The world’s peoples and governments, including us Americans, collectively owe more money than ever can be repaid. How we got to this point and what it means are the topics of a book I finished reading last week, KILLING THE HOST: How Financial Parasites and Debt Bondage Destroy the Global Economy by Michael Hudson.
Classical economists distinguished between earned and unearned income, between hard-working laborers and merchants and what they called “rentiers,” people who “got rich in their sleep” by collecting income from land or financial assets.
They condemned what they called “rent-seeking,” which was the attempt to set up as toll-keeper for some part of the economy.
A great deal of 18th and 19th century economic thought was devoted to how to shift income away from landlords, monopolists and holders of financial assets, and into the hands of those whose efforts created real wealth.
In his book, economist Michael Hudson told how this distinction came to be forgotten in the 20th century, and what followed.
Operations of finance, insurance and real estate sector of the economy came to be regarded as equivalent to the production of actual goods and services, and the bidding up of prices of financial assets came to be regarded as equivalent to increase in real wealth.
All income came to be regarded as “earned” income. The result is that more and more of the economy consists of the transfer of wealth from the real economy to the financial sector, but our economic blinkers keep us from seeing it.
There are many ways to increase financial wealth without increasing real wealth. Corporations that use their profits to buy back stock increase the stock price and enrich shareholders, for example. But unlike investment in machinery, research and development or new products, stock buybacks do not make the corporation itself more valuable or more viable. Rather they drain the institution of needed resources.