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J Is for Junk Economics: Michael Perelman, Michael Hudson, Bertell Ollman

June 5, 2017

I missed church at Unity of New York for the first time in a year by attending the Left Forum, but this year, I didn’t present at that time. I instead saw a fascinating presentation by Michael Perelman, Michael Hudson, and Bertell Ollman. Perelman was primarily the moderator, Hudson discussed his new book, J Is for Junk Economics, and Ollman presented his criticisms of Hudson’s book, with which Hudson agreed if he sometimes considered the arguments tangential to his point. They said that the talk will be posted on YouTube at openunivoftheleft, but nothing has been posted there in years, so here is a summary of my notes (mostly a transcription fleshed into full sentences–some elements don’t make sense because of weaknesses or illegibility in my notes).

Update: Here it is:

In keeping with his religious imagery, Perelman added the word “sin” to the presentation title, which he said was for “stupidity,” and that the stupidest was that the “Carnival Barker in Chief” had embraced the idiocy of Arthur Laffer. Perelman said that a lot of economics is designed strictly in reaction to worker uprisings, as we saw in Adler. He mentioned that Francis Werner was asked by the British Parliament in the early nineteenth century was asked to write an improvement on Adam Smith’s The Wealth of Nations–then seen as a deeply flawed work, but he refused to do so until smith’s work was done. He believed that the ideology of Smith outweighed its truth. Perelman also said that psychological studies show that people who study economics have been shown in psychological studies to be the most selfish of any discipline.

Lionel Robbins’s The Nature of the Economics of Science was a standard textbook for economics students well into at least the 1960s. It opens with a nonsense paragraph claiming that it was an indisputable fact of science that everyone is rational, which shows how unsound his arguments are. Today, the Koch Brothers pour money into economics departments and have a huge influence over what gets taught, including making them read an introduction to Ayn Rand.

A standard argument among economists is that Marx was responsible for the Paris Commune, although he actually had little to do with it. William Stanley Jennings, Paul Ross, and Karl Meuer, known as the marginal revolution, taught economics as a mathematical scheme based in calculus and called it a science as a direct reaction to Marx. In reality, it was nothing but an ideology under a façade of mathematics. Today, economics has regressed.

Michael Hudson began his talk by saying that he had twice been on panels with Arthur Laffer, who said that he was embarrassed that his theory had been picked up by “the crazies.” He discussed how he was up for a position in Citibank’s economic research department, but in his desire to seek the truth, he was ultimately not offered the position, and the department’s name was actually changed to public relations. It had to do with then-president Harold Wilson wanting to devalue British sterling because he had just sold a lot of it to “a sucker.” The big banks want tax cuts in order to collect interest on those funds.

Paul Krugman has disagreed with Hudson and a colleague named Steve King about whether commercial banks create credit or whether economic rent still exists. That commercial banks create credit has been demonstrated in a multitude of sources. Hudson notes that economic rent, value, and price were all treated as distinct by David Ricardo, Thomas Malthus, John Stuart Mill, and Karl Marx. Marx based his Theory of Surplus Value, with economic rent as the excess of price over value.

Citing the linguist Benjamin Lee Wharf’s theories of how vocabulary changes concepts, Hudson discusses had the terminology of economics has shifted to opposite meanings of what it once had. “Free markets” initially meant a historical destiny for industrial capitalism that was free from landlords, parasitic banking, and feudal lords. Now it means free for predators, landlords, and corporations. This is why the history of economics is not taught in graduate schools. “Reform” meant organizing unions and regulating the economy. Margaret thatcher and Ronald Reagan made it just the opposite. “Economic rent” is now called “earnings.” It was not called “earnings” in classical economics. The false costs of production should be subtracted from GDP and not output value because there is no cost of production when interest is charged or land value goes up because there is no work involved. “Disposable personal income” is now used to mean everything a person has after taxes. It originally meant what a person has left after paying basic expenses, such as rent. In reality, only about 25%-30% of the average person’s income meets the original definition of “disposable,” which makes workers unable to buy what they produce.

