Michael Hudson on Junk Economics and Debt Cancellation

“How a society defines economic terms
and relationships will determine who controls it.”
Michael HudsonI wanted to see how the economy worked [so in the 1960s] I went to work for banks on Wall Street as a statistician. I became Chase Manhattan’s balance of payments economist. I wanted to find out what is the deficit stemming from? The entire balance of payments deficit in the 1960s when I was working there came from the military spending abroad. So I found out it was really the Vietnam War and allied military spending.

I’ve been spending much of my effort for the last 30 years trying to see how the ancient near east and classical antiquity and medieval Europe all solved their debt crises, basically writing a history of debt crisis showing that every economy has had to cancel the debt. So you could say all my work in economics since the 1960s, more than 50 years, is spent on seeing how society handles its debt crisis.

The industrial economy in America is essentially being emptied out in order to pay the stockowners and about 75 percent of stocks are owned by the richest 5 percent of the population. So if you look at who owns the stock, it’s not the working class, it’s not the middle class, it’s the super rich. The super rich are saying, We’re willing to use all the corporate income to run it down. Basically, the 5 percent have decided that industrial capitalism is over and it’s time to take the money and run. And you take the money and run by just paying out all the income, just to yourselves, leaving the corporation an empty shell.

That’s how the Chicago Boys introduced free markets into Chile after 1974 when Pinochet took over from Allende. It’s the neoliberal model. It’s what happened in Russia after the neoliberals convinced Russia to go along. It’s what’s happening in Greece when you’re just emptying out the economy to pay the bond holders. It’s economic shrinkage. The trick is to get the middle class and the working class to think the stock market is them when the stock market isn’t themselves at all. It’s the five percent.

Greece is the future of where America is going now under the policies of Clinton and Obama and Trump. Either you’re going to have barbarism or you’re going to have a renovation of the economy which means the debt write-down, anti-monopoly legislation, and prosecution of crooks.

Now, it is clear the decline of a language must ultimately have political and economic causes … It becomes ugly and inaccurate because our thoughts are foolish, but the slovenliness of our language makes it easier for us to have foolish thoughts. The point is that the process is reversible…. If one gets rid of these habits one can think more clearly, and to think clearly is a necessary first step towards political regeneration …

—George Orwell, “Politics and the English Language (1946)

The Orwell quote above opens the Introduction of Michael Hudson’s new book, J Is For Junk Economics: A Guide to Reality in an Age of Deception, an A-to-Z guide that lays out how the world economy actually operates with more than 400 concise entries, several essays, and a full topic index. Expanding on Killing The Host: How Financial Parasites And Debt Destroy The Global Economy (2015), Prof. Hudson’s new book covers contemporary terms that are misleading or poorly understood as well as many important concepts that have been abandoned – many on purpose – from the long history of political economy.

Two key concepts are rent theory and debt, which explain how Unearned Income and the Financial Sector impoverish governments and populations the world over as power and riches flow upward into the hands of the few. These additional essays provide background for key points and explore today’s uncertain political and economic environment:

The major issues that guide healthy economies were known to the Ancients and were expanded upon by the classical economists of the 18th and 19th centuries, including Adam Smith, David Ricardo, John Stuart Mill, E. Peshine Smith, Simon Patten, Karl Marx, Thorstein Veblen, and others of many political stripes whose aim was to leave the brutal legacy of feudalism behind. Their ideas and principles are brought back into the spotlight here. This book deconstructs today’s “value-free,” inverted and deceptive economics that favor the wealthy, providing subsequent generations the opportunity to create a successful economy with proper checks and balances benefiting all.

Michael HudsonKilling the Host [2015] is a more popular version of The Bubble and Beyond [2012]. It shows that when the financial sector takes over, it’s very much like a parasite in nature. People think of parasites simply as taking the life blood of the host and draining the energy. But in order to do that, the parasite has to have an enzyme to take over the host’s brain. They take over the brain and convince the host that the free luncher is actually part of the host’s own body, and even its baby to be protected. That’s what the financial sector has done.


