NIMA ALKHORSHID: Hi, everybody. Today’s Thursday, January 2nd, 2025, and our friend Michael Hudson is back with us. Welcome back, Michael.
MICHAEL HUDSON: Good to be back.
NIMA ALKHORSHID: Michael, let’s get started with the economic key to 2025. What would that be, in your opinion?
MICHAEL HUDSON: Well, I’ve been thinking what a good title for the show should be, and I think it should be, “Today’s world economy is as good as it gets.” I think the United States, Europe, and the Near Eastern economic and political situation is, obviously, it’s unstable. And almost any specific forecast we make is likely to be wrong because there are so many variables at work and competing interests at play. But actually, this is what mathematicians call an optimum position. That may sound optimistic, and I’m never one to be optimistic, but an optimum position is technically one that, wherever you move, it’s going to be worse.
This is mathematically as good as it is. And that’s pretty much the situation you have today. You could say we’re now in the best of all possible worlds, given the policies that have led to the conflicts that we’re seeing: the conflict of national interest, the conflict of domestic interest, the conflict between the United States and Europe, and the United States against all the rest of the world. And I think that this year is going to be more than just change. I think that chaos is now official US policy. And that’s what you do when you’re trying to stop the world from moving in a direction that’s not in your interest.
All that the America can do is have chaos from the Near East to Europe and to the rest of the economy to stop the BRICS countries from trying to pursue their own national self-interest. So I think there’s going to be a number of clashes, and I can tell you what the clashes will be, but there’s no way of telling you now how they’re going to be resolved. First of all, you have Trump’s war against Europe is going to collapse the European economy further. There’s a clash between Turkey and the Near East. Who’s going to control the Near East? Is it going to be a new Ottoman Empire? And what’s the relationship between Turkey and Israel going to be? And at home here, right now, all of the newspapers are about the clash between President Trump and Congress regarding America’s military policy against the rest of the world.
Congress is dead set on continuing the war against Russia, and not letting President Trump make any kind of a deal that will slow the antagonism that is driving U.S. interests against Europe, against the global South countries, debtors that are affecting the dollar’s exchange rate and the domestic inflation here. So that’s what optimum means. And the basic aim of the U.S. policy is to keep an optimum position from changing by creating such chaos that there’s not going to be an alternative. So we’re back with what Margaret Thatcher said, “there is no alternative” as far as the U.S. policy is concerned. And the attempt not to create an alternative is driving other countries to force some kind of an alternative that really doesn’t have a roadmap at present. So I think there are two areas that we have to concentrate on.
One is gas, and the other is debt. And the most immediate problem is gas right now, because that’s the political key as well as the economic key. The United States foreign policy for the last century has been to try to control Near Eastern oil and gas production, because energy is the key to economic production. And the reason the U.S. wants to control it is to prevent other countries from having it if these countries act in a way that the United States opposes.
So the whole purpose of controlling Near Eastern gas, people are saying, why is it in America’s interest to be in the Near East? What do Iraq and Syria and even Iran have to do with affecting U.S. interests? Well, the reason is the U.S. interest wants to block off the Near East from other countries being able to get gas, just as the United States now is trying to block other countries from getting Russian gas. And that’s why oil has been the center of U.S. foreign policy and its attempt to dominate the world. And I think that’s the only reason why the U.S. has such an interest in the Near East. Well, the big problem, of course, even more immediate, is the new sanctions that are planned against Russian oil. Poland’s President Sikorski just said that, “What’s been happening is wonderful. The European Union has succeeded in preventing Russia from using its oil and gas exports to blackmail European economies by threatening to cut off energy exports.” Those are his words. And it’s as if selling oil and gas to Europe has been a form of Russian warfare by threatening to stop exporting it. Well, why on earth would Russia want to stop exporting its oil and gas? That’s been the mainstay of Russia’s balance of payments. Well, it’s the oil and gas exports that have enabled Russia to have the foreign exchange, to buy U.S. technology, Chinese technology, and to buy the manufactured goods and until now the food that Western economies were selling to Russia before the sanctions forced Russia to produce its food and manufacturers and consumer goods itself. So it’s the United States that’s using sanctions as blackmail against the European Union.
