BF: Your book is really an antidote to the dominant Chicago school of free marketeers. What is the meaning of “free market” these days, as understood on Wall Street?Ding ding ding!!!
MH: It's exactly the opposite of what Adam Smith, and Ricardo and the classical economists defined as a free market. Classical economics defined a free market as one that is free of overhead charges, free of unnecessary charges of production, free of watered stock. Today a free market means that predators are free to extort any price from the public, they are free to deregulate, free to lie to consumers, free to exploit, free to load any company they want down with debt, and basically lead (us) to a world of debt peonage... So the whole concept of freedom has been turned upside down by the Chicago school and by the Bush administration.
BF: Why is today's understanding so different?
MH: Because hundreds of millions of dollars have been spent to mislead people and to endow business schools and universities to stop teaching the history of economic thought, to stop teaching the classical economists, and essentially to brainwash students, so that those with a sense of realism simply drop out of the field of economics and go into some other field.
Monday, August 04, 2008
some other field
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The Fictitious Economy; How Finance is Destroying Industrial Capitalism, and Paving the New Road to Serfdom
- by Michael Hudson.
'The tax code is fictitious, because real estate owners have been permitted for the last half century to pretend that buildings are losing value very rapidly, so they can take so much off for building depreciation that they pay no income taxes at all, as it works out. The fact is, buildings don't lose value if they are well-maintained with normal maintenance and repair.'
Hudson speaks nonsense. Downtown Main Street vs The Air-conditioned Mall. Even if the downtown buildings are maintained in 'like new' condition, in 50 years they're functionally obsolete and the prime locations they once were in have moved to the suburbs.
Finance didn't destroy industrial capitalism, industrial capitalism committed suicide. Manufacturing failed to read the handwriting on the wall: Modernize or Die! Not one US manufacturer of vacuum tubes continued life as a manufacturer of transistors. Take away 'finance,' the cost of money is how we prioritize what gets done, and those companies would still be making vacuum tubes for a market that no longer exists. The US is better off with 'finance' assigning priorities than it would be without. The alternative is a command economy.
- horsec
I'm pretty that I think something is wrong with your comments, but I'm not sure I have the technical chops to back it up.
Downtown buildings build before 1958 are functionally obsolete? A 50 year time horizon is an appropriate rebuttal to his grip with accelerated depreciation?
I think there's alternatives other than command economy and the present finance system.
Payback, and Discounted Cash Flow
Payback is the concept that you haven't made a dime until you've earned back your original investment. Businesses have short payback horizons, from 1 day (one man operations) to 14 months (multinationals).
Discounted Cash Flow quantifies payback. DCF's inputs are dated cash flows; investments in a project (cash laid OUT to create the project, a negative flow), and returns (cash IN, positive flows when a project sells, i. e., returns cash). DCF is used in business on a daily basis to evaluate proposed projects since it works as well on theoretical flows as actual flows. DCF is the perhaps the single most important concept in business. See my website for details on how DCF works.
Venture capital looks for returns in the 40-80 percent range. If you're not making 15 percent on your money, you're not in business. The concept of 'long term investing' is foreign to business thinking. Commercial real estate can't compete for money without accelerated depreciation, the returns are otherwise too low and the risks are too great.
I think there's alternatives other than command economy and the present finance system. - adspar
There's Islamic finance that rolls interest into the price, self-deception on a grand scale like 'zero-percent' auto financing.
- GovtWork
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