worst enemies in the long run. So even though they're dominating the 1% or the.01 percent, really, they're the ones who are benefiting out of the current system. Their decisions about how to run it are undermining its viability.
Michael Hudson
Well, the problem is that the financial sector doesn't have a long run. They live in the short run. It's the hit-and-run that's the problem. They don't care about the long run. They'll say, Well, we'll do something else. When we wreck this economy, they'll move on to another. And you can see this most of all in the international economy: the global South debt, a dollar debt. How is it ever going to be paid? All of this was debated in the 1920s with German reparations and allied debts, and all of that's been expunged from the economics curriculum. And I went all the way through a Ph.D. without ever hearing a word about a debt or the debt crisis. It's not talked about in polite company.
Anastasia Bendebury
Yes, that's something that I wanted to go into, which is the eventual pressure, not just on a bank on its own people, but this gradual push towards the bank, pressuring other countries and affecting their ability to make freely self-determined choices. And it seems like an extension of just resource extraction because the terms of the loans are often extortionist. And so one generation agrees to the term of the loans. Another generation is paying it off, and it promotes poverty and the ability to just extract the wealth from a country. That is agreed to something that maybe it didn't really understand to begin with or was forced to.
Michael Hudson
Since we've talked a lot about global warming. Before I talk about Third World debt, I want to talk about why neo liberal has lives and has a financial center, and it's America, and America's balance of control over the international economy is very much by control of the oil industry. The financial sector makes loans to whatever sector can afford to pay the most interest back and the most. I won't say profitable.
The most rent-intensive sector is the oil sector. Every dollar of oil investment abroad is repaid, and balance of payments terms in 18 months. At least that's what I. I found in the only study of the oil industry that's been done. So the one of the aims and objectives is finance. And finance capitalism is to speed up global warming and to control the world economy by being able to turn off any country's oil, electricity, and economic power, and hence its growth of GDP as well as warming houses. It will, if it can, control the oil trade.
That's why the United States blew up the pipelines with Russia. If the United States can control the oil trade of the world, then it can essentially have a stranglehold on the economy. And that's why the United States prime aim and diplomacy is there. We will disable any attempt to slow global warming, accelerating global warming. preventing an alternative to oil, gas, and coal is a key to America's ability to control the world economy. And Steve has done all the numbers on that.
Steve Keen
Well, I mean, I got blame particular Americans, not just America in general for global warming, but William, the White House, being one of the main ones. I can't think of the guy's name, but a physicist as well who worked for the government and talked the government out of worrying about global warming back in the 80s the 70s and 80s, which is why America's done nothing about it. But yeah, again, this is a point of the short-term bigness of capitalism, why that's so damn dangerous.
But the financial sector in particular, because they're all on three-month reporting at best, they look five years in the future. And I'm speaking from personal experience here and that I've written a report called Loading the Dice Against Pensions, which points out the extent to which neoclassical economics in the form of William Law, White Houses models, and all the models that have been generated around by his cabal of neoclassical economists trivialized the dangers of climate change with the worst research I've ever seen in my life. Okay.
Dreadful, dreadful stuff should never have been published. But the impact of the sanctions is pointing out how badly these pension funds have been advised by consultants who relied upon their economic research. The barrier I've come up against to say, Well, yeah, but that's outside our investment horizon. That's more than five years in the future. Now, if civilization is going to be destroyed in six years, that's outside their investment horizon.
Anastasia Bendebury
I wouldn't like civilization to be destroyed in six years, though I would expect that there would be a perpetual loops. I would expect that there would be a perpetual decay that you see in advance. And so if you look at your five-year window and it starts to just trend down for the next, you know, for the last ten, five-year windows, then you're looking at the decay. And is that kind of how they used to justify.
Steve Keen
No, they just it's even if it doesn't affect their current profit and loss statements and the three reporting and five year reporting and so on, then they're not going to be bothered about it. Now with that means that you only start realizing, oh, global warming is affecting us; we should do something about it when it's too late.
You can't have that time horizon to survive something of the nature of global warming. And economists applied an enormous role in trivializing the dangers. And when capitalism collapses, and I'm using when not if, when capitalism collapses, it'll be the fault of economists, neoclassical economists, not the radicals. So people are going to bring capitalism down. They're the ones who thinkers who think they're its friends.
Anastasia Bendebury
So when you say that capitalism collapses, what do you see near feudalism or you see something totally different?
Steve Keen
Mad Max.
Anastasia Bendebury
I mean, that's very romantic. But..
Steve Keen
Now it's not romantic. But I'm looking forward to dying before it happens. I mean, I can't if you keep having watched Covid in particular and seeing the catastrophe that our so-called leaders made of that, if you didn't have experts at all in charge of anything at any point when you had idiots like Boris Johnson, who's being exposed in a Covid inquiry in the UK right now, the stupidity of the decisions that were made to imagine that we're going to realize there's a threat and then organize collectively and do the right thing and just manage to save ourselves in the nick of time is a Hollywood movie. It ain't going to happen.
Michael Hudson
What is happening is that the world is now dividing into two halves. You have the golden billion, the garden of the Anglo-Saxon world, Europe, and America, and you have the jungle. That's how they had to borrow at the European Union Express as the jungle as the 75% of humanity.
China, Russia, Iran, the BRICs, plus countries. So they are the groups led by China that are moving towards socialism. And what makes China so uniquely different from the capitalist countries is they have kept money creation and banking, and credit in as a public utility in the government's hands. So in America, when a corporation goes bankrupt, it's closed down, it's sold and dismantled. In China, if you're the creditor, China is the one country where it's politically possible to cancel the debts without a creating a political crisis, because you can't if you're the government; you're canceling debts owed to yourself. It's always easier to cancel the debts owed to themselves, which is why Hammurabi in Babylonia was able to write them down, because the palace and the temples were the creditors, not a privatized financial class. So the privatized the financial class in the West is the it has essentially replaced the landlord class, the great the major source of debt and credit is now mortgage loans in the West. 80% of American and British loans are mortgage loans for real estate.
So there isn't a landlord class anymore. But still, land rent is created a rent-seeking class. Although it's a rent-seeking financial class, not a landlord class. But in China has the ability to right now cope with the fact that its real estate prices are also collapsing. But it doesn't have to evict the homeowners.
It can just either write down the debts or it can let the private banks that are borrowed from the Central Bank of China and lend out money to the big real estate companies like Evergrande and Country Garden that have overbuilt; it can let the banks go under. And the good thing about letting the banks go under is you wipe out all of the large depositors. You move towards equalizing the income. And that is the beauty of canceling the debt: you cancel the savings of this predatory 1% financial class that you want to, so you get your benefit, the debtors, and you benefit society by removing the creditors from their position of trying to take power and dismantle governments, attempt to regulate them, and create an overall prosperity.
Michael Shilo DeLay
Is there any modern precedent for debt cancellation?
Michael Hudson
Yes. The 3000 years of every near Eastern ruler, not only Sumerian, but Babylonian, every near Eastern Kingdom, even Assyria, cancel the debts and that. Well, the Babylon.
Anastasia Bendebury
MichaeI, I know you're older than us, but I feel like Sumerian. Babylonia is a fair example of modernity. That kids…
Michael Shilo DeLay
Yeah. What would what would the modern version of that look like? Like, how would that even unfold? Who would have the power to pull that off?
Michael Hudson
The Germany's economic miracle in 1948 when they wiped out all debt except for the debt that employers owed their employees for the last week or, you know, a month or two. And everybody was allowed to keep a few thousand marks and in the bank. So the Germany wrote down the debt because most of the creditors were Nazis and the debts are owed to the Nazis. So it's easy when you don't treat the Nazis. The problem is that we don't treat Goldman Sachs and Chase Manhattan as financial Nazis, and we're not willing to write down the debts owed to them, as the allies were willing to write down the German debts in 1948 that started the economic miracle.
Steve Keen
Michael and I've been pushing this point for decades now that if you want to get capitalism function well, you reduce private debt. Okay? That's the private debt and unearned income of the two things you want to minimize to enable capitalism to grow. And it's done by accident for the Germans after World War Two. And that was in reaction to what the disaster they caused when they did the opposite after World War One. So that's the Marshall Plan was the last time America acted with intelligence in the international sphere. And then the benefits that were huge.
Now we're trying to say the same thing. You could actually reduce private debt by using the government's capacity to create money and cancel private debts in what I call the modern deterrable. And I've done the modeling and all this, and Michael and I've spent a long time discussing it. The idea was should give everybody an equal amount of money, which means I'd get the same amount of money as Rupert Murdoch. Okay. And then, if you had any debt, you'd have to pay it down. If you didn't have any debt, you'd get a cash injection, which you could make to spend, or you could have controls over it in terms of asset ownership if you didn't want to cause a huge inflationary surge. And if you did that, you'd reduce the level of private debt dramatically.
Government debt can be carried out easily. And when I've stimulated it, government debt also falls ultimately because the rate of turnover of money rises so much because workers suddenly have money without debt, so they can suddenly spend. You got a greater level of economic growth coming out of it. So you address the debt ratio over time as well. So it's quite feasible to do it, and it'll never happen because if only America's armies could only be staffed by people who didn't have debt, then maybe America would agree to cancel household and private debt. Otherwise, it couldn't invade other countries. But unfortunately, that's not the case.
