JM:

Hello, and welcome to another episode of India and Global Left. Today, we have with us the economist Michael Hudson. Michael, welcome back to India and Global Left.

MH:

Good to be here.

JM:

Last time you came here, the show went very well. We have got almost 100,000 views and a lot of people liked that, and we discussed super imperialism, among other things. One of the things that we discussed was the role of the World Bank, especially with regards to developing countries, and how it recklessly pushed its agenda of capital accumulation that ultimately hampered the struggle for land rights, struggle for collective ownership of concentrated wealth. One of the statements that you made was “the World Bank has always been an arm of the US military.� A lot of people reacted to that by saying that Michael has got everything right, but the US military is indeed an arm of the World Bank, not the other way around So I thought I would have your response to that, because it ties so well to one of your arguments in super imperialism that US imperialism has a lot to do with the state instead of private corporations. Your response?

MH:

Well, you can use google to look at the background of the people who’ve led the World Bank. From the very beginning, John McCloy (1947-49) was in the army. The most notorious and longest-tenured World Bank leader was Robert McNamara (1968-81), of course. And then you have Paul Wolfowitz directly from the US national security state (2005-2007). But the key is that the World Bank’s basic economic philosophy is to serve US strategic control of other countries’ trade and investment patterns, from its promotion of export crops instead of domestic food crops to its advocacy of privatizing public infrastructure.

There are two basic spheres economically that the United States uses as the buttress of its balance of payments and its ability to impose sanctions on other countries. The first is oil, which explains why the United States has blown up the Nord Stream pipelines and why it’s isolated Venezuela. It used oil to be able to control the energy of foreign countries. And the second point is agriculture. And that is probably the most serious and most negative, destructive element of all of the World Bank’s policies. And I have a chapter on that in my Super Imperialism.

The function of the World Bank is to prevent other countries from growing their own food, to make sure that the World Bank does not give economic support to domestic agriculture. One of the most fateful requirements of the World Bank is that it only makes foreign exchange loans. Now, foreign exchange loans mean they’re going to develop the export sector, they’re going to develop roads and transportation for export commodities. The government will bear the cost of developing mining, of developing oil and minerals, of deforestation, but it won’t develop domestic industry. And if you look at agricultural development in the United States, most of this agricultural development spending is domestic. There’s farm extension, there’s education, there’s price supports domestically to support domestic grain, there’s a whole plan of creating a family-based agriculture. And if you look at the World Bank reports of the 1950s and 1960s, you’ll find every country report, the ones that are published by Johns Hopkins, the advisors to the World Bank says you have to have domestic currency to support domestic agriculture and food sufficiency. Not a single loan has been made for that unless it’s for plantation agriculture and export crops. So, the idea is that other countries, Latin America, Africa, South Asia, should depend on American farmers for grain and food exports and they should export plantation products that do not compete with American agriculture because products that are equatorial, that depend on domestic weather and domestic soils.

While the World Bank is supporting these export crops, it basically serves as a market for American corporations, the big infrastructure corporations. And it also supports the private investors, US mining affiliates, US oil companies, US forestry companies. The idea is that countries will increase their exports to be able to pay for these loans, but the mining companies, instead of having to build their own roads, instead of having to build their own infrastructure, the World Bank convinces governments to pay for these to essentially support the private sector and then support the private sector avoidance of paying taxes.

The World Bank has opposed land reform. It’s opposed any of the domestic rules that any country such as the United States, or the European Common Agricultural Policy, have used to support domestic food production. So, what the World Bank has done is subsidize import dependency on American grain. And the export competition with other World Bank customers to compete among themselves at products that do not compete with American or Western Europe production. So, the World Bank is basically an arm of economic warfare by the United States and NATO against the global majority.

JM:

A lot of countries in the global south actually has long faced the problem of balance of payment crisis, and then it becomes a big tool to control economic policies and restructure economy in a way by these global institutions. And that is primarily because the global south has been exporting low value commodities, and the global north essentially exports a lot of high value products, to begin with industrial commodities, but now also services and so on. So, there is always this very desperate need of foreign loans, and you give these foreign loans and then they redirect a lot of economic policies.

