The finance sector in the west is the enemy within

Professor Michael Hudson is interviewed on this week’s Renegade Inc and it is well worth the 29 minute watch.

In a quick tour of the Chinese economic system Michael Hudson suggests that China is beginning to understand that private rent extraction has led to Western societal decline and thus it wants to avoid using property and housing as a method of boosting the economy.

Hence the prospects for the Chinese property company, Evergrande, who seem to have been following the Western model do not look too rosy.

The nub of the issue was, it seemed to me, that the Chinese Communist Party no longer feels that it is a good idea to allow private wealth, credit creation and investment to bid up housing prices. Indeed it has already legislated to cap rental increases.

The idea is to allow that investment instead to prosper in the real economy to make China as a whole more wealthy. It is gradually endeavouring to shape the home economy to give the opportunity for wealth creation and not parasitic rent ‘yield’.

The US, in contrast, uses its ‘reserve’ currency to impose sanctions, but often in so doing, effectively drives the sanctioned into the arms of the enemies of the US. Thus since Trump’s imposition of tariffs on Russia, Russia has become the largest grain exporter in the world!

Furthermore, the US remains a very high cost economy to operate in with highly priced healthcare (amounting to 18% of GDP), education where student loans are outstanding for life and not annulled by bankruptcy and where it exists, an expensive, monopolised transport infrastructure.

China is happy with much lower priced state provision – with no rents payable. Hence the US will never be able to outcompete China.

Indeed in passing, these salutary comments on the bogus ‘markets’ in the NHS prove that in the UK we are actually purposely making health more expensive – and thus ourselves as a country less competitive – in order to give better rent extraction opportunities:

Michael Hudson goes on to point out that all economies operate on credit – but of course credit usually costs money and compound interest is exponential growth. Economies do not grow exponentially. They grow on an S curve.

Economies often have interruptions – bad weather say or Covid-19.

There has been throughout history a tendency for finance to take over the infrastructure as security. Thus industrial capitalism becomes financial capitalism, which China is trying to prevent. It wants a more balanced and less polarised economy. As the state owns the banks it can relatively easily organise this.

In current Western capitalism a financial oligarchy has taken over from democracy – they simply purchase governments.

The ‘Free’ market becomes redefined as leaving everything to the whim of finance.

The central planning function is increasingly done not by government as used to be the case but by the finance sector.

And with the purpose, not of creating prosperity for all but to create rent extraction opportunity for themselves.

China’s plan is to stick with industrial capitalism and control and curtail the finance sector, who for the Americans and the West are actually the enemy within.

Simply because the self interested prosperity for the financial sector will ensure that the West can never ever actually compete with China.

This conjures up the interesting possibility that if Labour were to properly control the finance sector and with Britain outside the Euro, they could actually improve UK competitiveness.

Because it turns out that they were right to say that socialism makes capitalism work better….

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