Anastasia Bendebury
Wouldn't the banks collapse if you canceled private debt? Because, I mean, a lot of the banks are…
Steve Keen
A lot of them have to sack a lot of workers earning ridiculous salaries. So it wouldn't be a bad thing to go and get a factory job.
Michael Hudson
The banks would be good as they did under Roosevelt. There'd be a bank holiday. They'd reopen the next day. But the uninsured depositors, the billionaires, would no longer have their money. And again, that's a good thing. Not a bad thing, because they haven't used their billions of dollars very well.
Steve Keen
I've actually I don't model that happening. I model that everybody gets the same amount of money. Money doesn't get destroyed. You have the same amount of money, which you end up backing. The money, rather than being backed by private debt, is backed by government money-creation capability. You go from credit-based money to state-based money. You could leave the same amount of money in their own overall system. But by reducing the debt on a per capita basis, you'd benefit the poor far more than you benefit the rich. And that's the idea behind it.
I want us to negotiate politically palatable. You could actually sell it to 90% of the population that are off. The trouble is, you simply can't get this law discussed. Idea discussed anywhere in any circles apart from like when Michael and I get together. It just it is not even discussed. And economic theory is a major reason why. Because you if you try to argue to Ben Bernanke that you should reduce the level of debt, oh, pure redistribution should have no significant macroeconomic effects. That's from the paper. After he got the paper right after the one he got the Nobel Prize for. You know, so economic theory is what's preventing a sensible reform of capitalism. And in terms of the global warming, it's what setting us up for the physical demise of capitalism, as it's climate change destroys sedentary civilizations. So, you know, the greatest enemy of capitalism is neoclassical economics.
Michael Hudson
Think of it as a debt pollution. And that pollution is like environmental pollution that grows and grows and grows and stifles growth.
Anastasia Bendebury
But I'm still thinking about it in terms of just how much money you would have to actually pay people. I was looking at this recently. The average personal debt in the United States is $30,000. And that's like for every man, woman, and …
Michael Hudson
The 50% of Americans don't have any savings at all. That's the key. Let's look at who has the savings. If you always look at both sides of the balance sheet, if you think of economics in terms of balance sheets, not just one side, you'll get the basic dynamics. When you talk about debt. Also, look at savings. 50% don't have any savings. And the average American can only raise $400 in an emergency, according to the Federal Reserve statistics. So you know what happens when there is an emergency there? They go further and further into debt because they can't pay for it. And that's really the problem that we're in. So it's not the amount of money, the what a lot of money is. The savings of the 1% is the concentration clotting at the top of the economic pyramid.
Anastasia Bendebury
I mean, I just looked it up. The average household debt, as reported by The Motley Fool at the end of 2022, was $100,000.
Michael Hudson
But most of that would be up real estate debt. And the reason there's this real estate debt is because of the failure of the 19th century to achieve its main economic objective, which was to finance government not by taxing profits or wages, but by taxing land rent. And if you would have if all of the increase in land prices as a result of prosperity, population growth, and public spending, if all of this increase in prices were collect, were not given away to the landlords freely but were collected as the government, then this would this rent would not be available to pledged to the banks to pay interest. So simply taxing away land rent would prevent the financialization of land valuations, which is what most of the debt is in the United States. There are no need at all for this debt. Instead of paying an income tax by the wage earners and companies, they'd be paying a rent tax on the land, and this rent would not be used to pay interest.
Anastasia Bendebury
Interesting. So you look like you have something you want to ask.
Michael Shilo DeLay
Well, it just seems to me like there's two ways to look at the solution set to this. One is the post-collapse narrative. And one of them is something like what individuals right now can do in order to promote a better financial structure in the future. Like, are there things that people can actually do to take, for instance, not taking on debt? Is that a solution that people can actually contribute to this whole or is that an impossible wish?
Michael Hudson
No, not if you needed to break even. The break-even costs force you to go into debt. Then the economy is mal structured. A well-structured economy wouldn't force you to go into debt. It wouldn't force you to pay higher and higher debt service to the banks, to buy a home to live in, because it could be the same home that's been there for a hundred years. If that's going up in price, there's no reason to have the banks earn money interest in their sleep by forcing you into debt to pay the land rent to the banks that can simply create the credit.
Michael Shilo DeLay
So in that sense, all of our entire solution set is bounded in a top down view that we fundamentally have to restructure the system in order to actually get out of this hole.
Michael Hudson
There's nothing that Adam Smith and Ricardo and John Stuart Mill and Marx and all of the classical free market was all about a free market as a market free of economic rent. And now it's a market. It's free for the wrong to is to take as much as they want without government regulation or taxation.
Steve Keen
And this is the point that looking back at the classical economics, first of all, it was a fighting the feudal system and arguing in favor of capitalists. So the feudal system was overwhelmingly landlords. You might be lord landlord, but you were still a landlord. So your wealth came out of land ownership, and they saw that it was unproductive, and they wanted to erect the wealth from the landlord class to the capitalists. And that gave you an anti-unearned income perspective.
The Classical school of Economics. And what's happened with the neoclassical taking over? They've abolished that distinction. Everything is a marginal product. And therefore, the landlords, if you're a wealthy landlord, you've got a large marginal product. It's everything is a meritocracy. The classical school focused on the fact that wealth came out of ownership, not out of what you did with the neoclassical to abolish the whole idea that ownership has any role at all. Which is crazy because we're talking about capitalism.
Anastasia Bendebury
I think that we should take a short break right here and refill coffee and maybe use the bathroom, because afterwards I want to get into a historical picture of how this happened, because what you guys are saying is that we went from feudalism to capitalism, and now we're going from neoclassical economics, which took over from classical economics back into.
Michael Shilo DeLay
Financial feudalism.
Anastasia Bendebury
Neo-feudalism And so I want to see if we can learn something by looking at that first transition and the one that's happening now to see if we can accelerate the transition back out of it.
Anastasia Bendebury
There's one more thing that I wanted to mention. We are organizing our very first conference, Mr. Con 2024, which we're going to hold in Austin, Texas, April 7th and eighth of next year. We're going to have two days of talks on astrophysics, cosmology, mythology, archeology, economics, consciousness with some of our favorite guests from the podcast. The link for that is down in the description. It's also going to be up here in just a second. But if you have that weekend available and you are interested in joining us, please come over to our Eventbrite and purchase tickets now. If you cannot attend by coming in person, that's totally fine. We also have tickets available for the live stream. So check that out right up here.
Michael Shilo DeLay
Guy I was just saying in the break to an associate that when I listen to other podcasts by non-economists and they talk about the financial crisis in America, let's say just the sort of impoverishment of the average person, the idea is that the dichotomy is between socialism and the government stealing up people's money or something. And capitalism, free market capitalism. And I think that that's not the right dichotomy to be examining. I think we established that pretty early on. But why does that myth persist? Why is that something that most people on the street understand to be the dichotomy?
Anastasia Bendebury
And I imagine that it must be something of a historical artifact because it's a reflection of the most recent economic conflict, which is, you know, Soviets versus Americans. Or, if you go even further back, it's Karl Marx and the development of rising up to own the means of production. And so everybody just kind of fits it onto this pattern and just don't go any deeper than that.
Michael Hudson
Well, there are many kinds of socialism, just too there are many kinds of capitalism and the idea of socialism. And prior to World War One was, as we said, the government was going to. Help industrial capitalism. And it was the industrialists that were pressing for socialism in the sense that they were pressing for government to provide as many public services as public utilities as they could in order to make the economy lower-priced and more competitive. And that's what made industrial capitalism revolutionary. Getting rid of the landlord class was revolutionary.
Getting rid of the monopolies was revolutionary. And even turning money away from usury and just pure explosiveness into actually financing production was revolutionary. And all that seemed to be happening, especially in Germany, where you had a unity between government, the large banks, the Reichsbank, the military, and heavy industry. And that seemed to be the way to go in. And England's financial policy would be to pay out profits as quickly as you could to the financial owners. It was a hit and run. But in Germany, the banks encouraged companies don't pay out the profits the stockholders reinvested in your interest.
To grow so the economy can grow. We want to grow through equity, not through debt. Well, all of that changed in World War One. Is it true that the monitors were overthrown? But you also had a whole change in what socialism meant? And certainly, the Russian Revolution, as it turned into Stalinism, transformed the whole idea of socialism. And they thought of socialism as being intrusive and essentially either Stalinism or Naziism. Not as a byproduct of and evolution of industrial capitalism. And part of the problem was that the left wing, as it became solenoid, stopped talking about finance. And if you look at who are the people that read and pay attention to what Steve and I are saying, it's sort of across the whole political spectrum.
It's not left wing. If anything, it more right-wing, or is it more focused on finance than the left wing? And so the idea of economic reform no longer had a political vehicle for it. And beginning with Ricardo again in England. The critics of industrial capital said, Well, we're not going to be able to get rid of the landlords until we democratize politics. We want to get rid of the House of Lords being able to dominate British policy, and we have to clean up the rotten boroughs.
We have to democratize that parliament. And all of this came to an explosive head in 1909 to 10 when the House of Commons actually passed a land tax revenue bill, and the House of Lords vetoed it. And that was a crisis. And the result was that the House of Lords could never again block a revenue bill. So the capitalist sector was all in favor of democracy. But, needless to say, the financial sector was all against democracy. The financial sector was, let's put it plainly, fascist.
