De-constructing Westerns with Michael Hudson

[don]

And a nod to our EJ.

(A few hours earlier on Sunday my friend Eric Janszen of itulip.com sent me a note he had received from a fund manager attesting to the lack of care for clients of financial institutions, giving a flavor of the predatory spirit guiding the bailout’s planners and its beneficiaries....)

http://www.counterpunch.org/hudson09222008.html

[metalman]

Re: De-constructing Westerns with Michael Hudson

And a nod to our EJ.

(A few hours earlier on Sunday my friend Eric Janszen of itulip.com sent me a note he had received from a fund manager attesting to the lack of care for clients of financial institutions, giving a flavor of the predatory spirit guiding the bailout’s planners and its beneficiaries....)

http://www.counterpunch.org/hudson09222008.html

who else here thinks ej's consorting with lefty intelligencia like hudson is screwing up ej's libertarian brand?

[don]

Re: De-constructing Westerns with Michael Hudson

who else here thinks ej's consorting with lefty intelligencia like hudson is screwing up ej's libertarian brand?

iTulip is a brand-free environment.

[metalman]

Re: De-constructing Westerns with Michael Hudson

iTulip is a brand-free environment.

yeh, i was joking. a true libertarian doesn't give a shit where he gets his expertise. now if ej started to endorse some of hudson's solutions, that'd be a different matter.

[oddlots]

Re: De-constructing Westerns with Michael Hudson

What exactly is our complaint about Hudson?

It seems really simple to me: good governments encourage production, bad governments consumption. Or good government encourage capital formation (in the classical economic sense), bad governments debt. I think this is all he's really saying.

I fail to understand the discomfort with Hudson's analysis recently voiced by Outback Oracle and others. The notion of the "rentier class" is simply a way to suggest that we should be asking who has benefited from the last 25 years of debt pushing and who are their enablers. He is not saying that anyone that has benefited from asset price inflation is somehow morally suspect. Who hasn't in one way or another? What he's saying is powerful precisely because it's impersonal: if you want to understand politics, follow the money (the cast is changeable and expendable, especially the peons at the bottom making a couple hudred thousand dollars on their properties.) If you start to get touchy about his analysis you've inoculated yourself against the simple logic of his message.

That logic is that profitable enterprises are not all created equal. Those predicated on debt growth to fuel consumption are parasitical in their relationship to the real economy. All real economic growth is based on productivity gains. Increasing the efficienct use of capital through leverarge is actually the opposite of a productivity gain. It's an accounting sleight of hand which ammounts to skimming the maximum in the short term through tolling transactions while (necessarily - because it's its mirror image) loading down the economy with the maximum ballast: long term debt.

And what is the nirvana at the end of his radical program? As far as I can tell it's contemporary Germany, the only OECD country with seemingly any collective, grassroots memory of the ravages of inflation, any sense of proportion about personal debt loads and the best and most efficient deliverer of social services on the planet. (Even as a Canadian I envy their health system.) I could live with that outcome.

[Guest]

Re: De-constructing Westerns with Michael Hudson

Oddlots - Nirvana is contemporary Germany? :p :p :p.

Please. Half my colleagues are in Germany, including a couple who split from our parent company to start their own businesses. As startup businesses they are strangled by the German government. I mean strangled to an extent an American startup business would be truly aghast at. Their minimum state contributions are so inflexible in the first three years from inception, and their hiring laws so draconian and inflexible that an entrepreneur is trussed up like a sacrificial hog going to slaughter from the moment they incorporate.

I have rarely come across an endorsement as ill-informed on "the nirvana at the end of Hudson's (supposedly) radical program" as is your endorsement of their model. Of course they have had zero speculative froth in the past eight years and are totally immune to the Anglo-Saxon speculative disease, and they are indeed a powerful export driven industrial model, but the vast majority of people I know in Germany who are of entreprenurial inclination, or who are highly paid professionals are looking longingly abroad for some place to emigrate to to loosen the noose around their necks that is strangling them.

