Michael Hudson: “US imperialism, Krugman, de-dollarization, socialism, Palestine, China.” India and Global Left, January 13, 2024, with Jyotishman Mudiar. “This is the problem China will face.”
Hello, and welcome to another episode of India and Global Left. Today, we have with us the economist Michael Hudson. Michael, welcome back to India and Global Left.
Good to be here.
Last time you came here, the show went very well. We have got almost 100,000 views and a lot of people liked that, and we discussed super imperialism, among other things. One of the things that we discussed was the role of the World Bank, especially with regards to developing countries, and how it recklessly pushed its agenda of capital accumulation that ultimately hampered the struggle for land rights, struggle for collective ownership of concentrated wealth.
One of the statements that you made was “the World Bank has always been an arm of the US military.” A lot of people reacted to that by saying that Michael has got everything right, but the US military is indeed an arm of the World Bank, not the other way around So I thought I would have your response to that, because it ties so well to one of your arguments in super imperialism that US imperialism has a lot to do with the state instead of private corporations. Your response?
Well, you can use google to look at the background of the people who’ve led the World Bank. From the very beginning, John McCloy was in the army. The most notorious World Bank leader and most corrupt was Robert McNamara, of course. And then you have the last few World Bank presidents who come directly from the US national security state. So, if you look at their background, you may ask, why is it that they come from the military or the national security state?
Well, the reason is that they look at the World Bank as a key to the US strategic control of other countries’ economies. And there are two basic spheres economically that the United States uses as the buttress of its balance of payments and its ability to impose sanctions on other countries. The first is oil, which explains why the United States has blown up the Nord Stream pipelines and why it’s isolated Venezuela. It used oil to be able to control the energy of foreign countries. And the second point is agriculture. And that is probably the most serious and most negative, destructive element of all of the World Bank’s policies. And I have a chapter on that in my Super Imperialism.
The function of the World Bank is to prevent other countries from growing their own food, to make sure that the World Bank does not give economic support to domestic agriculture. One of the most fateful requirements of the World Bank is that it only makes foreign exchange loans. Now, foreign exchange loans mean they’re going to develop the export sector, they’re going to develop roads and transportation for export commodities. The government will bear the cost of developing mining, of developing oil and minerals, of deforestation, but it won’t develop domestic industry. And if you look at agricultural development in the United States, most of this agricultural development spending is domestic.
There’s farm extension, there’s education, there’s price supports domestically to support domestic grain, there’s a whole plan of creating a family-based agriculture. And if you look at the World Bank reports of the 1950s and 1960s, you’ll find every country report, the ones that are published by Johns Hopkins, the advisors to the World Bank says you have to have domestic currency to support domestic agriculture and food sufficiency. Not a single loan has been made for that unless it’s for plantation agriculture and export crops. So, the idea is that other countries, Latin America, Africa, South Asia, should depend on American farmers for grain and food exports and they should export plantation products that do not compete with American agriculture because products that are equatorial, that depend on domestic weather and domestic soils.
While the World Bank is supporting these export crops, it basically serves as a market for American corporations, the big infrastructure corporations. And it also supports the private investors, US mining affiliates, US oil companies, US forestry companies. The idea is that countries will increase their exports to be able to pay for these loans, but the mining companies, instead of having to build their own roads, instead of having to build their own infrastructure, the World Bank convinces governments to pay for these to essentially support the private sector and then support the private sector avoidance of paying taxes.
The World Bank has opposed land reform. It’s opposed any of the domestic rules that any country such as the United States, or the European Common Agricultural Policy, have used to support domestic food production. So, what the World Bank has done is subsidize import dependency on American grain. And the export competition with other World Bank customers to compete among themselves at products that do not compete with American or Western Europe production. So, the World Bank is basically an arm of economic warfare by the United States and NATO against the global majority.
A lot of countries in the global south actually has long faced the problem of balance of payment crisis, and then it becomes a big tool to control economic policies and restructure economy in a way by these global institutions. And that is primarily because the global south has been exporting low value commodities, and the global north essentially exports a lot of high value products, to begin with industrial commodities, but now also services and so on. So, there is always this very desperate need of foreign loans, and you give these foreign loans and then they redirect a lot of economic policies.
The important thing to know is that there was an alternative to the World Bank. It was called the World Bank for Economic Acceleration, and it was promoted by the American senator from Florida, Senator Smathers, and was called the Forgash Plan after Morris Forgash, who was the head of the containerized shipping. The World Bank for Economic Acceleration was to finance land reform, it was to finance domestic subsidy for agriculture and domestic import displacement, and of course that was opposed by the United States.
I found out that it was opposed because a copy of the plan was sent to my former boss at Chase Manhattan Bank, John Deaver. Deaver said, advised David Rockefeller, that every country that is engaged in land reform has ended up a political enemy of the United States. Well, that’s because the United States subsidizes assassination squads to kill any advocacy of land reform, so that the United States can control the land of the country’s most notoriously United Fruit Company. To the extent that the World Bank has supported agriculture, it’s supported foreign-owned plantations, not domestic economies.