The financial sector did not want democracy unless it could manipulate the voters and confuse them into not understanding their class consciousness. And so you had a whole shift in how people thought about the economy—how they thought about what is capitalism and what is socialism. And the result is that the financial view of socialism is somehow high taxes on everybody and progressive taxation that would really hurt the poor more than the progressive people. All of that went by the wayside. Well, in 1913, the United States finished a whole fight with the Supreme Court. Are you allowed to actually tax wealth and tax income?
Well, finally, the Supreme Court let there be an income tax, but only 1% of Americans had to pay an income tax. And this 1% were Americans. The rich who made almost all their money through rents and finance rent seekers. Well, all of that changed when there was a counter-revolution and economic theory saying a progressive income's bad. You want a flat tax today. The richer you are, the lower your tax bracket, the lower income you have, the more you pay in taxes and various fees. So you've had a failure of the population to understand what Steve and I are talking about. That's why we're on your show, not. Oh, oh, on…
Steve Keen
NBC. Yeah, well, it goes back further than that. And I think it was actually extended, but it's actually a human characteristic as well, because if you read Doc, they very, very original neoclassical you have to read. Augustine Curnoe was a French mathematician around the turn of the 1800s. And Jean-Baptiste say, who was an economist and a libertarian in the 1820s, and they put across the idea of capitalism being utility, maximizing wealth, and maximizing systems. And it operated best when there was perfect competition, no monopolies in the sense of large companies, and they completely ignored the issue of land ownership and the issues we're talking about the rent-seeking side.
And what you got was with what became neoclassical economics was largely attraction to Marx because Marx took the classical school of economic thought and then turned that not as a criticism of feudalism and support of capitalism, the criticism of capitalism and support of socialism. Marx was born to socialism, was what we call democratic socialism today now. Education for the workers, health care, etc., etc. But the vision that the Che put forward was of capitalism, free market capitalism as a utility-maximizing system.
And it gave me this vision of a world where there was no control and no power. So everything worked out fairly, and everybody got what they deserve for meritocracy. And humans, I think, have got to, and we see this in religions like Scientology and Catholicism and all the other religions around the world. We have a vision of a perfect society, and we're very good at sharing that with each other. And capitalism, the neo-classical theory puts across capitalism is a perfect system. And that is what lies behind the neoclassical zealotry, because they think they're going to make the world a better place if only they can get rid of the government intervention, get rid of trade unions, let the market decide, blah, blah, blah.
And one of my favorite experiences that ever was I set up and they I farcical economists who didn't always being set up but it was I got to talk to a bunch of unionists and management in the food industry back in Australia. This is back when I worked in part of the government called the Accord, which was supposed to get unions and management to get together to cooperate.
Anyway, this guy came along, and he was the person who worked out what's called the effective rate of protection. And it was strictly neoclassical or organized, socially workable. Called the Industries Assistance Commission, the nickname of which amongst both the manufacturers and the workers was the Industries Assassination Commission. They were trying to abolish tariffs, abolish controls, etc., etc. And this guy got blasted by both sides.
He had no idea was going to get shot, but he did. And I sat down with him after feeling sorry for him because he was, you know, nobody else was talking to him, and he's sitting away and having a drink. And he finally says to me and I and I quote, Look, you're an economist. Help me convert those people. It's your religion, and they don't realize it's a religion and anything which contradicts that religion. They don't look at they walk away from. So on a central part of the religion is the idea that cost of supply arises because of what they call rising marginal costs.
It costs more to produce a traditional unit of output, and that's driven what they call diminishing marginal productivity, which is that each additional worker is assumed to be as productive as the previous worker. But because you've got a crowded factory, effectively they produce less output as more workers are added. So productivity per worker falls, cost per worker rises. Rising supply curve. When they go and research that, they find that every last bloody firm they interview virtually says that doesn't apply to us. We've got constant or falling marginal costs.
We design factories are the most efficient at full capacity. And that's what said dozens of surveys have been done. Every last one is found. At least 89% are normal. In 95% of firms report constant or falling marginal cost. Now, what that means is the whole theory of welfare that's part of the model for it breaks down. So one of them made a big mistake. In a neoclassical economists called Alan Blinder made the mistake of doing a survey to ask manufacturers what they call structural work.
Got this answer, and literally, and I quote from his book, described as overwhelmingly bad news brackets for economic theory. It was such bad news that his textbook doesn't even report his own research to his students. It continues with the myth. So this is what the behavior is, not a behavior of science, is behavior, religion, and anything which doesn't fit the religion. You either don't look at it in the first place. What he rejected, if you actually discover it and that comes back to that. What is a religion? It's a way of saying this is the way to the promised land. So they say capitalism is the route to the promised land, and that's why they fuck up the bloody thing, because there's no relation whatsoever to the real world.
Anastasia Bendebury
And so, as a very…
Michael Hudson
Heavily subsidized religion and the most of the subsidy…
Steve Keen
Why, You're on a bull.
Michael Hudson
Yes. Go to business schools, and the University of Chicago are founded by the Rockefellers to justify essentially his oil rent as sort of the leader in it is, quite frankly, a fascist university. That was where the Pinochet fascism came from. In Chile? It was from the Chicago school. That's their doctrine, as is fascism.
Steve Keen
What they don't know it is that they believe that they know what they have.
Michael Hudson
I want to tell. Let me tell you.
Steve Keen
Okay.
Michael Hudson
You weren't there. I went to the high school when I was in high school and grade. There are the social science teacher, Curtis Edgett, had a big sign over the bulletin board. I better not say it, but it was pretty. Those of us who graduated from the high school and went on to college found when we got our FBI records that our professors normally turned in reports on us to the FBI about what we said in class all the time.
I mean, the result is that all this money going to the University of Chicago, Berkeley, and others they become they've taken over the editorship of all of the main economic journals. So and if you are a graduate in the United States, an economic graduate, whether you're hired or not by a university, depends on whether how many articles you've had in the prestigious economic journals.
And needless to say, you have to have the party line, or, as Steve says, religion. I think a party line is better in order to get published there. So where I taught and most of modern monetary theory was taught at the University of Missouri at Kansas City, our graduates had great difficulty talking about money and debt and getting it published. They'd all get rejections. And as a result of having to publish only in the left wing journals, they had great difficulty getting hired by prestigious universities. So it's a very well-subsidized junk economics, basically.
Anastasia Bendebury
And is the subsidy done in service of maintaining financial capitalism? Like what?
Michael Hudson
Amazingly enough, yes, of course it is there. But they're going to they want to popularize something that says that they are productive, not unproductive. That's the great myth, that the parasites are productive. They're the parasites. Take over the body.
Steve Keen
No, I'm. From a broader experience, like not the mainstream university, like University of Chicago is absolutely top of the neoclassical pecking order. So I went to places like Sydney, New South Wales, western Sydney, Kingston, and so on in the UK, and you still get people who have got nowhere near this gravy train and nowhere near having political influence of paying working for the state, because often working in state-run universities and they start this religion, they actually believe it, and that's why they're so fucking dangerous other than the French, because if you have somebody who's paid to believe it, so it's all they helping out oil, blah, blah, blah, you can pay them a bit more money or that they've got to be at least partial.
They've got to have some sort of, you know, internal conflict out of the supporting a libertarian arguments and knowing they're supporting multinational wealth and so on. But these people believe it, and they're not even getting rewarded for it. So that's why I say I see religion as more appropriate analogy, because you have true believers who are in poverty because of what they believe, but then they push out this myth of a libertarian meritocratic system, and that myth persists partly because of money at the top, but also because many people believe it. And humans in general, I think, are seduced by the idea of a vision of a perfect society.
Michael Hudson
Well, I think Wall Street is not as bad as the universities in Wall Street. They didn't care what my politics were. They knew what my politics were. All they cared was whether I was right or wrong. And I did very well on Wall Street. But in academia, they didn't care about whether I was right or wrong. All they cared about was what I believed. And they thought that be Certainly at the New School, which was a left-wing university under Bob Brunner. Well, it was a Stalinist university. They thought that because I came from Wall Street, I had to be a left winger.
Hull Brunner said, Look, if you're talking about finance, you're a right winger. And I wanted to cancel debt. And he said that would just discredit the entire left to account, talk about the need to cancel debt. And he he also attacked me for writing for Catholic publications and for having the Catholic Church popularize my ideas as part of the land reform issue. So I found that the universities, especially the left-wing universities, were the most hard-line right-wing religious people on Wall Street. And they welcomed my ideas because, Stephen, I have the right ideas. That's why most of our support comes from the financial sector. They know what's happening.
Steve Keen
It's ironic, but true. Yeah.
Anastasia Bendebury
So if the financial sector sort of, well, you know, if the financial sector is…
Steve Keen
Supporting our policies, they support our analysis.
Michael Hudson
Yes.
Anastasia Bendebury
I see. Okay.
Michael Hudson
Internal use only?
Steve Keen
Like, for example, I'm looking at my analysis now of credit and unemployment, and people that followed my work developed what I call the credit accelerated or explained the rise and fall of asset prices and did very well out of speculating on the basis of that. I don't have the money to speculate, but, you know, I know people have made a large amount of money out of following the idea that Michael has on other people who are not all non-Orthodox thinkers because we're actually identifying what's going to cause a big change in the market next. Whereas the Neo-Classical Church, there's nonsense of the efficient markets hypothesis. And you all know Warren Buffet. Obviously, Buffet was being criticized when he was doing his degree and saying, look, there's no profit to be made. The market is efficient; instead of that's true, I'm going to be broke. Oh, we ain't broke.