MH:

The important thing to know is that there was an alternative to the World Bank. It was called the World Bank for Economic Acceleration, and it was promoted by the American senator from Florida, Senator Smathers, and was called the Forgash Plan after Morris Forgash, who was the head of the containerized shipping. The World Bank for Economic Acceleration was to finance land reform, it was to finance domestic subsidy for agriculture and domestic import displacement, and of course that was opposed by the United States.

I found out that it was opposed because a copy of the plan was sent to my former boss at Chase Manhattan Bank, John Deaver. Deaver said, advised David Rockefeller, that every country that is engaged in land reform has ended up a political enemy of the United States. Well, that’s because the United States subsidizes assassination squads to kill any advocacy of land reform, so that the United States can control the land of the country’s most notoriously United Fruit Company. To the extent that the World Bank has supported agriculture, it’s supported foreign-owned plantations, not domestic economies.

The idea of the World Bank is to turn Latin American, African, and other economies into extensions of the US economy, not serving their own domestic economy. When you look at the World Bank, it’s creating an America in Brazil, America in Argentina, working hand in hand with the International Monetary Fund to put the financial squeeze on countries that don’t comply with this pro-American trade strategy, then you realize that you need an alternative set of international institutions whose goal will be to promote domestic development and domestic independence in food independence, basic consumer goods independence, energy independence, instead of dependency on the United States.

JM:

Robinson: I’m from Chicago, and when I saw that you went to the University of Chicago Lab School, which I know quite well, and then the University of Chicago, which I also know quite well—and when the Chicago School of Economics was promoting the free market and probably in its heyday….I immediately found myself wondering: When you’re in this environment, how did you come to believe that what was ostensibly a libertarian ideology was in fact becoming a tool for financial interests to manipulate the government and cheat the 99%?

Michael: I was there from 1955 to 1959. I never knew anything at all about the economics department; I didn’t know anybody there. On one occasion, I met somebody at a party who was in the business school and he was very awkward. Some girl asked for her phone number—and you could see she didn’t like him—and she gave it to him. And then, this was I think a Deutsch-Tisch, German table. So I knew him from the German group there, and my degree was in Germanic history and philology actually. He said, “That girl was really stupid, so attractive, but so stupid, that she didn’t even know her phone number.� I said, “What do you mean?� She said, well, that was the phone number of the fire department. He didn’t get it, but he was being set up.

That was my first introduction to how free market economists think. They take everything on the surface. There’s no understanding of the structure and back of it all. But I never knew anybody from the business school. My interest certainly was not in Chicago economics. The reason I took German was because the German teachers were in charge of all sorts of other departments. Harry Yolas was in charge of the history of culture department. And that really was what I wanted to study. History of culture enabled me to take any course I wanted, cafeteria style. So I was taking art history and I was studying music at DePaul University in Roosevelt simultaneously. And Germans were in charge of the comparative literature department. So that just meant I could take everything cafeteria style basically. And my contacts were largely with humanities professors, literature professors, historians. That was what I was studying. Nothing about economics. I never had any idea at all of studying economics until I came to New York in 1960 and 61.

Robinson: That was a better and a funnier answer than I’d bargained for. So was it then your time at NYU that opened you up to the alternatives to praising the free market without looking at a deeper level?

Michael: No, they didn’t discuss free market either. We were told some I had one of the stupidest professors I’d ever had, Stephen Rousseas, who was teaching monetary theory and he was just sort of a neoclassical neoliberal and everything he said was wrong. I got a C plus in the money and banking course because the question was supposed to be about Hyman Minsky who at that time was not known what he later became known for modern monetary theory. But this was in 1963 when he’d written something about savings banks actually aggravating the financial cycle because his theory was that savings banks put some of their money, their savings, into commercial banks. And his theory, abstractly enough, was that the commercial banks would lend out into the regular economy, personal loans, mortgage loans, et cetera. What neither Minsky nor the professor knew was that I worked for the central bank for the savings banks, the savings banks trust company for three years from 1961 to 64, and all of the New York state savings banks kept all of their reserves in the savings banks trust company, which invested it only in bonds, including World Bank bonds, government bonds, but didn’t make any loans at all into the general economy. That wasn’t what it was set up for. So to think that, yes, here’s a saving, a commercial bank, it must act like the other commercial banks—that’s called correlation without causality. And Rousseas said that I didn’t understand the theory and that reality had nothing to do with theory—that I was there to learn theory, not reality. And that was my introduction to magnate monetary theory.