Classical economics was all about separating the rent-extracting sectors—landlords, monopolies, and finance—from the rest of the economy. That was unearned income. It wasn’t necessary. The whole idea of classical economics from Quesnay’s Tableau Economique all the way through Adam Smith and John Stuart Mill was to look at the finance sector, the landlord sector and monopolies as unnecessary. You’re going to get rid of them. You’re going to tax away the land’s rent or else nationalize the land. And you are going to have public enterprises as basic infrastructure so that they couldn’t be monopolized.

Michael Hudson on Junk Economics, Debt Cancellation,
and Emptying Out Economies
Interviewed by Paul Sliker and Dante Dallavalle
Democracy at Work, April 3, 2017
The following excerpts are from the complete transcript at:


Why did you choose to begin your introduction [to J Is For Junk Economics] with George Orwell and Confucius, particularly your reference to our need to “rectify our definitions of crucial economic terminology.” How does this relate to the theme of your overall book?

When I wrote it, I didn’t realize that the very month it came out, George Orwell’s 1984 was going to be on the bestseller list. And that’s because of his concept of doublethink. A vocabulary that you use shapes how you think about the economy around you. And it shapes how you think about politics. Doublethink, using words to mean the opposite of what they really mean, is a tool of deception. It’s a tool that persuades people to act against their interest….


… Explain the evolution of the term “free market” as a way of introducing what Junk Economics and the book is all about.

That’s the perfect example of doublethink—using a word to be the opposite. For Adam Smith and John Stuart Mill and all the classical economists of the 19th century, their idea of a free market meant the free market from economic rent. To free it from the landlords. To free it from the monopolists and to free markets from the banks so that you’d really have, in effect, Say’s Law, you’d really have what people earned would be earned by producing goods and services not from just adding empty prices on. Not from property claims, not from credit. The idea was that everybody would earn what they produce and that would be a fair economy.

But after 1890, you had the rentier [pronounced ron’tee-ā] class—the rent recipients, the landlords, and the monopolists, and the banks—all fight back and for them a free market was one free for them from the government. Free from government regulation. Free to charge monopoly rent. Free for landlords to shift the taxes off themselves onto the economy and make the working class and the middle class pay. And to make sure that the bankers could continue to indulge in fraud and reckless lending and all get bailed out. So the idea of freedom and of the free market has been turned into the exact opposite: to un-freedom and neofeudalism.

Neofeudalism: Much as warlords seized land in the Norman Conquest and levied rent on subject populations (starting with the Domesday Book, the great land census of England and Wales ordered by William the Conqueror), so today’s financialized mode of warfare uses debt leverage and foreclosure to pry away land, natural resources and economic infrastructure. The commons are privatized by bondholders and bankers, gaining control of government and shifting taxes onto labor and small-scale industry. Household accounts, corporate balance sheets and public budgets are earmarked increasingly to pay real estate rent, monopoly rent, interest and financial fees, and to bear the taxes shifted off rentier wealth. The rentier oligarchy makes itself into a hereditary aristocracy lording it over the population at large from gated communities that are the modem counterpart to medieval castles with their moats and parapets.

J Is For Junk Economics, p. 167

It’s reminiscent of what the Romania Dictator Ceaușescu did when his daughter got engaged to a mathematician who Ceaușescu didn’t like. So what did Ceaușescu do? He closed every economics department in Romania so that the daughter would be marrying somebody without a job. That’s the kind of thing that [shows how] the mainstream economists are totalitarian.

What the University of Chicago people realized is their definition of free market, which is one that I didn’t give before: they realized, You can’t have a free market in Chile, for instance, if you’re not willing to kill every one who disagrees with you. The first thing the Chicago Boys did in Chile, after assassinating the labor leaders, assassinating and having the assassination program of land reformers, they closed every economics department in Chile except for the Catholic University that taught Chicago School of Economics. Unless you have totalitarian censorship you cannot have the free market of the form that the mainstream economists talk about. Free only for the 1 percent and unfreedom for the 99 percent.