Anastasia Bendebury
So what is inside of the finance? If the people in the inside of the financial sector realize that things are broken? What are the decisions that they are attempting to make in order to fix it? Or is the dream?
Michael Hudson
To fix their idea of fixing it is to make as much money as they can. They want to fix it by increasing the stock prices on which their bonuses are fed. They want to fix it by using profits to pay out dividends and for stock buybacks, not to invest. They want to fix it by making more money for themselves. That's their idea, acting rationally.
Steve Keen
So we're trying to say, look, this and this is why the system fucks up. Let's do something to fix it. And they say, This is what the system fucks up. Let's ride the wave. So you do get some people in finance. I mean, Nick Hanauer, for example, is somebody who is a socially minded billionaire, and he will be putting forward ideas about how we have to do. His next book is on the on this topic of reforming a system.
I don't know if you go as far as actually agreeing with the wealth confiscation or you going to modern debt jubilee; maybe he would with a modern Dutch overlay. But in general, people in finance are looking for an advantage. And if you're following a theory which is not delusional, then you're going to have an advantage. And Warren Buffett was the classic one of following a non-delusional theory. The efficient market hypothesis said you can't find a badly priced company. And he said, You've got to be kidding. So that's how he made his money.
Michael Hudson
Well, Steve used the word reform. And the question is it is reform enough, or do you need a revolution? Reform is simply fixing an existing structure to make it stronger. A revolution is to change the structure. And we've reached a point at which, in order to save the economy, save the environment, save the world's military situation, you need really a revolution. And I think Marx said the end of capitalism will not be a pretty sight on one occasion. And in a way, the runt. It's very funny.
The people who are the debtors and the wage earners are not going to lead a revolution violently. Violence. Ever since Greece and Rome all the way to modern times, violence is always used by the Free lunchers by the rontiers, by the takers to protect their predatory power is not by the victims. Violence is by the victimizers, unfortunately. And so you need this forces of revolution.
As you saw in Latin America, You had the revolutions have been sponsored by the United States. They've all been from the right wing, from the pro-financial, neo feudal or outright the fascist Pinochet to Chicago sector. You had the one country that's immune, mostly of China, that had its own revolution in order to make all of this possible.
Michael Shilo DeLay
Well, prior to the fascist revolution, there was something of a democratic revolution in Chile, from what I understand, right? They had some sort of democratic election. This didn't go over well. The redistribution of land didn't go over well.
Michael Hudson
Right?
Michael Shilo DeLay
Yeah, particularly with the foreign aid.
Michael Hudson
Kissinger said Yeah, just because they vote wrong doesn't mean that we should follow them. When you use the word democracy, Democracy is a euphemism for oligarchy. We're not in a democracy. We're in an oligarchy. And if you don't realize that, then you don't understand who's making the decisions of power and what governments are doing to protect oligarchic power against other people. And Aristotle, in his book on constitutions, said many constitutions claim to be democratic, but they're really oligarchic. And that's as much the case today as it was in his day.
Anastasia Bendebury
Okay. So one of the problems that I see with debt cancellation is we had this very active debate about the canceling of student deaths over the course of the last few years. Definitely, people are still talking about it. And on some level, I am viscerally pro-the cancellation of student debt. On the other hand, what I see happening is you have the massive increase in the cost of education that's going to the administrations and not towards professors and students like there was. I looked at this the other day. I think that Harvard has a 1:1 ratio almost of students to administrators. And so it feels like what you do in that case by canceling student debt is, yes, you relieve the individual, but you have passed. An approving judgment on the structure of the universities that allows you to maintain this kind of. But I mean.
Okay, let me see if I can lay out the way that you have this. So if you have a student that pays money to a university where most of the money is going to the administrators and they've taken the money out as a loan and they don't end up paying back the loan, but the loan is forgiven. The university has made a large profit. And there is nothing that prevents the university from continuing to extract wealth from the financial sector. By getting these students to take these massive loans. The students get their loans eventually forgiven, but the system continuously ratchets up costs.
Steve Keen
The system began by making students borrow money to do education and experiences from the very beginning, to where I literally caused a bit of a dispute in the Vice-Chancellors office when I decided to resign from Kingston University. This huge growth in administrators is all the product of turning universities into profit centers because when the universities were government-funded, this is, I'm talking in Australia's case, now government-funded.
They did have private fees initially. So if you didn't get in through competitive means, you could buy your way in. But most of the people got that through competitive matches. And then, in 75, I began university, not in 71. In 73 we had a progressive Labor government come in which abolished student fees, and that meant you went to university if you got a good enough mark. That was the only interesting 80 was good school results, and at that point, the ratio of administrators to staff would have been 1 to 2, or 12333 academic staff for every administrator, and the administrators were there to do the administrative work for the academics.
So the hierarchy was definitely, you know, academics above administrators below. When we got this push to commercialize universities again, the administrators became marketers. They ended up on top there telling you what to do. I had this enormous growth in a ship structure of what our great old friend David Graber called Bullshit Jobs, whose whole role was to try to market the university. And then what they did knock out the bloody vice chancellor. There's just a damned clock. And you know, you see all the public relations for the university.
It wasn't about the innovative academic staff; it was what a great Vice-Chancellor we had. So this huge hierarchy of bullshit jobs, the support the Vice-Chancellor developed out of commercializing it, and they're also competing the day they start. A University of Western Sydney starts a department in Saskatchewan to try to compete for the Saskatchewan market, and they all try to get extra market share. It's ludicrous, and what is meant is far more of the money and administer university.
This does go to administration and marketing than actually goes to research and teaching. And I've lived through it has been a bloody nightmare. And that's why I was glad to leave the university sector in 2018. And I've done far more academic work since I left than I ever managed when I was there, because I got rid of all the stupid form-filling and ludicrous reports to bureaucrats. You haven't got a fucking clue. Pardon me? I'm becoming really Australian talking about this. I haven't got a clue what an academic actually does, and got in the way of us doing the work that we all became academics to try to do in the first place. So the whole bureaucratization and overloading of universities has been a product of commercializing them, believing the profit motive would work better for managing universities.
In fact, it's corrupting that extremely badly, even to the point where I have had students say, Look, I've paid for my degree, like I've been shopping at Kmart and bought something, and I think I can walk out the door because I paid the bill. Sorry, you're not bright enough. You deserve to fail. You can't tell. You've got to pass you to get your studies. There's enough idiots already, you know. But that's if you abolish student fees and abolish private funding, abolish the students, you don't treat the student like a consumer. The student's a student that had a lot. And so they've got to compete well enough to get in; if they don't do well enough, so they fail.
You know, I'm quite a libertarian in most of my attitude, but if you're not smart enough, you don't get the exams on your failure. Repeat, you can't do that to them these days. So the whole if you got rid of the whole superstructure of training, image of market and private institutions, you'd reduce the cost structure quite radically and you'd make it cheaper to educate, and you'd have academics. You've got time to be academics and think as well as changes well, rather than the shit we have those does.
Michael Hudson
Well. There's a race to the bottom going on also that you have. How do you maximize your profit? You lower. The cost of production, how many? And instead of hiring full-time teachers in the United States at, let's say, 60,000 a year, you can hire part-time teachers at $2,500 a year for your course. And so you've had pushing them way down. There was a protest. I live in New York City, and I have friends who are professors at NYU, and they had the professors who were complaining that no new professors were being hired. They were all part-timers. And you're having graduate students do the teaching and no higher hires. And the there are more and more deans, and some deans and bureaucrats, as Steve pointed out, being appointed. And what is the job of a dean? It's to lower the price of the people working for you, the lower the cost of teaching, and giving the the income you save to yourself.
So you make money by lowering the wages that are paid to the other people. So the professors have been downsized, basically. And. A premium is put on inexperienced, literally the race to the bottom. But that's not really the main cost. The main what made China so great for thousands of years was Confucianism. The idea that everybody was going to take exams and you would have the best people.
Basically, ending up as the administrators if you make, if you limit university registration to the rich and say if you don't inherit your wealth, you're going to have to go into a lifetime of debt in order to get an education. And if you do not inherit enough money from your parents to pay, then you're not going to be able to buy a house. When you graduate, you're not going to be able to start a family because no bank will lend you money because your income over and above basic consumption goes to pay the university. Sorry, you can't afford a house. That's the result of not writing down student debt and of teaching, treating education not as a public utility, not as a human right, but as a profit center. That's the result.
Anastasia Bendebury
And that's exactly what I am pointing to. Which is like…
Steve Keen
Saying you don't abolish the debt.
Michael Hudson
You don't run in the first place.
Steve Keen
You abolish the debt. You get the whole commercialization. You get rid of the administrative layer, and you drastically reduce the cost. And the state pays for education.
Anastasia Bendebury
But If you abolish the debt after, because the students pay in the moment, the universities have already gotten that money. And so if you abolish the debt without a simultaneous shift in the way that the universities do business, then the universities are not suffering the ill effects of that debt abolishment because if…
Michael Hudson
No, they've already got paid. This debt is owed to the government. It doesn't cost the government a penny to cancel the debt. It just is not going to collect the debt from the people. But a windfall benefit.
