Michael Hudson explains the difference between Western neoliberal economics based on prices and debt, and historical economics based on actual production of goods and services.
Economics is not really a science as it’s taught. It’s a lobbying effort by the finance, insurance, and the real estate sector: the FIRE sector. It’s a lobbying effort by the parts of the economy that don’t produce goods and services, that only collect income without playing any productive role at all. Empty prices – that is price without any underlying value. And that is being promoted as economic growth.
And basically, it’s as if economics is like a criminal case in court where you have two opposing attorneys.The 19th century attorneys were prosecutors for the landlord class. They said, “Why should we have to pay the heirs of the warlords who conquered England and France to collect ground rents without producing anything? What possible function do they play? Why should we have to pay banks money for creating interest for creating credit that actually the governments can simply create their own money, or at least create credit for a productive purpose? And why do we permit monopolies, most of which were created by the government to sell off to creditors because it couldn’t afford to pay them their debt, why do we have to do anything of that? We don’t need it. Let’s get rid of the rentier sector.”The rentier sector being landlords, and bankers and monopolists.
Well, by the end of the 19th century, the rentiers fought back. And they developed what a defense attorney would do in a trial. They said, “There’s a whole different reality. There is no such thing as unearned income. There is no such thing as economic rent. Everybody deserves what they have. The landlord produces a valuable service in renting out the land and the housing and deciding who to rent to. And the bankers make a wonderful service when they charge interest. And especially when they charge a penalty fee because that helps make people pay their debts on time and that’s essential for productivity. So of course, we charge penalty fees as part of the gross domestic product. And monopolies are also part of the GDP, because after all, the monopolist is simply creating an orderly market.”
So, the problem is that instead of economic students getting both sides of the prosecution and the defense of the rentier economy, they’re only getting one side of the picture. They’re getting the defense of the rentiers, not the classical economics. And that’s why in graduate economic courses they no longer teach the history of economic thought. They no longer teach economic history. Because if you had the history of economic thought, you’d know that contrary to what Margaret Thatcher said, there is an alternative, that things don’t have to be this way.
There is a reason why China is growing so rapidly, and the American economy is being squeezed tighter and tighter. And that’s because its basically using its revenue to create new means of production and create a broader environment.
It’s true that it provides education freely, instead of charging $50,000 a year, which is what people have to pay in New York. But if you would say what if we credit China with every person with a degree of having paid $50,000 a year, obviously, that would be much bigger.
It’s true that the Chinese people do not have to pay $4,500 a month rent, which is the average rent here in New York City. Does that really make them poor? Or does paying the $4,500 a month rent that increases America’s GDP, actually turn out to be an economic burden?
This is why the Great Bifurcation between The Empire That Never Ended and the growing BRICS movement was both inevitable and unavoidable. The masters of the shell game can only keep winning as long as the suckers keep playing. But Russia has been kicked out of the game, China refuses to play the game except on its own terms, and their resultant success is encouraging dozens of other nations to stop playing the game.
Call it what you will, but Samuelsonian or Neo-Keynesian economics have always been nonsensical; so too is Friedmanite monetarism, because it is impossible to meaningfully quantify anything in a metric that is so readily expanded at will. One can only base social policies on “economic growth” so long before the reliance upon a myth results in insane and deleterious consequences.