#michael hudson

[milfstalin]

Malthusianism/Ecofascism and the International Monetary Fund/World Bank

[excerpted from my copy of Michael Hudson's Super-Imperialism, 2nd edition, section II chapter 7]

[michael hudson then describes the Partners in Development (1969) program and its ill-suitedness to the actual task at hand & the necessity to reform the agricultural production to support high-value-added production, which the program ignores]

[mostlysignssomeportents]

Bankruptcy is very, very good

On THURSDAY (June 20) I'm live onstage in LOS ANGELES for a recording of the GO FACT YOURSELF podcast. On FRIDAY (June 21) I'm doing an ONLINE READING for the LOCUS AWARDS at 16hPT. On SATURDAY (June 22) I'll be in OAKLAND, CA for a panel and a keynote at the LOCUS AWARDS.

There's a truly comforting sociopathy snuggled inside capitalism ideology: if markets are systems for identifying and rewarding virtue, ability and value, then anyone who's failing in the system is actually unworthy, not unlucky; and that means the winners are not just lucky (and certainly not merely selfish), but actually the best and they owe nothing to their social inferiors apart from what their own charitable impulses dictate.

It's an economic wrapper around the old theological doctrine of providence, whereby God shows you whom he favors by giving them wealth and station, and marks out the wicked by miring them in poverty. And like the religious belief in providence, the capitalist belief in meritocracy is essential to resolving cognitive dissonance: it lets the fed winners feel morally justified in stepping over the starving losers.

The debate over merit and luck has been with us for millennia, and even the hereditary absolute monarchs of the Bronze Age had to find a way to resolve it. For the rulers of antiquity, the way to square that circle was jubilee.

Bronze Age jubilees were periodic celebrations in which all debts were canceled. Different kingdoms had different schedules for jubilees, but imagine some mix of "every x years" and "every time a new ruler takes the throne" and "every time something really portentous happens." To modern sensibilities, the idea that we would simply wipe away all debts every now and again is almost inconceivable. Why would any society practice jubilee? More importantly, how could a ruler get the wealthy creditor class to countenance a jubilee, rather than seeking a revolutionary overthrow?

The best answers to this question can be found in the scholarship of historian Michael Hudson, who has written extensively on the subject. Hudson doesn't just write for a scholarly audience, he's also a fantastic communicator with a real commitment to bringing his research to lay audiences:

https://michael-hudson.com/

Hudson's most famous saying is "debts that can't be paid, won't be paid." It's in this dense little nugget that we can find the answer the the riddle of jubilee:

https://pluralistic.net/2021/09/29/jubilance/#debt

Let's start with a simple model of debt and credit in an agricultural society. In agricultural societies, everything exists downstream of farming, which is the core activity of the civilization. If the farmers succeed, everyone can eat, and that means they can do all the other things, all the not-farming work of your society.

To farm successfully, you need credit. Farmers enter the growing season in need of inputs: seed, fertilizer, labor; they need still more labor during the harvest. Without some way to acquire these inputs before the farmer has a crop that can pay for them, there can be no crop.

No wonder, then, that the earliest "money" we have a record of is ancient Babylonian credit ledgers that record the debts of farmers who borrow against the next crop to pay for the materials and labor they'll need to grow it. Debt, not barter, is the true origin of money. The fairy tale that coin money arose spontaneously to help bartering marketgoers facilitate trade has no historical evidence, while Babylonian ledgers can be seen in person in museums all over the world.

Farming requires an enormous amount of skill, but even the most skillful farmer is a prisoner of luck. No matter how good you are at farming, no matter how hard you work, no matter how carefully you plan, you can still lose a harvest to blight, drought, storms or vermin.

So over time, every farmer loses a crop. When that happens, the farmer can't pay off their debts and must roll them over and pay them off with future harvests. That means that over time, the share of each harvest the farmer has claim to goes down. Thanks to compounding interest, no bumper crop can erase the debts of the bad harvests.