Your comment about what would inspire Hudson's admiration as an "ideal economic model" would have me running for cover. I lean to Metalman's conclusions frankly, although he is sounding ambiguous about the extent to which he meant it. There are too many emotionally laden comments strewn about Hudson's commentary giving clear indication of his worldview. He's brilliant, and his analyses are powerful, but his political philosophy is one I approach gingerly. Your comments about German's having "a sense of proportion about personal debt loads" is largely misinformed. This is a standout country for economic vitality, but they accomplish it in spite of their political economy, not because of it.

And what is the nirvana at the end of his radical program? As far as I can tell it's contemporary Germany, the only OECD country with seemingly any collective, grassroots memory of the ravages of inflation, any sense of proportion about personal debt loads and the best and most efficient deliverer of social services on the planet. (Even as a Canadian I envy their health system.) I could live with that outcome.

[Jay]

Re: De-constructing Westerns with Michael Hudson

I have learned a lot from Hudson. He is very well read and knows economic history and how it relates to the present. He has many insights into the deeper workings of the present system. But, I will say that I found it notable that in his book "Global Fracture" which was written in the early 70's, his analysis of what had happened up to that point was spot on, but his opinions about was going to happen were dead wrong. In my perspective they were shaded by his politics and what he wanted the future to look like.

Essentially the book is about how many of the world's most indebted countries sought to free themselves of trade dependency and the debt trap by creating a New International Economic Order. This aimed to improve the terms of trade for raw materials and build up agricultural and industrial self-sufficiency in those same countries. Obviously, this didn't happen and the US went on to pillage for a few more decades.

I listen to Hudson's analysis of where we are and why intently, but don't pay his policy predictions much mind. I would suggest the book though, lots of tidbits in there.

[EJ]

Re: De-constructing Westerns with Michael Hudson

Oddlots - Nirvana is contemporary Germany? :p :p :p.

Please. Half my colleagues are in Germany, including a couple who split from our parent company to start their own businesses. As startup businesses they are strangled by the German government. I mean strangled to an extent an American startup business would be truly aghast at. Their minimum state contributions are so inflexible in the first three years from inception, and their hiring laws so draconian and inflexible that an entrepreneur is trussed up like a sacrificial hog going to slaughter from the moment they incorporate.

I have rarely come across an endorsement as ill-informed on "the nirvana at the end of Hudson's (supposedly) radical program" as is your endorsement of their model. Of course they have had zero speculative froth in the past eight years and are totally immune to the Anglo-Saxon speculative disease, and they are indeed a powerful export driven industrial model, but the vast majority of people I know in Germany who are of entreprenurial inclination, or who are highly paid professionals are looking longingly abroad for some place to emigrate to to loosen the noose around their necks that is strangling them.

Your comment about what would inspire Hudson's admiration as an "ideal economic model" would have me running for cover. I lean to Metalman's conclusions frankly, although he is sounding ambiguous about the extent to which he meant it. There are too many emotionally laden comments strewn about Hudson's commentary giving clear indication of his worldview. He's brilliant, and his analyses are powerful, but his political philosophy is one I approach gingerly. Your comments about German's having "a sense of proportion about personal debt loads" is largely misinformed. This is a standout country for economic vitality, but they accomplish it in spite of their political economy, not because of it.

Luke,

Thank you for giving me a great opening.

I deeply respect Michael Hudson's intellect. As a fellow member of the Harper's Forum (look for it next month in Harper's Magazine) I consider it my sacred duty to teach him as much about the power of unfettered entrepreneurship as he has taught me about the workings of the FIRE Economy.

The State will not solve our problems. At some level Michael knows that but we have to think of some way to get him to experience it.

Saturday I give the keynote to a group of young aspiring entrepreneurs at UMass, Amherst. I am burdened with the knowledge that their challenge is tough as they will have to fight through the collapse of the FIRE Economy as they try to build their dream, whatever it might be. More than the usual proportion will fail.

The idea of building something out of nothing but an idea and a sense of mission and determination is something that is hard to teach. Maybe I can drag Michael along for one of the $50K contests I've help finance. An hour spent exposed to the spirit of these teenagers and their talent and sophistication at an age when most of my generation knew little can dispel all the cynicism accumulated from a year of watching Hank Paulson & Co.