The good thing about NYU was it didn’t want my brain. All it really wanted was my money to pay for the tuition. I tried to take all 20 courses in the one semester, but they were very hypocritical and insisted that I couldn’t understand, that the understanding was slow and would take, you know, one year for the MA and two years for the PhD, not realizing that you can compress nothing into nothing, you know, three years into nothing. So basically, I got my degree as a union part because at that time I was working first in the savings banks and then in 1964 in December on at Chase Manhattan. Hmm.

Robinson: Well, one question that I wanted to ask before we get to the meat of your writing and particularly your book, The Destiny of Civilization, is how you think of or define debt and debt inflation. And since debt is so vital to what we’ll discuss, I thought it would be a good idea to determine to what extent this is a term of art for an economist that has more nuances than it does in our colloquial usage?

Michael: I don’t think I’ve ever used the term debt inflation. What does it mean?

Robinson: Well, that’s why I was asking you, but I think it’s in the book, but debt inflation is the increase of debt over time.

Michael: I think that I call that the exponential growth of debt at compound interest. I thought we were going to talk about Killing the Host. It’s okay if we don’t. But in killing the host, I have a whole chapter on compound interest. The volume of debt multiplies simply by mathematical principles of compound interest, not by any relationship to productivity or the ability to pay, or the real economy. The financial system of credit and debt is imposed on the economy of production and consumption, but does not reflect the relations of production and consumption, profits and wages and earnings and the ability to pay. It merely intrudes upon them. And the exponential growth of debt at compound interest always tends to exceed the economy’s ability to grow through national income, GDP, or the ability to pay, which goes up and down, whereas compound interest does not have a downturn, it just goes upward steadily.

And one of the reasons that economies turn down is because the debt overhead grows so much that it deflates. I talk about debt deflation, not debt inflation. And the term I use again and again is debt deflation. And that is that paying creditors, paying debts to the financial sector removes purchasing power from the consumer spending and from corporate spending on industrial capital formation. So we have debt deflation, there’s credit asset price inflation, very often debt finance, but asset price inflation is achieved at the cost of debt deflation.

Robinson: Is this concept of debt deflation and credit inflation, what contributed or something that contributed to the housing market crash a decade or so ago?

Michael: Yes. And in fact, when I was at the savings bank trust company, my job was to trace deposits and mortgages because savings banks were supposed to lend all of their money out to mortgages in a circular flow. Well, the deposit trend for each bank would be a zigzag. It would jump every three months when interest on the accounts was credited. Obviously, people weren’t really increasing their savings very much, but the increase came just from the accrual of interest that banks would pay out of the mortgage interest that they charged on the loans that they made to the home buyers.

ANIA: Hello everyone, welcome back to my channel. It looks like we are live and we are a few seconds before time, so a little bit better than Swiss precision. Today I have for the second time a very, very special guest. Many of you have been anticipating this conversation with Professor Michael Hudson, who is the financial analyst and very distinguished research professor of economics. Someone whose expertise, opinion, knowledge I very much value. And I think as we are coming to the end of 2023, this might be a very important discussion here, very important information from Professor Hudson. So welcome back, Professor Hudson. Thank you so much for finding time for our conversation.

MICHAEL HUDSON: Well, it’s good to be back, Ania.

ANIA: Thank you. And just to let you know, everyone, all the links to find Professor Hudson are already down below this live stream. You can support his work via Patreon, all the books, there’s a link as well, also his website. All the links are down below. I appreciate you subscribing, liking, sharing, supporting my channel as well. And let’s start with actually Professor Hudson has sent me a very, very informative email. And I want to say thank you officially now to you for sending this to me because of that email, I was able to kind of narrow my question down to you. And if there are any questions from the audience, please put them in the Super Chats.

