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Rentier capitalism

Written By: - Date published: 11:01 am, March 24th, 2016 - 46 comments
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Tautoko Murray Edmonds’ comment yesterday on this Michael Hudson interview

This is an absolutely brilliant discussion of what contemporary economic theory SHOULD be all about, and why it is not (the main reason being that classical economic theory of the type that Key believes in, serves the 1% at the expense of the 99%).

It also shows why Andrew Little was right on the money in attacking the banks for not passing on interest rate reductions, and why Bernie Sanders is gaining so much support in the US. It’s time for a rethink.

46 comments on “Rentier capitalism ”

  1. Phaedrus 1

    This interview between Michael Hudson and Chris Hedges is also worth watching.

    • saveNZ 1.1

      Thanks Phaedrus, great link.

      Really feel a transaction tax like Bernie Sanders advocates, greater regulation of stocks and a limit of profits brokers can make off it, tighter limits on profits from patents in particular medicine and a stamp duty on property (which is hard to evade) as well as making all corporations pay local taxes and tighten up loop holes would start to address these problems.

      Under TPPA the opposite will be happening.

    • Draco T Bastard 1.2

      In that Hudson points out how privatisation increases GDP but doesn’t increase wealth. Instead, it simply charges more for the same service.

      • saveNZ 1.2.1

        Shocker about how Goldman sacs took over the parking in the city of Chicago when the council got into debt.

        Before you knew it, the citizens of Chicago was paying Goldman Sacs to park, to have a parade down the city streets etc. The cost of doing business in Chicago was increased and so forth.

        Privitisation of parking is one of NZ’s favourite ways to make money off ordinary Kiwis.

        When it costs something like $50 to park for 3 hours in some parts of Auckland (as much as the minimum wage just to PARK per hour in some cases) we know the cost of living in Auckland is too high and privitisation is unsustainable vs wages.

        • Draco T Bastard 1.2.1.1

          Privitisation of parking is one of NZ’s favourite ways to make money off ordinary Kiwis.

          When you really look into cars there’s a lot of people making a lot of money by costing us all more. These people will tell us that public transport costs more but what they really mean is that they won’t make as much profit if people use the cheaper option.

    • Colonial Viper 1.3

      Hedges is a brilliant man. (Hudson too).

  2. johnm 2

    Yes, have just read this interview on Counterpunch. Recommend for anyone who wants to understand the FIRE sector’s parasitism on modern societies. Key made his 50mill filthy lucre pile this way and is busy stuffing NZ along the same lines. In his defence he doesn’t know any other way.

  3. Murray Simmonds 3

    Johnm:

    “In his defence he doesn’t know any other way.”

    I agree that he MAY not know any other way. However that is not a defense, its a lazy copout. It is everyone’s duty to “keep up to date with the literature” and with contemporary ideas. Especially if you are something like a PM.

    He has professional advisors to keep him up to date – that’s what they are paid for.

    So its not that he doesn’t know any other way, but more that he doesn’t WANT to know any other way. OR, if he does know the truth about why classical economic theory is such a mess, he’s doing his best to hide that truth from us.

    Of these various inferences, I think I’ll stick with the latter in the absence of any real evidence either way.

    And Phaedrus, thanks for the You-tube link. I watched it with interest, but I think Mike Hudson really presents his insights much more convincingly on paper than in a TV interview.

    “Tautuko Murray . . . . .” i’m flattered by the term ‘Tautuko”, thank you Mike Smith (though I must confess, I had to look up its meaning.)

  4. Olwyn 4

    Thank you both, Mike Smith and Murray Simmonds, for drawing attention to this excellent article. It really shows us what we are up against. What is says to me is that we desperately need an extra-parliamentary left wing movement. You can see, with the rise of people like Sanders, Corbyn and DiEM, that their grip on the message is weakening (I suspect that C & T now provides less of a winning formula than they once did), but their grip on the levers of power is still strong.

