“Economics has failed,” is a phrase that is becoming more common by the day, the result of the current economic paradigm of neoliberalism. But economist, Professor Michael Hudson says economics has not failed it all. It is working perfectly well, according to the rules upon which it has been set.

On this week’s episode of Renegade Inc, we explore the cover story of neoliberal economics.

The main goal of neoliberalism is to create an economic model for a parallel universe that seems plausible, says economist, Michael Hudson, Professor of economics at the University of Missouri in Kansas City and a researcher at the Levy Economics Institute at Bard College.

“It seems that it would work very nicely, if the world where that day,” he tells host and co-founder, Ross Ashcroft. “But economics does not have a relationship to the real world.

“The function of neoliberal economics is to distract attention away from how the economy really works: Why it’s polarising, why people are having to work harder despite the fact that productivity is increasing, and why the economy is polarising between the 1% and the rest of the economy.”

It’s classic cognitive dissonance.

And though there have been many economists who have accurately explained the world, the economist says very little empirical research has been factored into classical economic modelling.

“Everyone from Adam Smith, through even Malthus and Ricardo – had the basic concepts of value and price theory correct, for instance” said Professor Hudson.

“John Stuart Mill gets even better marks, though he was a little optimistic about where capitalism was going. Then Thorstein Veblen caps-it-off. These are people Americans haven’t heard very much of: The institutionalist, Simon Patton for instance, was the first Professor of Economics at America’s first business school – the Wharton School – who became the intellectual mentor of economics turning into sociology early in the 20th century.

“There is an enormous amount of analysis, all of it based on history, on empirical analysis, on statistical analysis – and all of that is excluded from the curriculum – so there’s no way to fit economic reality into the academic curriculum of neoclassical economics.”

The economist says decades of lobbying has caused a ‘selective amnesia’, where great swathes of economic history have been blocked out of economic research.

“It’s a result of the lobbying process,” he says. “The business interests who fund the major universities – the business schools in the Economics Department – want an economic doctrine that celebrates, not criticises, them. And certainly when you have the University of Chicago’s monetarism that is very deliberately pleading for their financial interests, advocating for the economy’s financialisation,” (a term used to describe the development of financial capitalism between 1980 and the present, in which debt-to-equity ratios increased and financial services began accounting for an increasing share of national income, relative to other sectors).

“What happens is that people who criticise financialisation –  for instance, modern monetary theorists – find that they can’t get published in the major refereed journals. And without that, they can’t get promoted within academia. Universities are systematically detouring students away from economic reality.”

When Professor Hudson was teaching at the New School 50 years ago, he said his graduate students were dropping out of economics because they couldn’t fit reality into the curriculum.

The economist, famed for sacking Alan Greenspan back before the days he was appointed to the Chair of the US Federal Reserve, criticised him for claiming he was “shocked” by the self-interest lending of institutions to protect shareholders equity.

“He knew who paid him,” said Hudson. “When I was on Wall Street in the 1960s, banks were afraid to hire him because he was known for saying whatever the client wanted to be said. He’s a public relations person.

“The fact is universities are teaching the economics of public relations for the corporate sector. That’s why, underlying this theory, is a theory of how an economy would work without government, or any governmental regulation, where taxation is seen as a burden.”

The economist says economics was “traumatised” by socialism and Marxism, or at least the way they were perceived by the West under Lenin and Stalin.

“They said: ‘we’ll say how an economy doesn’t need a government. If corporations run the economy, and banks run the corporations, everything will all turn out optimum, and the optimum means no choice at all. But that’s the way we’re doing it.”

Insofar as intellectual capture, they’ve done a brilliant job.

Watch the rest of the episode above to find out where this all leads to, and where it ends.

Renegade Inc

Renegade Inc

Renegade Inc. is a new mainstream media platform which creates and broadcasts content aimed at those who think differently.Its mission is to inform, illuminate and inspire, focusing initially on three sectors: entrepreneurship, self-learning and the arts.
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5 thoughts on “J is for Junk Economics

  1. Socialism is the firewall between Darwinian pressures and Mother Nature’s second-tier children. All government is socialist because all government does redistribution. Socialism is increasingly more attractive as our schools turn out more and more people who could not survive in free-market capitalism.
    Crony-capitalism (redistribution to the rich) with a heavy dose of redistribution to the poor combined with a huge bureaucratic overload has broken the system (Free markets). Naturally, capitalism is blamed.
    This huge overload of bankers, bureaucrats and beggars has all been added to the cart pulled by the working man. His numbers have been severely diminished by automation and outsourcing. His wages have slid down towards the global-mean wage. At the same time, the cart gets heavier and heavier.
    The technocrats believe that they must drive wages down even further to bring back margin.
    The floggings will continue until (consumption) improves.

  2. Its a shame that Professor Michael Hudson has omitted the biggest cause of confusion in the way economics is being taught, namely the failure to properly include the activities of the landlords as distinct from the capitalists. The confusion began about 1900 when John Bates Clark and his friends at the Chicago School deliberately combined these tow kinds of participants in our social science into one entity. They thereby managed to eliminate the just claims of Henry George that landowners were exploiting the bounty of the land to exclude the opportunities it provides to everyone else.

    The professor previously has written favorably about George’s claims (Land Value Taxation Around the World–a set of essays, edited by Professor Robert Anderson, now in third edition), so his recent “ignorance” is badly taken by this writer and considering the way that land prices are rising recently to a greater proportion of the total real estate, he should be embarrassed not to make this point better understood.

  3. The free market works when there is no monopoly and it is not rigged. We currently have both. We have a section of the population `rentiers`, who appropriate commonly created wealth, leaving those who make the wealth, the productive, poor, or poorer than they should be.

    The economy has to be made stable and unrigged and unmonopolised. The business cycle follows the 18 year land cycle, with minor ups and down between. The root is the land cycle – halt that. One way is to introduce Land Valuation Taxation which will divert money being poured into tax free land into productive enterprise. This occurred in the late 1950s/early 60s in Denmark under the `Ground Tax` government. It is a theory that proven to work in practice.

    The UK opposition party has John McDonnell as the shadow finance minister, who advocates two important points:
    1. Introduce Land Value Tax.
    2. Actively promote and encourage co-ops.

    The UK needs McDonnell as finance man and others around the world to follow.

  4. It would be nice to understand the difference if any between the terms ‘neoclassical economics’ ‘neoliberal economics’

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