Michael Hudson Discusses the Economic Winds of [Non] Change Under Biden on Radical Imagination

Yves here. Michael Hudson describes the fealty of Biden and the Democratic party to neoliberal policies and how, as Biden himself said, nothing fundamental will change. Hudson agrees nothing much will improve for ordinary citizens as long as the current Democratic party is calling the shots. He lays out a way to tackle rentierism by promoting building of moderate-priced homes and setting strict terms for FHA mortgages.

Jim Vrettos:   We’re waiting to see how the rhetoric of the new Biden administration will play out in actual policies.

Hudson: Biden’s long political career has been right-wing. He’s the senator from Delaware, the country’s most pro-corporate state – which is why most U.S. corporations are incorporated there. As such, he represents the banking and credit-card industry. He sponsored the regressive bankruptcy “reform” written and put into his hands by the credit-card companies. As a budget hawk, he’s rejected MMT, and also “Medicare for all” as if it is too expensive for the government to afford – thereby making the private sector afford to pay 18% of US GDP for health-insurance monopolies.

Hardly by surprise, Biden has chosen cabinet members as corporate lobbyists, including the new Secretary of Defense. And on February 9 he invited Jamie Dimon and other business leaders to the White House and asked them what they recommended. These billionaires said that they didn’t need $1.400, so why should anyone else? They pretended that spending money might cause inflation – yet we are in the midst of debt deflation and falling disposable income for most families.

Biden’s prejudices are why the Democratic National Committee pushed him as their candidate over Sanders, and why Rep. Jim Clyburn made his pharmaceutical industry backers happy by pushing Biden over the top in South Carolina, delivering the black vote in that state’s big primary.

What amazes me is the ability to attract this vote despite the degree to which Biden has sponsored legislation that hurts blacks and other minorities: his cutbacks in welfare spending, his anti-crime laws falling mainly on the black community, his bankruptcy laws, and of course his denial of universal public medical care to that part of the population with the highest death rates, shortest lifespans and worst medical care.

He has tried to cover up this history by appointing Neera Tanden as head of the budget, claiming that she’s a progressive presumably simply because she’s non-white. Yet she’s a leading opponent of Bernie Sanders’ Medicare for All proposals.

In our polarized economy, wages have stagnated since 1971 – home ownership rates have fallen as foreclosures, evictions and homelessness have jumped dramatically during the 2020-2021 Covid pandemic.

The big decline in home ownership was the result of Obama’s double-crossing his campaign promises by bailing out the banks and leaving all the junk-mortgage debts and other fraudulent loans on the books. This led to foreclosures and evictions of about 9 million American families, most of them Hispanic and black. Home ownership rates plunged from 68 to 61 percent of the population (an enormous and rapid 10% drop).

The covid epidemic is leading to enormous arrears mounting up – for renters and for mortgage debtors. Evictions have been suspended by moratoriums that expire in March or April, and unpaid mortgages have been added onto later due dates (with appropriate penalties making this remunerative for the banks).

So the question is whether Biden can outdo Obama in reducing U.S. home ownership rates by another 10% — say, to just 56% of the population.

Let’s look at what could be done – today and a decade ago. Obama and Biden COULD have written down the junk mortgages to realistic market prices (and thrown the mortgage brokers and bankers in jail for fraud). Instead, they supported the fraudsters against the voters who had been promised “hope and change.” Most of the millions of foreclosed homes were bought by absentee owners and turned into rental property. Companies such as Blackstone were major players. The evicted families entered the rent market – and U.S. rent charges have soared. So consumer income has been spent much more on real estate, finance and insurance than for goods and services.

It’s most severe and unstable at the bottom of the housing market where tenants who have lost jobs have amassed $11 billion in rental arrears — a broader measure which includes all delinquent renters puts the number at $53 billion.

There are two kinds of results. The first will be an enormous accrual of back-rent debts and mortgage arrears to be paid off. For commercial businesses such as restaurants, these arrears are so large that they probably will choose to go out of business rather than paying all the profits for the next few years to their landlords.