So in your email, you’ve mentioned that Ukraine’s apartheid state is an apartheid state. And I would like to start with this. Can you explain to the audience what does this really mean to be an apartheid state? And Israel is also an apartheid state.

MICHAEL HUDSON: An apartheid state. Well, that goes back to Nazi Germany in the 1930s. An apartheid state says that only one ethnicity should dominate the state and all other ethnicities should be excluded. As soon as World War II ended, the U.S. military and the intelligence agencies recruited the nationalists and the Nazis who had been working for the Germans against the Russians into the NATO framework as managers and began to prepare for a long-term fight against the Soviet Union. Somehow the end of World War II metamorphosized gradually into really a renewal of what followed World War I, the fight against the Soviet Union. And from the very beginning, for the last 80 years, the United States has sought to fight Russia. Even when Russia stopped being the Soviet Union, it was viewed as having an independent characteristic, an independent policy. And so it used the Nazis to spur a nationalistic, anti-Russian feeling of treating the Russians really as subhumans, denying the Russian-speaking population the retirement income and Social Security and health care and public services. And basically you had the Ukrainians treating the Russians as the Germans had treated the Nazis.

Well, you’re having the same fight now in Israel when Netanyahu and President Biden says there can only be one ethnicity in Israel. There can only be a single state. It’s possible to have a two-state solution. You can have Israel and you can have Palestine, but only Jews will occupy either Israel or Palestine.

The United States mentality, not only for Ukraine and for Israel, but for the whole world economy, is there can only be one economy and one state favoring one group of people. And what you’re seeing in the apartheid state of both Ukraine with its anti-Russian, banning the Russian language, banning Russian books, destroying Russian novels and literature from the libraries, not performing Russian music. All of this is followed by the United States pressing for the Olympic Committee, for instance, not to let Russian athletes join in the Olympics under the flag. The apartheid that you’re seeing in Ukraine is followed by the United States itself, spurring the apartheid state. To the United States, Both Ukraine and Israel are sort of models of what the United States would like to do on a global basis for the entire world economy. There can only be one economy. And basically, it’s a U.S.-NATO-centered economy to which other countries are either supposed to obey and accept the rules or else they’re to be fought against. And so you can look at what’s happening in Israel right now and Ukraine right now as a dress rehearsal on a small scale of the same kind of fight that is occurring in the world economy. Are there going to be two different economies? And are these economies going to be equals democratically? Or is the world economy somehow going to be itself an apartheid state between the United States and NATO on the one hand and the BRICS Plus and the Global South on the other, all in a central unit? That really is what all this fight and maneuvering is about right now in the Mediterranean and the Red Sea and the oil gulf. It’s not only an ethnic apartheid, it’s an apartheid of economic systems, both in Ukraine and Israel and in the kind of order the United States is trying to create.

ANIA: Thank you so much for answering this. And on this note, I would like to ask you two questions following on that. First, do you think the United States will be able to succeed this plan, will be able to be successful with this plan? And will the U.S. be able to keep Western Europe as a U.S. economic, political and military satellite? Yes or no? And if no, what’s going to happen?

MICHAEL HUDSON: Well, there are really two questions there. For your first question there, what is success? The fight in Israel right now is really a process that’s been going on for 20 years. The United States is backing Israel. And you can look at Israel as being to the United States what Ukraine is. The United States is willing to fight to the last Ukrainian against Russia. It’s willing to fight to the last Israeli against the Muslim states. The United States ever since 9-11 in 2001 has wanted to conquer Iraq, Syria, and most of all, Iran, as well as Libya. In the United States press, all of the discussions of what’s happening in Gaza and Israel today, whenever they talk about Hezbollah or Hamas, the newspapers all put in the qualifying adjective, Iranian-backed Hamas, Iranian-backed Hezbollah. And if Iraqis are trying to fight to drive out the Americans that are stealing the oil from Iraq, it’s the Iranian-backed Iraqis.