It’s using sanctions saying, well, it hurts Russia, and even if the cost of hurting Russia to the United States is worth destroying the core of German industry, destroying the European cost structure, forcing higher prices for energy, oil and gas, fertilizer, steel, and anything that’s made with energy. All of that is worth it. It’s very much like when Madeleine Albright was asked, “Is it really worth killing those millions of babies just to support U.S. policy against Iraq?” She said, “Yes, it’s worth it.” That’s basically the policy that the American Congress says when it comes to U.S. sanctions against Russia destroying the European economy.
Yes, it’s worth it. That’s collateral damage. There is no attempt to have any sense of mathematical proportion in the gains to the U.S. in hurting Russia, and by hurting Russia, presumably hurting China as Russia’s ally, hurting Iran. All of this is part of a kind of crazy U.S. attempt to block the whole world’s access to energy. Well, you can just imagine what’s going to happen. You’re seeing the rise in nationalistic parties in Europe. You’ve seen a backlash occurring, and the Czech Republic, Moldova, Romania, and Austria have just been cut off by Ukraine. It’s Ukraine that’s cut off Russian gas, not Russia, and yet today’s Wall Street Journal headline says Russia stops exporting gas to Europe. The whole mass media in the United States are so anti-Russian that it’s as if Russia is causing Europe’s problem of gas, not Ukraine, which isn’t even an EU member. So the amazing thing is that the European Union’s leaders, not the elected leaders, but the EU leaders, Von Der Leyen and the crazy Estonian NATO lady, are saying, “Well, it doesn’t matter what the European voters want. Our key is to protect Europe from Russia having the power to just march right through Poland and Germany right to the Atlantic Ocean.”
This is crazy. And, of course, there’s a backlash. And in the United States, you even have Elon Musk here come out and say, well, he supports the alternative for Deutschland, the nationalistic party there, because it just makes sense. So nobody really has an idea of how the Trump administration is really going to continue all this, and whether it is going to pursue such an anti-Russian policy that Europe is going to have to decide. Is it worth having the United States block Russian, Chinese, and Iranian economic development at the cost of our having to roll back our economies and impoverish ourselves? The politicians say, yes, it is. The voters say, no, it isn’t.
Something’s going to give, and you’re going to have an election, I guess, later this month in Germany that’s going to begin to show this. Of course, you just had an election in Romania, and the Romanian party says, “If you vote to not have war in Russia, we’re going to cancel the elections because we found that on YouTube and TikTok and other media, there are a lot of articles saying Europe shouldn’t fight with Russia. These are Putin’s puppets who are writing these things. This is Russian disinformation, that the idea of peace and not cutting off Russian exports of oil and gas is disinformation of such magnitude that it’s worth annulling democratic elections to prevent it.” And that’s the craziness that we’ve seen this way. And what’s making the situation even more explosive is the fact that within the United States, there’s a crisis over what are we going to do about our LNG gas exports? It looks now like the fracking is going down.
The fracking oil wells are sort of running dry. The best wells have already been taken. It’s much more expensive after you’ve siphoned off the rich oil that is there just to get all of the smaller amounts of oil. It’s very hard. So the United States strategists are, on the one hand, they’re saying, well, we’re going to insist in exporting more to Europe. President Trump is insisting that Europe buys more American LNG, liquefied natural gas, at four times the price it was paying Russia. But if it does this, then that’s going to create shortages in the US and US gas prices will go up. And if US gas prices go up, then the US consumer price index is going to go up. And that’s what the Republicans are in Congress opposing.
