If you grew up in this country before the 1970s, you experienced a world that is nothing like today. Back in that other reality, there were factories in abundance employing full complements of workers, sometimes in multiple shifts.
In my area of the world, this is especially true. American Optical, with beginnings in 1833, was a powerhouse, with its great factory complex in Southbridge. Once dominant in its field, it is now defunct, brought out by others.
Driving along the Quaboag River on Route 67 in Warren, you can see the Wright's Mill Complex. It seemed like everyone knew someone who worked there. Since 2008, no more.
There are still factories, but they are all too often, sans workers. How could our region, let alone country go from having workshops everywhere, all highly productive, to the point where they have almost died out?
One man has an answer, debt.
Michael Hudson is a research professor of economics at the University of Missouri Kansas City. Your reviewer discovered him accidentally. As a history nerd, I came across his writing and was surprised to find out that his research found the builders of the pyramids were not slaves but well paid, skilled workers. It's too bad Charlton Heston and Yul Brynner are no longer with us, as some corrections need to be made to their movie, the Ten Commandments.
Mr. Hudson avers that the debts owed to the FIRE (Finance, Insurance, Real Estate) sector were causing labor and industry to suffer. American labor, squeezed by debt becomes over priced as do American products. Debt is taking a greater and greater share of revenues from non-financial businesses, and workers have to pay more in interest such that they are on the way to debt peonage.
According to Professor Hudson, we are headed to the day when the parasite of a financialized economy will kill the host, or the debts will have to be reduced or even forgiven. Your average free-marketer might be scandalized by the idea, but it is no more unfair than the bailing out of the banks in 2008.
The concept is one that raised its head with the phenomenon of the Occupy Wall Street movement. Mr. Hudson, among others, noted that student loans exceed credit card debt. Paying that debt takes a toll on graduates whose salary prospects may be less than what they can afford to service the loan.
As Michael Hudson states many times in his book, “Debts that can't be paid, won't be.” The FIRE Sector would want it to be for the debtors to sell off assets. As there are less and less assets with enough equity, that is not going to be too popular and one day it will be impossible. A reduction of debt or even forgiveness would be inevitable as an alternative to national ruin.
Many consider Hudson a bit of a commie as he participates in Marxist conferences and has good words to say about Karl. To be fair, he has some nice things to say about Adam Smith and Classical Economics.
He has, however a special dislike for free market economists. He sees them as champions of the FIRE sector. Free market advocates would disagree with that characterization. They would be adamantly against the existence of a central bank and would claim the crony capitalist shenanigans were only possible because there is a Federal Reserve. That discussion is for another day. If there must be a central bank, the author's points are well taken.
In his last chapter, he offers Reforms to Restore Industrial Prosperity. Will they bring economic nirvana? Some make common sense, such as writing down debts that can't be paid and letting people stay in their homes rather than protect the second homes of Goldman and Morgan execs.
His suggestion to tax economic rent to save it from being capitalized in interest payments has merit in that we should have a tax structure that promotes production over financialization. Is his emphasis on land taxes as the way to do it the right idea?
Revoking the tax deductibility of interest has some good arguments, but will not go over too well with every home buyer.
The public banking option, similar to the Japanese Post Office banks is not a bad idea, but my local savings bank provides most of those services. The Japanese system had low interest on savings, but they had been tax free. Bring that on any old time.
Funding government deficits by central bank, and not by taxes, is, for a true believer in that system, reasonable. Of course, if you are going to create money to cover the shortfall, hey, why not fund the whole budget in the same manner. No IRS or Form 1040 would make a lot of people happy this time of year.
Paying Social Security and Medicare out of the general budget has some appeal as there are demographic problems and the last deal raided SS for $150 million for the Disability Trust Fund.
Keeping natural monopolies out of the public domain is okay. Privatizers have taken over some water departments and gouged the public. No, one, however, is remotely thinking of trying to take the MBTA away from the government.
As most capital gains are in real estate, taxing them at progressive rates should dampen speculation.
Hudson's desire to deter irresponsible lending by making the creditor bear the cost of any loan that could be considered a fraudulent conveyance is worthwhile. Many loans have been made that there was no way that they could be paid without looting assets. That should be stopped.
One question about his reforms is why he did not propose a restoration of the Glass-Steagall Act separating retail deposit banking from investment banking. It would seem if you are not going to hang investment bankers from the lamp posts, you would want to restore that law.
One might grant a federal reserve run by Mr. Hudson or someone like him would establish policies that would better serve the economy as a whole. It is hard to believe it could be anything more than an interregnum as capture by interests is what happens to bureaucracies.
Still, it should be given a try. It would be hard to do worse. If it fails, we can bring in Ron Paul to shut down the Fed.
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