Steve Keen
But we're definitely in favor of completely changing the university system as well. It's a nightmare. I about when I did a study back on the 90s, late 80s early 90s, and when I took it on I took I suffered a substantial pay drop, but I didn't regard myself as putting myself in poverty for future. Now the pay the students in most universities certainly American university tend to be better actually on this front better pay rates. But the pay rates are so bad that I've ended up telling my students, in later years, don't get a job at the university, learn how to make coffee, become a barista, work 9 to 5. If they force work later than five, I'll pay you time and a half.
When you get home, you'll have plenty of energy to do the research you would have done if you had time as an academic. But instead, all the academics are working two and three positions to basically, you know, it should be over paper in front of a blackboard. Terrible situation, terribly insecure. It's an awful lot of style. And that means what? You then saying you're only an idiot would work at a university, and that ends up with a dumb population. Oh, we want to get back to the stage of education, as Michael said, is a Confucian thing. It's the highest. It's the exact most exalted role. You get your best people in there, and you get them. give them time to think, and we haven't done it. We're screwing up a capacity to think, and we're supposed to be, you know, an intelligent species.
Michael Hudson
Well, I think that's a vocabulary problem here. You're using the word university. What you really mean as a real estate company that holds classes in some of its real estate in order to get tax exemption on all of its other real estate. The largest real estate investors are owners in New York, Columbia University, and New York University. They came to them. Giving an education is just part of the annoying overhead. They're into making real estate gains and increasing their endowment. That's so we really shouldn't think of them as teaching at all. They're real estate companies with a tax exemption.
Anastasia Bendebury
But even so, Columbia and NYU private universities. And so this real estate company model for them makes a lot of sense. But I'm thinking about even the University of California system, which is a public system. And, you know, I was just looking at it in the 1980s. I think tuition was $700 for a semester, and now I think it's over 20,000.
Michael Hudson
Thank you, Ronald Reagan.
Steve Keen
And that's all the cost. Gross By turning into privately run organizations. And this this myth we're talking about earlier, the neoclassical. Believe everything is done better privately, you know, lower costs, more efficient, blah, blah, blah. In fact, what happens is you have university that used to be happy with their own intake. You know, the University of Los Angeles wasn't going to get students from San Diego. Then you put them into commercial. They're all competing for market share. So they start marketing a huge increase in marketing costs.
They have all these bureaucrats who are now involved in packaging, you know, sales materials at the universities. An enormous distribution costs. All that stuff doesn't exist when you don't have private competition, and you're far better off having publicly funded, well, publicly funded universities than private ones. A few private make it makes sense in somewhat in some areas, but to privatize the entire system ends up in a disaster. And that's what we've got now. And I've lived the experience of going from the days when it was state-controlled and state-funded, and you had to get good results to get in, and no money was paid. Now a fortune is paid and the whole of effort, everything is about getting more students in and marketing, and that dominates everything, including the tuition.
Michael Hudson
Well, let's talk about why there are public universities in America to begin with. They were created after World War, after the Civil War, as a result of the Republicans protectionists, the industrialists coming to power. And the and I wrote a whole book about this. Americans protectionists take off the Republicans fruit, and the industrial capitalists who they represented had a problem. People who went to the prestige private universities. Harvard was considered to be the worst. But there were other bad ones.
Yale and all of the Ivy League universities basically all taught British free trade. You in theory, the you know, the private universities in America until the civil war were basically for training members of the clergy, and their economic course was taught in the fourth year, the year senior year of college. And it was more; it was called moral philosophy. And this was all free trade. It was all British free trade theory. And the Republicans came in and the business interests and said, how are we going to get people educated? And reality economics, the fact that free trade benefits the dominant country and prevents countries like us from catching up, Well, we're going to create state universities. And what we're going to do, we're going to give every state a land grant, and the land grant is going to enable them to fund courses for the public at large. And this is going to be where reality economics is taught instead of the British free trade right-wing theory. And that you had, in addition to the state universities, you had the first business schools that were funded and the business schools were all staffed by Americans who had studied in Germany and came back, as the Social Democrats are outlined, social outright socialists, and the first economics professor in the United States at the first business school was Simon Peyton at the Wharton School of Economics at the University of Pennsylvania, who developed the whole idea of public infrastructure as a fourth factor of production, but a factor of production that didn't seek profits or rents but sought to lower the price for the economy as a whole.
It was the business schools and the state colleges that taught so essentially how industrial capitalism would evolve into a mixed economy, a quasi-socialist economy, to benefit capital formation. And all of this, again, was changed in modern times. Somehow, the universities have been financialized and taken over, and become part of the the race to the bottom. And as a result, you had a stratification of the American economy. If you don't inherit a wealth from your family, you have a lifetime of debt. And that is dividing the economy into two classes, the debtor class and the inheritance class. And is that really what you want the university system to produce a class conflict?
Anastasia Bendebury
Yeah, definitely. I mean, that's a huge problem. I see it in the small we teach, so we actually we're living this; we're teaching at a university. So we teach at Southern Oregon University, which is about an hour away. And so I was teaching astrophysics and cosmology and teaching microbiology labs. And it's really interesting because there's some students that are first generation who are working full time, going to school full time, and they have this very, very clear vision for what their path is going to look like.
Like, there's one girl in one of my classes. She's the oldest of four. She is, and her siblings are basically first generation born in the country. And she works full-time at a coffee shop and wants to be a plastic surgeon. And she just she has this arc laid out for herself, and she's very, very competent. And then there's other students who are clearly they've been admitted to a for-profit system that doesn't really care if they succeed or they don't succeed because they don't come to class, they don't do the work, and they're being charged for it.
They've probably taken a loan to arrive there, and there's no mechanism by which the university takes it upon itself to say, Hey, you need to stop paying us because this is extortionist and immoral and just continues to collect from students that probably shouldn't be there, like they should take a couple of years figured out and come back. And it's really heartbreaking because it just seems like a place that is meant to be the source of foundational knowledge and wisdom for the society has been converted to yet another place of financialization, profits. And these interests drive everybody into the ground.
Steve Keen
And you're talking about that going…
Steve Keen
That is such a dangerous thing to do. But what's the most important foundational thing of a civilized society is education.
Michael Hudson
But you're talking about education and something real. The fact is, if you and I were in a university, we couldn't fit what we're talking about into the curriculum. Right?
Steve Keen
I had to make my own break. I'm like, I succeeded. I went up as I went down, like I started off o the top university in Australia, where I led a student revolt against economic teaching in 1973. I then used the second one, where I got my pay, I'd say, until I sacked all the tutors. When there was a government decision in favor of employee employment permanency, they sacked all the tutors to get rid of having to give them permanent straight. And then I moved to a second-rate university of Western Sydney, where all the rebels ended up the mainly rebels. And so we had a progressive department there, and then Kingston. So I've been succeeding, going up for professorial scale, while the university I've been teaching, I have been going down, but all the top universities is taken over by neo classical they dropped.
Michael Shilo DeLay
That's actually one of the really wonderful benefits of teaching out of the university that nobody knows anything about is that there isn't a ton of oversight in terms of people telling me what I have to talk about in class. I actually sometimes sit in knock, and I'm like, I'm kind of like, Wow, this is amazing that I can sit here and talk about some of these subjects that I would never get away with. You know, back in New York, like at Columbia, where we were out for grad school, I just could, you know, it would have been this very structured curriculum that fit into the wider political landscape and so forth. And so that's where you got to ask about, you know, if you can afford to do teaching as a public service as opposed to a career, then it's quite nice for.
Steve Keen
So much about a lifestyle. Yeah, sure.
Michael Hudson
And you're talking about the core curriculum. And what I meant you can't fit what Steve and I are talking about into the core curriculum. Like at the New School, I wanted to teach about money in banking, and they really didn't want that. It was the left wingers. It was Howard Bronner who didn't want money in banking. They said that I was a critic of banking, not supporting it. And again, he didn't want me to talk about debt. So the core curriculum Is now even worse? Now, as I said, there's no history of economic thought in the core curriculum. There's no economic history in the curriculum.
Michael Shilo DeLay
You know, history in the sciences either, which is really disturbing.
Michael Hudson
And I make history.
Michael Shilo DeLay
Yeah. Or lack of history. I feel like that's a huge problem in innovation, too, is that people don't have time to go back and study in the sciences, how people are arrived at the various ideas that are popular, and how much debate really persisted throughout the last few centuries. Right. A lot of the things people take for granted—you know, the equations they learned, they were fought tooth and nail over, and there's still a lot of wiggle room that remains in some of those fundamental sciences. But no one would ever have the time to go back and check it out. Now, that's a bit tragic.
Steve Keen
Yep. That's wrong. It's worse than economics in that sense. I mean, I remember being at the University of New South Wales in 1987—88, I think it was. And the. I think historians were so sick of how they were being treated by the economic staff that because what happened was they were forever having, of course, chopped off and replaced by caution, econometrics, some particular application of econometrics. So they made an arrangement to move to the faculty. And there was I remember the meeting quite vividly. They were pleading to be allowed to leave to go to the arts faculty, and the economics would not let them do that.