So solving the problem of how to hurt Russia by selling more gas to Europe is going to create a new problem within the US of what to do about the fact that American homeowners and other gas users are going to be experiencing the same problem that the Europeans are experiencing, having to pay more for the gas. And how long can the European Union hold together with all of this before individual nations begin to oppose taking orders from the EU top? The Breugel think tank in Europe estimates that when Ukraine last week cut off Russian gas exports, that’s going to cost Russia 6.5 billion in sales this year.
Ukraine will lose a billion dollars, but President Biden has just made this up by giving Ukraine a large enough new gift to enable it to afford the gas sell off. So the United States is paying Ukraine basically to forego transporting Russian gas, even though it has its own critical budget squeeze, just in order to hurt Europe. And Slovakia’s Prime Minister, Robert Fico has threatened retaliation against Ukraine. He said, well, now that if we can’t get the gas and the oil from Russia to produce electricity, then we’re going to have to cut off our electrical exports to you, Ukraine.
We know that the Russians have concentrated on blowing up your own energy generation, but we need all of the electricity we have at home or our prices are going to go up because of what you just did in cutting off Russia’s oil exports. So it looks like the United States will marginally hurt Russia, but ending up losing Europe’s pro-US policies to the right-wing policies that are emerging. And that seems to be a trade off that the United States is willing to do, but it can’t help but backfire. And the effect is not only on the US and Europe.
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You’re having gas prices now going up for the whole rest of the world. And that includes the global South countries. So something has to give because Africa, Latin America, other very heavily indebted countries can’t afford both to pay more for their gas these days and still keep up with their foreign debt service in hard currency, in US dollars. So the US selling more gas to Europe at high prices is going to create a rise in the dollar.
Europeans are going to pay more euros to buy high-priced dollar gas. That’s going to push up the dollar’s exchange rate against Europe. And pushing up the dollar’s exchange rate is going to have a double whammy effect on global South countries. Because not only will prices in dollars go up, but the cost of buying dollars in pesos or any other local currency is going to go up.
And so you’re going to have a very intensive budget squeeze that’s destabilizing the BRICS countries, destabilizing the debtor countries, and the major countries dependent on oil imports and gas imports and energy. So you’re having this domino financial and price effect go right through the spectrum throughout the whole economy. And the US foreign policy doesn’t think of the world economy as a whole system. It’s tunnel vision. How do we hurt Russia? Let’s do that first. And then we’ll think of the rest of the world. So this is why the US policy is creating chaos in the rest of the world.
NIMA ALKHORSHID: And you’ve mentioned what has happened in Ukraine, and the way Ukraine is just not letting the gas flowing to Slovakia and other countries. So, Michael, in your opinion, French President Emmanuel Macron stated that Europe can no longer rely on other powers for its security. And with the rise of the AfD that you mentioned in Germany, do you think that this new attitude on the part of Europeans can help? Because at the end of the day, they don’t have any sort of alternative for their energy. It has to be Russia. Do they have any other alternative for energy?
MICHAEL HUDSON: What Macron has said is we cannot depend on any of our own politicians to make our policy. We can only depend on the United States for our policy. That’s what every action of him has said. He would like to get votes. Of course, the voters want their politicians to support policies for the United States. Those are not Macron’s policies. Macron’s policies are diametrically opposed to European self-sufficiency. Macron has talked about let’s send the French army. Let’s send troops to Ukraine to help fight Russia. The single-minded focus of Macron is to fight Russia and sacrifice the rest of Europe.
That’s why he’s so unpopular. That’s why the government has fallen. That’s why French finances are in a disaster. So I’m not sure. I would certainly not want to take Macron as if he’s representing European interests. He’s not. He’s basically a U.S. puppet. The second part of your question is, does Europe have another source of energy? Well, thanks to the Green Party, the environmental policy party, yes, it has two sources of energy. It has coal That’s the number one fuel of the future for the Greens. It’s vastly increasing Russia’s coal consumption, and it can cut down the forests. It can use wood.