[zoog]

Re: De-constructing Westerns with Michael Hudson

Luke,

Thank you for giving me a great opening.

I deeply respect Michael Hudson's intellect. As a fellow member of the Harper's Forum (look for it next month in Harper's Magazine) I consider it my sacred duty to teach him as much about the power of unfettered entrepreneurship as he has taught me about the workings of the FIRE Economy.

The State will not solve our problems. At some level Michael knows that but we have to think of some way to get him to experience it.

Saturday I give the keynote to a group of young aspiring entrepreneurs at UMass, Amherst. I am burdened with the knowledge that their challenge is tough as they will have to fight through the collapse of the FIRE Economy as they try to build their dream, whatever it might be. More than the usual proportion will fail.

The idea of building something out of nothing but an idea and a sense of mission and determination is something that is hard to teach. Maybe I can drag Michael along for one of the $50K contests I've help finance. An hour spent exposed to the spirit of these teenagers and their talent and sophistication at an age when most of my generation knew little can dispel all the cynicism accumulated from a year of watching Hank Paulson & Co.

This is drifting off-topic but relates to EJ's post. We need more kids like this guy:

William Yuan
Age: 12
Portland, Oregon

Davidson Fellows Submission (Science)
In his project, “A Highly-Efficient 3-Dimensional Nanotube Solar Cell for Visible and UV Light,” William invented a novel solar panel that enables light absorption from visible to ultraviolet light. He designed carbon nanotubes to overcome the barriers of electron movement, doubling the light-electricity conversion efficiency. William also developed a model for solar towers and a computer program to simulate and optimize the tower parameters. His optimized design provides 500 times more light absorption than commercially-available solar cells and nine times more than the cutting-edge, threedimensional solar cell.

From what I gather, the existing research and prototypes of 3D solar cells focus either on visible or ultraviolet light, but his model uses both. He's not claiming to have invented the 3D solar cell altogether, but a more efficient version. He received a $25,000 scholarship from Davidson Institute. Pretty cool, I think!

[Guest]

Re: De-constructing Westerns with Michael Hudson

I consider it my sacred duty to teach him as much about the power of unfettered entrepreneurship as he has taught me about the workings of the FIRE Economy.

EJ - The best questionnaire to present to Hudson would be a list of testimonials from individuals starting very small, shoestring funded fledgling entreprenurial companies both in the US, and then in Europe's core countries, France, Germany, Holland or Italy (I think Holland is a little better). The cavalier contempt with which the state treats the vulnerability of startups in these core EU countries is breathtaking. The entire stance of the state in these nations is that any business is a cash stream to be milked. There seems to be no differentiation between the large corporations (who are milked mercilessly anyway) and the tiniest startups who have no assured cash stream from one month to the next. If Hudson demurs that such comparisons are inconclusive, then ask him where the functioning example of his model state exists in the real world. If he can't point to one, suggest to him that this is a non-confirmation he must justify and explain?

[oddlots]

Re: De-constructing Westerns with Michael Hudson

Lukester,

You're right. I'm moving to Detroit. ;)

Seriously, was I really saying Germany was nirvana?

My point was simply that, when Hudson looks for an economy that is relatively free from the sort of distortions exemplified by the housing bubble and the dominance of the FIRE economy he looks to Germany. Is that so scary?

Apparently so.

OK I bow down to the entrepreneurial vitality of the US system. It is astonishing: the number of patents compared to other countries, the number of world-wide brand names. And I mean that.

But I remain stymied as to how this implies we have to accept the mess that we are currently in. Does allowing people to innovate and get their just rewards imply a right to create a "free market" doomsday device like the highly geared, cynically conceived and greased by lobbyists pay day known as the great housing bubble?

Oh you weren't saying that?

Now you know how I feel.

[c1ue]

Re: De-constructing Westerns with Michael Hudson

Perhaps the real substance of this debate on Dr. Hudson's views vs. the Entrepreneur Uber Alles view is this:

Dr. Hudson believes that true innovation exists, but is rare.
Nowhere have I seen him decry the invention of better mousetraps - at least physical ones.