They didn't want to trumpet called economics in the arts. Faculty were offended by it. And of course, ultimately, they shot down the Economic History Unit by association, economic, I should say, history, economic, social and history and Marxian economics. And they were both also shut down. So all the contemplative stuff disappeared. And the irony is now that neoclassical economists like, and I'm thinking specifically, people I know at Cambridge University have no idea even if their own history, let alone the history of the institution they read, let alone the history of the discipline. And that ignorance is where a huge amount of stupidity comes from in how economics develops further.
Michael Hudson
Well, the irony there is that it's the orthodox economics that should be in the arts. Faculty is part of the science fiction of the little guy.
Steve Keen
No, no, no. We're like religion. Religion.
Michael Hudson
Okay.
Steve Keen
I mean, I've got. I've got to get a break. Did you enjoy that paper I sent you a couple of days ago? That was a great book, David Graber. Okay, look, I'll give you an idea of what it's like. Give me a second. I'm going to find something on fiction. I'll read it out to you because in 2000, the Chinese of the millennia, the leading the most influential journal, the Quarterly Journal of Economics. That's right.
Number one out of the University of Chicago. The number of economists around naturally tried to write a survey of where economics was and what's been the progress in the last century, and what can happen. I get and a guy is actually a nice bloke. I met him ultimately called Atlas Air; he became the chief economic advisor to Bush. So he was chief, and I was the president during the financial crisis. And he wrote a paper called Economic Imperialism. And it wasn't a criticism. U.S. economics should be imperialistic because it's the only social science. Well, then, you know, pride cometh before the fall because the financial crisis occurred. And when I caught up with him in 2009, he said to me and it was private conversation, but he's dead now, so I can repeat it. He said, I don't know why they appointed made chief adviser. I'm a labor economist. I don't know anything about macroeconomics. I'll find that quote. This will give you an idea of the ideology and economics factual.
Michael Hudson
All you're looking for. If modern economic mainstream was correct, civilization never could have taken off. Imagine if there would have been a Milton Friedman or Chicago boy a going back to Hammurabi, going back to the Bronze Age, and said, No, no, you can write it. You cannot cancel the debts because that's disturbs things. You have to let everybody collect the debts. You'd have the whole country living in poverty, as the biblical prophets described. What would happen if you didn't have the Mosaic Jubilee year of Debt camp?
Steve Keen
And again, as Michael's the expert here, but a huge part of the struggles because we read about the great man of history, the Caesars versus this ptolemies and so on, it was all, you know, say's there was trust me, a wrong him, but Caesar was in favor of repaying reducing the debt.
Michael Hudson
Yes.
Steve Keen
And he was knocked off by the anti the the Victorian class, whatever they call it up against the tax. They didn't want to abolish the debt. So huge parts of the struggles throughout history have been debtors versus creditors, and societies work best when the identities of one.
Michael Hudson
Well, they feared he was canceling the debts. And in fact, the only debts that he canceled were the debts owed by the rich people. The financial sector is all for canceling the debts that it owes, but not the debts that are owed to it. And that was one of Caesar's failings. And if you look at the there were a lot of Roman debt cancellations, canceling back taxes, and they were almost entirely it was the large landowners and the large creditors that benefited, not the indebted population that had already lost its land through debt foreclosure.
Anastasia Bendebury
So go ahead.
Steve Keen
Oh, can I read this thing? This will give you an idea of what economics is like, because we're likely not to do economics. This is the nature of economic thinking. This is a 2000 paper called Economic Imperialism. Economics has been successful because, above all, economics is a science. The discipline emphasizes rational behavior maximization, trade-offs, and substitutions and insists on models that result in equilibrium. Economists are pushed further to inquire because they understand the concept of efficiency and inefficient equilibria. Beg for explanation.
I should just there may be gaps in the underlying models. That created them, etc., etc. That's why I rewrote it at the end. And that's the first; there's actually two paragraphs like that. So the economics of being successful because, above all, economics is a cult. Its dominant sex emphasizes rational behavior maximization, trade-offs, and substitution. And it's just a model that results in equilibrium, thus insulating itself from the developments of 20th-century sciences. Economists push further into relevance because they are obsessed with the concept of efficiency. Inefficient equilibrium begs for dynamic and evolutionary explanations. I suggest there may be gaps in the brain. Wiring of economists should not understand this, but this is the world we've lived in. Yeah, and they think they're being unscientific, and their definition of science should make a real scientist pure models that result in equilibrium. Which century are you from? But that's the mindset inside economics.
Michael Hudson
Yes, And the same in international trade theory. All of the trade the Nobel Prize to Samuelson is that trade theory makes everybody all the proportions equal between capital and labor, and it's just the opposite. If you have free trade, you polarize the economy, which is what the Americans realized when they decided to have a protectionist policy. That is what made them get so rich between the Civil War and World War One. So you're right. It's an economy is inherently polarizing and disequilibrium. But you know what? Equilibrium. When an economics professor falls trips and falls on his face flat on the floor. That's the equilibrium. You know, I mean, when society collapses, that's equilibrium. You know, what is he going to bring me?
Steve Keen
Well, what it means is they haven't got they haven't been able to develop evolutionary thinking. They suppress it because, for an equilibrium, there's no point evolving any further equilibrium, which they think is scientific, has locked them out from all the developments from Lorenzen and complex systems and Chaos theory, and so on. And that's that's why you will not get progress that locked themselves into a dead end. Incredibly complicated, not complex. Mathematics is what they do.
Michael Hudson
Well, that's because if you talk about evolution, you're talking about the economy as a system with feedback. And all of the mainstream economics is what they call partial equilibrium. You can have just change 1 or 2 variables, and the whole context remains unchanged. But any kind of evolution, any kind of a system, there's feedback that continually trend self transforms the system. That's why Marx wrote at the very beginning of capital: he wants to look at the laws of motion of capitalism. Well, economy says we don't want an emotion. We don't want anything to change. We're in the ruling class right now, and we don't want to change it. We don't want to look at any law motion that's going to reform and revolutionize society and take away what we've grabbed.
Anastasia Bendebury
I wonder. Okay.
Michael Shilo DeLay
Well, I wanted to pivot a little bit back. So I'm hearing I'm hearing revolution from Michael and collapse from Steve. And I want to be able to imagine what comes after that. Are these changes things that can be implemented at the constitutional level if there is a new state, say, that appears, or what sort of reconstruction ideas could go into a better state in the future?
Anastasia Bendebury
Like after the Mad Max period?
Michael Shilo DeLay
Yeah, after the Mad Max.
Anastasia Bendebury
Okay, we have Mad Max. What happens? Is somebody rises from the ashes and is like, Let's write a new document?
Michael Shilo DeLay
Well, let's assume that neo-feudalistic financial capitalism is a dead end and an inevitably fails in whatever way that it does. What should we expect, you know, as the partners of a new constitution? Is this something that can be fixed at the outset?
Michael Hudson
Well, that's what you're having in the whole international economy. That's what the BRICs Plus is all about. The world is polarizing between the garden and the jungle. You have the whole Shanghai Cooperation Organization, the whole China, Russia, the whole global majority is realizing that what they call dollarization isn't simply not using the dollar. It's creating a new kind of an alternative to the International Monetary Fund, an alternative to the World Bank, an entirely new system of international relations. Multipolarity is what they're talking about. So you're saying that you're not seeing that, and the revolution is not occurring in the West. You have the counter-revolution here.
The revolution is now in Eurasia. That's where the revolution is. And you're going to see a China-type mixed economies are going to take off because that's where the industrialization is. The trade, the research, the rising living standards. You're going to have the Eurasia and the global South unify into exactly where industrial capitalism seemed to be going in the 19th century. And you'll have the United States and Europe and the post-industrial society, meaning a left back into neo-feudalism. So until finally, you know, presumably the garden is going to decide to let the jungle in and to have the mixed economy that the classical economics has expected all along but which you're only finding in Eurasia now. And they call it socialism.
Steve Keen
That's the optimistic view. Because I'm working on climate change, and I'm reading what the climate scientists are talking about and reading what economists are bullshitting about. I expect a total breakdown of society. And it'll be a question of which societies survive through their whole process. It's not going to be like a global collapse, just like climate change is not going to be an instantaneous thing everywhere. It's going to be something where some societies can cope and others don't, depending on the challenges we face.
We're already seeing, you know, absolutely crazy weather in the last three years, getting more crazy every year. You know, this month, October, last month, rather, was 1.8 degrees above pre-industrial average. We're talking about staying below 1.5. We've had three months in a row. We're above 1.5 quite substantially. And so, according to economists, that will have a trivial impact upon the economy, but also, according to economists and this is there's a survey by … I don't know who the heck.
I think there might be commercial researchers, Howard, and saw them as, while I did a survey on 2021, getting the consensus of economists on climate change, and they predicted that seven degrees of warming in two centuries time. A trajectory towards that. So seven degrees by 2020 would reduce global GDP by 20% compared to what it would have been in the absence of global warming. And that would mean that rather than being 21 times the size of today's economy, it'll only be 17 times. So the actual impact on the rate of economic growth was a reduction in the annual rate of economic growth of 0.02%, which is one fifth of the accuracy with which economists can currently measure real change in GDP over time.
So in other words, trivial the way the science papers and there's a paper saying in 2021 I've got I'll find it necessary on my computer, what level of temperature increase over the preexisting level caused the previous six mass extinctions? And the answer is 5.2 degrees. So a 5.2-degree increase in temperature over the previous level triggered the last six major mass extinctions, where 85% or more of species went extinct. So economists think you can go two degrees higher than that and have a small direction in the rate of growth of economic growth.