Unless these debts are written down, most of the population is too debt-strapped to buy goods and services. So corporate profits can come only from rising prices, or getting government subsidy,

A second result is going to be a rise in homelessness in many cities. Entire camps of evictees will be forming in tents, perhaps in the major parks – or on the subways as in the past.

Many properties will be sold – yet housing prices are still rising.

What are some of the specific racial effects of this housing and job crisis, what’s been the Bidden administration’s response so far and how does this relate to your own work on racial reparations measures?

The low rates of black home ownership reflect a vicious history of red-lining. Limiting the areas where non-whites can buy has gone together with charging much higher interest rates than white buyers receive.

Housing is the basic criterion for joining the middle class. And for a century, blacks were excluded, not only by banks but from the government mortgage-insurance programs dating from FDR’s reforms in the 1930s. That’s what made black buyers “more risky” and hence charged higher interest rates.

I grew up in Hyde Park, in Chicago. The University of Chicago and its property management companies were among the worst abusers. For them, a “free market” meant a market free of blacks. But in the late 1950s they saw that they could do “block busting,” that is, selling a home in a white neighborhood to a black buyer. This panicked the neighboring owners, who sold their homes. The buyers were largely the speculators, who flipped them to black buyers at marked-up prices.

That happened on my block, on 48^thand Dorchester, a block from where Obama has bought his home. Once a few houses had changed hands, Mayor Daley condemned the block. My house was torn down, as were others, and the land is not gentrified.

To put the issue in perspective, think of the situation in 1945. That is when the great increase in middle-class wealth – today’s middle-class net worth – took off. It was limited to white people, because they were the only people who qualified for the great increase in net worth created by the house-price boom over the past 75 years.

The norm was that banks limited their mortgages to a level that would absorb up to 25% of a buyer’s salary. The buyer would get a self-amortizing mortgage, to be paid off in 30 years free and clear. This limit on debt leveraging kept housing affordable.

You and I have spoken about the issue of black reparations before. It’s very hard to pay reparations for slavery, because the enslaved families have died long ago. The reparations need to be paid to the living – and after all, it’s the living blacks who remain injured.

There is one way to make the black population economically as resilient as the white population has been. That is to give it the same deal that created most white middle-class wealth. The government should buy or build homes – private homes, just like white neighborhoods, not public housing. They should offer buyers the same deal that was given in 1945. Any black family would be given a home, with a mortgage of 25% of the household head’s income, to be amortized over 30 years.

Suppose the black buyer earns the minimum wage, or about $25,000 a year. Then 25% of this would be $6,250 – just about $500 a month. Over 30 years, the buyer would pay $187,500 – much of it in interest, guaranteed by the FHA.

As a practical political matter, of course, such a windfall would have to be offered to all Americans across the board. Hispanics and white poor would qualify.

That is the only way to create economic resilience of a class that has been excluded on racial lines, and which remains excluded today.

Without special subsidy of this sort, there cannot be any serious talk of equality. Minority buyers were the great victims of the junk-mortgage run-up and the Obama evictions.

In a recent N.Y. Times piece, David Leonhardt raises the question of why the U.S. economy has fared so much better under Democratic presidents than Republicans? In fact, he argues the gap is “startlingly large” when one measures annual growth rate, Gross Domestic Product growth rate, jobs, incomes, productivity – even stock prices.

Well, the New York Times has been the leader in “fake news,” not least for its support of real estate and financial interests, and of the Democratic Party.

The focus on growth rates as measured by GDP is a travesty of reality. Since 2008, GDP for 95% of Americans has actually declined. We are still in the Obama Depression – that was the state of affairs when the covid-19 crisis hit. Pavlina Tcherneva at the Levy Institute at Bard College has produced the statistics.

When debtors fall behind and have to pay penalty interest rates to banks and credit card companies, this is counted as an “increase in GDP,” classified as “financial services.” As if the banks are providing a service by charging higher fees to indigent debtors who are unable to keep current on their living costs.