That means that, over time, "farmer" becomes a synonym for "debtor." Farmers' productive output is increasingly claimed by the rich and powerful. No matter how badly everyone needs food, the whims of the hereditary creditor class come to dictate the country's agricultural priorities. More ornamental flowers for the tables of the wealthy, fewer staple crops for the masses. "Creditor" and "debtor" no longer describe economic relations – they become hereditary castes.

That's where jubilee comes in. Without some way to interrupt this cycle of spiraling debt, society becomes so destabilized that the system collapses:

https://pluralistic.net/2022/07/08/jubilant/#construire-des-passerelles

In other words: debts that can't be paid, won't be paid. Either you wipe away the farmers' debts to the creditor class, or your society collapses, and with it, the political relations that made those debts payable.

Jubilee is long gone, but that doesn't mean that debts that can't be paid will get paid. Modern society has filled the jubilee gap with bankruptcy, a legal process for shriving a debtor of their debts.

Bankruptcy takes many forms. The most important split in bankruptcy types is between elite bankruptcy and the bankruptcy of the common person. The limited liability company was created to allow people with money to pool their funds to back corporations without being responsible for their debts. This "capital formation" is considered "efficient" by economists because it creates the backing for big, ambitious projects, from colonizing and extracting the wealth of distant lands (Hudson's Bay Company) to spinning up global manufacturing supply chains (Apple).

Limited liability means that companies can take on debt without exposing their investors to risks beyond their capital stake. If you buy $1,000 worth of Apple stock, that's all you stand to lose if Apple makes bad decisions. Apple may rack up billions in liabilities – say, by abusing its subcontractor workforce – but Apple's owners aren't on the hook for it.

Economists like this because it means that you can invest in Apple without having to be privy to its daily management decisions, which means that Apple can accumulate huge pools of capital, "lever them up" by borrowing even more, and then put all that money to work on R&D, product development, marketing, and, of course, "incentives" for key employees and managers.

But limited liability also does a lot of work in the political sphere. Once an individual crosses a certain wealth threshold, they become an LLC. Accountants and wealth managers and financial planners insist on this. For freelancers and other sole practitioners, the benefits of forming an LLC are modest – a few more tax write-offs and the ability to get a business credit-card with slightly superior perks.

But for the truly wealthy, transforming yourself into the "natural person" at the center of a vast pool of LLCs is essential because it allows you to accumulate and shed debts. You can secretly own rental properties and abuse your tenants, accumulate vast liabilities as local authorities pile fine upon fine, and then simply dispose of the LLC and its debts. Plan this gambit carefully enough and the debtor LLC will have no assets in its bankruptcy estate apart from the crumbling apartment building, and its most senior secured creditor will be another of your LLCs. This lets the slumlord move an apartment block from one pocket to another, leaving the debt behind.

For the corporate person, shedding debts through bankruptcy is an honorable practice. Far from being a source of shame, the well-timed, well-structured bankruptcy is just evidence of financial acumen. Think of the private equity looters who buy a company by borrowing against it, pay themselves a huge "special dividend," then wipe away the debt by taking the company bankrupt (which also lets them shed obligations to suppliers, workers, and especially, retirees and their pensions). As Trump (a serial bankrupt who has stiffed legions of contractors and creditors) would say, "That makes me smart."

The apotheosis of elite bankruptcy is found in massive corporate bankruptcies, in which a corporation kills and maims huge numbers of people, then maneuvers to get its case heard in one of three US federal courtrooms where specialist judges rubber-stamp "involuntary third-party releases" that wipe out the company's obligations to it victims for pennies on the dollar, while the company gets to keep billions:

https://pluralistic.net/2021/07/29/impunity-corrodes/#morally-bankrupt

This process was so flagrantly abused by companies like Johnson & Johnson (which spent years knowingly advising women to dust their vulvas with asbestos-tainted talc, creating an epidemic of grotesque and lethal genital cancers) that it is finally generating some scrutiny and pushback:

https://pluralistic.net/2023/02/01/j-and-j-jk/#risible-gambit

But the precarious state of elite bankruptcies has more to do with the personal corruption of the small cabal of judges who run the system than public outrage over their rulings; like that one judge in Texas who was secretly fucking the lawyer whose clients he was also handing hundreds of millions of dollars to:

https://pluralistic.net/2023/10/16/texas-two-step/#david-jones

Certainly, we don't hear much about the "moral hazard" of allowing the Sackler opioid family to keep as much as ten billion dollars in the family's offshore accounts while walking away from the victims of their drug-pushing empire, no matter what bizarre tricks they deploy in pulling off the stunt:

https://pluralistic.net/2023/08/11/justice-delayed/#justice-redeemed

But when it comes to canceling the debts of normal people, the "moral hazard" is front and center. If you're a person who borrowed $79k in student loans, paid back $190k and still owe $236k, we can't cancel your debt, because of the message that would send to other people who want to (checks notes) get an education:

https://pluralistic.net/2020/12/04/kawaski-trawick/#strike-debt

The anti-jubilee side also wants us to think of the poor creditors: who would loan money to the next generation of students if student debt cancellation was a possibility? Of course, these are federally guaranteed loans, risk-free, free money for people who already have money, a kind of UBI for the people who need it least. The idea that this credit pool would dry up if you were limited to only collecting the debts that can be paid – rather than insisting that debts that can't be paid still be paid – elevates the hereditary creditor class to a kind of fragile, easily frightened, endangered species.

But the most powerful arguments against bankruptcy are rooted in the idea of providence. In an efficient market, anyone who goes bankrupt was necessarily reckless. They were entrusted with credit they weren't entitled to, because they lacked the intrinsic merit that would let them manage that credit wisely. Letting them walk away from their debts means that they will never learn from their mistakes, and that their fellow born-to-be-poors will learn the wrong thing from those debts: that there's an easy life in borrowing, spending, and discharging your debts in bankruptcy.

As it happens, this is an empirically testable proposition. If this view of personal bankruptcy as a personal failure is correct, then people who go bankrupt and live to borrow again should end up bankrupt again, too. On the other hand, if we accept the jubilee view – that debt is the result of accumulated misfortunes, often including the misfortune of birth into poor station – then bankruptcy represents a second chance with an opportunity to dodge misfortune.

In a new study from IZA Institute of Labor Economics's Gustaf Bruze, Alexander Kjær Hilsløv and Jonas Maibom, we get just such an empirical analysis. It's called "The Long-Run Effects of Individual Debt Relief," and it examines the lives of people for a full quarter-century after a bankruptcy:

https://docs.iza.org/dp17047.pdf

The study follows Danish bankruptcies following the introduction of continental Europe's first modern bankruptcy system, which Denmark instituted in 1984. Prior to that, the Danes – like most of Europe – did not allow for a discharge of personal debt through bankruptcy. Instead, a debtor who went bankrupt would be expected to have about 20% of their lifetime wages garnished to pay back their creditors, until the debts were repaid or they died (whichever came first).

After 1984, Denmark bankruptcy system imported features of US/UK/Commonwealth bankruptcy, including the ability to restructure and discharge your debts. Not everyone is eligible for this kind of bankruptcy: there's a bureaucratic system that verifies that people seeking bankruptcy discharge don't have a lot of assets that could go to their creditors.

But for the (un)lucky people who qualify for bankruptcy discharges, there's a fascinating natural experiment in which the fortunes of people who see debt relief can be compared to bankrupt people who couldn't get their debts wiped out.

It turns out that the Bronze Age has a thing or two to teach us. Here's the headline finding: people who discharge their debts in bankruptcy experience "a large increase in earned income, employment, assets, real estate, secured debt, home ownership, and wealth that persists for more than 25 years after a court ruling."

After people are given the benefits of bankruptcy, they are less likely to rely on public benefits. They get better jobs. Their families live better lives. Their creditors get some of their money back (which is all they can realistically expect, since "debts that can't be paid, won't be paid").

As Jason Kilborn writes for Credit Slips, "the benefits of debt relief are not only substantial but robust, as debtors learn their lesson (if there was one to learn) about managing their finances, and they capitalize (literally) on their fresh start."

Score one for the luck-based theory of wealth, and minus one for the providential meritocracy hypothesis.

