[Peace-discuss] FW: Why Michael Hudson is the World's Best Economist

[David Johnson]

February 3, 2016 

Why Michael Hudson is the World
<http://www.counterpunch.org/2016/02/03/why-michael-hudson-is-the-worlds-bes
t-economist/> 's Best Economist

by Paul Craig Roberts
<http://www.counterpunch.org/author/paul-craig-roberts/>  

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Description: shutterstock_145960664

Michael Hudson is the best economist in the world. Indeed, I could almost
say that he is the only economist in the world. Almost all of the rest are
neoliberals, who are not economists but shills for financial interests.

If you have not heard of Michael Hudson it merely shows the power of the
Matrix. Hudson should have won several Nobel prizes in economics, but he
will never get one.

Hudson did not intend to be an economist. At the University of Chicago,
which had a leading economics faculty, Hudson studied music and cultural
history. He went to New York City to work in publishing. He thought he could
set out on his own when he was assigned rights to the writings and archives
of George Lukacs and Leon Trotsky, but publishing houses were not interested
in the work of two Jewish Marxists who had a significant impact on the 20th
century.

Friendships connected Hudson to a former economist for General Electric who
taught him the flow of funds through the economic system and explained how
crises develop when debt outgrows the economy. Hooked, Hudson enrolled in
the economics graduate program at NYU and took a job in the financial sector
calculating how savings were recycled into new mortgage loans.

Hudson learned more economics from his work experience than from his Ph.D.
courses. On Wall Street he learned how bank lending inflates land prices
and, thereby, interest payments to the financial sector. The more banks
lend, the higher real estate prices rise, thus encouraging more bank
lending. As mortgage debt service rises, more of household income and more
of the rental value of real estate are paid to the financial sector. When
the imbalance becomes too large, the bubble bursts. Despite its importance,
theanalysis of land rent and property valuation was not part of his Ph.D.
studies in economics.

Hudson's next job was with Chase Manhattan, where he used the export
earnings of South American countries to calculate how much debt service the
countries could afford to pay to US banks. Hudson learned that just as
mortgage lenders
<http://store.counterpunch.org/product/killing-the-host-digital-book/>
Description: 2KillingTheHost_Cover_ruleregard the rental income from
property as a flow of money that can be diverted to interest payments,
international banks regard the export earnings of foreign countries as
revenues that can be used to pay interest on foreign loans. Hudson learned
that the goal of creditors is to capture the entire economic surplus of a
country into payments of debt service.

Soon the American creditors and the IMF were lending indebted countries
money with which to pay interest. This caused the countries' foreign debts
to rise at compound interest. Hudson predicted that the indebted countries
would not be able to pay their debts, an unwelcome prediction that was
confirmed when Mexico announced it could not pay. This crisis was resolved
with "Brady bonds" named after the US Treasury Secretary, but when the 2008
US mortgage crisis hit, just as Hudson predicted, nothing was done for the
American homeowners. If you are not a mega-bank, your problems are not a
focus of US economic policy.

Chase Manhattan next had Hudson develop an accounting format to analyze the
US oil industry balance of payments. Here Hudson learned another lesson
about the difference between official statistics and reality. Using
"transfer pricing," oil companies managed to avoid paying taxes by creating
the illusion of zero profits. Oil company affiliates in tax avoidance
locations buy oil at low prices from producers. From these flags of
convenience locations, which have no tax on profits, the oil was then sold
to Western refineries at prices marked up to eliminate profits. The profits
were recorded by the oil companies' affiliates in non-tax jurisdictions.
(Tax authorities have cracked down to some extent on the use of transfer
pricing to escape taxation.)

Hudson's next task was to estimate the amount of money from crime going into
Switzerland's secret banking system. In this investigation, his last for
Chase, Hudson discovered that under US State Department direction Chase and
other large banks had established banks in the Caribbean for the purpose of
attracting money into dollar holdings from drug dealers in order to support
the dollar (by raising the demand for dollars by criminals) in order to
balance or offset Washington's foreign military outflows of dollars. If
dollars flowed out of the US, but demand did not rise to absorb the larger
supply of dollars, the dollar's exchange rate would fall, thus threatenting
the basis of US power. By providing offshore banks in which criminals could
deposit illicit dollars, the US government supported the dollar's exchange
value.