    In light of this article, and what we have seen happen elsewhere, we cannot expect parties of the left to just rock up to parliament with an acceptable set of policies and implement them. The most we can ask is that they take our side rather than theirs, that they show commitment and imagination, and that they seize advantage, on our behalf, where they can. This is about ground, as in war, and the rules since the 80’s have been that they are allowed to take ground and we are allowed to implement a few of our little policies within the ground that remains. Up until 2008 that was more or less OK, but they have since taken too much ground for a meaningful left to be able to function as such. That is why we need a left wing movement – to at least push back against them from outside of parliament.

    • Bill 4.1

      I’d like to suggest that the ground you speak of is all sand. As such, they (who-ever) can have it.

      Rather than a resurgent left seeking to push any parliamentary representatives this way or that way in the sand, I’d rather see a left begin to lay the foundations of a viable, sustainable and democratic society ‘over there’ on solid ground.

      I’m saying that from the perspective that the parties within parliament who have called themselves ‘left’ are in reality statist in nature, and as such, really don’t have, and have never had, anything to offer to the left.

      • Olwyn 4.1.1

        You might need a bit of both, unless you are convinced that the current power structures will simply disintegrate, and not switch to new, equally effective, modes of oppression.

        • Bill 4.1.1.1

          Yeah, fair call. This and that.

          It would just be nice if people were under no illusions about what can and cannot be delivered by parliamentary means. It was an old argument on the left that the left lost. Seems to me it might be coming up for debate again. What a shame and a bastard it would be, if we allowed the same wool to pulled over our eyes again.

    • AmaKiwi 4.2

      The excellent article offers some great election campaign ideas without the need to put forward specific proposals for Nact to tear apart with sarcasm and their MSM co-conspirators.

      1. The Left could campaign on the distinction between productive versus unproductive loans and investments. This would be a powerful message, especially applied to foreign investors. This was an old NZ tradition. Forty years ago NZ business immigration required a business migrant to make the case that their investment would increase exports.

      2. Our 4 children all pay mortgages. The difference is some of them own their houses and some rent. The renters are paying the LANDLORD’s mortgage. A Left government could offer a rent-to-buy scheme. You rent but if you decide to eventually purchase the property the rent you have paid is applied to the purchase price of the house.

      3. “Financial parasites” is a damning phrase which should become part of the Left’s campaign lexicon. You don’t need to name them. We know who they are!

      4. Finally, Hudson makes clear why EVERY Left politician should be damning of TPPA. Read Hudson’s interview, Goff and Shearer.

      • AmaKiwi 4.2.1

        One more Left campaign suggestion.

        Without being specific, imply that lenders should take some of the losses on bad loans. I would NOT outline a specific policy before the election or it will be torn to shreds by the bank lobby. I would hint at it.

        This is one of Key’s great strategies. He does not make specific campaign proposals unless he knows they will be widely popular, like Winston Peters’ Super Gold Card.

        Once in office we get slammed with new legislation that was only subtly hinted at in the campaign.

  5. Bill 5

    That was a very comprehensive description of current market economics and much else besides Mike. Thanks. A lot of stuff in there.

    So Michael Hudson – to summarise – argues we’re on a downward spiral that is propelled by the financial sector creating debt that we all must repay back to the financial sector. And his message to the ‘youth of America’ is that there will either be a revolution or that they will starve (because the parasite [the financial sector] will starve the host [the productive sector]).

    He never seems to get to grips with any actual solution though. If various institutions are replaced or reset (eg IMF or World Bank) and if the financial sector in reigned in through, say, governments taking full control of central banking again and the government then creating money rather than private banking institutions creating money and debt and compound interest and all the rest of it, then…we’ll just wind up back where we are today after a time.

    I think Hudson’s blind spot is the notion that business (economic activity) can only occur in the presence of a profit motive. The problem with that (aside from the misanthropy that it promotes and rewards) is that with profit comes power and with power comes influence and…winding up back where we are today.