Americans should take note of these findings. After all, Danes are insulated from the leading American cause of bankruptcy: medical debts. In America, breaking a bone or getting cancer or even kidney stone can wipe out a lifetime of hard work, careful planning and prudential spending. The US refuses to seriously grapple with this problem. The best we can come up with is the (welcome, but tiny) step of banning credit bureaux from trashing your credit score because of your medical debt:

https://www.whitehouse.gov/briefing-room/statements-releases/2024/06/11/fact-sheet-vice-president-harris-announces-proposal-to-prohibit-medical-bills-from-being-included-on-credit-reports-and-calls-on-states-and-localities-to-take-further-actions-to-reduce-medical-debt/

Millennia ago, everyone understood that debts that can't be paid, won't be paid, and they created a system for discharging debts and freeing productive people from the tyranny of accumulated liabilities, to the benefit of all. Dismantling that system required us to invent an elaborate theological system and dress it up in economic language.

If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2024/06/17/lovilee-jubilee/#debts-that-cant-be-paid-wont-be-paid

[edwordsmyth]

Michael Hudson

[talesofthecog]

Join us on the 12th of March for our next adventure!

[smbhax]

Analysis of the economics behind the US attack on Iran.

[pomblepompkin]

𝐍𝐚𝐭𝐢𝐯𝐞 𝐀𝐦𝐞𝐫𝐢𝐜𝐚𝐧 𝐟𝐚𝐜𝐞𝐜𝐥𝐚𝐢𝐦 𝐆𝐈𝐅𝐬 𝐩𝐭 𝟒

Michael Hudson in Crooked Arrows 2012

[rhetoricandlogic]

Super Imperialism: The Origin and Fundamentals of U.S. World Dominance by Michael Hudson

Chris Dietzel's review

Jun 25, 2021

Two important notes about when this book was originally published:

1) The U.S. government pressured the publisher to keep it from being published in other countries. 2) The Department of Commerce stopped making available to the public the types of data Hudson used to compile his assessment.

That automatically tells you this book reveals important truths about what the U.S. is doing in the rest of the world. A short summary: After WWI, every other traditional imperial power was bankrupt and would never be able to repay its debts. After WWII, the U.S. began using its power as the world's largest creditor to create a world economic policy that would keep all of these other countries (and developing countries) tied to the U.S. dollar even though that created a parasitic relationship. By the time the Vietnam War was ramping up, the U.S. was bankrupt and had become the world's largest debtor. By this point, every other country's debt-filled economy was tied to the economy of a country that could also never get out of its own debt. Instead of trying to be fiscally responsible, the U.S. embraced debt as a way of trapping the rest of the world against leaving a dollar system that is effectively worthless. With this debt being insurmountable, the entire system is built on a fictitious set of rules that have been turned upside down. "Austerity" is pointless and just transfers wealth from the poor to the rich. Politicians talking about budget cuts are either offering lip service or else pushing policies that will transfer wealth from the poor to the rich.

The facts that Hudson provides are worth 5 stars. This is a truly eye-opening book and since reading it I've added some of his other books to my to-read list and watched interviews with him online. On the other hand, reading this is a slog because of how dry it is. It's like reading a college textbook. Ultimately, though, it's worth it.

[eelhound]

"[Branko Marcetic:] You make the case that our modern relationship with and understanding of debt is unique when you look at the full scope of human history. What was ancient societies’ relationship to debt and how did they keep it in check?

[Michael Hudson:] Almost all debt, in really ancient society, was interpersonal, what the Europeans called weregild-type debt. If you injured somebody, if you break an arm, or if you kill them, there are two choices ancient society had: either you had a feud, and your family would fight his family, or he’d make restitution, and you would settle the conflict. Gradually, the payment of the weregild, whether it was in money — or if it was really serious, it would be in slave girls or cattle — came to be the word for debt, and for the offense, or the word for 'sin.' So the original meaning of the Lord’s Prayer in Hebrew and Greek was, 'Forgive us our debts.'

In Mesopotamia, an agrarian economy, most debts began to be owed to the palace or the temples. Obligations were paid throughout the year. In the third millennium Sumer, or second millennium Babylonia, if you go to a bar during the crop year, you’d run up a tab to the alehouse, and to the palace for advances of animals, water, or agricultural inputs, and everything was done by credit. The debts would all be paid on the threshing floor, in grain, and a unit of grain was equal to a unit of silver.