By thinking of the economy in “business cycles” it rules out economic instability. Marx did not believe that the economy was self-stabilizing, but economists do, and use this faith to argue that there is no need for government regulations. Instead, we have a centrally planned economy not by government but by private financial institutions running it for their own interests. Marx was overly optimistic that the financial sector would merge with industry to become a planning nexus for socialist management. Instead, banking became about real estate, stock provisions, and asset-stripping in Britain and the United States (not so in the rest of Europe). The vocabulary is intentionally dumbed-down.

Adam Smith met with the physiocrats. He believed that cost of labor would keep going up because of landlord exploitation since housing prices were purely extracted. Ricardo expanded on this. At this time, banks were primarily involved with foreign exchange because a foreign exchange charge was not considered interest, which was then illegal. Fighting against landlords became essential, and it was seen that becoming a raw materials supplier was more profitable. Malthus, a lobbyist for landlords, expected that landlords would use their wealth to invest in agribusiness. They did not. They spent the money on tailors, butlers, coachmen, and other servants. Malthus is the father of trickle-down economics. Ricardo believed that there was no such thing as a permanent deficit because it would automatically stabilize. Friedman’s apology for the banks is never quoted because it is the worst economic theory.

Today, savings is counted as repaying a debt, and amortization is counted as savings, thus debt repayment is seen as prosperity rather than the debt deflation it actually is. All growth is in interest charges. This means that the economy is shrinking, but it is counted as growth because it is at the service of collecting interest. Socialism was designed to prevent this exploitation, which is wrapped in a mythology that deficits are bad. The last surplus the United States had was under Clinton, and that means the government sucking money out of the economy. Government spending is to support those who cannot pay their needs. The fraud of Alan Greenspan is in using this money to fund tax cuts on the rich. Bush was right when he said the money’s not there.

When Paul Krugman says that the government cannot create money, that puts him to the right of Milton Friedman. “The rich people enable us to consume” but the rich buy real estate, stocks, bonds, and “junk Andy Warhol paintings” causing constant stagnation. Hudson asks why the Tea Party has not been attacked for this. Obama broke his promise to break up junk mortgages.

Bertell Ollman’s criticism of Hudson is mainly that it attacks modern capitalism while ignoring capitalism in general. He refers to defense of ideology as the system, and the ideology is capitalism. For Marx, there were two capitalisms. The first is capitalism in general, the features that remain the same: profit maximization, exploitation/retention of surplus value, production of value in general as private property to be bought and sold under the qualitative labor theory of value, metamorphosis of value, alienation of labor contamination, fetishization of commodities, and ongoing class struggle between workers and capitalists. the second capitalism is inside the first and represents separate interactions of the general factors and the factors of each stage of approximately 20-50 years. The replacement of capitalism with modern capitalism actually coincided with capitalism in general with the rise of financial power, lingering economic crisis, globalization of quality and quantity of automation, containerization, climate change from capitalism ignoring externalities, nuclear power, quality and quantity of change of effectiveness of misleading ideologies of economists and society. Modern capitalism, Ollman argues, belongs to the world of appearances observed by standard empirical methods, but the main features of capitalism in general are relations and processes that are beyond what can be observed with the senses. Capitalists do not buy the hours of the hourly wage earner, but potential labor power, which is greater than the value paid for it.

Ollman quotes Marx, “the law in its majesty prevents the rich as well as the poor form sleeping under bridges and stealing bread,” which essentially means that the law doesn’t really account for differences of circumstance, although when rich people do do these things, they are usually let off much more easily, because the law is not as balanced in practiced as it is in theory, it really lays bare the laws of motion in modern society. The features of modern capitalism appeared in unfinished form, and new stages arrive when one of these features appear in finished form. Social democratic reforms don’t change capitalism in general. Capitalism can simply respond by removing the reforms, thus improvements are modest and temporary. Attacks, therefore, must be focused on capitalism in general.

Hostility toward capitalism among youth is higher than it has been since the 1930s. An EU study showed a high percentage of 18-35 year-olds and a staggering 67% in Greece would be willing to join a revolt against the capitalist regime. The ideology, Ollman tells us, is designed to get us to avoid looking at the broad spectrum.