The idea of the World Bank is to turn Latin American, African, and other economies into extensions of the US economy, not serving their own domestic economy. When you look at the World Bank, it’s creating an America in Brazil, America in Argentina, working hand in hand with the International Monetary Fund to put the financial squeeze on countries that don’t comply with this pro-American trade strategy, then you realize that you need an alternative set of international institutions whose goal will be to promote domestic development and domestic independence in food independence, basic consumer goods independence, energy independence, instead of dependency on the United States.
I think this is a good segue into one of the questions that I had for this discussion, which is on de-dollarization. You have been at least suggesting hopes regarding de-dollarization, and I wanted to bring to viewers’ attention that Paul Krugman in the New York Times wrote an article called De-Dollarization Debunked. What he argues basically is that de-dollarization is very unlikely, following up on Charles Kindleberger’s Idea, that a stable global hegemonic currency is important for global financial stability. He argues that most of the international market is in dollar because of its private trade, financial transactions in the private account, and banks recording these transactions in dollar, and he says that the reserve currencies that different countries hold are actually very tiny minuscule of the overall transactions in dollar. And the final point that he makes is that the alternative, which is the Chinese yuan, is not possible because China still maintains capital control and nobody would like to make yuan its international currency because that would not be a free-flowing currency. What’s your thoughts on that and why do you think that de-dollarization is not just important but also possible?
Well, there are two things that Paul Krugman has shown that he does not understand in any article he’s ever written. First of all, he does not understand money. All of his economic models assumes that money doesn’t exist. They’re barter theories. That’s why all of his trade discussions are called the barter terms of trade. The other thing that Paul Krugman does not understand is balance of payments. Now, the reason that he is so popularized is because he does not understand them. If he understood the balance of payments and money, he wouldn’t be popularized. He’d be here with me talking to you instead of writing in the New York Times.
De-dollarization doesn’t mean having an alternative currency like the euro or the dollar or the yen. It doesn’t mean a domestic currency at all. De-dollarization means how do you avoid having to keep your reserves in dollars where the United States can simply confiscate them as it confiscated, along with Europe, $300 billion of Europe’s money. It’s now threatening to grab all of Saudi Arabia’s American holdings if Saudi Arabia opposes the joint American-Israeli attempt to take over the Near East and attack Iran.
The proposals to replace the dollar don’t mean using each other’s currency. You’ll denominate trade in each other’s currency. You’ll have, of course, some holdings of other countries’ currencies, just as every country holds other countries’ currencies to stabilize the foreign exchange market.
But the big problem is what do you do to keep your international reserves, the savings of the country, in a kind of global money? In other words, what do you do to replace the role that gold had prior to 1971? The problem is that the growth in international reserves itself is a function of American military spending. Almost all these dollars that have been ended up in the bank accounts of foreign governments have been injected into the world economy, not by foreign trade, not even by foreign investment, but by foreign military spending. Again, I showed the statistics in Super Imperialism and in the monographs that I’ve written. The US private sector for many decades was exactly in balance. It was the government sector and specifically the military sector that pushes dollars into the foreign economies. And what are foreign countries going to do with the dollars, especially countries like Japan or China, which were the big accumulators of dollars in the 80s and 90s?
Well, the United States will not let these countries do what the United States does to them. It won’t let these countries buy major American industries. It won’t let them buy control of any major technology. It will only let these dollars be invested in US Treasury securities, or maybe in the stock market, or maybe you can buy scattered real estate. But if it’s in the stock market, it can’t be control of American companies like corporate takeovers. It can only be very minority holdings. Well, this doesn’t give other countries much safety in their reserves. The problem is the fact that these reserves are unnecessary in the first place. The reserves measure imbalance in international trade, investment, and payments. And if the world worked the way it’s supposed to in the economic textbooks, countries would be imbalanced. You would export goods and that would pay for your imports. You would invest in foreign countries. That would enable you to earn the money to plow back into new investment in foreign countries or to depend on them.
So, none of this appears anywhere in what Paul Krugman has ever written. His discussion of international trade theory on which he made his reputation doesn’t talk about the balance of payments or reserves or even money. I know classmates of his who went to MIT with him he told one of his classmates, you know, the professor said don’t talk about money, it’s too controversial. So, he’s the last person that you would ever want to talk about either money or international reserves. He does have an economic degree but he’s employed as a democratic party hack. And if you read his editorials in the New York Times, they’re propaganda basically for the Biden administration. And that’s his job. His job is to defend American policy and basically foreign policy as well as domestic policy by distracting attention away from what is really important in international currency and that is why are reserves going up? Where do all these dollars come from?
If you didn’t have American military spending, if you didn’t have the American looting of global south countries, you wouldn’t have this growth in reserves. And the fact is you wouldn’t need them. You would need basically some international credit so that when a country running a balance of payments surplus, let’s say China, would invest in a belt and road initiative it would essentially have a claim on other countries. It would hold a claim on them but it wouldn’t use it as a means of saying well we owe your own your currency and we’re going to throw this currency onto the market and force you to devalue unless you follow our policies and impose economic austerity on your labor force. So basically, the World Bank and Krugman supports the international monetary fund’s approach to international currency saying in order to hold the dollar you have to stabilize your currency in terms of the dollar by pushing down the value of your labor. You have to oppose labor unionization. You have to charge high rates of interest to be paid to the American banks or the European banks. You have to impose austerity so you will not have labor developing your own industry to compete with the United States.