Chicago Boys: After the Kissinger-Pinochet 1973 military coup in Chile, University of Chicago economists were brought in to give away public enterprises to the junta’s supporters. To silence criticism of Chile’s privatization of social security, to let corporate owners loot pension plans, to end public subsidies and to break labor union power, they shut down every economics department in Chile except that of the Catholic University where the Chicago School had gained control. (See Labor Capitalism, Privatization and Washington Consensus).
        These anti-government ideologues recognized that their brand of “free markets” and giveaway of the public sector required that no economic alternative be permitted or even discussed, but could only be imposed at gunpoint with totalitarian political control. Their neoliberal version of “free markets” is akin to medieval conquerors appropriating the land and basic infrastructure by force of arms. The aim is to privatize economic rent, and weaken the power of communities by rolling back democracy. This is typically done by establishing client oligarchies and economic dukedoms.

J Is For Junk Economics, p. 53

You can only have Junk Economics if you censor and block any discussion of how the economy is actually working. That’s why the Washington Post came out with the junk news list of sites. The junk news sites that they cite are things like counterpunch, nakedcapitalism, Paul Craig Roberts—all the sites that I write on. You have to go to what the fakers call junk news to get reality and if you to the mainstream you get junk economics and junk news. You can’t have more Orwellian doublethink than that….

… [Please discuss] the historical significance of the clean slate….

Take the case of what’s happening in Greece right now: perfect example. Crooked banks were helped by the Greek government falsifying its statistics by hiring Goldman Sachs to give fake numbers and convince other banks in France, Germany, and elsewhere, to buy bonds. The problem was, by 2010, 2012, it’s obvious that Greece couldn’t pay the debt. The IMF said, We insist that you do pay the debt and it’s worth pushing you into the worst depression—Greece now is in a worse situation than the Great Depression was in in the 1930s. They’re cutting back pensions, they’re forcing huge emigration. (You’re having the same thing in Latvia.) If you don’t cut back the debts that have grown so exponentially—the miracle of compound interest—that they can’t be paid, then you’re going to absolutely devastate the Greek economy.

The IMF and the mainstream economics says, Devestation is actually good because the economy is so bankrupt that we’ll have to privatize it and privatization is what we want. Privatization means you’re going to sell the land, the ports, the railroads; the electric utilities have already been sold to German investors. Everything that the Greek economy owned is now being sold off to foreigners largely on credit because it can’t pay the debt. It’s like a family that falls further and further behind, loses the home, runs into debt, ends up homeless and is destroyed by having taken on too much debt.

That’s how entire economies are being run today by the IMF and the World Bank and by mainstream economics that says it’s unthinkable to write down debts. So I’ve written a number of books about the whole history of debt cancellation. Adam Smith said that no government has ever paid its debt, although some have pretended to, and the IMF and modern economists say, Maybe we can show that Adam Smith was wrong. Maybe we can show that governments can pay the debts even at the price of impoverishing the economy and making the U.S. economy look like Greece. Greece is the future of where America is going now under the policies of Clinton and Obama and Trump.

From February through July 2015 James K. Galbraith was advisor to the Greek Minister of Finance, Yanis Varoufakis. In the Introduction of J Is For Junk Economics, Michael Hudson writes, “Nowhere is the Doublethink vocabulary more blatant than in the financial conquest of Greece by the Eurozone ‘troika’ – the European Central Bank, European Commission and IMF.” When Galbraith was asked whether “the institutions (the IMF, the EC and the ECB) will have to rescue Greece indefinitely” he answered:

There is no “rescue” going on here. There is no “rescue,” there is no “bailout,” there is no “reform” going on. I really need to insist on this, because these words creep into our discourse. They are placed there by the creditors in order for unwary people to use them, but there is nothing of the kind taking place. What is going on is a seizure of the assets owned by the Greek state, by Greek businesses and by Greek households. There is no sense that this has anything to do with the recovery of the Greek economy or with the welfare of the Greek people. On the contrary, the policy is utterly indifferent to those considerations.

—James Galbraith and Luis Martíin, The Poisoned Chalice, Open Democracy, 1 Sep 2015

Greece is the future of where America is going now under the policies of Clinton and Obama and Trump.

… You were one of the few economists to accurately predict the 2008 financial crash. [see: “The New Road To Serfdom: An illustrated guide to the coming real estate collapse” (Harper’s, May 2006, pp. 39-46] [Do you now have] predictions for the both the America and global economy? …

For the American economy it’s a slow crash until people fight back. Until people think that there’s an alternative. Until they think, It doesn’t have to be this way, the economy is going to shrink and shrink and shrink and there are going to be more and more empty stores for rent on the big street. Wages will go down and people are going to have to borrow more and more on their credit cards just to get by, spend less and less eating out at restaurants, less and less on goods and services. And it will just shrink until there is a pushback. And the same thing in Europe….