On the other hand, financial innovation - i.e. re-inventing old ways to skin the cat - are legion.

The role of government is to provide regulations which limit the amount of sustenance financial innovations can squeeze out of the system.

Keep in mind that innovation also can be very destructive.

For every 3D solar cell that works, there's the Internet bubble and Pets.com.

For every 12 year old kid hunting through dumps to find plastic eating bacteria, there's the infinite recurrences of the perpetual motion machine most recently exemplified by cold fusion.

And the idea of a mortgage backed security itself isn't bad, but we are all witnessing how the entire securitization process was corrupted - from within - and will have to collectively pay to clean up the mess.

What's been done in the financial system is exactly the same spirit as the melamine in milk powder in China - prior to that melamine in wheat gluten for pet food.

Somebody with more smarts than ethics figured out how to use a cheap agricultural chemical to enable shoddy substances to show up better on standard tests.

This isn't an accidental contamination - it is a deliberate subterfuge. No different than substituting an institutional rating on an MBS while simultaneously removing the ethical consideration.

[santafe2]

Re: De-constructing Westerns with Michael Hudson

Please. Half my colleagues are in Germany, including a couple who split from our parent company to start their own businesses. As startup businesses they are strangled by the German government. I mean strangled to an extent an American startup business would be truly aghast at. Their minimum state contributions are so inflexible in the first three years from inception, and their hiring laws so draconian and inflexible that an entrepreneur is trussed up like a sacrificial hog going to slaughter from the moment they incorporate.

Luke, having recently spent 3 years of my life in an American startup that was bought out by a German company, I would observe that the criticisms you have regarding the German government also infect German corporations. I think it's the singular reason so many have a difficult time translating a successful German centric business culture into the US.

Little by little every aspect of our business was centralized and brought into the top-down format with which the new owners were comfortable until finally no decisions were made on the ground. After three years, the most successful of the original American managers along with the best of the German managers, had left. We were collectively defeated by a structure that at it's worst, guaranteed failure and at it's best moderated success. With regard to the German management team, the company lost the best of these folks as they were, one-by-one infected by the ability and willingness of entrepreneurs in the US to simply think it, state it clearly, gather together their favorite work associates, and go test their ideas.

We trust our instincts in the US. But it means we move forward without always examining all the details. It helps explain our wild successes and our abject failures. It certainly explains our proclivity for entrepreneurism.

[Guest]

Re: De-constructing Westerns with Michael Hudson

Santafe2 -

Points well taken and all too true in many cases, but not all. And there are some truly standout strong points in the more typical German business model method which likely render them immune to a lot of the fatal weakensses affecting US companies in a severe contraction. Everything about their fiscal approach (at the private company level, not necessarily the government level!) denotes sobriety.

My own employers (three engineers with very disparate personalities!) are as completely an opposite to what you describe as is imaginable, but they are admittedly highly anomalous coming out of Germany. They have decentralized everything as it's run by the US office. I have literally all the leeway to run the outfit as though I were merely an independent distributor. They are solely and obsessively focused on engineering design quality.

I consquently have run their (very small) US subsidiary outfit for 10 years without even so much as a request for an audit from the German side! Heck they haven't even been interested in a tax return for the past three years. Meanwhile, the quality of products they produce (they design microchip programming tools) is so solid that they are going toe to toe with companies five times their size. These guys are totally unimpressed with US chapter and verse about things like **marketing* which they regard with extreme suspicion.

They won 60% of the EU makret in 20 years while doing precisely zero marketing. I sometimes despair of their business savvy, but we seem to be prospering.

In truth, sometimesd I feel like I'm riding on the backs of a fleet of thoroughbred quarterhorses. They only really get interested in anything when there is a "design challenge". I must have wandered into a highly anomalous company, but these guys are so laid back, and moored strictly in engineering design superiority at the core rather than silly regimentation or flim-flam American style marketing, that I can't imagine myself moving to another company. After ten years they have become like family. Heck, better than family.