This whole fighting that you’re seeing in Israel now, that on the surface seems to be a fight to purify the Israeli state from the non-Jewish population, is part of the American attempt to really conquer the whole Near East and its oil production. To America, the Near East is important because American domination of the world economy for the last hundred years has rested upon its control of oil, along with British Petroleum and the French oil companies. The United States has used oil as controlling energy, and by controlling energy and its pricing, controlling industrial productivity and GDP. GDP, labor productivity, industry, is all a function of energy.

So what the United States is doing is goading Netanyahu to try to provoke the Lebanon Hezbollah into retaliating, so the United States can attack Lebanon, and trying to provoke Iran. It recently assassinated an Iranian leader in Syria, trying to provoke Iran into doing something.

RADHIKA DESAI: Hello and welcome to the 20th Geopolitical Economy Hour, the show that examines the fast-changing political and geopolitical economy of our time. I’m Radhika Desai.

MICHAEL HUDSON: And I’m Michael Hudson.

RADHIKA DESAI: Well, it’s happening again. Reports of the death of neoliberalism are once again proliferating. Just take a look at the UK Guardian. In the UK Guardian website, there’s a whole series of stories, whether neoliberalism is dying, the rise and fall of neoliberalism. Biden just declared the death of neoliberalism. Is neoliberalism finally over? Is neoliberalism finally dead? Is the neoliberal era over yet? And of course, there are also contrary views. The National Institutes of Health say neoliberalism is not dead. And there is also a very interesting story in the Jacobin, which says the rumors are false. Neoliberalism is alive and well.

Well, this is not the first time that the death of neoliberalism has been announced. I remember back at the end of the 1980s, the IMF and World Bank structural adjustment programs were inflicted upon third world country after third world country, each followed in short order by IMF riots against critical food and fuel subsidies being reversed, social spending being cut, joblessness rising, thanks to the recessions induced by these very programs.

And a World Bank report at the end of this period, essentially admitted that the neoliberal recipe was certainly not working in restoring productive dynamism to any economy upon which it had been inflicted. I also remember the death of neoliberalism being announced after the 1997-98 East Asian financial crisis, when the so-called “Committee to Save the World�, as Time Magazine called it, a committee allegedly consisting of Alan Greenspan, Larry Summers, and Rahm Emanuel, who were allegedly saving the world economy from a neoliberalism induced meltdown.

After the 2008 financial crisis, practically everyone was talking about the return of Keynes, the end of neoliberalism, the return of the state, while Alan Greenspan was admitting before a congressional committee that he had been partially wrong about his free market approach to banking, that the crisis had left him in a state of shocked disbelief. He said, I have found a flaw. I don’t know how significant or permanent it is, but I have been very distressed by this fact. And he said further, I made a mistake in presuming that the self interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the funds.

However, even after this massive sort of watershed event, the real story that emerged from it was, as the title of one book about the subject had it, the strange non-death of neoliberalism. And today we have Bidenomics being hailed as the final slayer of the dragon of neoliberalism. Clinton’s Labor Secretary Robert Wright, for instance, thinks that Biden is about to alter the structure of the U.S. economy in ways that help the vast majority and that voters will give Biden another term and reward Democrats with both houses of Congress because it will have transformed the economy in favor of the 90 percent and of workers and unions.

And yet other columnists are praising the same actions of the Biden administration and the same legislative actions as the best business opportunity ever. So even after all these crises, neoliberalism seems to be, if not alive and kicking, at least leading a zombie existence and refuses to die. So today we want to talk about neoliberalism, what it is, where it came from, and why it seems not to die. And what will happen if it dies, and other such questions. So Michael, I’m sure you want to get in here and say something. Please go ahead.

MICHAEL HUDSON: Well, you’ve just made the point that neoliberalism wants to make itself invisible. It’s like the devil. If there a devil, the devil wants to say he doesn’t exist. Neoliberalism says inequality doesn’t exist, exploitation doesn’t exist, and everything is quite fair.

And what it really wants to make invisible or actually disappear in reality is the government. Neoliberalism advocates an economy without government regulation, with no social protection against fraud or exploitation or predatory impoverishment, no usury laws. They’re against consumer protection. They’re against the ability of debtors to use bankruptcy, which is why Biden made sure that students could not wipe out their student loans through bankruptcy, to free themselves from debt.