The lack of international reserves is used to prevent countries from expanding the economy to support the employment and investment and government infrastructure spending that has made the United States and the West rich. Well, the global sub-countries and the global majority want to get rich in the same way that the United States has done and that China has done by public infrastructure investment. This entails some sort of international agreement as to how to handle transactions between foreign investors and domestic countries.
You remember under President Obama the trans-pacific partnership idea. Other countries are not allowed to fine American or any other oil companies for pollution or mining companies for pollution. They can’t charge any damages for violation of the environment. They will bear all of the environmental costs of oil spills, of mineral pollution, of all the others. If they try to tax these countries or fine them, they have to pay an enormous fine that will leave them basically bankrupt internationally. The fact is that access to international credit, to international reserves, is used as a kind of political leverage to force them to follow laws that will not tax American and European firms, that will let them use accounting stratagems to pretend not to earn any profits at all at home, but to take them in offshore tax havens and offshore banking centers to pretend that there are no profits.
The whole international financial system is a massive pretense to avoid paying taxes to the countries that are the host countries for investment and to avoid making companies responsible for the economic damages that they cause to the environment and to the rest of the economy. All of this is part and parcel of the international reserves and the international financial system. That’s what Krugman and the United States, national security people, and basically trade strategists want to prevent. They want to keep the system the way it is. They don’t want other countries to be able to avoid dependency on the United States and the IMF and the World Bank for what they can and cannot invest in. If you’re looking at reserves, you want to put it in the whole context of where is the overall economy going and where is the all-regional economy for the 75% of the world that doesn’t want to be governed by the United States and NATO is going?
This is very helpful because you have placed it in the right context that de-dollarization is not about all these transactions that are happening, but it is essentially about the reserves for different countries that is created by some imbalance of flows between different nations and how the centrality of dollar in that reserve is then used by the American central bank and the American government to blackmail through economic policies. Paul Krugman notes that, yes, reserves maintained in dollar are falling from perhaps 72% to some 57%. Then he brushed aside saying, well, that’s not important. Look at how the transactions are going, which are basically the barter that you are referring to.
I want to say one more thing about the reserve. Why did the United States go off gold in 1971? It’s because General de Gaulle in France and Germany were doing the same thing, were cashing in all of the dollars that were thrown off by American military spending, mainly in Southeast Asia but around the world in the 800 military bases. If you had the gold reserve or a reserve controlled by the global majority, then the United States could not simply finance its military spending by printing dollars. The idea of de-dollarization is to prevent the United States from printing dollars on its computers in order to buy your industry, simply by printing dollars to build military bases and to spend on attacking you, simply by printing dollars without any constraint at all.
When General de Gaulle and Germany and other countries were cashing in their dollar’s week after week in the 1960s, the group that I was associated with, the Columbia group, Terrence McCarthy, Seymour Melman, and myself, were saying this is what is going to constrain the United States from further fighting in Vietnam and Southeast Asia. When you say keep the dollars, you’re saying keep the American ability to spend an infinite amount of dollars on military spending and on buying control of your economy, simply by printing dollars instead of earning it through exports.
Despite the fact that the United States is deindustrialized, despite the fact that it cannot produce its own what it needs for trade, its own products, despite the fact that it’s basically become the world’s largest debtor, it continues to print all the dollars without constraint. De-dollarization doesn’t simply mean giving an alternative to the global majority, it means to prevent the United States from parasitism of host economies, and that’s what the United States is. The dollar glut is a parasite on the host, the host being the appropriately named host countries that hold these dollars.
We had Professor Jayati. Ghosh and we discussed the problem of sovereign debt crisis, and she said that one of the ravages of giving the U.S. Central Bank its global power through monetary policy is that every time there is a hike in the interest rate, money, short-term money, flows out of the global south and comes back to safety, leaving the countries devastated, and then IMF, the World Bank, they go in and redirect economic policies towards neoliberalism. This perhaps is a good segue into neoliberalism itself.
I mean, a lot of focus of this show goes into understanding capitalism, and as we stand now, perhaps we are in some life cycle of neoliberalism, even some people are arguing that we are beyond neoliberalism, and we have been focusing on the labor side a lot. We had Professor Richard Wolf in the show and he discussed a lot about how the U.S. labor movement was smashed and so on. I want to discuss with you the side in the capital markets that happened with this neoliberal transformation or neoliberal revolution, anti-revolution, whatever one likes to say. Breakdown for us, what were the changes that happened in the capital markets and how did it destroy industrial capitalism and how did it transform capitalism all over the world?
You’re quite right to recognize that the focus of neoliberalism is the capital market. Neoliberalism is essentially the doctrine of finance capitalism as opposed to industrial capitalism. Industrial capitalism wanted to lower the cost of living and the cost of doing business by having the government invest in basic infrastructure to provide basic needs, education, healthcare, transportation, communications at a low cost so that the employers did not have to pay their labor high wages. They could afford to have a low cost of production to compete with other industrial countries.