About 7% of GDP is hypothetical “homeowners rental value” – what homeowners would have to pay themselves if they rented out their homes to themselves as tenants. As rents have risen (largely by absentee owners who bought homes that were foreclosed), this increases GDP. It leaves out minority owners, whose home ownership rate is much lower than that of whites.

What The New York Timesand others looking at GDP leave out of account is how unequal the distribution of wealth and income have become since 2008, and indeed since the 1980s. Economists are now talking about a K-shaped recovery: up for owners of stocks and bonds (about One Percent of the population owns something like 80 percent of these securities), and real estate. But wage earners are being squeezed. The “recovery” is not a recovery for them. It’s a boom for the wealthy, for the rentierclass, mainly in the Finance, Insurance and Real Estate (FIRE) sector.

That sector is the main audience for The New York Times. And most of the Democratic Party’s donor class comes from the FIRE sector. Despite this, the Democratic success at identity politics has created a political situation in which only the Democrats can enact anti-labor and anti-black policies, because their politicians are able to deliver the labor and black votes.

I don’t see how there can be real progress unless the Democratic Party is replaced, at least with the DNC leadership that has turned its politics into demagogy. Its identity politics is based on every identity exceptbeing a wage-earner.

Central to Biden and America’s neoliberal vision of world order is an economic philosophy of privatization and financialization. How do you think this will play itself out in the Biden administration’s foreign and economic policy of military spending and arms sales and use of military threats and force if necessary, to enforce U. S. international dominance and technological hegemony?

Biden has spent his career defending the financial sector, and its leading policy is to privatize basic infrastructure. That means blocking governments from providing basic services at cost or on a subsidized basis – education, health care, roads and communications. Yet that is how America became the leading industrial economy from the late 19^thcentury onward. Financialization and privatization have left it a high-cost economy, uncompetitive in world markets. that is why the economy is de-industrialized.

Privatized and financialized economies are high-cost. America spends 18% of its GDP on health care – far more than any other country. And then there is the military budget. A year ago January, Bidenwrote an article in Foreign Affairsin January 2020 promising that his incoming “foreign policy agenda will place the United States at the head of the table.”[1]

So what is he going to lead? He’s already said that he’s not going to negotiate with Iran, but to keep the Trump administration policies in place. He’s appointed neocon hawks to leadership positions, especially Victoria Nuland and other anti-Russians. Biden seems to want to use sanctions to isolate countries he sees as rivals or enemies – which is turning out to be a rising share of the world’s population, from Russia and China to Venezuela and Iran.

The reality is that the United States is isolating itself! It is trying to block Europe from importing Russian gas, and insisting on U.S. IT monopolies directed against China. And Biden has as little respect for treaties as Trump had – that’s why he’s retaining Trump’s withdrawal from the Iran deal.

Even if Biden makes a new treaty, Congress would have to approve it. But Congress has remained firm that no foreign countries can set policy for the United States. It therefore insists on not subjecting itself to any international rule of law not drawn up by its own political donors and corporate

The looming global fracture is becoming a fight against the most basic organizing principles of economies throughout history. All successful economies have been mixed. And to promote survival and prosperity, it is necessary to subordinate private gain-seeking to public objectives benefitting the 99 Percent, not just the One Percent.

That isn’t Biden’s policy or any other Democratic or Republican policy.

You see a basic conflict between financialized rentiereconomies and democratic-socialist ones that seek to promote public objectives benefiting the 99 percent, not just the one percent.

Privatized economies are high-cost economies. This is mainly because basic infrastructure is a natural monopoly: roads and other transport, communications, the post office. When they are privatized, they are run for a profit – consisting mainly of monopoly rent, over and above normal profits, plus capital gains as these rentierclaims are capitalized into stocks and bonds at rising prices.

The policy of American industrial capitalism in the 19^thcentury is the same as that of socialism: to minimize the cost of living and doing business. Privatization is largely responsible for de-industrializing the U.S. economy. While leaving 95 or 99 percent of the population to stagnate, it has been a bonanza for the 5 to 1 percent.

