Michael Hudson - "Killing the Host"
This book deserves to be alongside Thomas Piketty's "Capital" as an economics book which is widely read. And not just read: it isn't too late for actions which may just rescue us from the absurd position where predatory rentier behaviour in the financial markets extracts wealth from and slows the real economy.
The metaphor which sustains the book's argument is that the financial sector is parasitic upon the real economy. Not only does it feed off the productive work of others, but it has disabled the host's natural defence mechanisms, convincing the host that it is not being attacked. The metaphor is a good one, as nature provides many such examples.
In the course of the book, Michael Hudson exposes many modern economic myths for what they are. We were told that cash machines would have run out of cash during the 2008 crisis - it isn't true, but it did persuade governments to make huge amounts of money available to banks. Many commentators suggested that no one could have foreseen the crisis itself. Again, this is not true, but it made it sound like an unfortunate and unavoidable result of an essential system rather than something which resulted from rampant exploitation and rent seeking, which sound policies could have prevented.
Throughout the book, Hudson makes a strong case for debt forgiveness and write downs. As he says, "The claim that debt writedowns for bond holders would create systemic financial breakdown by destroying "confidence" is a public relations myth." There is the myth, much loved by governments, that austerity policies can ever produce a budget surplus, but the truth is rather that "fiscal austerity shrinks the economy and hence the ability to produce a surplus to pay creditors." He writes of the "fantasy " that a central bank monetizing public budget deficits would create high levels of inflation. The frequently quoted example of the Weimar Republic is false, in that their hyperinflation resulted from war reparations.
Hudson sees today's "foundation myth" as being that all income and wealth is earned productively. Quite clearly it isn't, and the predatory financial activities he attacks should not be seen as a contribution to GDP. They are rather a "Gross National Cost". Hudson doesn't note other costs imposed by an over active, excessively rewarded financial sector - the way it absorbs capable and intelligent workers who could otherwise make real contributions in science or technology for example. This would only have strengthened his already compelling his case.
He asks some very direct questions, for example, "Why haven't democracies been able to convince politicians to subordinate the financial sector to serve industrial prosperity instead of siphoning off its gains?" Why indeed.
This book is obviously controversial. So where are the economists who will answer his questions and refute his assertions that so many accepted truths are in fact myths?
If this book were more widely read, then it would at least prompt a debate.
It is urgent, because it would not just be an academic debate. The costs of parasitic predatory rent extracting activity are ultimately carried by the mass of the population. Hudson could have made more of this, but a concern for people whose wages fall, whose life spans shorten, whose suicide rates rise and whose marriage and birth rates plunge, caught up in shrinking real local economies, is never far from his thesis.
In some interesting passages he picks up on the scriptures of the Judaeo-Christian tradition. "Modern Christianity all but ignores the fact that in Jesus's first sermon (Luke 4) he unrolled the scroll of Isaiah and announced his mission to proclaim the year of the Lord, as the Jubilee year was known." The Jubilee year was an Old Testament provision for remitting debts.Many modern economists, rigorous in their scholarship, and compassionate and concerned in their view of the world in its people, are coming to conclusions which have long formed part of religious teaching.(see http://www.bcuim.co.uk/blog/article-5 )
Some reviewers have suggested that Hudson does not put forward solutions. Either they entirely discount his suggestions or they did not reach the end of the book. There is a wealth of well-reasoned points, probably somewhat more practical than Piketty's suggested wealth tax.
Had the "Occupy" movement continued, this book would have been a worthy manifesto. When I bought my copy, I was told it was "print on demand". It deserves better than that - though perhaps in a subsequent edition the proof reading will be improved.