Neoliberalism seeks to maximize the cost of production by financing it very largely by debt financing. Debt financing is basically used to make short-term gains. The financial perspective and time frame is a short-term time frame as opposed to industrial capital where you have to invest in long-term factories and employing labor, long-term development of market. Finance capitalism makes money financially and you can make more money financially by deindustrializing, by buying a factory, firing the workers, closing it down and renting out the factory as luxury housing, and gentrifying it. New York used to be a manufacturing center a hundred years ago and even fifty years ago. I’ve lived in New York, many manufacturing buildings. Near Wall Street there was a dairy and butter and nut importing and electronics area. All that has been gentrified into very high-priced housing.
Neoliberalism makes money by buying and selling assets, not by producing goods and services but by essentially financializing the real estate and the value of corporations by credit. A house or a corporation is worth whatever a bank is going to lend to the buyers of that house or to the corporate raider of a corporation. The corporate raiders will take a public infrastructure private. You’ve seen this in global South countries, again being organized by the World Bank from about 1950 to let’s say in the 1990s.
For at least 40 years the World Bank made loans to governments to build roads, dams, electric utility companies, everything that the American investors needed as their infrastructure. But now having built all this the World Bank says, well that’s what we’ve made in the old way, but now the neoliberal way is we’re going to take all of these companies that we’ve lent money to the governments to buy and we’re going to privatize them.
In fact, the IMF is going to tell them, well if you owe the money that you’ve borrowed from the World Bank and from American investors in the false belief that we were trying to help you and the money that you borrowed, it hasn’t worked out the way we promised you that it would. You’re still in deficit and your currency is going to go way down, and your cost of living and imports are going to go way up if you don’t begin balancing your international payments by selling off the roads that we’ve built. Turn them into coal roads, take the water and sewer systems that we bought, privatize them, sell them to investors, and use that money that you get from selling off your communications infrastructure, your transportation infrastructure, your other infrastructure. You’ll use that money to repay the foreign creditors for all the loans that the IMF and the World Bank told you were going to make you rich instead of further and further in debt.
So, neoliberalism is sort of, after being badly advised by imperialist investment and trade theory policies promoted by people like Krugman, they now have to pay for following American advice by losing all of the investment and selling it off to foreign investors. So, there’s no more government control, government ability to subsidize these roads and communications. And of course, when the private investors take over, they’ll do what the water companies have done in England and other countries do.
They raise the prices of hitherto public services, so that these prices now include not only profits, not only high management fees, but also a very high debt service because companies avoid having to pay any income tax on the infrastructure that they’ve bought out by making them a loan to their balance sheet, using the loan to repay the parent company or another arm of the parent company, one of their affiliates. And so all of the profits are absorbed in largely fictitious debt service, so that the countries that sell this infrastructure don’t even get taxes from the enormous monopoly rents that are being ripped off by the purchasers of these privatized infrastructure companies. So basically, neoliberalism is financialization, privatization, untaxation, and a lot of political assassination, a lot of killing of people who oppose this.
As the head of the CIA said, we’re murder ink and who do they murder? They murder people who are trying to explain and expose this whole imperialistic process, and that’s what American embassies are for, to choreograph this political interference with other countries, with promoting right-wing oligarchies, especially military oligarchies, that will impose pro-IMF, pro-World Bank, pro-NATO, pro-US investment policies, tax policies, neoliberal policies, and overall economic control.
I’m glad you said neoliberalism is about finance capitalism, and this is perhaps what makes this discussion very important, especially for people in the left, because we generally, at least some of us, generally wants to remain stuck at the labor theory of value. The problem is, when the classical economists tried to theorize capital, capital markets itself were much less important.
In fact, if you read Braudel’s writing about the 17th and the 16th century, he says that capital was not even the most important factors of production. In fact, he meticulously records merchants and Chamber of Commerce’s papers, where he says that there is a lot of capital, but it doesn’t know where to go, because increasingly there were the Malthusian pressures on food, on fiber, on energy, and so on, so capital was not the most important factors of production. With neoliberalism, capital markets have become the most important and most powerful force to restructure economy.
Well, part of the problem is just what you said. The left is concerned mainly with the labor theory of value. Value is the cost of production. The problem today is economic rent. Rent is the excess of market price over value. What has been missing from the left today is what was central to the entire political economy of the 19th century, the classical economics that Marx perfected in volumes two and volume three of Capital.
Marx pointed out that the labor theory of value explains the exploitation of labor by its employers, but he also said that’s only part of the economy. What about most of the labor theory of value from Ricardo and Adam Smith on was to isolate the economic rent of landlords. Labor produces value, but how is it that landlord’s control so much of the European economy? It wasn’t by producing value. It wasn’t their labor, and they didn’t employ labor to make a rent.
Land rent was simply a hereditary privilege of the warlord Norman invaders and the warlords who took over feudal Europe in the 11th and 12th centuries. Land rent was what gave and essentially endowed the whole European landed aristocracy. The same thing for finance for banks. Banks do not create value. When you go into a bank and want to borrow money, the bank will simply say, all right, we’ll plug it into the computer. You’ll sign this IOU for a hundred-thousand-dollar house and we’ll give you a hundred thousand dollars in your bank account on which you will have to pay interest. Interest is not part of the labor theory of value. The labor theory of value was to say what portion of national income is not necessary, is not spent on labor, is production. What portion has nothing to do with labor or production or industrial capital or even industrial products?