    But what if we were to have a democratic economy? What if production and distribution were both determined via democratic procedures or mechanisms rather than simply being informed by likely profit? What if profit was removed from the equation all together? It’s a bad mechanism. It’s one that has proven itself to be hugely destructive; it creates rampant poverty, it drives climate change, it blights millions and millions of lives and has decimated communities and entire cultures.

    I don’t think a rethink is necessary. I reckon a simple bit of remembering will do the trick. Remember what socialism was all about before the concept got taken and utterly trashed by, what Lenin’s socialist contemporaries slated or dismissed as the state capitalist project of the Bolsheviks?

    I liked Hudson’s descriptions and analysis. It made sense. Shame he can’t seem to see past profit to the solution that lies in substantive economic and political democracy.

  6. Murray Simmonds 6

    Bill:

    I think you are being a bit hard on the man. Michael Hudson is an academic economist. That means he’s paid to teach and to write and to think about things economic, and he does so extremely well in my opinion.

    He doesn’t claim to have all the answers and to expect him to have them is unrealistic. Besides, he’s still relatively young, so he has time on his side, hopefully.

    Whatever eventually falls out of the economic mess that currently faces the world, it is unlikely IMO to be a re-vamp of the present system with its present institutions replaced by new, and hopefully less-corrupt versions of what we have already – at least I hope not. Because If so, then the corrupt old-world order will simply have won once again.

    There’s a section in the article about how he has tried to change the direction of Russian and Chinese economics, which he laments has not been successful to date.

    But at least he clearly sees the problem for what it it, and articulates his insights in a way that all of us can understand.

    For me, that represents BIG progress, even if some here will accuse me of being naive.

    The first rule of battle: “Know the enemy”.

    • Bill 6.1

      Didn’t mean to be hard on him. Like I wrote, I found the whole descriptive analysis comprehensive and informative. But on solutions he comes up short, I mean, he calls (quite rightly imo) for revolution but fails to name the principle feature of our economy that has brought us to where we are today; namely, the profit motive.

      To my way of thinking, unless that motive is removed from our economy, we’ll wind up right on back where we are. To remove it would require that the economy and everything else associated with society is subjected to meaningful (ie – substantive) systems of democratic governance. (Command economies are not something anyone would ever want to see again – surely)

      • s y d 6.1.1

        I’m not sure that ‘profit motive’ is quite the right term – not trying to be pedantic – but I think there is an element of human nature to want some kind of a return or reward for effort, be it a smile, a thank you, food, shelter, applause, wages or whatever….Perhaps the principle feature of our current system that causes all the problems isn’t so much a ‘profit motive’ but that there are rewards that aren’t actually earned, but are rather taken from others (people, nature, the commons or whatever)…..or perhaps that there are costs associated with certain things that are never reconciled against the rewards.

        • Bill 6.1.1.1

          When I talk of the profit motive, I’m talking in monetary terms. Everyone knows that profit, above a certain level, translates into both economic and political power and influence.

          In an every day context, it more or less dictates that one should seek to buy at the lowest rate and sell at the highest – ie, that everyone should angle to rip everyone off.

          And if you don’t rip people off, then you ain’t going to be making a profit and so, in the normal economic scheme of things, you’re dead burger.

  7. Ad 7

    A different kind of capitalism, almost as beholden to banks as real estate, is represented by Fonterra. Waikato’s Professor Rowarth does a good job below:

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11611251

    Her particular point that the New Zealand dairy comparative advantage of high animal welfare, grass-fed cows, high environmental standards, and high national branding image, is simply not supported by Fonterra into competitive advantage. That bulk powder is simply never going to work here, and doesn’t support what we do well.

    Fran O’Sullivan also points the bleeding obvious that Fonterra have spectacularly misjudged the global milk forecast and in doing so done massive damage to our economy.