And there’s a big market. The Germans are now buying local space heaters. You put wood stoves. They’re using wood stoves. If you walk down a countryside in Germany, you see whole wood piles of logs to be fed into the heaters. So, yes, Europe can burn down its forests and coal. It takes time to make an atomic energy plant. And Europe has decided it doesn’t want atomic energy. It wants solar energy. And so throughout the German countryside, and I’ve driven there, you have enormously loud windmills going that are not only driving people crazy, they’re driving the cattle crazy or whatever animals you may have on the countryside.
So they’re making an attempt at wind power, an attempt on solar power. But the United States says, no, you can’t have solar or wind power because who’s making the windmills? China. Who’s making the solar panels that generate solar power? China. So you really can’t do that. You’ve really got to starve in the dark. And that’s, again, the quandary for Europe. And I don’t see anyone except the right-wing parties opposing this. The left is completely on board with the U.S. Cold War because the left-wing parties, as I think we’ve discussed before, have been staffed by politicians who have been dependent on very heavy subsidy and grants from non-governmental organizations such as the National Endowment for Democracy to build up. So you really don’t have a domestic formulation of what would a rational European economic policy be to restore prosperity, and in fact, is there a way to restore the dismantling of heavy industry, steel industry, automobile industry, manufacturing industry, even fertilizers and chemicals that have already been dismantled? Or does Europe have to go the way that the Baltics have gone? You’re already having plunging population fertility rates throughout Europe, but you’re also beginning to have the same kind of immigration, not only of people, but also of industrial companies out of Europe to other places.
So I really don’t see in the short term any way that Europe can have an alternative to Russian energy as long as its political system is governed not by elected local national leaders, but by the EU bureaucracy, which is solidly NATO. And the whole European Constitution, the Eurozone, as we’ve discussed before, is basically dominated by NATO and by the United States indirectly. I don’t see much of a solution except poverty for Europe.
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Something’s got to give, obviously. When is it going to give? And how will it give if there’s not a bipartisan support across the political spectrum to understand what’s happening? And as long as the European mainstream press keeps saying that, well, any advocacy of not fighting Russia in Ukraine is basically serving Russian national interests and anything that serves Russian national interest is disinformation. It’s wrong-think. It’s not the kind of thinking that we’re going to support.
This is Orwellian 1984 world that we’re seeing in Europe. And I don’t see… it is obviously worse of all in England under Starmer and the Labour Party. But what’s happening to the Labour Party is the same thing that’s happened to the German Social Democratic Party that’s now fallen behind the Alternative for Deutschland in the polls and is going to be pretty much wiped out in this month’s election. And you’re going to have one European country after another going the way of Romania. What are you going to do when people do not vote for the United States, but vote for their own national welfare? To the United States that means you’re not a friend anymore.
NIMA ALKHORSHID: As you mentioned, the situation of the economy of Germany is so dire right now. Do you think AFD is capable? Considering the economy of Germany right now and how weak it is, do you think that they’re going to stand against the US policies in Germany, or they’re going to get along with them, and they’re trying to do some political moves and maybe convincing the Trump administration to accept that Germany reconnects the line between Russia and Germany?
MICHAEL HUDSON: I don’t think in the short term there’s any chance of reconnecting. There’s such a legacy of fear and anti-Russian feeling in Europe, in Germany, especially because of the trauma that the East Germans had under the Soviet Union that certainly affects the older people, although not the younger generation that didn’t have to go through that. But there’s still the same feeling that the United States has been financing and sponsoring in the Ukraine of hating Russia. The same thing that you have in England for the last 150 years, this hatred of Russia, as if it’s the enemy of Western civilization.