Hudson discovered that the US balance of payments deficit, a source of
pressure on the value of the US dollar, was entirely military in character.
The US Treasury and State Department supported the Caribbean safe haven for
illegal profits in order to offset the negative impact on the US balance of
payments of US military operations abroad. In other words, if criminality
can be used in support of the US dollar, the US government is all for
criminality.

When it came to the economics of the situation, economic theory had not a
clue. Neither trade flows nor direct investments were important in
determining exchange rates. What was important was "errors and omissions,"
which Hudson discovered was an euphemism for the hot, liquid money of drug
dealers and government officials embezzling the export earnings of their
countries.

The problem for Americans is that both political parties regard the needs of
the American people as a liability and as an obstacle to the profits of the
military/security complex, Wall Street and the mega-banks, and Washington's
world hegemony. The government in Washington represents powerful interest
groups, not American citizens. This is why the21st century consists of an
attack on the constitutional protections of citizens so that citizens can be
moved out of the way of the needs of the Empire and its beneficiaries.

Hudson learned that economic theory is really a device for ripping off the
untermenschen. International trade theory concludes that countries can
service huge debts simply by lowering domestic wages in order to pay
creditors. This is the policy currently being applied to Greece today, and
it has been the basis of the IMF's structural adjustment or austerity
programs imposed on debtor countries, essentially a form of looting that
turns over national resources to foreign lenders.

Hudson learned that monetary theory concerns itself only with wages and
consumer prices, not with the inflation of asset pricessuch as real estate
and stocks. He saw that economic theory serves as a cover for the
polarization of the world economy between rich and poor. The promises of
globalism are a myth. Even left-wing and Marxist economists think of
exploitation in terms of wages and are unaware that the main instrument of
exploitation is the financial system's extraction of value into interest
payments.

Economic theory's neglect of debt as an instrument of exploitation caused
Hudson to look into the history of how earlier civilizations handled the
build up of debt. His research was so ground-breaking that Harvard
University appointed him Research Fellow in Babylonian economic history in
the Peabody Museum.

Meanwhile he continued to be sought after by financial firms. He was hired
to calculate the number of years that Argentina, Brazil, and Mexico would be
able to pay the extremely high interest rates on their bonds. On the basis
of Hudson's work, the Scudder Fund achieved the second highest rate of
return in the world in 1990.

Hudson's investigations into the problems of our time took him through the
history of economic thought. He discovered that 18th and 19th century
economists understood the disabling power of debt far better than today's
neoliberal economists who essentially neglect it in order to better cater to
the interest of the financial sector.

Hudson shows that Western economies have been financialized in a predatory
way that sacrifices the public interest to theinterests of the financial
sector. That is why the economy no longer works for ordinary people. Finance
is no longer productive. It has become a parasite on the economy. Hudson
tells this story in his recent book, Killing the Host
<http://store.counterpunch.org/product/killing-the-host-digital-book/>
(2015).

Readers often ask me how they can learn economics. My answer is to spend
many hours with Hudson's book. First, read the book through once or twice in
order to get an idea of what is covered. Then study it closely section by
section. When you understand the book, you will understand economics better
than any Nobel prize-winning economist.

Treat this column as an introduction to the book. I will be writing more
about it as current events and time permit. As far as I am concerned, many
current events cannot be understood independently of Hudson's explanation of
the financialized Western economy. Indeed, as most Russian and Chinese
economists are themselves trained in neoliberal economics, these two
countries might follow the same downward path as the West.

If you put Hudson's analysis of financialization together with my analysis
of the adverse impact of jobs offshoring, you will understand that the
present economic path of the Western world is the road to destruction.

Paul Craig Roberts is a former Assistant Secretary of the US Treasury and
Associate Editor of the Wall Street Journal. Roberts' How the Economy Was
Lost <http://www.easycartsecure.com/CounterPunch/CounterPunch_Books.html>
is now available from CounterPunch in electronic format. His latest book is
The Neoconservative Threat to World Order
<http://www.amazon.com/exec/obidos/ASIN/0986076996/counterpunchmaga> . 

 

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