How Finance Capitalism Ruined the World - Dr. Michael Hudson & Dr. Steve Keen, DSPod 203
Nov 13, 2023
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Dr. Michael Hudson and Dr. Steve Keen discuss the transition from industrial capitalism to finance capitalism, the concentration of wealth, the impact of debt on the economy, and the commercialization of universities. They challenge the false dichotomy of capitalism v. socialism and emphasize the need to prioritize industrial capitalism over finance capitalism. The podcast explores the influence of finance on politics, the rising private debt in America, and the negative effects of debt on industrial development and happiness. The guests also discuss the concept of a post-collapse narrative, the myth surrounding socialism and capitalism, and the commercialization of universities. Additionally, they explore the potential for reconstructing the state after the collapse of financial capitalism and discuss ideas for building a post-money world. The podcast concludes with a discussion on religious influence on sustainable economies and the frustrations in fighting neoclassical economists.
The transition from industrial capitalism to finance capitalism has prioritized debt and financial gains over profits and productivity, leading to the deindustrialization of economies and the concentration of wealth in the hands of the few.
The denial of economic rent in the current state of finance capitalism has allowed the financial sector, along with monopolies and rent-seeking behaviors, to gain significant control in economic and political policymaking, perpetuating inequality and reducing wages.
The significant growth of debt in finance capitalism, particularly private debt exceeding GDP, stifles economic growth, investment, and technological development, creating a debt-deflation spiral that undermines the viability of an economy.
Finance capitalism exerts dominance and control over nations and resources by manipulating governments and economies, extending its power beyond national borders and perpetuating poverty and inequality through predatory lending practices.
The commercialization of universities, driven by profit-driven motives and administrational bureaucracy, has degraded the quality of education and hindered innovation, calling for a structural change towards publicly funded universities that prioritize education and reduce administrative costs.
Deep dives
The Deterioration of Industrial Capitalism into Finance Capitalism
Capitalism has evolved from industrial capitalism, which aimed to minimize economic rent and reduce the power of landlords and monopolies, to finance capitalism, which maximizes economic rent and benefits the financial sector. Unlike industrial capitalism, which focused on profits and productivity, finance capitalism prioritizes debt and financial gains. This shift has led to the deindustrialization of economies, the concentration of wealth in the hands of the few, and the growth of debt, causing economic shrinkage. The financial sector profits by servicing debt, reinvesting in more debt, and siphoning off revenue from industry and wage earners. This transformation has undermined the original objectives of capitalism and created a distorted version that perpetuates inequality and polarization.
The Denial of Economic Rent and the Rise of Finance Capitalism
In the current state of finance capitalism, the denial of the concept of economic rent is prominent. The classical economic theory distinguished between earned and unearned income, seeking to rid capitalism of rent-seeking, monopoly power, and predatory finance. However, the counter-revolution towards neoclassical economics eroded this distinction, leading to the dominance of finance capitalism and neglect of economic rent. The financial sector, along with monopolies and rent-seeking behaviors, has gained significant control in economic and political policymaking, resulting in a distorted economy that maximizes rent extraction, reduces wages, and increases debt. Industrial capitalism's objective of reducing economic rent has been replaced by finance capitalism's pursuit of maximum financial gains.
The Growth of Debt and its Stifling Effect
A key characteristic of finance capitalism is the significant growth of debt. Private debt, in particular, has skyrocketed and now exceeds GDP in many economies. This accumulation of debt, far beyond sustainable levels, leads to a mounting burden on individuals, businesses, and countries. The financial sector profits by continually re-lending and increasing the debt load. However, this excessive debt stifles economic growth, investment, and technological development. More and more money goes towards interest payments and amortization, leaving less for spending on goods and services. The overreliance on debt creates a debt-deflation spiral, as witnessed in the Great Depression and the 2008 financial crisis. Ultimately, the unrestrained growth of debt undermines the viability and sustainability of an economy.
The Role of Finance Capitalism in Global Domination and Exploitation
Finance capitalism plays a crucial role in the global economy, exerting dominance and control over nations and resources. By controlling the oil industry and other lucrative sectors, finance capitalism ensures its supremacy and has the ability to manipulate governments and economies. The financial sector thrives on extorting developing countries through predatory lending practices. These loans often have extortionist terms, leading to poverty and wealth extraction. The power of finance capitalism extends beyond national borders and influences economic and political decisions worldwide. The control over resources and financial flows grants a stranglehold on nations and perpetuates poverty and inequality, reinforcing the dependency of countries on the financial elite.
Financialization of Universities: Profits over Education
Universities have turned into profit centers, prioritizing financial gains over education. The focus has shifted to marketing and administration, with the rise of bureaucrats and the decline of academic staff. Private universities have been particularly affected by this financialization, with universities becoming real estate companies seeking profit and tax exemptions. Furthermore, the skyrocketing costs of education and the burden of student debt have created a divide between the debtor class and the inheritance class. The privatization of educational institutions and the lack of public funding have led to a race to the bottom, with administrators pushing for reduced costs, often at the expense of professors and quality education. The vision of education as a public utility and a means to produce an informed and competent society has been overshadowed by profit-driven motives.