So neoliberalism, basically, it’s a dynamic of economic polarization. Neoliberalism is a way in which they can justify why the economy is getting more and more unequal, as if this is a perfectly natural thing, a survival of the fittest, and is really a road to efficiency. And in that sense, neoliberalism is a point—this requires a point of view. It’s an ideology. You could almost say it’s the new religion because it’s a new moral value.

Instead of religion saying we’re for mutual aid and we want to uplift the population as a whole, neoliberalism is saying greed is good, Ayn Rand is good, we want to be free from government, free from government regulation, so the rich can do whatever they want to get rich. And if they do get rich, it’s because they’re productive, not because there’s any exploitation. So neoliberalism is really a cloak of invisibility for all of the problems that we’re seeing today.

RADHIKA DESAI: Well, I mean, this is really interesting, isn’t it? Because there’s just so much smoke and mirrors about it, and there’s even smoke and mirrors about the whole question of invisibility, etc. So on the one hand, of course, we know that in the neoliberal era, markets are imposed on, essentially, the ordinary people, on workers, therefore are forced to compete with one another, especially with the attack on unions and so on and so forth.

But meanwhile, as we have seen, after four decades of neoliberalism, it has often entailed socialism for the rich and competition and neoliberalism for the poor, so the rich get bailed out. So in that sense, I think it’s really worth unpacking this a little bit more. Because on the one hand, you’re right, of course, that they kind of, you know, the other part of smoke and mirrors is that neoliberalism claims that it’s about having no government intervention whatsoever. But in reality, the neoliberal period has seen an enormous amount of government intervention.

If you look at practically any country, including the United States, the onset of the neoliberal era has seen only a slight reduction in the role of the state in the economy, and in many cases, hardly anything, any at all. So in that sense, it hasn’t been about markets. Secondly, you know, on the one hand, they want to say, oh, well, you know, we are doing nothing, the state is doing nothing, this is just the outcome of the market.

On the other hand, neoliberalism has also announced itself. So for example, you know, Mrs. Thatcher is very famous for having said, I think sometime in the 70s, before she became a prime minister, she was very aware, she said the other side have an ideology, we need to have one too. So in that sense, neoliberalism was very much a sort of a counter to the sort of center left ideology, whether you call it Keynesianism or welfarism or what have you. So it was very conscious of being an alternative point of view, which was coming to the fore.

Michael Hudson & Richard D. Wolff with Nima Rostami Alkhorshid

Dialogue works (Nima): What’s your opinion on the China’s economy right now? it getting better? It’s getting worse. Is it collapsing? Michael?

Michael Hudson: Well, what they say is getting worse is the financial situation.

China has sort of let a hundred flowers bloom 30 years ago and it has basically left all of the localities to self-finance themselves and they’ve financed themselves by selling real estate. And China has let a real estate market develop largely by bank credit, not the central bank, but by the central bank, lending to local private banks that have essentially lent more and more money for apartments.

And a lot of these apartments by large companies, have not been built. And so the problem is what can China do? It has a choice. It can either write down the debt and say, okay, we’re just not going to charge the companies, or it can dissolve them, or it can restructure the companies, or it can sell them to some another party like it’s happening in the United States.

Somehow and obviously, it must bail out the citizens that have made down payments for the apartments and now there are no apartments to give them after the down payment. China needs something like America’s federal deposit insurance Corporation. Except in this case, it’s an insurance corporation for victims of the mortgage credit system that is run way ahead of the of the building and the construction that’s actually taking place.

Obviously, the China has not done an adequate job of regulating the large construction companies. So, the volume of promises for apartments is way in excess of the actual number of apartments available. That’s pushed up housing prices and it’s put a squeeze on many Chinese citizens. So, I think China now is in the discussion of how do they restructure the tax system between the federal government in the cities, how do they restructure the local land tax system?