Michael Hudson proceeded to agree with all of Ollman’s criticisms but said that the laws of motion of industrial capital have been thrown off. Corporate industry is fincialized so that 92% of corporate earnings are spent on stock buybacks and dividend increases and underinvestment in capital and workforce, which is now stifled by the rentier class. He asks if this is capitalism at all or if it is neofeudalism. He said that MArx was too optimistic. He cites Florestine Berelyn, that a perversion of industrial capital has been created by banks mismanaging the economy, with most investment now in the form of real estate.

Michael Perelman returned to the microphone and described Wall Street as a a mafia organization. Since stock drops threaten a CEO’s job, they now do nothing to invest and make the company better. He also noted that Marx’s brother-in-law, an aristocrat, would regularly send the police to investigate him, but they eventually stopped after determining him to be a nice man.

Bertell Ollman does not see neofeudalism replacing capitalism. Most companies have a lot of stock, and industrial and commercial banks’ victories will will keep being rolled back in ever worsening situations if we fail to attack capitalism in general.

At this point the floor was opened to questions and comments. Aleksandr Buzagalin, an economics professor from Moscow, took the floor and suggested that neofeudalism is indeed what is happening. He said that it is impossible to determine what creative labor will do unless it is catering to the demands of what has hired it. A soul is free, but the feudal lord buys the soul.

Michael Hudson then discussed the importance of debt relief, saying that in ancient history, every ruler in Sumer, Babylonia, Akkad, all the way until ancient Rome, eliminated all private debts through jubilee, or andurarum, which freed them up to temporarily do public works projects or serve in the military. After World War II, the allies canceled all of Germany’s debt except for wages owed by employers. Dominique Strauss-Kahn, in his bid to become President of France, put personal interest above the needs of Greece. The IMF agreed that Greece’s debt, much of which was to France, was fraudulent, but Strauss-Kahn changed thew rules because he thought France would want someone who would make their debt be repaid. Debt, he argues, is really a systemic problem that system, not the people affected by that system. The junk mortgages that Obama failed to forgive were odious debt, and that Obama betrayed those who voted for him to the bankers. He also cites the prevention of Sheila Bair from shutting down Citibank, and how that was entirely about bondholders and not industrial capitalists. In response to a question about the tech sector, he declared that it was half industrial and half rentier because it is mostly monopolized. The tech sector was started with Arpenet by the government, but as with pharmaceutical research, most of it was given away to for-profit companies. The market failure here is not so much from exploitation of labor by the corporation by vast increase in rent and fire sector payments. The final stage of Stalinism was kleptocracy, and that’s where we are now. “Russian Marxism” failed to analyze capitalism, flight-capital, and reindustrialization.

At this point Buzgalin interjected that there is no connection between Russian Marxism and real Marxism. Russia is a caricature of the left.

Michael Hudson said that Say’s law is a hoax totally disconnected from reality. People did not expect that industrial capitalism would relapse to the rentiers, but that is what happened. He emphatically said that we do not, however, need to revive industrial capitalism to move to socialism.

Ollman noted here that he is not opposed to reforms (Marx wasn’t either), but we have to recognize that they are short-lived. What Marx said about capitalism in general has not changed much except in the part Hudson discusses. He ends by saying that Hudson should deal more with capitalism in general and work toward eliminating it in favor of socialism or communism.

Not wanting to take over the panel with his own theories, Buzgalin put his e-mail address on the board.

Hudson stated his approval for universal basic income, but two subsequent panels I attended discussed that at length and will be commented on in a future blog entry.

One Comment
  1. Wonderful commentary. Imagine the intrepid Buzgalin interpolating the dizzying Hudson with, to quote you, “there is no connection between Russian Marxism and real Marxism”… The kind of comment you sputter out in dining rooms as conversations veer into the rough after your apparently slippery-slope proposal for some slight betterment… and that, you’re made to feel, ruined the hostess’s mousse au chocolat. Two great men. Thanks.

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