You’re having the world outside the United States shrink more and more except for countries that are withdrawing from the neoliberal orbit: China, Russia, The Shanghai Cooperation Organization. Basically Eurasia is the only part of the world that’s withdrawing from all of this which is why the neocons wanted to back Hillary so much to try to force them—to de-stabilize them and try to overthrow their governments and make them as neoliberal as Greece or the United States or Europe.

… What can people do … what we do, who feel helpless and powerless and want to achieve economic democracy? Would one example be to nationalize the banks or create some sort of political movement to nationalize the banks?

Here’s the problem: once the financial managers have emptied out corporations, there’s nothing they’d rather do than turn these big corporations over to the workers. Because they’ll say, Okay, you operate a broke steel company or you operate the broke auto company and see what you can do—as long as they leave the debts in place. But as long as the existing corporate economy—as long as the car companies and the industrial companies and the manufacturing firms and the farms are all left as deeply in debt as they are, it doesn’t matter who owns them or what they can do as long as they have to repay the debt. So you do need a public option.

Back in 2008 when Citibank was broke, imagine what would have happened if the government would have said, Ok Citibank’s broke. We’re taking it over. We’re not paying the bond holders and the stock holders because they invested in a criminogenic organization. But we’re going to operate this as a public bank. So now that Citibank is a public bank, and Wells Fargo, and Bank of America, and the other banks that have paid tens of billions of dollars for fraud, now that they’re public banks, they can issue credit cards at cost; at 2 percent interest—what they borrow. They won’t make loans for corporate takeovers. They’ll make loans to actually help companies grow. You need a public option for this and you need public banking for this because the existing financial model is extractive, not productive.

What would be the basis for public banking? One way of getting away from the payday loans that people have is use the Post Offices as the germs of banks. When I worked on Wall Street, 3 percent of American bank deposits were in the Post Office for banks which is why the banks wanted to drive them under. Maybe 15 or 20 percent were in savings banks and savings and loans. They were mutual savings banks. They don’t exist anymore. They were looted by the commercial banks taking them over.

In order to change the ownership structure and the function of industry, you need a financial system that actually promotes industry. All of this is what Saint-Simon in France wrote about 200 years ago in the 1810s, 1820s. That was a basis for Saint-Simonian socialist reform, for French socialist reform. Marx accepted this later. He admired Saint-Simon. You had German banks in the late 19th century following this new public banking model with a unity between government, banks, and industry.

Everybody expected that this would become the basis for worker owned for socialist industrialization. World War I changed all of that and you had a retrogression and that’s what both Killing The Host and J Is For Junk Economics are really all about, to describe how history was turned into a detour, into a financial detour that’s leading to neoliberalism and to neofeudalism making the kind of world that you want to see—an economy run for the producers—impossible.

… Do you think the solution is then for there to be some sort of political movement essentially focused on changing the financial system? Is that our only way out of this? Does it have to come from the grass roots?

It has to be a political movement. And that requires meaning breaking up the Democratic Party. The Democratic Party now is the party of Wall Street and the neocons. You have to have some political party that’s going to work. If you’re a third party, as Ralph Nader found out, the media are just going to ignore you and you’re not going to have much effort. You have to say, What party can you take over? The Tea Party people tried to take over the Republicans and you see where they are. They are way out-voted by the Koch brothers and Donald Trump has just surrendered to Paul Ryan in the budget. Really the most demagogic, doublethink, Orwellian party is the Democratic Party and you’ve got to take it away from Wall Street. You’ve got to get rid of Hillary Clinton and her gang forever.

That requires a fight. If the fight means that the Bernie supporters and the socialists are expelled from the Democratic Party then you want to leave the remaining Wall Street as only the 1 percent. They’ll have the donors but they won’t have any voters at all and the Party that’s expelled, the Socialist Party, in effect, is going to become the Democratic Party, the real democratic party. And you’ve got to have a political fight. Without a political movement you’re not going to be able to achieve any change in the economic system.