Could you expand on what you mean by that conflict and where you see the Biden administration heading on it?

The conflict often is put by juxtaposing Wall Street to Main Street – that is, the FIRE sector to the industrial goods-and-services economy. Wall Street’s objective is to increase wealth. This is done largely by capital gains, not by hiring workers to produce more goods and services – such investment is done mainly abroad by today’s multinational firms.

How does the $1.9 trillion stimulus aid package fit into this debate?

I don’t think you should call it a “stimulus.” It’s disaster relief. The idea is to catch up. The aim should be to at least put the economy back where it was before – that is, still in the Obama Depression.

What WAS a “stimulus” was the $6 to $8 trillion created by the Federal Reserve t buy stocks and bond, including junk bonds, to fuel the Wall Street boom. That is the essence of the K-shaped recovery. Rising prices for wealth, falling wages and net disposable income for living labor, after deducting the payments to the FIRE sector that families have to pay off the top – rent and debts, medical insurance contributions, FICA paycheck withholding (the most regressive tax), and monthly payments to privatized utility monopolies.

The $1.9 trillion checks of $1,400 or $2,00 actually should be sent out monthly, not part time. Europe pays its laid-off work force 80 percent of their normal wages, so that they will not be plowed under by the covid shutdowns.

There’s profound disagreement about how to handle increased bankruptcies here and in Europe.

Biden himself is largely responsible for the bankruptcy problem. He was the politician who steered the regressive bankruptcy reform through Congress, making it harder for low-income families to wipe out their debts – and making it impossible to wipe out student debt through bankruptcy.

In that sense, he “owes” it to the economy to make up for his opportunistic water-carrying for his campaign backers in corporate-run Delaware.

Will he do it? Can he do it? He’s a deficit hawk, and has appointed deficit hawks such as Neera Tanden to his cabinet. He also promised that “nothing will change.” This is just how the Obama administration was run (demagogically running on a slogan of “hope and change”). So will Biden be Trump 2.0 or Obama 3.0? It really doesn’t matter much. Because both Obama and Biden were basically Republicans running with a different ethnic profile for the voters that they delivered to their campaign contributors.

Chapter 11 bankruptcy filings in the U.S. rose in the third quarter to the highest level since the 2010 financial crisis.  In the last week 900,000 Americans have filed new unemployment claims.

John Williams’ Shadow Statistics puts the real unemployment rate at 20 percent. Many people have dropped out of the work force, as no jobs are available, at least, no jobs for them.

The rent moratorium has enabled many unemployed or low-income workers to remain in their homes. If they’re evicted and become homeless, how can they work? The real crisis is scheduled to fall in March and April. Small businesses such as restaurants and stores will give up and close.

Europe has been more receptive in extending national programs to keep troubled businesses afloat, but there too a sharp debate exists as to whether a strategy of protecting businesses and workers “at all costs” will cement a recovery or whether it will leave economies less competitive and more dependent on government aid when the pandemic recedes.

Europe and other countries are trying to avoid disaster. U.S. policy is to see disaster as an opportunity. It’s easier to make fortunes in a disaster than in normal times, at least if you are wealthy, liquid and have access to bank credit to buy up distressed businesses and properties.

The aim of Europe – and of economies through the ages – has been to provide resilience. That is what is missing here. The doctrine of “individual responsibility” is a euphemism for letting the financial classes take control of economic and social planning. And their objective is their own self-enrichment, not that of economies as a whole.

What is it that can be “recovered”? To most politicians, it means that creditors – the economy’s top One Percent – can “recover” the money that is owed to them by the indebted 99 Percent.

In Europe’s system of parliamentary politics, third parties can arise to promote a social policy of economic resilience. That isn’t possible in the United States, because of the two-party duopoly. Duopolies resolve themselves into monopolies, which is what we really have today: pro-Wall Street and anti-labor, pro-creditor and anti-debtor.

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[1]Gideon Rachman, “Biden’s Flawed Plan for World Leadership,” Financial Times, November 17, 2020.