Most important of all is that this very small company has grown patiently, slowly, exclusively on the strength of it's consistent repeat EU sales, and then the consistently averaged repeat US sales. We handle the international market ex-EU from the US office so we've been a bit insulated from the sharp US downturn. There is zero venture capital financing involved here. This incredible fiscal conservatism is also typical of German companies, and in times like these they are a standout for that reason.

So I guess the takeaway from all this is that there are mixed blessings in the business models on both sides. The German fiscal conservatism is coming to the fore these days particularly here in North America where access to credit is the Achilles heel of business prospects.

[The Outback Oracle]

Re: De-constructing Westerns with Michael Hudson

What exactly is our complaint about Hudson?

It seems really simple to me: good governments encourage production, bad governments consumption. Or good government encourage capital formation (in the classical economic sense), bad governments debt. I think this is all he's really saying.

I fail to understand the discomfort with Hudson's analysis recently voiced by Outback Oracle and others. The notion of the "rentier class" is simply a way to suggest that we should be asking who has benefited from the last 25 years of debt pushing and who are their enablers. He is not saying that anyone that has benefited from asset price inflation is somehow morally suspect. Who hasn't in one way or another? What he's saying is powerful precisely because it's impersonal: if you want to understand politics, follow the money (the cast is changeable and expendable, especially the peons at the bottom making a couple hudred thousand dollars on their properties.) If you start to get touchy about his analysis you've inoculated yourself against the simple logic of his message.

That logic is that profitable enterprises are not all created equal. Those predicated on debt growth to fuel consumption are parasitical in their relationship to the real economy. All real economic growth is based on productivity gains. Increasing the efficienct use of capital through leverarge is actually the opposite of a productivity gain. It's an accounting sleight of hand which ammounts to skimming the maximum in the short term through tolling transactions while (necessarily - because it's its mirror image) loading down the economy with the maximum ballast: long term debt.

And what is the nirvana at the end of his radical program? As far as I can tell it's contemporary Germany, the only OECD country with seemingly any collective, grassroots memory of the ravages of inflation, any sense of proportion about personal debt loads and the best and most efficient deliverer of social services on the planet. (Even as a Canadian I envy their health system.) I could live with that outcome.

You're not thinking through his logic to solutions as i think Metalman has pointed out. Metal i'm not claiming you as an ally here in what i am about to say. I just apprerciate that at least you see his solutions as somewhat 'undesirable'.
Now, either hudson makes moral judgements about the "rentier" class or he doesn't think through the problem. I've not got Hudson's status, nor probably his gift of words, but, to illustrate where I stand in all this, I have railed against the whole artificial creation of wealth since I was doing Econ 101 at Uni here in Australia and arguing heatedly with Lecturers and Professors about the worth and role of Primary, Secondary and tertiary industries. Now i'm 59 bloody years old so i've been in this fight longer than Hudson. I'm a farmer by birth, and love of it. Life and climate just forced me in another direction. However farmers here in Aus are a deeply suspicious lot of everything to do with cities and bullshit!
Now, trying not to bore everyone AGAIN!!! Hudson rails against the FIRE economy. Then his damned solution is the confiscation of the wealth of the prudent in order to give it to everyone who is overborrowed. Noone has ever told me what his filters are to ensure the 'undeserving' amd 'rentiers' don't benefit. Furhter nooone has ever said, what are his filters to separate out who is to have their wealth confiscated and who is to not.;
So Oddlots just answer that one question will do...I'll pose it again
"Who is to decide (and how is it to be decided) who is for the tumbrils and who is to knit?"
Now, just one more thing. Hudson uses this loose word of "rentiers" to classify some mysterious exploitive group. That frankly is an extremist type of stance. The labelling of a class or group depersonalises the issues and allows for all sorts of abuse of the labelled group. All extremists operate by first labelling the group they wish to attack. Oh! I'm sure Hudson thinks of huimself as some great humanitarian. Nevertheless i'm betting all of the worst of the centuries thought of themselves that way one way and another.
Now my aologies to everyone for ranting and raving...again....I see Hudson as downright dangerous. Not some kind of great saviour!