It turns out that most of the income and most of the wealth made today is not made by creating value, which is employing labor. It’s by buying a monopoly privilege, by buying real estate, by running a bank or by using debt leverage to extract the interest or to have the central bank inflate the bond market, inflate the capital market and the stock market as it’s been doing under the monetary ease of the post-Obama depression from 2008 on. All of this wealth has nothing to do with creating value.
It has nothing to do with employing labor. In fact, all of this increase in wealth by the financial class, by the real estate class, by the insurance class and what I call the FIRE sector- finance, insurance and real estate- has been created in the form of economic rent. Not wages, not profits, but land rent, monopoly rent and financial returns. And by the increase in the monetary and financialized debt finance, increase in the price of housing, the price of stocks, the price of bonds, the price of buying a financial income, which has been very highly concentrated in the hands of the wealthiest 10% in the United States and Western Europe.
You mentioned about the FIRE sector. I mean, this morning’s Financial Times comes up with a report on the problems that the major U.S. banks are facing and it essentially records two major problems. One is the rising interest rates and the other is the non-performing assets. It records that the four major banks, you know, Citigroup, JPMorgan Chase, Wells Fargo and so on, its non-performing assets have gone up recently and it is recorded at $24.2 billion. And if you read the report, one of the nervousness that is expressed is the property sector. It says that the banks are essentially finding it difficult to to profit through its mortgage loans and it is really become a cause of concern.
Well, what you’re pointing to is to the self-defeating characteristic of neoliberalism and finance capitalism. If you try to make money financially instead of by industrial, instead of industrially, then the industry is going to close down and move to China and Asia. What’s going to happen to all of the factories and the real estate that these factories were in? And if you’re going to aim at moving your employment out of the United States into low wage countries as part of your class war against labor, then these offices are going to close down and the factories will close down. And who’s going to pay the rent on all of these buildings?
Well, commercial real estate that owns these buildings is very different from homeowners’ real estate. A homeowner has to, at least traditionally, you have to make a down payment 10%. In my day, it was 30% of the purchase price to buy a home. But commercial buyers, people like Donald Trump, they won’t put down a penny.
They’ll say, well, I want to buy this 100% of the money and I’m going to buy this building. And then I’m just going to wait for you to inflate the economy and charge, I’ll just charge rent that I make in my sleep. And I don’t create value just making in my sleep, economic rent and all these rents, and the increasing value of the property that you’re from your inflation, I’m going to pay you the rent from the income that I get. And I’m willing not to keep the rent for myself. That’s why the real estate sector doesn’t pay income tax largely. I’m going to basically I’m after the capital gain of the rise in property prices is the rent, the rental yield goes up.
Well, how can the rental yield go up if you’re deindustrializing the economy, if you have the Federal Reserve saying, our job at the Federal Reserve is to create unemployment, it’s to lower the price of labor. And you’ve had the last two heads of the Federal Reserve say again and again, whenever wages go up, this threatens American profits. So, we’re going to raise the interest to create austerity, to create a downturn so that labor will not have its wages and living standards increased. So, bank management, financial central bank management is anti-labor.
But if you’re anti-labor, then you’re against employment. Again and again, the head of the Federal Reserve has said we want to increase unemployment, Marx called that the reserve army of the unemployed, so that it’ll be harder for labor to get jobs and they’ll have to fight against each other to compete and lower the wage rates or at least keep wages from going up. So, whenever the Federal Reserve reports wages going up or employment going up, the stock market plunges. When employment goes down, the stock market booms because they say that’s good for profit.
Well, if you’re going to be anti-employment, the offices are going to close down because there’s nowhere to go to work. You’d think that was obvious enough, but the newspapers and the Fed says the building is not performing, it’s a non-performing loan, the landlord is not having enough money to pay the interest. So, what you’re having is that landlords are simply not paying the mortgage and they’re going to be like all of the homeowners that found in 2008 that they had to pay more money for a mortgage than they could go and rent an apartment, an equal house somewhere else. You’re having the commercial building owners walk away from their property and there’s an idea that maybe 20 percent of property is going to be just abandoned. Well, what’s going to happen?
There will be some market for turning these office buildings into luxury apartments. Luxury means really unpleasant schlock. It’s sort of like the kind of apartment that Donald Trump builds. His buildings are known for being schlock, very poor design, bad walls. I know the architects and they say, oh my god, what he’s made us do, that’s just junk. Well, imagine if you say, I’m going to live in what used to be a big bank building on Wall Street or Broad Street.
Well, it turns out that if you can imagine how these buildings are, they’re going to be a lot of bedrooms without windows. Well, the problem is that the New York real estate laws say that every bedroom has to have a window for ventilation or just for light. So, there’s a question, can these office buildings, bank buildings, financial buildings, other office buildings, can they really be turned into residential, gentrified apartments?
Nobody knows what’s going to happen. Are they going to be torn down? What’s going to happen? So, the banks are left with assets on the book that they’ve lent, let’s say, a hundred million dollars for a given building that’s supposed to be yielding, say, five million dollars in interest every year, and all of a sudden, they’re not getting any interest from it. And the value of this loan has gone down to who knows what. Well, what do you do? The banks will say, let’s give this mortgage to the Federal Reserve as a deposit and the Federal Reserve will give us real money for it. Let the Federal Reserve and the government take the big loss. That’s the only hope of getting out of this because 80% of bank loans are mortgage loans.