    My advice to Andrew Little: dump yesterday’s 10-big-ideas list and put this out there: Labour will do to Fonterra what it did to Telecom:

    – smash its near-monopoly
    – restructure its legislation including requiring a value-added focus, and make it attend all the Select Committee hearings
    – threaten government statutory management unless its return to the economy improves massively
    – make its domestic price subject to the Commerce Commission
    …. and generally hold it by the short and curlies until it really apologizes to New Zealand, accepts that it will have this degree of direct oversight for stuffing up so often, and shows us all that it has improved.

  8. johnm 8

    I really truly despair over the dumbed down brain dead kiwi society. Here is a revolutionary insight into the predatory crimanility of the current set up and it just gets a yawn! Just blow your brains out and join the rest of the smirking idiots.

    Michael Hudson: The financial sector today is decoupled from industrialization. Its main interface with industry is to provide credit to corporate raiders. Their objective isasset stripping, They use earnings to repay financial backers (usually junk-bond holders), not to increase production. The effect is to suck income from the company and from the economy to pay financial elites.

    These elites play the role today that landlords played under feudalism. They levy interest and financial fees that are like a tax, to support what the classical economists called “unproductive activity.” That is what I mean by “parasitic.”

    The financial sector does something similar by pretending to be part of the industrial production-and-consumption economy. The National Income and Product Accounts treat the interest, profits and other revenue that Wall Street extracts – along with that of the rentier sectors it backs (real estate landlordship, natural resource extraction and monopolies) – as if these activities add to Gross Domestic Product. The reality is that they are a subtrahend, a transfer payment from the “real” economy to the Finance, Insurance and Real Estate Sector. I therefore focus on this FIRE sector as the main form of economic overhead that financialized economies have to carry.

    What this means in the most general economic terms is that finance and property ownership claims are not “factors of production.” They are external to the production process. But they extract income from the “real” economy.

    MH: The financial overhead has grown so large that paying interest, amortization and fees shrinks the economy. So we are in for years of debt deflation. That means that people have to pay so much debt service for mortgages, credit cards, student loans, bank loans and other obligations
    2KillingTheHost_Cover_rulethat they have less to spend on goods and services. So markets shrink. New investment and employment fall off, and the economy is falls into a downward spiral.

    My book therefore devotes a chapter to describing how debt deflation works. The result is a slow crash. The economy just gets poorer and poorer. More debtors default, and their property is transferred to creditors. This happens not only with homeowners who fall into arrears, but also corporations and even governments. Ireland and Greece are examples of the kind of future in store for us.

    Financialized economies tend to polarize between creditors and debtors. This is the dynamic that Thomas Piketty leaves out of his book, but his statistics show that all growth in income and nearly all growth in wealth or net worth has accrued to the One Percent, almost nothing for the 99 Percent.

    Basically, you can think of the economy as the One Percent getting the 99 Percent increasingly into debt, and siphoning off as interest payments and other financial charges whatever labor or business earns. The more a family earns, for instance, the more it can borrow to buy a nicer home in a better neighborhood – on mortgage. The rising price of housing ends up being paid to the bank – and over the course of a 30-year mortgage, the banker receives more in interest than the seller gets.

    Economic polarization is also occurring between creditor and debtor nations. This issplitting the eurozone between Germany, France and the Netherlands in the creditor camp, against Greece, Spain, Portugal, Ireland and Italy (the PIIGS) falling deeper into debt, unemployment and austerity – followed by emigration and capital flight.

    This domestic and international polarization will continue until there is a political fight to resist the creditors. Debtors will seek to cancel their debts. Creditors will try to collect, and the more they succeed, the more they will impoverish the economy.

    http://www.counterpunch.org/2016/03/23/junk-economics-and-the-parasites-of-global-finance/

    • Ad 8.1

      There is no motivation in our society to admit of the truth of rentier capitalism.

      It props up most of our economy, and dictates how the majority of New Zealanders will have a successful retirement.

      The closest here you will get to analysis with much bite is the Reserve Bank – particularly its ‘stress test’ from last week. The Reserve Bank are our default economic leadership.

      • Draco T Bastard 8.1.1

        There is no motivation in our society to admit of the truth of rentier capitalism.

