Set up to fail
Must read interview with Michael Hudson, via Renegade Economist.
KF: We welcome to the show Professor Michael Hudson, Distinguished Research Professor at the University of Missouri-Kansas City, the leading Post-Keynesian university in America. It’s been fantastic to see, Michael, that the public profile of UMKC has really taken off with Randall Wray, yourself and Stephanie Kelton being quoted quite widely these days. Can you explain what Post-Keynesianism is?
MH: The fact that we all have a very similar approach is what has enabled us to challenge the neoliberal Chicago School. Our approach is heterodox – we see that money is created, basically, on computer keyboards. When a bank lends money, they create a deposit by writing a loan. You sign an IOU, the bank has a promissory note from you to pay them interest and they open a deposit in your name. The Federal Reserve does the same thing, as does any central bank, except for Europe’s. On their keyboards, they can simply do what a commercial bank does, namely, create money by creating a bank deposit for the banks to draw on. That is basically how the Bank of England, the Federal Reserve Bank of New York, the national banks of China, Russia and other civilized countries create a finance of government deficit. That is why government debt in almost every country has gone up and up and up every year for the last few centuries. And as the government spends money into the economy, this is the money and the spending and the income that enables economies to grow.
So if you don’t create money – if the central bank doesn’t monetize the government deficit by just printing money electronically and spending it into the economy – then people have a choice: either there is no growth in money and the economy shrinks or people have to do what they did during the Clinton Administration of the United States when we actually didn’t run a deficit and that is if you’re not getting rising wages, but your expenses go up and education prices go up and health insurance goes up, then you have to borrow from the banks, which is like running a credit card up. When you run a credit card there’s no money but you owe more – that’s what has happened to economies throughout the world and it’s especially what has happened in Europe because the banks in Europe have taken control of the governments and said “don’t have a central bank that does what central banks in other countries do – don’t finance the deficit, sacrifice the economies to the banks and make sure that all of the growth and income we have goes to us the banks – not to labour, not to industry. We want labour’s wages to go down so labour will buy less, so our industries will shrink, so we can take over companies and bankrupt them and bankrupt entire countries. And when the countries go bankrupt from shrinking, then we can tell them: privatise your real estate, your off-shore resources, your subsoil, natural resources, privatise your telephone systems and others; sell them all to us so that then we can create monopolies and take the money for ourselves, and do all this because we don’t want you to do what civilised countries do and that is create your own money to run a government deficit.”
So what you have in Europe and other neoliberal countries is madness, economic shrinkage, emigration, shortening lifespans, falling family formation and marriage rates, rising disease rates and rising suicide rates. This is the neoliberal Chicago plan that’s called “free markets”.
Full interview here.