The Illusion of Education: Abolishing Student Debt
The issue of student debt cancellation poses several dilemmas. While relieving individuals from debt can provide immediate financial relief, it may inadvertently uphold the flawed structure of universities that perpetuate rising costs and financial exploitation. The increasing number of administrators, the focus on marketing, and the lack of oversight in terms of student intake allow universities to profit from student loans without addressing the underlying issues of cost and quality of education. To truly address these problems, a structural change is necessary, moving away from the privatization of education and towards publicly funded universities that prioritize education and reduce administrative and marketing costs.
The Degradation of Universities: A Loss of Wisdom and Knowledge
The commercialization of universities has resulted in a profound degradation of the educational system. There has been a shift from a focus on contemplative learning and the pursuit of knowledge to a profit-driven model centered on competition and market share. The emphasis on marketing and increasing student numbers has led to a decline in the quality of education and a rise in administrative bureaucracy. Furthermore, the exploitation of adjunct professors and the lack of job security in academia have created a detrimental environment for intellectual growth. The disregard for history, economic thought, and true scientific inquiry has left universities devoid of wisdom, hindering innovation and the overall development of society.
Education as a Revolutionary Tool: Restructuring for a Better Future
To address the systemic issues facing education, a revolutionary approach is needed. This involves abolishing student debt, restructuring universities, and prioritizing education as a public utility. Public funding should be provided to reduce costs and eliminate the need for student loans, allowing universities to focus on providing quality education rather than profit. By reducing administrative bloat, investing in teaching staff, and emphasizing the pursuit of knowledge, universities can regain their role as pillars of wisdom and enlightenment. It is only through a fundamental restructuring that education can serve as a catalyst for positive change and societal advancement.
The polarizing effects of free trade and the need for a new economic system
The podcast episode discusses how free trade policies can lead to polarization in the economy, contrary to the belief that trade theory equalizes proportions between capital and labor. The speaker argues that a protectionist policy, as adopted by the Americans between the Civil War and World War I, resulted in their economic success. The current economic model suppresses evolutionary thinking and fails to consider complex systems and chaos theory. The Chinese type of mixed economies, prevalent in Eurasia, is predicted to thrive, while the United States and Europe may regress into neofeudalism. The shift towards multi-polarity, seen in initiatives like the Shanghai Cooperation Organization and de-dollarization, aims to establish alternative international systems. The global south and Eurasia are expected to unify around industrial capitalism, while the West experiences a counter-revolution.
The impending climate catastrophe and implications for society
The podcast delves into the catastrophic consequences of climate change and the ignorance surrounding it. The speaker emphasizes the urgency of the situation, highlighting the significant increase in abnormal weather patterns and rising temperatures. Economists' dismissal of the impact of global warming on the economy is criticized, with the speaker citing economists' survey predictions of a 7-degree warming by 2220, which would decrease global GDP by 20%. This contrasted with the fact that a 5.2-degree temperature increase triggered the previous six major mass extinctions. While some countries may cope better with climate change, the speaker anticipates a period of massive chaos and potential geoengineering attempts. The conversation ends on a pessimistic note, expressing concern over the loss of knowledge and a potential regression to an anti-technology society.
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Dr. Michael Hudson is an American economist, Professor of Economics at the University of Missouri–Kansas City and a researcher at the Levy Economics Institute at Bard College, former Wall Street analyst, political consultant, commentator and journalist. Dr. Steve Keen is an Australian economist and author. A post-Keynesian, he criticizes neoclassical economics as inconsistent, unscientific and empirically unsupported. Our conversation examines the false dichotomy of capitalism v. socialism and considers the true dichotomy, which is industrial capitalism v. finance capitalism. Hudson and Keen argue that the transition to finance capitalism, where unearned income is considered economic growth, has truly sown the seeds to ruin the world.
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(00:00:00)
Go!
(00:00:19)
What we're really talking about is finance capitalism
(00:03:25)
What is Capitalism?
(00:17:55)
Was the end of the Happy Days inevitable?
(00:28:50)
A more nuanced dichotomy than capitalism vs socialism
(00:36:02)
Why does GDP still manage to slow down?
(00:46:32)
Why is debt so stifling?
(00:55:29)
What happens to the money that accumulates at the top
(01:01:39)
The shape of global financial pressure
(01:11:02)
Modern examples of debt jubilees
(01:19:12)
Solutions without collapse?
(01:23:13)
Persistent economic myths
(01:45:38)
Strange realities of cancelling student debt
(02:03:40)
Financializing the basic structures of society
(02:15:07)
How to structure the next iteration
(02:27:48)
Doomer optimism
(02:33:47)
A new, more effective state
(02:39:25)
Closing thoughts
#FinanceCapitalism, #EconomicInequality, #WealthGap, #CorporateGreed, #FinancialSystem, #CapitalismCritique, #IncomeInequality, #GlobalFinance, #FinancialCrises, #EconomicInjustice, #WealthDistribution, #CapitalismFlaws, #FinancialDeregulation, #EconomicCollapse, #SocialJustice, #CorporatePower, #FinancialManipulation, #MarketFailures, #FinancialInsecurity, #SystemicInequality
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