But sometimes, you would have a crop failure, or war, or drought, and you couldn’t pay. And at that time, like in the laws of Hammurabi, you’d say, 'If the storm god, Hadad, comes and ruins the crops, then the debts don’t have to be paid.' This is how society worked, basically, in the third, second, and even into the first millennium. When a new ruler took the throne, or when there were other reasons — a war was over, or there was any reason for a debt cancellation — you’d cancel the debts, you’d liberate the debt servants to go back to their families, you’d give them back the pledges that they’d made. Because what would happen if you hadn’t wiped out the debts? All of a sudden all these people that owed debts would become the servants of the person who they owed them to, a wealthy person.

BM: You also make the case that this matter is at the heart of the Biblical stories we think we’re familiar with.

MH: That was what the first sermon of Jesus was all about. When he went to the synagogue and unrolled the scroll of Isaiah the prophet and said, 'I’ve come to proclaim the year of the Lord,' which was the debt cancellation — the Jubilee year — that was brought in from Babylonia into Judaism, as it was done all through the Near East. People who translated the Bible didn’t really know what these words meant. What does it mean, 'year of the Lord?' What does it mean, 'deror?,' which was debt cancellation.

It was only after Assyriologists began to find out how all of Near Eastern society had debt cancellation, just like anthropologists were finding that all the way from the Native American Indians to European realms, you’d have this practice of restoring balance. The idea was, how do we prevent society from destabilizing and polarizing? You cancel the debts...

The whole fight of every early society was: How do you prevent the population from falling into bondage? The palaces had a reason for doing this. If you would have the taxpaying small cultivators owing their crop to the creditor and having to go to work on the creditor’s land instead of working as a corvee, building palace walls and digging ditches for irrigation — if you would have these people fall in debt to the creditors, they wouldn’t be able to pay this crop surplus and labor surplus to the palace anymore. The creditors would take over.

Rulers throughout the Near East, all the way into probably the early kings of Rome, said, 'The one thing we’ve got to do is prevent the creditor class from becoming an independent oligarchy. Because if it becomes independent of us, and it gets the economic surplus, they’re going to use this labor to hire an army, they’re going to overthrow us, and they’re going to become the state.'

So you always had a struggle between the state protecting society from the creditor class — the oligarchy — and the oligarchy wanting to be independent, wanting not to have a debt cancellation. And this was a fight that went on for four centuries before Jesus’s time. The early Christians were basically advocates of the Jubilee year, trying to cancel debt...

Every economy is going to be planned by someone. The question is, is it going to be planned by the creditors, as it has happened today? Or are you going to have a government, a ruler, that is going to say, 'My job is to keep society stable, and to prevent it from polarizing so that we can survive and be resilient and go forward?' The creditors don’t care about resilience. Their time frame is rather short."...

BM: What are the implications of this for the post-pandemic recovery, given we live in such highly indebted societies?

MH: The tendency of any economy that has an interest-bearing debt is the debt growing faster than the economy as a whole. You have exponential debt doubling every so many years and economies have never been able to keep up with it. The tendency of debt for any family, any corporation, any economy, is to grow faster than the ability to pay, until there’s a crash. And when you can’t pay, either you lose the property, or you become in one way or another, a servant to your creditor, in terms of having to pay labor, having to pay whatever you produce. You have a concentration of property ownership in the hands of the creditors, if you don’t write off the debts, which ancient society did, and which used to be the core of ancient religion.

Every economy that has interest-bearing debt has to restructure at some point, or else all of the economy will end up being owned by just a teeny group of people at the top, like you had in Rome. That’s how the Roman Republic ended up in the Roman Empire. It becomes centralized. The tendency of any financialized economy is to centralize. Not only wealth, but by centralizing wealth, you centralize political power, and decision-making, and ultimately, military force in the hands of the financial class."

- Branko Marcetic interviewing Michael Hudson, from "When Debts Become Unpayable, They Should Be Forgiven." Jacobin, 23 December 2021.