        It props up most of our economy, and dictates how the majority of New Zealanders will have a successful retirement.

        A perfect description of Kiwisaver.

        Which, of course, proves that Labour aren’t any good at economics either.

    • Draco T Bastard 8.2

      Basically, you can think of the economy as the One Percent getting the 99 Percent increasingly into debt, and siphoning off as interest payments and other financial charges whatever labor or business earns.

      QFT

      The financial system is nothing less than a vampire sucking the life out of the rest of us.

      • NZJester 8.2.1

        The financial system is nothing less than a vampire sucking the life out of the rest of us.

        I like that Vampire label rather than leach name others use for them as it does suit them better. Vampires do have that way of hypnotizing you so you do not notice them draining all the blood from your body if you are feeble minded. You tend to notice leaches and burn them off.

        • Murray Simmonds 8.2.1.1

          Michael Hudson uses the analogy of a parasite – which I think is more apt than either a vampire or a leech. (OK – a leech is an external parasite – Hudson is talking about internal parasites, like a tapeworm. He cleverly ties it up with the notion that “there’s no such thing as a free lunch”). Quote:

          “To return to my use of the word parasite, any exploitation or “free lunch” implies a host. . . .

          At least in nature “smart” parasites may perform helpful functions, such as helping their host find food. But as the host weakens, the parasite lays eggs, which hatch and devour the host, killing it. That is what predatory finance is doing to today’s economies. It’s stripping assets, not permitting growth or even letting the economy replenish itself.

          The most important aspect of parasitism that I emphasize is the need of parasites to control the host’s brain. In nature, a parasite first dulls the host’s awareness that it is being attacked. Then, the free luncher produces enzymes that control the host’s brain and make it think that it should protect the parasite – that the outsider is part of its own body, even like a baby to be specially protected.

          The financial sector does something similar by pretending to be part of the industrial production-and-consumption economy. “

    • pat 8.3

      bloody good link…..we (NZ) could point out the emperor has no clothes but I know (fear) if we developed a truly classical economic system here, and removed the rentiers we would be shut out from all international trade (and despite what some on here say we must trade at some level)….and war of one sort or another would be waged upon us by the one percent and all they control.

      It also places a new light on the likes of AI , robotics and climate change….for the one percent.

  9. Wainwright 9

    I don’t know, Labour’s Twitter account seems to think we still have to have a debate about the bleeding obvious

    • Colonial Viper 9.1

      Labour have been integral to the dumbing down of the NZ public.

      • Bill 9.1.1

        Yeah, NZ media is pretty shocking. And so people kind of stop listening. In terms of politics, that means disengagement from ‘accepted’ parliamentary processes (the ‘missing million’) and an air of cynicism and resignation from many others besides.

        Does that mean that the public are ‘dumbed down’? Not necessarily. It just means that when stuff that parliamentarians think to be important is put out there, no-one cares.

        True, that political parties have joined the ‘race to the bottom’ in terms of messaging. Examples from both sides of the house abound.

        Imagine though, what happens when a worth while message comes from ‘left field’. The media no longer controls any narrative that anyone actually cares about. All they have done is discredit themselves. The same could be said for all and any institution or party that has joined the dizzy media inspired downward spiral.

        So the message that resonates will not be contained or shut down. Look (again) at Corbyn, Sturgeon, Sanders…the media have been ropeable, but the people who didn’t really give a shit about what the media were reporting, continued to not give a shit about what the media were reporting.

        This ‘dumbing down’ is only on the institutional side of the fence and as such, the the gates have been thrown wide open. A direction articulated, and we’re gone.

    • The lost sheep 9.2

      Labour tweet – ‘The real issue is whether capitalism benefits society as a whole or a small group at the top.’

      The original Robert Reich quote – “The real issue isn’t capitalism versus some other ‘ism.’ The real issue is whether capitalism is organized for the benefit of the society as a whole or for the benefit of a small group at the top. That’s really what we ought to be debating.”

