Michael Hudson on Real Estate & Speculation

Authored by Serban V.C. Enache via Hereticus Economicus:

Historian and economist Michael Hudson in a seminar from two years ago on real estate & financial speculation. Well worth the listen. Can’t recommend it enough.

Some Key Takeaways

Land is the most important thing in economics, the largest resource, and that’s why it’s the least talked about in the economics profession, hostage and or ally to the vested interests.

Thorstein Veblen observed that finance capital is real estate. The object of real estate developers is to tax the population via rent and interest, to inflate the price of property and then find “a sucker to buy.”

In the US, 80 percent of loans are mortgage loans. And 80 percent of capital gains are comprised of land.

The purpose of a city is to ensure that people can live, work, and do business there. But finance capitalism [as opposed to the industrial capitalism envisioned by the classical economists] is all about turning the city into an investment good – which means eroding the aforementioned activities [living, working, and (wealth creative) business].

Hong Kong’s budget [which includes all the expenses of running the public infrastructure] is based on taxing the rental value of property. The tax scheme it employs is not the Georgist single tax system. Even though the HK Government taxes the rental value of property, it’s still facing rising property prices. That’s because HK doesn’t capture anywhere near the full value of land.

Australian Governments have been content to neglect the manufacturing sector and encourage private debt growth and asset price inflation, relying instead on the resource exports sector – with China being their biggest customer.

The Chicago Boys, the first thing they did in Chile after bringing down Allende, in addition to assassinating every land reformer and labor union leader, closed every economics school in the country. They realized that you can’t have a [pseudo] free market without having a totalitarian state [complete control over the curriculum]. The Chicago School controls all of the major referee economic journals in North America – hence the lack of criticism of unearned income [like interest, rent, and patents].

Breaking with the tradition of Classical Economics, the modern ‘free market totalitarians’ insist that there is no economic rent, that there is no free lunch.

Big lenders to developing countries [Hudson cites Argentina as an example] try to assess the growth in the balance of payments of the debtor nation in question, in order to pocket all that growth for themselves.

The FIRE sector [finance, insurance, and real estate] effectively imposes a private land value tax on the country. Would-be debtors outbid themselves, who will pledge more of the rental value to the bank.

Foreign oligarchs wish to place their money outside, in case their Governments will try and confiscate their illicit wealth. Instead of putting their money in the stock and bond markets, they prefer to put it into real estate. This leads to asset price inflation, making it harder for households, workers, and SMEs to live, earn, and operate.

To the ‘rich people create jobs’ myth, Hudson argues that many in fact are job destroyers. He gives the example of a corporate raider, who borrows money at 1 or 2 percent from a bank, with which he acquires a company whose stock yields 6 or 7 percent, he doesn’t want to hire more people; he wants to lay off workers, to cut corners, to use the pension fund to pay the bank, and to threaten workers with company default if they don’t give up their current pension plans and other benefits.

The way to make money fastest is in an economy that’s being looted. Adam Smith said the rate of interest [referring to the interest payments the population had to make to the creditors] is often highest in countries going fastest to ruin.

Hudson says that the one identity that’s left out in Identity Politics is the identity of the person who has to work for a living.

The dream of finance capitalism / rentier markets is neofeudalism: that all income above subsistence be pledged to the rent-seekers, to the usurers, to the monopolists, to the plutocracy.

The practice of a Government borrowing in foreign currency [swiss franks and euros for instance] to finance domestic projects, which will require domestic currency to be printed anyway is ‘fake economics.’ Instead of being stuck with paying principal plus interest in a foreign currency [to fatten bankers], it’s much better for the Government to simply print its own interest-free currency.

High population levels don’t inflate property prices. Hudson gives India and China as examples and contrasts them with Western countries. It’s how much the banks are able to squeeze from the population that determines property prices, not the population level itself.

John Stuart Mill said that economic rent is what landlords make in their sleep.

There’s agreement among all the mainstream parties that the top 10 percent wealthiest in society should benefit at the expense of the bottom 90 percent.

Why do politicians allow financiers to dictate to them economic policy? Bribery, campaign contributions, blackmail, and crime.

For old people and retirees, who can’t afford to pay land value tax, the Government can freeze the money obligation on them for a given time period. However, the back tax [the arrears] will be collected from the sale of the property when the owner dies or moves out. Nobody has to be kicked out in the streets.

My enumeration ceases here. But there are many other important points Hudson makes. I encourage readers to make time and watch the whole seminar. To me, the notion of seizing the Natural Commons for the people is not only economically sound, but morally just, whether one’s of a particular faith or no faith. Treating land as capital, as a commodity, an instrument for speculation – to me – is not only economically unsound and false, but a sin against Man and an affront to God. In spite of my atheist brain, that is how my heart perceives it.