That's how ignorant they are. But the trouble is, politicians don't know just how ridiculous their work is. They think this is based on scientific research. They don't read the scientists. They read the economists instead. And so we're blindly walking into this catastrophe. That's why we've done nothing about global warming. So what I expect is and you also got politicians are charged who are narcissists. They're not chosen for their skills or their decision-making process. They're idiots.
So they're going to make the wrong decisions anyway in response to all this. So I just see a period of massive chaos. Maybe a couple of societies will have a chance of surviving. China is one, though. China has a problem in that it doesn't produce all its own food, which is a major issue. As we know, because you can't feed your population, you can't hold it together. So there's a minority of countries which are food self-sufficient right now, major exporters, including America, as it happens. But I can't see America holding together. So the small ones that don't have America's weapons problem might have a chance of survival. And then it's a question of: What do we do to respond? Will there be massive geoengineering attempts, given what productive capacity we have in that situation? I think there will be, I think to save chaos and temperature levels. If you actually get successful geoengineering.
So I say a horrific if we're lucky, 50 years, we're unlucky. 500. And out of that, you get a civilization that develops. But my fear there is we're going to get a civilization that is anti-technology. And you'd end up with a religious, you know, and seeing technology as the cause of the chaos we're about to go through. When, in my opinion and from my reading of the literature, the blame lies with the economists who encouraged us to continue growing when the engineers and the engineers broke limits to growth. Not hippies.
Engineers 50 years ago were saying we have to take up, we have to reduce our rate of growth, we have to stabilize population, have to stabilize our energy. What would follow the engineers? We wouldn't be in the situation we're in, but the engineers will most likely get the blame, and you'll likely get an anti-technical society coming out of that. So I think we're going to be back wearing, you know, men wearing dresses telling us what to do. And maybe there might be have a lucky day. I might have a 500 million people listening to them because the other 7.5 billion aren't going to make it.
Michael Hudson
All the economists are really just hired guns to promote this. I was working at the Hudson Institute in the 1970s, and one of the programs we had was a national security study of global warming that was run by the CIA. The CIA expected everything that you've talked about, Steve. And they said, and this is America's interest because we're a food surplus country, and this will a global warming will wreck the rest of the world and increase our power. We're all for it.
We're going to put all of our strength behind the oil industry. And one of the byproducts of that was Erda. The Energy Research Development Organization said we've got to develop the tar sands in Canada. That's the most polluting source of energy in the world. We've got to speed up global warming to speed up America's dominance. This is what the CIA was believing and telling, and hiring economists to produce. They didn't circulate my study or the, you know, the internal studies for national security, but they hired your economists to be the public relations people for all of this. So they knew it. And it was the United States that was pushing the idea of global warming, thinking it will benefit because of its control of the oil industry.
Steve Keen
Yeah. I'm sure that was being part of it. But economists play their own role. Nordhaus destroyed the industry.
Michael Hudson
They played a role.
Steve Keen
The standing. But you did have some people in the oil industry who were saying this is going to be catastrophic over the long term. But in terms of the capacity, Americans assert themselves in the foot. I'm never going to argue against.
Michael Hudson
Okay.
Anastasia Bendebury
There's been an interesting push for special economic zones, where people are seeing that this is starting to collapse. And I think that they're looking to history, and they're saying, okay, well, one of the greatest vessels for change is the ability to go to a place where rules have not been set up yet, where things are not yet calcified into the old systems, and to begin again. And so I know people that are part of various projects. Oftentimes, they're libertarian projects.
I know that Peter Thiel is in the background talking about, you know, like sea civilizations. And that, to me, feels like an on one hand, I think it's destined to fail. But on the other hand, I also look at it as being the only possible way to start to cede something that can run and grow in parallel to the systems that we have. Because if you're right, and if it does, just shake itself apart. That's the worst possible outcome. Like if you always are always use the same example.
If you build a new bridge like there was, the Bay Bridge in San Francisco needs to be rebuilt. They didn't wait for the bridge to fall and then build a different bridge. They built the new span directly next to it. And when the span was built and tested, they redirected traffic to it and took apart the old one. And so are special economic zones a possible way to rebuild the span while the other one is busy collapsing? Or is that just a pipe?
Michael Hudson
Not now.
Steve Keen
You need the climate supports is a dangerous civilization, and we're generating one that doesn't support a sedentary civilization. This is not like London at the moment. It didn't have as much damage that they thought it would cause, but the storm around was actually a Category three cyclone went through London. Now, they're lucky about the way that the storm. Well, the damage was distributed. London didn't get totally destroyed or anything like that.
It's fairly minor, apparently, and landing pretty damn dramatic on the coast of Brittany. But if those things those the storm comes through like that, you know, if you happen to be in the region where you're trying to build your bridge and then you get a cyclone like that or a period of high temperature that destroys the grain or hailstones that destroy your greenhouse, etc., etc., you're going to have to persuade for on a an incredible industrial scale to be in any sense immune to that. And you're going to need people. You're going to need skilled people who are going to be willing to work for you when the fact that you have money is no longer relevant. So to me, you know, it only do it if you have a real egalitarian, survivalist society. And what I've been saying so far isn't egalitarian.
Michael Hudson
All ideological moves have been made in economic collapse. It's a lot quicker to make a fortune in economic collapse than in a non-economic collapse. And I can guarantee you, there are a lot of financial speculators looking at what is written and saying, okay, there's going to be a crisis, environmental crisis. How can we make money off this?
Steve Keen
And they're not going to happen. But they're just too crazy. Too crazy.
Anastasia Bendebury
I wonder if you have been exposed at all to what's called the dumber optimist community.
Steve Keen
No, I was brought up. I know quite a few communities in the area. So tell me about them are optimists.
Anastasia Bendebury
And optimists are basically people that I would bet agree with you largely on the course of human events in the way that the industrial system is going to collapse. And in the shadow of the collapsing Megalodon, they're basically scavenging parts of it in order to be able to build family- and community-based systems that are going to be able to weather the collapse and be sufficiently robust to operate in the absence of money, like you say, because you're exactly right. If money disappears, the thing that you need is an ideological commitment to the system that you're building. And it seems like this is the time for the emergence of these kinds of groups, because lots of people are realizing that capitalism can't keep going the way that it's going.
I think everybody's very pessimistic about reform. And so the only possible alternative is to build these systems. And a lot of them are farm-based. A lot of them are buying properties in, you know, Ecuador and Costa Rica and in places where they're going to be largely protected against giant temperature increases because, from everything that we've learned in talking to climate scientists, the greatest temperature increases are going to happen away from the equator. So the equator is going to stay about the same. And so if you move to the tropics, then the impacts will be significantly less. And a lot of these people are moving to Central America.
There's also the massive changes in climate zones that might happen, like 5000 years ago, the Sahara was a green paradise. And so if you have climate change and Europe becomes inhospitable, covered with an ice sheet, it might be that Northern Africa suddenly becomes the paradise in the garden. And so you do have to see a massive shift of people. But it's not that this species goes extinct; and the people who will flourish in the condition. By necessity, will have to be the ones that embrace technology. Right. Because how could you not embrace technology and survive that?
Steve Keen
Is the problem we have scale? So, look, I agree that is more likely to be a survivable system, but it has to be what Nate Hagens ? I'm pleasure you know Nate Hagens calls a great simplification because you're not going to have computer chips in that world. You may have to go back to resistors and try to have valve-based computers, something you can manufacture on a small scale, because the extent to which we have the scale of manufacturing is beyond most people's comprehension today.
You know, the one company that makes the machines that make the chips, the advanced chips, which is a Dutch company, I think, was $450 million per machine. And there's only one company making it. So they won't have a market to make those machines. If you're down to a population of, you know, scattered populations of between 500,000 and 50 million surviving in wood plastic around the equator, ironically, I think you're quite right about that. So they're going to have to be technological, but it's going to have to be a bit like, if you know, the old Kiva. It's survival technology. It's not large-scale industrial technology.
I hope something like that happens because the thing that I fear most about what we're going to through is the loss of knowledge. As much as we criticize capitalism in this conversation and given the amount we know about the universe and you guys are in a better position to be aware of that than we are in that we know about, The universe is amazing, and I think we might lose all that and go back to a primitive level of knowledge and actually an anti-technology world. I think it'd be a greater tragedy than the loss of people we're going to face, frankly. So I want to find ways to keep that technological dream alive. And as you say, you're going to have to be technological to survive in that world anyway. From global knowledge. You're not not logical.
Anastasia Bendebury
From everyone that I've talked to, I think that the answer is to start carving things into stone.
Steve Keen
As to what?
Anastasia Bendebury
Is to start carving instructions into stone because stone will survive the cataclysm?
Steve Keen
I know one of my colleagues who I never got around to writing a third edition of Deep Economic, but he wants to publish that on parchment so that it will not decay. And I think that's a great idea. I've got to change my direction. From writing a third edition of Debunking Economics to attacking the idea of economists have done the work on climate change because, again, it's raising a warning before a crisis, which is what I did before the financial crisis in 2008. Too bad. And everything to write right blog posts about the coming financial crisis.