And the problem for the last 10 years, people have said, the result of the Obama depression and the fight against labor and the Democratic Party’s fight to lower wages is going to be a property collapse. Well, that’s exactly what you’re getting, a commercial property collapse that everybody’s foreseen. All of the smart buyers have already gotten out and they’ve tried to sell these office buildings to pension funds and naive investors, basically, or maybe to German banks. The Germans believe that Americans would never cheat them. So, that’s basically where the action is these days.
In fact, these days they are specifically mentioning office buildings and commercial property sector. They’re not even mentioning saying real estate, that’s perhaps too old now. It’s very specific, office building and commercial property sector.
One of the things I want to ask you is what basically caused the Federal Reserve to raise the interest rates? Because there is a lot of nervousness about rising interest rates. Banks are failing. A lot of that has to do with the fact that its asset goes into bonds and a lot of stocks. And every time you raise interest rates, their bonds don’t rally, or collapse. And it erodes the assets of the banks and so on. And the ideologues of neoliberalism, including the Financial Times, has always lobbied for lower interest rates. So, despite all that, what led the Federal Reserve to raise the interest rate?
Well, the head of the Federal Reserve has given speeches week after week after week explaining that very question. He says, we’re raising interest rates because we see wages going up. We’re raising interest rates in order to cause unemployment to lower wages. We’re raising interest rates for the same reason that Paul Volcker did in 1979. Paul Volcker carried in his wallet a list of the wage rates in the construction industry. He said, when the wages in construction go up, I’m going to raise interest rates to discourage construction so that it’ll be more expensive to take out a mortgage loan and you’ll have unemployed construction labor. And he said, most construction labor, that’s what the immigrants work for.
That’s what raw manual labor is. And if we can lower the living wage for immigrants, especially for racial minorities, especially for blacks and Hispanics, it’ll spread to white people. And white people won’t be able to get many jobs either. And raising interest rates will just create enough unemployment so you’ll have labor competing with each other and wages will go down.
And the same speech, almost word for word, has been given by the Federal Reserve presidents and say, we’re going to raise interest rates until labor suffers, until we make it scream. And when it screams, then we’re going to know that this is going to help increase profits and maybe that will help re-industrialize the United States by impoverishing labor. This is exactly the opposite of how the United States got industrialized in the late 19th century by offering high enough wages for labor to have a good education, to be well fed, well clothed, well housed, and to be more productive.
If you’re going to impoverish labor, you cannot expect this labor to be more productive. You’ll have a labor pretty miserable at its job and they’re not trying to be more productive. If anything, they’re doing what Thorstein Veblen described as industrial sabotage. They’ll just try to fight back as much as they can. To put it briefly, the class war is back in business and it’s being led by the Federal Reserve.
I like how you link Marx’s reserve army of labor with Fed’s interest rate policy. I mean, it’s incredible. Talking about industries, I mean, you have been for so long talking about the destruction of industrial capitalism, especially in the Global north. And there has been talks about re-industrialization of the Global North.
I mean, the Financial Times and the New York Times went all over during the times of the Inflation Reduction Act, saying that it’s somehow bringing in new industries through sub-government subsidies and so on in the green technologies. Emmanuel Macron wrote a piece in the Financial Times and we had a brief conversation through email on that where he said that I am very hopeful of making France the hub of green technology, artificial intelligence, semiconductor. These are things essentially the Global South are perhaps too dumb to produce.
I mean, he doesn’t say in these words, but this is what he meant. There is a lot of talks about increasing tariffs against Chinese electric vehicles and so on, all in the hope or at least the narrative is -Europe and the US are going to re-industrialize itself. How do you look at it?
Well, when Macron and the US talk about industrialization, what they mean is just what you pointed out, creating an information technology monopoly. How can they create some monopoly to get monopoly rent? Industrialization that NATO countries are talking about is not about employing labor. If you’re going to make money, as you say, by making computer chips, this is not going to employ manual labor. It’s not going to raise wages.
In fact, the Biden administration gave tens of millions of dollars to build in, I think it was Arizona, a big plant to make computer chips that were going to be run by a Taiwanese company. The Taiwanese company said, well, the problem is there’s no American labor to work there. We’ll have to move our own labor in because you’re not training people to make computer chips. You’re not training people in industry. Your schools are all assuming that we’re in a post-industrial economy, so why train people to go to work in industry? If your idea of industry is to build a technology monopoly, whether it’s in pharmaceuticals or information technology, you’re not really employing labor. You’re employing very high-priced specialists with a highly educated PhD level, computer training, IT training, pharmaceutical training, microbiology. This is not the kind of labor that Marx is talking about for the industrial labor. Industrialization really is about making things like you have in your house, making your furniture, your kitchen utensils, making the house itself.
This is not the kind of industrialization that America and Europe are talking about. The problem is that if you’re talking about manufacturing type of industrialization, we know that Europe is a dead zone now because in order to make manufacturing you need energy. It uses fire, it uses energy to run the machinery. America has said you can’t trade without Russia for that. America has also said you really can’t trade with China either. So, the Europeans have complained to China and said it’s really not fair.