The United States is trying to depict the NATO countries, the Atlantic countries as civilization itself. And the alternative is not really a new civilization, it’s as if it’s anarchy, it’s the jungle, as Borrell has said. There’s that feeling there, and I don’t see even if the German and other European populations vote in nationalist parties, no party is going to get an absolute majority in Congress. Look at what’s happened in Latvia, one third of the Latvian population, the largest party of all, is the Harmony Center Party. That is the party basically of the Russian speakers for the last 30 years.
Despite the fact that they’re the largest party in Latvia, they’ve had no representation among the leadership of Latvia. That’s because they’ve been isolated by the right-wing neoliberal parties. So I think that the Latvian model of the largest party can be cut out of power and will put in the pro-US, anti-Russian parties. This is going to be the model that the European nations are going to take.
Yes, the nationalist Alternative for Deutschland may be the largest power, may even get more than the Christian Democratic Party, but the alliance between the Christian Democrats, the social Democrats, the Greens and other parties, we can keep out all of these pro-Russian nationalist parties. And we can do it until the European population just empties out. This can go on for a very long time. The willingness of Germans to sacrifice their own interests for some abstract ideal seems to be part of their national character.
NIMA ALKHORSHID: Michael, do you see Donald Trump capable of changing the policies toward Russia, or we’re going to have the same sort of policy that we’ve seen in the Biden administration?
MICHAEL HUDSON: Nobody is capable of changing the policies of Russia. The President Putin’s speeches, and those of the Foreign Secretary Lavrov have been very clear. They’ve stated exactly what they’re going to do. Trump has talked about, can’t we just have peace and stop? Let’s just freeze the conflict and have a truce. Well, Russia negotiators, I’m not sure that Putin is even going to meet with Trump under those conditions, say, well, you know, we tried that years ago in the agreements that we made. And when we stopped fighting, NATO immediately began to rebuild all of its armaments in Western Ukraine to make a new attack on it.
We’re not going to go down that road again. And anyway, we’re going very, very rapidly. Look at how fast the Russian army now is going westward. You’re having the leaders of Luhansk and Donetsk come out and saying, we’re the ones doing the fighting here. We want to end this whole fight this year. It would be nice to end it before spring comes, because certainly Ukraine is going through a hellish winter, cold winter, without much oil and gas, without electricity, without heating. And this is the point at which Russia can say, oh, we’ve told you exactly what we want. And the solution is not simply a peace in Ukraine.
It’s going back to the peace that should have been signed way back in 1921. When we talk about peace, we’re talking about rolling back NATO to its original borders. We’re talking about what you promised. So, Mr. Trump, when you’re saying you’re proposing an agreement for us, first of all, how are you ever going to get your agreement through Congress? Congress is pushed by politicians that have made their whole career on fighting Russia. How can you control Congress? Secondly, even if Congress supported you, how are you going to have the army obey you? You tried to have the army stop fighting in Afghanistan.
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They kept fighting. They just ignored you. How are you going to control the CIA and the National Security Agency and the State Department and the military without cleaning out the leadership? You promised to do that, Mr. Trump, when you’re running. You wanted to get all of your enemies out of the deep state. Why don’t we talk after you get your enemies out of the military, the State Department and the FBI and the National Security Agencies? When you actually can consolidate your power, then we’ll realize you have an ability to make a deal with this. But until now, let us talk to your leader, whoever your leader is.
It’s the deep state. Get somebody in authority that right now looks stronger than yours for us to talk to. But all we’re talking to you is something that would be nice in principle, but we’re not going to change our policy that we’ve announced steadily for the last three years. We’re not going to change that just on a promise that you make that we don’t think you can carry out. You’re very much like President Biden. Presidents in America have become figureheads, frontmen for the deep state. And until you regain control of the deep state by the presidency, I don’t see how America can make any deal with any country over anything. What do you say to that?
NIMA ALKHORSHID: When you see these two conflicts, one in the Middle East and the other one in Ukraine, and at the same time, Trump talking about Greenland, talking about Canada, Mexico, all of this. Is that related to the war that he has in his mind toward China or is something else?
