Neoliberalism, Debt & The System

In their most recent episode of the Geopolitical Economy Hour, Drs. Micheal Hudson and Radhika Desai chose the title, “Debt Make the World Go Around,” debt being the core aspect of today’s Neoliberalistic world. What will be highlighted is Dr. Hudon’s talk on the “apartheid economy” of the USA as it evolved after WW2 and Dasai describes what “necromancy” in the economy means. The two concepts work together within the contextual system erected to facilitate what’s known as Neoliberalism. The last several months have seen an in-depth examination of Russia’s political-economy, and now it’s time to return to the beast and look at the state of things as we head towards an election in just under 10 months. The concepts stand by themselves within their report that can be watched or read at the above link All emphasis mine.

Necromany in the economy:

RADHIKA DESAI: Absolutely. I would say just one thing. Of course, most people will know this, but in case people don’t, the Federal Reserve is peculiar among the central banks of the world in being still privately owned. In that sense, I think that what Michael says is very relevant. Essentially, what the Federal Reserve has done is over the last many decades, it has transformed the U.S. economy into an economy in which the primary way, the best way, the fastest way to make money is by essentially speculating, not by investing in the production of goods and services that ordinary people need, but by inflating the value of goods and services already produced.

Those of you who know a little bit of Marxism might appreciate it, but if Marx was around, he would have called it a very peculiar form of necromancy. What do I mean by that? Because already produced goods and services contain the dead labor that has gone, it is now dead, it is no longer living, that has gone into producing it and you are inflating the value of that. Whereas, as you do that, you are disvaluing the living labor, much of which may remain unemployed, and all of which is necessary to produce the new goods and services which every year, in every period, ordinary people need. We need more food, we need more clothing, we need more transportation, we need more housing, etc., etc. And these are the things that are strangulated. Living labor is strangulated while dead labor goes up. Because there’s something very peculiar.

Remember, as Michael pointed out, and as I pointed out, a lot of this debt has been incurred. In fact, most of it has been incurred to speculate, to inflate the value of already existing assets. And there’s something very peculiar about it, because imagine a house that goes up in price by 30%, 40%, 50%. Nothing in it may have changed, but it goes up in price anyway. Nothing is produced, but it goes up in price. So, this is the kind of economy that has been created.

And then to go with that is the “financial apartheid economy:”

One of the results of debt is to create a bifurcated economy, and that means that we’re in a kind of apartheid economy. We’re in a financial apartheid economy. 10% of the population owns over 75% of the stocks and bonds in the population, and they’re almost entirely a white population. We’ve talked about mortgage debt being 80% of the overall debt burden. I want to show what has happened long before the chart begins in 2002.

I want to begin in 1945 at the end of World War II. That’s really when the houses had not been built during the Depression because people, there wasn’t a market for them. They weren’t being built during World War II because all of the raw materials were going to the war effort, and debt for the whole economy was very, very low debt in 1945 because there was nothing to borrow money for. You couldn’t borrow money to consume because everything was rationed anyway.

But finally, they began to make loans, and what had spurred the American takeoff and that of other countries. All countries of Europe, America, and elsewhere were rebuilding after the war, and most of this rebuilding was rebuilding for housing. That was when the great housing was taking place. Here in Queens, you had major developers, not only Trump’s father, but all the famous experiments and group housing were made.

There was only one thing. White people were able to buy houses for maybe $10,000 was a typical price of a house that now costs a million dollars. The problem is that banks would only, in order to buy a house, you had to take out a mortgage. Nobody has enough money to buy the whole value of a house, and if wages were maybe $3,000 or $4,000 a year back in 1945, you couldn’t even buy a $10,000 house. Nobody had that. You had to go to the banks. Banks, until about 2000, 2001, would only make mortgage loans almost entirely to white people, unless you were a very, very wealthy black person or a Hispanic.

What you created was a bifurcated society. The people who bought the houses in 1945—they returned from the war. They took civilian jobs. They bought a house, and many of them died of old age, but they left the houses to the children. And you had one generation after another generation of white people leaving the house to the children, leaving them enough inheritance to have a house of their own and an education of their own. So what you had was a home owning, educated white class, but this was not available to non-whites in this country. So what’s the depth of the restriction of credit to the prime human beings, not to the unprimed borrowers? We’re talking about a pretty racist policy. It was very responsible for the fact that you’ve had now 75 years—well, longer than that, 75 years since World War II—you have a disenfranchised, non-white class in a United States of hereditary homeowners who can get into college because their parents and grandparents went to an Ivy League university. And there’s a monopoly of housing and education and wealth at the top of the economic pyramid, and the rest of the economy is essentially disenfranchised as if we’re in our own financialized apartheid economy.

Reading this history and relating my own experience lets me know just how lucky we were to make our own way in that world as the extended family was involved in the housing building boom of the 1960-70s and the locales we were in. It should be understood that nationally there were many exceptions to the rigid system he describes that did indeed exist. The universal draft that continued for years and the GI Bill that was a benefit until that expired in 1956 was a boon to millions and was a very socialist boon to the economy and add that to what was made available for the debt sellers to acquire. And the sellers via control of the regulating government and financial institutions are able to act as necromancers. But as it was promised to the public back in 1980, it’s a 100% failure. Here’s Dr, Hudson:

Neoliberalism in practice doesn’t work. And yet, if it doesn’t work, and it’s junk economics, what it has done to conceal the fact that it doesn’t work is to redesign the whole picture of the economy that’s depicted in the national income accounts and the GDP accounts. And it actually depicts this unproductive, predatory, rentier overhead as if it’s a product, a product, as if rents are a product. That’s it.

And that’s why the USA’s genuine GDP is far less than reported, perhaps as much as $15 Trillion overstated meaning genuine GDP is closer to $10 Trillion. That’s a hell of a lot of bad product, and it’s increasing while the population’s increasing meaning genuine GDP/Capita is declining while inflation/COLA increases far more rapidly that the Government reports. There’re ways to get a true handle by looking at the Federal Government’s Annual Balance Sheet (most recent 2021/2022): Not quite $5 Trillion in assets with just over $39 Trillion in Liabilities leaves a negative $34 Trillion. That’s what neoliberalism has done to the USA’s financial standing. Remember, some entity(ies) hold the asset end of those liabilities which provides the foundation for their wealth.

More is discussed in the hour-long program, which again beats the Neoliberal dog. What I’m curious to see is what they propose to be “what kind of economy do Americans need in its place?” in their next installment.

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