China owns all the land, but it doesn’t tax the local land value. And as a result of not taxing this increasing value of land and property is how things go up. The also increasing purchasing power has been turned over to the banks as mortgage credit shift is happening in the United States. So, China’s let itself be sucked into the same financial mortgage problem and tax problem that the United States is in, and it really needs to have a few more Chinese characteristics to go with its socialism, with Chinese characteristics and more Chinese characteristics, less American Chicago school, neo liberal characteristics.

Richard D. Wolff: Yes, I like very much what Michael had to say. I think it captures the specifics of the moment. So let me shift a little bit and talk about your introducing the notion that you get from certain of the coverage that this is a matter of collapse, the speed with which people have looked at the Chinese countryside and concluded that their economy is collapsing is nothing short of breathtaking.

The Chinese economy’s collapse has been predicted at least five times per month for the last 30 years, and you will therefore excuse people like me, or you’ll have to for being deeply skeptical of yet another. This is like the old crying wolf, which I’m very sensitive to since my name is Wolf. But I have to tell you that it is to use another simple language.

It is really bullshit and not much more than that. Having said that, let me go back to Michael. Nothing is more typical in the development of a capitalist economic system, particularly given its unstable, cyclical behavior that various sectors explode using credit or other mechanisms without any correlation with the other systems on which they depend. So, they become overdeveloped in one odd way, then another.

And that requires either that you bring them back down to where everybody else is or you boost everybody else in order to catch up with them, in order that the coordination, the critics of capitalism have always understood that using phrases like capitalism is the anarchy of the of production, because all these decisions are made either by individual enterprises or by industries without the proper coordination, except after the fact, either by collapses or by massive government interventions, to which Michael made reference at the end of what he had to say.

And you know, China is in an explosive period of growth. There are few examples in the history of capitalism where any kind of country has grown that fast over time to that extent. And they’re going to have these kinds of problems because of the way they’ve organized their economy to this point, letting a large number of private enterprises function in the way they normally do with adjustment and correlation happening after the fact, not as part of a plan, not the plans avoid all unexpected events. No planning can do that, but it would be a big step forward. They’ve chosen to allow a large part of their economic activity to happen, either at decentralized levels or in the private sector. In an economy that’s virtually 50/50 private/public. And so, they’re going to have these kinds of experiences. This is not the first one, and this will not be the last one.

They may take the step that Michael advises them and borrow from other countries that have gone through comparable circumstances or they may, you know, develop an FDIC for the buyer of rental property and so forth. My hope is they ask more profound questions. I don’t know well enough whether that’s in the cards but ask about whether the basic structure of the system they’ve put together, even though it has many achievements to point to, also leaves them vulnerable to several dysfunctions of the sort we’re discussing now.

And maybe that ought to be a provocation to ask basic questions about what they’re doing as their socialism with Chinese characteristics.

Michael Hudson: I think asking that question would lead them to have the following discussion. Should we let the private banks go under that have made these bad loans? We tried to say let 100 flowers bloom. Let’s see what the private sector can do.

Well, it’s done exactly what Richard described. It followed the finance capitalist path. Well, bad loans. Let them all go under. We will guarantee the small depositors up to, you know, whatever they figure. A normal family should have let the banks go under and say, I guess that shows that we really need to keep banking as a socialist function.

That’s why we call it socialism with Chinese characteristics, not finance capitalism with the Chinese characteristics. And I think that the big decision, the other question is whether they know what to do with all of these half-built buildings. I don’t know what to do. I don’t know whether there has been overbuilding for the market. I don’t know whether there’s any audience for the buildings that have been built in the places where they’re built up.

There has to be some kind of feedback as to what localities need at what system. But ultimately, what is led to this whole reliance on the private sector is the fiscal relation between the federal government and the localities. I think there has to be a Chinese version of what in America is called revenue sharing. The federal government has to work with the localities so that they do not finance their local budgets of local communities by selling off the real estate to private developers.

This is what’s happening now. As a result of that, there has to be coordination between local and federal fiscal policy, and the government should be able to provide the localities with what they both agree is needed without forcing a sell off and a privatization of land. Otherwise, you’re doing it, you’re just creating the kind of collapse that is occurring today and you don’t want to recreate the same problem.