MICHAEL HUDSON: I think it’s just something else. I remember way back in the 1970s, there was talk about Canada breaking up. In World War II, almost all of Canadian industry and government support was focused on one province, Ontario. And that was the center of, I think, C.D. Howe was one of the people in that. The Prairie provinces were frozen out of this Ontario center. And there was rising opposition in French Canada to Ontario because there was so much anti-French feeling that was papered over by finally making Canada a dual language. But unfortunately, the language didn’t include what the French population spoke.
The language was French and they speak Occitanian in Canada. And it was very funny. One time I was having a lunch at the stock exchange in Montreal and ordering the food was all in French. And I could very clearly understand and talk with the waiter in French. And then the stockbrokers began to talk to me. And I said, you know, it’s very funny. I can understand the waiter, but I can’t understand you. And the stockbrokers, well, but he’s an Anglo. And the Anglo-French wasn’t their French. They were all ready to break away. But most of all, the central Canada provinces were going to break away.
So I think what Trump, when he says Canada is a state, he said, well, you know, we can’t let Canada in as just one state. But, you know, I could say let’s begin with Alberta and the with all of its oil sands there, the tar sands, not oil really. And let’s then go on to the other provinces. And certainly Western Canada has just sort of been turned into a corrupt sink of the liberal party there, British Columbia. So you can see a lot of Canadians wanting to say, well, let’s just join America. There’s a lot of Canadians are sort of down on Canada. I don’t know if you’ve noticed Hollywood actors and comedians. Most of the comedians in American entertainment have been Canadian for the last 50 years. And that’s because if you grew up in Canada, that’s the only way you can really keep your sanity and coping with the world. So I think Trump sees a chance to begin grabbing Alberta and other provinces there. Same thing with Greenland.
He’s looking at it as a real estate deal, sort of like. And I think his model is William Seward buying Alaska. And the reason Seward bought Alaska, and I’ve read his correspondence on this, was he wanted to get the United States in debt. The United States didn’t have an income tax when Seward bought Alaska. There was only one way of making up the revenue to pay for Alaska. And that was to raise tariffs. And Seward was the leader of the Republican Party, which was the protectionist tariff supporting party. So I can see Trump wanting to say, well, let’s buy Greenland. That’s going to cost a lot of money.
We’ll have to balance the budget. And how are we going to balance the budget? Let’s raise tariff revenue. Not realizing that, as we’ve discussed before in this show, if you raise tariffs, that’s going to raise American prices, make American industry and labor even less competitive with other countries and destabilizing the entire domestic economy. But that’s Trump’s fantasy. He doesn’t realize how the U.S. economy is part of a world system and the effects that it’s going to have throughout this entire system. That’s the problem with American foreign policy.
It’s based on junk economics without any idea of history. And what makes a tariff policy today different from what it was in the 1880s and 1890s before there was an income tax, and when there was still a use of tariffs to create an industrial base in the United States that now I don’t think is recoverable here any more than it’s recoverable in Germany.
NIMA ALKHORSHID: Michael, we had nine countries joining BRICS as BRICS partners. We have Indonesia, Malaysia, Cuba, Bolivia and other countries. And what are the leading aims of the BRICS countries in your opinion?
MICHAEL HUDSON: The leading aims?
NIMA ALKHORSHID: The leading aims of BRICS countries?
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MICHAEL HUDSON: Well, you’ve put your finger on the problem. They haven’t spelled out the aims at all. They haven’t spelled out what is a policy? And how are you going to have a policy for BRICS just by saying we want prosperity? Okay. We want our economic independence and sovereignty. But what are the aims going to be specifically? And how are you going to get a widely politically diverse set of countries to have a common set of aims? Well, it’s pretty obvious to see just empirically what the aims logically would be. The first aim is you need to cope with the foreign debt problem. There is no way that the BRICS countries can grow and at the same time pay the foreign debts that they’ve been saddled with for the last 100 years and especially since 1945 by the neoliberal philosophy that’s been pushed by the United States and the International Monetary Fund and the World Bank.
