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New Interview with Michael Hudson by Mike Whitney posted today at Counterpunch. It looks as though written questions and written answers may have been submitted, as the answers are quite detailed, wide-ranging, and specific.
He also spends last third of interview on future of U.S.
On why America can't compete:
MW: Is their a viable alternative to "free trade" or will American workers continue to face persistent job losses, lower living standards and a "race to the bottom?
Michael Hudson: The reason U.S. labor has lost its competitiveness is not simply a race to the bottom. To see why U.S. exports are being priced out of world markets, you need to look not only at the take-home pay of workers, but also at what employers are not investing to raise capital productivity, and what they don't get from government in the form of basic infrastructure support.
One reason why employers have not invested as much in raising the productivity of their plant and equipment is that they are saddled with having to pay out more of their cash flow as interest to bondholders and banks, and dividends to assuage shareholder activists, the new euphemism for financial raiders. [now called Private Equity]
On tax policy
Michael Hudson: I think youčre framing the tax problem too narrowly. At issue is not simply the tax rate on the income that's being taxed at present, mainly wages, followed by profits...
Fast forward to today. The tax system favors speculative gains and absentee ownership. Ironic as it may sound, really wealthy people prefer not to make any income at all. They prefer to focus on total returns, which they take in the form of capital gains.
MW: Does that mean that there will be sudden jolts to the system like a major bank--perhaps Citigroup or Merrill---keeling over and sending the stock market crashing?
Michael Hudson: The economy reaches a Ponzi stage where banks lend their customers the interest to keep payments current. More and more mortgage loans have been structured this way in recent years. When creditors stop making these loans, there's a break in the chain of payments and defaults spread, crashing markets.
MW: Is the dollar doomed, or can the US lower its dual-deficits (fiscal and trade deficits) and continue to attract foreign capital in the future? And if the recession takes hold, business slows and unemployment rises, would that strengthen the dollar?
Michael Hudson: I assume that by doom you mean that the dollar will continue to sink against foreign currencies, while price inflation eats away at what wages will buy. The idea that a worse economy will be self-curing is IMF anti-labor ideology and Chicago School propaganda. This is indeed what Nobel Economic Prizes are given for, I grant you. But it's Junk Economics. A falling dollar threatens to become self-reinforcing. For starters, dollar-denominated stocks, bonds and real estate are worth less and less in terms of euros, sterling or other harder and foreign currencies. This doesn't provide much incentive for foreigners to invest here. And if we go into a recession (not to speak of depression), there will be even fewer profitable opportunities to invest.
Meanwhile, U.S. import dependency will continue to rise as the economy de-industrializes that is, as it is further financialized. U.S. overseas military spending will throw yet more dollars onto the world's foreign exchange markets. So a weak economy here does NOT mean that the dollar will strengthen; it means we have a bad investment climate! Austerity will make us more dependent on foreign countries. For a foretaste, just look at what has happened when the IMF has imposed austerity plans on Third World debtors. And remember, last time when Robert Rubin was given a free hand, in reforming Russia under Clinton, the result was industrial collapse and bankruptcy.
On why re-industrialization will be difficult:
Michael Hudson: That's what's happening. But a major reason why savings are flowing into these banks because the tax laws make it more profitable to debt leverage than to invest in industrial capital. The tax system has shaped a market where it pays more to speculate than to invest in building up new means of production. The financial sector has been deregulated on the logic that whatever makes the most money is the most efficient. The product that banks are selling is debt, and help in corporate takeovers, mergers and acquisition. Credit is a product that's almost free to create. Its main cost of production is the lobbying expense to buy Congressional support.
http://counterpunch.org/whitney07012008.html
He also spends last third of interview on future of U.S.
On why America can't compete:
MW: Is their a viable alternative to "free trade" or will American workers continue to face persistent job losses, lower living standards and a "race to the bottom?
Michael Hudson: The reason U.S. labor has lost its competitiveness is not simply a race to the bottom. To see why U.S. exports are being priced out of world markets, you need to look not only at the take-home pay of workers, but also at what employers are not investing to raise capital productivity, and what they don't get from government in the form of basic infrastructure support.
One reason why employers have not invested as much in raising the productivity of their plant and equipment is that they are saddled with having to pay out more of their cash flow as interest to bondholders and banks, and dividends to assuage shareholder activists, the new euphemism for financial raiders. [now called Private Equity]
On tax policy
Michael Hudson: I think youčre framing the tax problem too narrowly. At issue is not simply the tax rate on the income that's being taxed at present, mainly wages, followed by profits...
Fast forward to today. The tax system favors speculative gains and absentee ownership. Ironic as it may sound, really wealthy people prefer not to make any income at all. They prefer to focus on total returns, which they take in the form of capital gains.
MW: Does that mean that there will be sudden jolts to the system like a major bank--perhaps Citigroup or Merrill---keeling over and sending the stock market crashing?
Michael Hudson: The economy reaches a Ponzi stage where banks lend their customers the interest to keep payments current. More and more mortgage loans have been structured this way in recent years. When creditors stop making these loans, there's a break in the chain of payments and defaults spread, crashing markets.
MW: Is the dollar doomed, or can the US lower its dual-deficits (fiscal and trade deficits) and continue to attract foreign capital in the future? And if the recession takes hold, business slows and unemployment rises, would that strengthen the dollar?
Michael Hudson: I assume that by doom you mean that the dollar will continue to sink against foreign currencies, while price inflation eats away at what wages will buy. The idea that a worse economy will be self-curing is IMF anti-labor ideology and Chicago School propaganda. This is indeed what Nobel Economic Prizes are given for, I grant you. But it's Junk Economics. A falling dollar threatens to become self-reinforcing. For starters, dollar-denominated stocks, bonds and real estate are worth less and less in terms of euros, sterling or other harder and foreign currencies. This doesn't provide much incentive for foreigners to invest here. And if we go into a recession (not to speak of depression), there will be even fewer profitable opportunities to invest.
Meanwhile, U.S. import dependency will continue to rise as the economy de-industrializes that is, as it is further financialized. U.S. overseas military spending will throw yet more dollars onto the world's foreign exchange markets. So a weak economy here does NOT mean that the dollar will strengthen; it means we have a bad investment climate! Austerity will make us more dependent on foreign countries. For a foretaste, just look at what has happened when the IMF has imposed austerity plans on Third World debtors. And remember, last time when Robert Rubin was given a free hand, in reforming Russia under Clinton, the result was industrial collapse and bankruptcy.
On why re-industrialization will be difficult:
Michael Hudson: That's what's happening. But a major reason why savings are flowing into these banks because the tax laws make it more profitable to debt leverage than to invest in industrial capital. The tax system has shaped a market where it pays more to speculate than to invest in building up new means of production. The financial sector has been deregulated on the logic that whatever makes the most money is the most efficient. The product that banks are selling is debt, and help in corporate takeovers, mergers and acquisition. Credit is a product that's almost free to create. Its main cost of production is the lobbying expense to buy Congressional support.
http://counterpunch.org/whitney07012008.html
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