Michael Hudson on Big Government

Michael Hudson’s latest book J is for Junk Economics is a treasure trove of, by current mainstream standards, radical economic ideas. Here he is on Big Government, that much-maligned feature of modern capitalist economies (p.41-2):

“Europe’s 1848 revolutions by the bourgeoisie against Europe’s royalty, landed aristocracies and their allied vested interests sought to transfer power away from government bodies controlled by these classes (eg., Britain’s House of Lords). Subsequent democratic reform movements favored progressive taxation, consumer protection and general economic regulation. These original liberals fought to tax special interests, not to free them from taxation. The thrust of parliamentary reform since the 19th century accordingly has been to make governments strong enough to tax rent extractors such as landlords, high finance and monopolists.

These rentiers have fought back by wrapping themselves in the rhetoric of individualism. Accusing politicians of corruption and insider dealing, populist demagogues assert that government is by nature incompetent as compared to private management – which turns out to be giant Wall Street corporations and trusts. The effect (indeed, the lobbying aim) of downsizing democratic government is to turn the economy over to the financial sector and its allied rentiers to administer in their own interest. The wealthy are all in favor of Big Government when it is oligarchic.

Trickle-down economists accuse social spending programs of leading to budget deficits that are inherently inflationary, but applaud tax cuts and bank bailouts that benefit primarily the FIRE (finance, insurance and real estate) sector. Their lobbyists craft a demagogic rhetoric to attack progressive taxation, regulation and social spending programs by insisting that public management is inherently inefficient as compared to private ownership of basic infrastructure, banking and health care. Claiming that public services are not a proper function of government, they advocate privatization of state-run enterprises, roads and the post office.

Frederick Hayek’s Road to Serfdom (1944) argued that public planning to subsidize basic needs or regulate “the market” (rent extractors, banksters and fraudsters) to protect consumers and employees leads to socialist or fascist autocracy. His libertarian followers insist that government regulation violates their personal rights to charge whatever the market will bear. Their oligarchic alternative to big government is to roll back democratic reforms by attacking social spending programs, replacing progressive taxes with a low flat tax and sales taxes that fall on labor/consumers; abolishing minimum wage protection, Social Security and other public services; and privatizing public infrastructure to turn it into feudal-style rent-extraction opportunities. The aim is to un-tax the FIRE sector (mainly the One Percent) and eliminate the consumer protection and labor reforms put in place in the early 20th century Progressive Era. The meaning of the word “reform” has been inverted, using libertarian-style language coined in the late 19th century against Big Government under the control of aristocrats and other rentiers.

The real question is thus whether governments will be democratic or oligarchic. Will they subsidize the economy and undertake public infrastructure investment, or will they tax the population at large to subsidize the FIRE sector and other special interests?”

Rethinking the State: thoughts from Mariana Mazzucato

Following yesterday’s quote, a brief video featuring Professor Mariana Mazzucato, who specializes in the economics of innovation and the role of government in shaping new technologies for inclusive growth. I can highly recommend her eye-opening book The Entrepreneurial State – Debunking Public vs Private Sector Myths.

UK infrastructure is getting worse

Evidence from the Economist magazine this week that the UK’s infrastructure is getting worse. Spending is “projected to fall from 3.2% of GDP in 2010 to 1.4% in 2020”. The chancellor’s dogmatic failure to separate borrowing for productive investment (the capital budget) from borrowing for spending (the current budget) will only harm the economy in the longer term.

This is an area in which his radical opposition Labour Party’s plans make a great deal more sense, although the Economist does not mention this. Plans for a national investment bank seem like a step in the right direction, and a way of making necessary public borrowing seem far more rational than what is proving to be a plan for austerity at any cost.

Sustaining economic growth and public vs private investment

Millen bridge London

Construction of the Millennium Bridge, London

What are the drivers of economic growth? Many economists would agree that investment is vital, as it adds to both demand as a form of spending, and supply as an increased capacity to produce output and raise productivity. Investment can come from either the private sector or the public sector. Since the 1990s, governments have also tried to get the private sector to finance major construction projects, and then pay for the use of them once the project is completed. This shifts public borrowing off the government’s balance sheet, while potentially raising subsequent spending. It remains controversial.

With global economic growth currently looking a little sluggish, there is plenty of debate among economists and policy-makers over what should be done, if anything. Continue reading

Public investment: the case for an increase

The most recent edition of the Economist magazine argued that publicly funded investment in infrastructure is currently too low in a number of rich countries, including the UK and US. With interest rates on government debt continuing to run at very low levels, the case for public borrowing to fund such investment would seem clear. Continue reading