The policies that have been imposed on the BRICS countries have forced them into a chronic balance of payments and trade deficit as a result of their dependency on the United States and its allies that have made them not viable countries. That means that the loans that were made to these countries have no chance of being paid. And this is something that I’ve worked on since the mid-1960s when I was a balance of payments economist, first for now Chase Manhattan Bank, then for the United Nations at UNITAR, and then for various… when I organized the first sovereign debt fund in 1989 through Scudder Stevens to invest in Argentinian and Brazilian debts. It was when the United States and other bondholders began to buy Latin American debts after the 1982 default of Mexico led to the Latin American debt crisis. Nobody would really buy these bonds, and Scudder Stevens was unable to sell any bonds to American buyers or to European buyers, because they all thought that, well, there’s no way that they can pay these debts. And they hired me as an advisor for the fund saying, “Well, Dr. Hudson, you’re known as Dr. Doom. We know that you say that debts can’t be paid. Do you think they can be paid maybe for five years? Suppose we know that the economies can’t pay, but is there an interim that we can still get these high interest rates that they have to pay? And I found out who was buying these bonds that Merrill Lynch, the underwriter, was selling.
They were all bought in Argentina, Buenos Aires, and Brazil by the client elite of these countries, the central bankers, the president’s administrations, all the elites. And the fact is that the people that hold these dollar bonds are client oligarchies who don’t want to hold their own currencies because the global south countries and their oligarchies realize the debts can’t be paid. The European investors realize the debts can’t be paid. They’re selling to the vulture funds, basically. And this is a problem for the BRICS countries. On the one hand, the BRICS countries, in order to grow, have to write down their debts.
But on the other hand, the money of the holders of the debts and supporting of the dollar and opposing de-dollarization are their own vested interests. So the vested interests in many of the BRICS countries are not favoring the national interests. That’s the big conflict you have between the fact that these countries are bifurcated between a U.S.-centered elite and the country as a whole. Well, that’s one of the two issues that the BRICS will have. The second is what are you going to do about the fact that as a result of the debt crisis, these countries have been driven by the World Bank and the International Monetary Fund and U.S. policy to sell off their oil, mineral rights, their natural resources, their natural monopolies of public infrastructure to foreign investors.
How on earth can they grow if all of their national patrimony and all of the revenue, the land rent, the raw materials rents, the monopoly rents from this national patrimony is paid to foreigners? Well, you could look at the BRICS countries in very much the same way as Russia under the kleptocrats. Russia did have a solution to the kleptocrats. And that solution was a rent tax. Suppose that you take the kleptocrats who bought the nickel, Noros nickel, or Gazprom, Russia could have recovered all the revenue from nickel, oil and the other raw materials, diamonds, the other raw materials being sold off to say, well, we’re going to let you make profits on your capital investment. I think their capital investment was maybe 100 rubles, maybe a couple of dollars, and you’ve got billions.
So you can make profit on that, but all of the natural resource rent, that’s going to be taxed away. This was exactly how Britain became the workshop of the world, and then the United States. And Germany followed it. The whole logic of industrial capitalism was to free economies from the landlord class and its land rent, to free economies from economic rent. And that was what classical value theory from Adam Smith, John Stuart Mill, Marx, the American economists all said, “we want to prevent rent seeking to make a low to bring prices in line with actual cost of production.” That’s what enabled England first to become the workshop of the world, and then enabled the United States and Germany to replace England by creating a mixed public-private economy with its own national control of money.