This is the coming ecological crisis. And the trouble is, you could have even bad economic management could reverse the damage that could minimize the damage of a financial crisis. But there's nothing that can minimize the damage we're going to do to the productive capacity of human civilization by the degree of climate change we're generating right now. By the time we realize that it's going to be too late to do something on a global scale, so it comes down to local initiatives. Some countries may be able to do it. The small, fairly authoritarian countries like Thailand is a possibility. Cohesive, maybe China, parts of China, though I worry about the food production issues there. But yeah, your little communities may be a bit like the monasteries of the Dark Ages, keeping knowledge alive while the rich turn into a primitive world.
Michael Hudson
I don't think quite barometer out to keep your books going. Baked ceramic tiles. Ceramic tiles on a wall and a pyramid.
Steve Keen
I'll give it a try.
Michael Shilo DeLay
So I didn't quite get an answer to my question about what a new state that was more effective and had safeguards against these kind of corruption would look like. Is that something that can actually be established other constitutional level?
Michael Hudson
Well, if you realize that economies tend towards a crazy financial polarization and a debt crisis, then you need a regular debt cancellation. You had that for thousands of years in the ancient Near East. That's why I wrote and forgive them their debt. So, yes, it's been done before. But if you realize that the ten tendency of economies is to polarize for disequilibrium, not equilibrium, then you have policies that are going to deal with this inevitability of polarization and disequilibrium. So you need a different mathematical basis of economics than you have today. And if you have the right diagnosis, then you have the remedy that's indicated by it.
Steve Keen
I think you also have to have a humanity has to respect life. And we haven't. We're destroying life. This is this my overall perspective is that we have to see our role as being custodians of life. And that means reserving a large part of the planet for non-humans. Wilson was talking about the 50% rule that half the planet. Humans should be excluded from half the planet. I actually think that's excessive. I think there should be 80% of the planet should be excluded from humans. And we do what we can in the 20%. But we know this is the only planet we know of in the solar system, in the universe that supports life. And with what we know now in terms of what of the possibility of habitable worlds elsewhere, it's extremely rare.
It may be so rare that we're the only we could be the only one. We might be there. We might be another one, which goes through this whole process of take off, driven by fossil fuels, overwhelming, and collapsing again. Maybe this is the great filter we face in the future, but if we're going to survive, we have to be aware that life is fragile and and we have to see ourselves. If we are the intelligent species, we have to prevent its breakdown. The long-term thing, as you both know, is sun will become a red giant. And in its evolution towards that, in about a less than a billion years its own, the energy we get from the sun will destroy the oxygen levels in the planet.
Michael Shilo DeLay
I mean, I see that, in some sense, as the main project of space exploration. Whether people realize that or not, you know, why are we interested in the moon? Because it'll make a great industrial outpost for establishing longer-range spaceflights and even our search for life. It's like really motivated by a search for habitable regions of the cosmos that we can explore and potentially set up a backup hard drive for ourselves here.
Steve Keen
I think we have to do that. Yeah, I agree. And then that's like I'm a mushroom cloud on that front, because if you start with five, six, and whether or not the only way you could survive on Mars is by having a highly technological society and an egalitarian one as well, So whether we get there, I don't think good timing is good. I think we're going to fail on that one. But you have to ultimately see our role as being able to maintain life and intelligent life. And that's we should be first and foremost, what humans do.
Everything else should be secondary for to be driven by that objective. And the trouble is that we are so caught up in our own squabbles and our own attempt to see everything as if there's nothing other than our species on the planet that we're ending up destroying our capacity to survive on this planet ourselves.
Michael Shilo DeLay
I feel like it's very hard for the average person to care about these large issues of species diversification and so forth when they feel like they have a boot on their neck. Like they feel like they don't have control over the governments. They feel like they don't have control over the financial institutions. They need to invest in these financial institutions in order to fight inflation to begin with. And so there's just like a real powerlessness. I mean, the best thing you can do to clean up the planet is to make poor people not poor. Right. You know, we know that people who are not completely under the thumb of privation, like they're able to actually take care, that's something they start to care about all of a sudden. And so, in some sense, it seems like the path to a more sustainable ecology is by making people less poor.
Steve Keen
Yeah, they're having an egalitarian. I mean, for example, I was pitching as an Italian guy who's in charge of attempting to design what would be the colonies on Mars. So I'm being interviewed about this. It's a YouTube channel, obviously, and he was asked about the social structure. He said it has to be egalitarian.
You can't have somebody on Mars having 10 or 100 times the space that the average person does. Engineering alone rules it out. And you want to have a society which regards its every person as contributing together. It has to be egalitarian. It has to be shared. And in the long run, that's if we're going to have a potential survival as a species, we have to extend that to all of life. And that's we've been nowhere near thinking in that way as a species at the moment. And what worries me is that we won't get there anyway, that you will end up with the, you know, the religious nutcases taking over again in the aftermath of an industrial collapse caused by climate change, which I blame on technology rather than seeing technology as the potential solution to avoid that world.
Michael Shilo DeLay
Well, interestingly enough, as Michael's shown in his writing, that the more sustainable economies of, say, the Sumerians were headed by religious nutjobs. That's quite interesting because they in some sense had a responsibility to some cosmic significance that was beyond the scope of individual sequestering of wealth. And so I wonder if there isn't something useful about that way of looking at the world.
Michael Hudson
Well, all those low surplus economies, or, if not egalitarian, they had checks on egotism. They had checks against the accumulation of wealth. If somebody could get you to let people get wealthy, but you'd have to bury the wealth with them, it wouldn't be transmitted to the family to become a hereditary wealth. And when people there'd be funerals, and you'd have wealthy people buried with all of their jewelry.
But then, when the funeral is over, you distribute the judiciary all through the people. There are many the anthropology of it shows that all of these societies had checks on this and balances. Of course, some people are going to have big autism. You're going to have people wanting to get rich, but you're also going to have society protecting itself against this. And if you're rich, you have a big feast and you provide food for everybody and and you get social, you get status by being generous, not by being selfish. Not where University of Chicago graduates would do well.
Michael Shilo DeLay
Well, I feel like we have covered a lot of ground. We've done three hours here. And one thing I want to ask you guys before you left was who we should be talking to to expand our perspectives on these issues. Who are people that you think are really worth talking to in order to make this an even bigger conversation?
Michael Hudson
I think you should talk to Steve Keane.
Michael Shilo DeLay
I was afraid he said was something. We definitely will.
Michael Hudson
I mean, it's a dilemma, but there are certainly people like E.O. Wilson, as unfortunately, DOD people. I think Juergen Randers, who was the one of the two surviving members of the Limits to Growth study, Dennis Meadows, is still alive and kicking. People working on system dynamics. Microsoft would be embarrassed of I mentioned in here, but his daughter is the leading person in developing a capacity to think in a systemic way. And that's our failure also to think about the overall system. So there are a range of people out there, but I've lost touch in a lot of ways because I've been forced to fight neoclassical economists so much. I've destroyed my own brain capacity and taking on those bloody idiots. And because you're fighting this all the time, I'm not trying to track down people who are providing new ways of thinking. So I'm not, unfortunately, because I spend. But I have to fight that battle. I've lost touch with the people who are the inspirational thinkers about the future.
Anastasia Bendebury
Michael, are you in the same boat?
Michael Hudson
Oh, yes. I can't think of. There's no.. You really need a new science. Not economics, but something that does talk about the whole world as a system. And if you talk about the world of the system, you'll realize just what Steve's talking about with this global warming. And this is how economics began in the United States already in the 19.
In the 1840s, you were talking about this and the environmental overhead. Now that had to be included in the national statistics. And the free traders all oppose this. So there's always been this opposition between reality. People who looked at this system and people who said, don't look at the system, let us have a cover story. And there just are not many people doing what Steve and I are talking about today because they're not a discipline. What do we call ourselves? Do we call it? I call myself an archeologist. I used to call myself a futurist when I worked with Herman Cain and Alvin Toffler, and these people. But. Maybe you should call us futurists, but not economists. What do we call it? I don't know.
Anastasia Bendebury
We have Kate Ray was coming in a couple of weeks.
Steve Keen
Good. Which is good.
Anastasia Bendebury
Yeah, I think that's going to be interesting. We're also trying to get Nate Hagan's, but he..
Michael Shilo DeLay
Met with them last week. We don't have a podcast on the books yet.
Anastasia Bendebury
So if you see him, put in a good word for us.
Steve Keen
It will do well the night in our interests fairly regularly.
Anastasia Bendebury
Excellent.
Steve Keen
I'll do that. Okay.
Michael Shilo DeLay
Thank you, gentlemen. This is been illuminating, and I feel like I get smarter every time I talk to either one of you. So I've learned so much.
Anastasia Bendebury
And I feel like I get smarter when I talk to both of you at the same time. Yeah.
Michael Shilo DeLay
Exponential.
Steve Keen
And I've got to, I still have not promoting for the function at all. And I've got to do that. I've just been overwhelmed. So I've got your things to help promote it. But, you know, kick me in the backside occasionally to get me to do something because I've just got too much work on.
Anastasia Bendebury
Definitely, we will. We're actually taking a little break for a week, and so we'll have some more bandwidth to think about that. And so we'll send you some notes.
Steve Keen
Okay. Thanks again for the conversation. Good to see you, Michael.
Anastasia Bendebury
Thank you both so much.
Michael Shilo DeLay
Thank you. All right. Bye, everybody.
Jul 23 Michael Hudson on Debt, Empires, Oligarchs and a More Perfect State