      So is it bleedingly obvious what the Labour tweet means?
      Are they saying the issue is capitalism itself, or the way we organise it?

      • Wainwright 9.2.1

        Capitalism in of itself will always benefit the small group at the top. That’s the point. Might as well ask if we should ‘organize’ the sun to rise in the west.

  10. greywarshark 11

    Who is Tautoko Murray Edmonds? And where can Edmonds’ previous comment about Michael Hudson be found? Has he got his own blog? Can we have a link?

    • Murray Simmonds 11.1

      greyrawshark

      Errr . . . I think that might’ve been me. I made a comment and provided the link to Michael Hudson’s interview in an earlier posting on “The Standard” this week. That comment is identical to the comment and link posted by Mike Smith above and attributed to Tautoko Murray Edmonds.

      Where the “Tautuko” and the “Edmonds” bits came from I’ve no idea; you’d have to ask Mike Smith that.

      The only thing that matters to me is the message (i.e. Michael Hudson’s excellent interview) – and whether or not other people read it – I don’t really care whether my comment is correctly attributed or not.

      I’ll see if I can find my original comment . . . . .

  11. Murray Simmonds 12

    greyrawshark

    yeah, here it is . . . Comment #6 on the article “The media treatment of Labour’s UBI discussion paper”. Posted by MickySavage on March 24.

    (just for the sake of “closure”.)

  12. Murray Simmonds 14

    Thanks for the links, greyrwarshark and pat.

    I’m trying to gather together and publicise as much literature as I can that essentially debunks classical economic theory. Those two links help with that.

    Essentially, the planet needs to formulate and develop a totally new economic approach in my opinion. Hopefully that new approach might allow us to rise from the ashes of the next GFC with an ALTERNATIVE approach to current global economic policy – an approach that throws out the old classical economic theory that has failed all but the one-percenters, and which stands some hope of creating an economic system that works for all, and not just the 1%.

    Otherwise, post GFC2, we’ll simply be back where we started all over again, with classical economic theory, which should have been debunked years ago, still serving as the handmaiden of the 1%.

    The interview with Michael Hudson was the most incisive and most complete summary of whats wrong with the present system that i’ve read so far.

    p.s. greywarshark – my apologies for mis-spelling your name in a couple of earier comments.

  13. greywarshark 15

    @Murray Simmonds
    No worries. Your mispelling didn’t amount to someone else’s name as with Mike Smith’s error.
    You are doing a great job with the others in the Band of Musketeers who mount heavy assaults on this dreadful economic dictatorship globally. Can you pop over to Bowalley Road regularly as I always read there now, and then I won’t miss your comments?

  14. Smilin 16

    Heres a bit of basic logic. Fonterra has known ever since it hit the top trader spot in the international milk market that the day would come when its competitors would catch up and reduce their market share
    It has billions tied up in corporations in the world, money that we dont get to use in this country because when they floated shares they also bought in international rules of commerce run by the money market controllers so that the co op became secondary in financial terms in other words a sophisticated ponzi ripoff of NZ
    Try and prove it or get the money owed back here and you have a can of worms stretching from China to South America and to London
    This the fucken stupidity of being forced to give up your best card
    Fonterra has billions that doesnt even see the NZ economy just like all the other corporation extracting billions from our economy ,tobacco companies, property developers, the american fast foods and other kiwi firms who have survived by the govt allowing so called investment in from overseas corporations basically propping up the poverty created by the military industrial complex the unregistered global corporation of the five eyes or a bunch of fives in your eyes if you dare to question their validity
    The corruption doesnt need a degree from university to work out. What have we for a govt is another bunch of folders to a system selling the carrots of affluence in place of what is the real wealth of this country the fact that for years we had a very conservative society born out of the cost of isolation so it learnt to save and preserve its assets and environment until the sellout crap began here when the gold standard became the oil standard and all the political puppets we have had running our country since, none of them are excused .Slaves to US foreign policy and the European monarchists and the rest of them who now control this country

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