The BRICS countries could follow this policy that made first England and then America and Germany able to organize their industrial takeoff. But in order to do that, you have to have a concept of freeing economies from economic rent. You have to have a concept that basically goes back to Adam Smith. His idea of a free market was a market free of economic rent. All throughout the wealth of nations, he said, the landlords should be taxed. If you tax away the landlords, then you won’t have this alien external power over the economy extracting its revenue in the form of rent. All of that was the great fight over value and price theory that occurred at the end of the Napoleonic Wars in 1815 when the landlord class of England wanted to impose the corn laws to prevent low-priced food exports so that the landlords could keep their agricultural rents high. That was the great fight that shaped England’s political conflict for 30 years until the Corn Laws were finally repealed in 1846.
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So, if the BRICS economies said, we’re going to recover our natural patrimony from the kleptocrats, not our own kleptocrats only, but the foreign companies that have bought our oil and glass, we’re going to use that as our natural, our fiscal base. And that we’re going to use that fiscal base to finance our own economic development. Well, then you’re going to essentially be able to do in this century what the late 19th century European countries did. The problem is you need an economic theory for that. And most of the BRICS country economists, like Chinese economists, have been trained in the United States, and there is no history of economic thought taught in the United States anymore. There’s no economic history that’s being taught, and so the BRICS countries aren’t even aware that their natural economic interest is to get rich in the way that the United States did. And what they do see is China’s remarkable economic takeoff.
And China calls this socialism with Chinese characteristics, but it could be called the American economics takeoff with Chinese characteristics, because that’s the American economic takeoff. Oh, it was considered socialist because it relied so heavily on the public sector.
And there’s a third aim that the BRICS countries should have, and that has to be to raise living standards and raise labor productivity. Because you can’t have a class war against labor and expect labor to be highly educated, well-fed, well housed, and productive. If you want productive labor, you’re going to have to raise living standards. And the vested interests in most of these BRICS countries want to keep wages low. If they have factories or whatever their business is, they look at labor’s wages as being antithetical to themselves. And the way that the United States solved this problem was to say, okay, we know that you industrialists don’t want to pay high wages to labor.
But what we’ll do is have the government pick up many of the costs of living for labor. The cost of education, the cost of health care, the cost of low-priced transportation, communications. And so that you don’t have to pay labor high enough wages to pay for its own health care, education, and all of that. Well, obviously that’s not what the United States is doing today. You’re having just the opposite. You’re having American employers having to pay enormously high wages because the government is no longer providing these services. The BRICS countries can realize we’re not going to follow the neoliberal U.S. economic advice to privatize everything and build rent-seeking into the price of breaking even and earning a living wage in our countries.
Again, you need an economic theory and economic doctrine for this. The doctrine was what 19th century classical economics was all about. And I don’t see any sign of the discussion of this doctrine emanating from the BRICS countries. I’ve done my best to go to Russia, China, and Cuba, and other countries. I’ve tried to explain to Cuba how it could apply a rent tax. And I’ve gotten sort of blank stares from Castro’s cabinet and the people who followed them. So the whole problem is that the BRICS countries know that they want to get rich, but they don’t know that they don’t have to reinvent the wheel.
The way to create a prosperous economic growth is to avoid private debt. Keep debt and money creation domestic. The debts you owe are in your own currency and you control your own currency in the same way China does, through a public bank, not through private commercial banks. You want a tax and economic rent and unearned income to encourage earned income by actually being part of the production process, not part of the rent-seeking whole superstructure just as extracted from this. And you want to create a prosperous domestic labor force so that it can become high productivity.
That’s how the United States developed so high productivity labor force itself. The way in which the BRICS countries can follow their national interest is clear, but you need a doctrine for that and an economic philosophy. That’s the missing element that I see right now.
NIMA ALKHORSHID: I hope the BRICS countries listen to you. That was amazing.
MICHAEL HUDSON: That means listening to your show.
NIMA ALKHORSHID: Exactly Thank you so much, Michael, for being with us today. Great pleasure, as always.
MICHAEL HUDSON: That’s the first time I’ve talked as long as Richard usually talks.
NIMA ALKHORSHID: Happy New Year, Michael.
MICHAEL HUDSON: You too, Nima.