We’re buying more from you than you’re buying from us. And China said why don’t you sell us this computer chip etching machinery that the Dutch make? That’s national security, we can’t sell that to you. We can’t sell you anything that you need. Isn’t there something you don’t need that we can sell you for buying what we do need? Your metals, your special minerals, all the other things that you make.
And China says well here’s the problem, when we export, you’re absolutely right. It’s not right for us to export more for you than we’re buying because we’re going to end up with euros and the euro that’s going to go down because you’re a dead zone now. You’re wrecked. America has wrecked you. Why do we want that? And we don’t want dollars because America deindustrialized.
What does America produce that the rest of the world wants except saying we have something that you do want for us not to atom bomb you, for not to do to you what we did to Libya and what we’re doing to Gaza and what we’re doing to Syria and what we’re doing to Ukraine? That’s what we have to offer you. Well, that speeds the parting guest. So, it’s not really an economic model, it’s a militarized what used to be called imperialism.
One of the main reasons of the recent German slowdown of its economy is the high energy prices. In fact, today’s Financial Times carried a long coverage about the difficulty of recruiting people in its oil and petroleum sector, which is making these oil barons, the shale oil barons, Chevron, BP, they are pouring in money in American universities in a way to recruit because they feel that people are moving away to this green technology and artificial intelligence.
The interesting thing is both are, I mean, the green technology chips and so on are so high tech, which as you said, doesn’t require manual labor and cannot employ large sectors of the population. And no wonder why in the US there is no renewed push for public education, because if you want to employ most of your population, then you have to make them educated. But essentially you can think of reindustrialization without educating your people only because you are talking about a very intellectual property right driven industrial sector, if at all that’s an industrial sector.
I want to ask you a little bit about China, because it’s so difficult to understand China because of a lot of propaganda on one hand, and on the other hand, it’s really a mixed picture. On one hand, they have retained public ownerships of their major means of production, including the banks. The party does act as a supervisor against big businesses. And then on the other hand, there are troubles, like very substantial destructions of industrial labor relation that has basically left Chinese labor to the hands of the employers, mostly private employers, because a lot of the private sector, I mean, non-major sector is in the private hands now. The real estate sector has been very cheaply privatized or rented out, which has led to enormous levels of inequality. I mean, one has to cringe to see new levels of inequality in China being close to South Asia, which is perhaps, along as Latin America is the most unequal in the world. So give us a sense of how to understand the Chinese economic system.
China tried to avoid the problems of Stalinism, and during the late 1970s, around 1979, 1980, they thought, well, we want to do something like Lenin’s New Economic Policy, let a hundred flowers bloom. And they didn’t want any Marxists to come over from the West, because most Marxists, they assumed, were basically the old Communist Party Stalinist Marxists, and so they invited Milton Friedman over. Friedman had quite a few followers in Shanghai, and he convinced them, and obviously rightly so, he convinced them to open up the economy and say, you know, there’s no way you can plan for what’s going to be an innovation, something people want. Let the imaginative entrepreneurs develop the economy and let’s see where it goes.
Once they develop it, then you can figure out what’s the right tax policy, what’s the right regulatory policy, but you want to just see where it goes. Let China do entrepreneurs do their thing. Let everybody try to get rich and see who’s getting rich in a way that benefits the economy in the most positive way, and then we’re going to choose to encourage the beneficial ways of getting rich, and we’re going to discourage the non-beneficial way of getting rich.
Well, that’s what they’ve been doing. You could say that’s the basic issue of every country, but it’s especially the issue in China, and that’s exactly what’s going to shape Chinese politics and the economy over the next 10 years. How are they going to decide to tax away on making rents and financial gains, but permit profits on industrial gains?
They want to promote industrial capitalism, not finance capitalism and rentier capitalism. Right now, what they’re dealing with is that we’ve let our real estate get very highly debt-leveraged instead of taxing economic rent. We’ve let developers pay it to the banks to fund into yet more development, and it’s gone off the charts. We can’t do that anymore. They’re looking for an alternative way of avoiding the kind of real estate bubble that has characterized the West.
Now the issue of China is not how do you make Mao’s communist economy more like the West to get the West’s good points. Now it’s okay, we’ve done that, how do we get rid of the West’s bad points? You could say that that’s the choice confronting Chinese policymakers today.
I want to ask you about rethinking socialism in the 21st century, and it’s a difficult question for multiple regions. For instance, the Soviet Union acts as a model, but it’s a very flawed model. On one hand, it was highly successful in rapidly industrializing itself, free healthcare, tackling problems of unemployment, making housing available, and you can go on and on. On the other hand, there were severe problems. One of the problems was dysfunctionality with market, international trades, dynamism in its economy after the war, and so on and so forth. What do you think could be some of the ways for the left in terms of at least have a vision of socialism for the 21st century?
I think the question you’re asking is exactly the question that economists asked throughout the 19th century. It would help to study classical economics and realize how the whole question you’ve asked was framed in terms of value and price theory and rent theory. You want to increase wages and profits. You don’t want economic rent. You don’t want land rent, monopoly rent, or financial rent.
That was the whole issue that was discussed and that was what Marx wrote about in his theories of surplus value. He reviewed all of these and explained how to put the economic system together. You don’t just look at labor and employer relations. You look at the whole economy and how people get wealthy. The left does not look at how people get wealthy. I don’t see much concern at all with that. Wall Street is concerned with that, the right wing, not the left.
The left is concerned with how labor is getting poor. That’s very interesting. How are poor people being exploited and how are ethnic minorities being exploited? That’s very interesting, but I’m more interested in how does an economy get rich and how do they get wealthy in a good way as opposed to the bad way. The left says, oh, wealth is bad. I’m exaggerating. The left doesn’t care about the economy. The left cares about the victims. It doesn’t look at who’s doing the victimizing. How does the victimizing process work? That’s not in their agenda.
They’re looking at how do we describe the victims in the most heart-rending way and make money doing it, basically. In all the years that I was working, writing about imperialism and how finance capitalism was destructive, my intellectual market was the financial sector, the right wing, brokerage companies, wealthy people.
The left had no interest at all because they said, oh, you’re not interested in the minorities and the poor people. I wanted to say, what is it that’s making the poor people? I’m not interested in once they’re poor, how you wring your hands. I’m interested in what is creating all of this inequality in this economic polarization. I’m interested in the overall economy.
The left could say, well, we’re not interested in the economy. We’re interested in political science or whatever it is. The hope for the left is really what is happening outside of the United States and Western Europe because part of the American imperialism has been to promote a false left. When I’ve been criticizing the left, this isn’t the left of my generation that was concerned with what I’m talking about. This is the non-governmental organization left supported. This is the World Economic Foundation left. This is the Ford Foundation left. This is the bleeding-heart liberal left financed by the finance capitalists that the last thing they want them to do is to talk about how the economy is about finance capital at the top much more than the victims at the bottom.
Last time you came here you said how why the banks and the financial companies in the 1960s would recruit a lot of leftists and Marxists because they knew how capital works and today perhaps they would recruit people from the left who can talk merely about diversity, equity and inclusion.
Well, they don’t have economic research departments anymore so the banks today are not like they were in the 1960s. If they were, somebody who was interested in the imperialism like I was could go to work for a bank to learn how imperialism worked. That was where I learned it. I did not learn it from the universities about how it worked. I didn’t learn it from reading the old left that I came from out of.
I learned it by actually working for the banks on Wall Street because they wanted to say how can we make exploitation better, how can we perfect imperialism and that was their concern and that was my concern of explaining how imperialism works. So the banks now say we don’t have to understand the economy, it’s all an insider deal. All we have to do is finance who’s elected as president in congress and do an insider deal. We don’t need to know what we’re doing. You don’t need to be smart to make money. You don’t need to understand how the world works. All you need is greed and corruption.
I want to leave you with this one final question since you have been writing so much about imperialism in general and we are seeing the ongoing destruction and genocide in Gaza. The New York Times today comes up with this reporting saying we have to be very happy now because the IDF has said that Israel has switched to some sort of calibrated attack and finding ways which is less destructive in the south in Gaza. I wanted to ask you your thoughts about US complicity in this destruction.
Well, if you believe what you read in the New York Times you’ve lost all credibility. The United States is there to tell Israel how to hit the Arabs harder. Blinken is there today, the Foreign Secretary Blinken, to say here is how you’re going to attack Iran, here is how you’re going to attack Syria. But we know that you’re very unpopular in the world and now that South Africa has brought the claims against you, you’re making us unpopular too because we’re your backers.
We’re going to keep giving you the bombs and when we give you the anti-personnel bombs, please be gentle with them. When you kill more than 10,000 people at a time, do it gently. Because most Americans now, today in New York, the whole news at noon, four demonstrations against the attacks on Gaza.
So, the United States says, well, we want our warmonger Biden to be re-elected, so we have to pretend that we’re not supporting you. We want to pretend that we’re saying, oh, please be gentler. Well, here are the new bombs, here’s how you’re going to kill, you’re going to attack Iran, here’s how you’re going to attack Lebanon in the next week or two. So all this crap about we’re going to be nice, the United States is urging other countries to be nice. This is just for domestic propaganda consumption. You’re not being nice when you send Mr. Blinken there saying, I’m with you, kill them all. And that’s what Blinken is saying, that’s what Biden is saying. And of course, ultimately, there will be a fight back from Hezbollah. And you can just hear Blinken and Biden cackling together saying, we fought to the last Ukrainian, now we’re going to fight to the last Israeli. And we’ll end up holding the Near East once we fight to the last Syrian and the last Iranian. That’s basically the United States policy.
The New York Times is just the propaganda agent of the American attack on the Near East. It’s really the United States that’s behind it all, that’s pushing it. It’s the United States that gives Israel the armaments, the United States that is funding Israel. The United States is doing to Israel exactly what it has done to Ukraine. That’s what you should bear in mind. The United States is not telling Mr. Zelensky to be, please stop bombing the civilian buildings in the Donbas and Luhansk region.
Kill the civilians as many as you can, that may lead to a regime change. Do the terrorism by attacking Russia as much as you can, we’ll use that domestically to try to get an anti-Putin movement going. That’s basically how to interpret what’s happening. The United States is not pushing peace anywhere in the world. That is why the Republican alternative to Donald Trump is Nikki Haley, who says let’s change the name of the Defense Department to the War Department. I think she’s got the pulse of the military industrial complex that is backing her candidacy quite clear and explicit.
Michael Hudson, thank you so much.
Well, thank you.