Meet Michael Hudson, a "well known economist and Professor at University of Missouri" (yesterday's Delfi). The "well-known" part is not, strictly speaking, true - not among the economics profession, at least. Further, although Mr. Hudson has a PhD in economics (NYU), during his (long) professional life he hardly published anything in the economics mainstream. However, I think Mr. Hudson is to be watched. He is an interesting person. Also a rather dangerous one.
What makes him interesting is his other affiliation – being a leading Member of Reform Task Force Latvia (RTFL), “initiated by the Harmony Center (Saskanas Centrs) political alliance” [emphasis mine]. Need I remind you that Harmony Center has a very strong lead in every polls and national election is merely a year away? This task force “brings together people whose ideas … are ahead of our time”. There is no shortage of ambition. “We wish a new order” – so says the mission statement [emphasis their].
What makes Mr. Hudson dangerous is a mix of some very sensible ideas with populism and extremism. His “Latvia’s Stockholm Syndrome”, which likens IMF and EU program to “a declaration of economic war against Latvian labor and industry” is exactly the kind of stuff that media love. The ‘Syndrome’ paper is a set of poorly structured, rambling attacks on the IMF, EU, neo-liberal economists, banking special interests, etc. It’s sheer venom, near absence of coherent argument, and overabundance of flashy metaphors would be appalling to any serious economist. But I suspect it’s all exciting stuff to people on the streets.
Lets start with his sensible points. There are two. First, he correctly questions the banks’ role in Latvia’s economic ordeal. It’s probably true that ‘too much has been lent’, so that the sum of banks’ outstanding claims is (significantly) smaller then the market value of all real estate collateral plus whatever residual claims can be recovered from individual (and corporate) borrowers. Somebody has to incur those losses. There are some very legitimate questions as to whether the present “keep-the-peg” program is not a way to spread the banking sector’s losses over Latvia’s population at large. If you add State Control (Valsts Kontrole’s) report basically saying that Latvian taxpayers fully bailed out Mr Kargins and Mr Krasovickis (of Parex), there are good chances that an increasing number of people would sympathize with this kind of thinking. Mr. Hudson’s second sensible point concerns his frequently recurring argument that Latvian tax system is severely biased towards taxing labor and extremely benign in taxing land. Well, I have been talking about this (not the land tax though) for better part of the last five years.
What does Mr. Hudson want? There are lots of slogans that Latvia should “stay away from IMF central planners like the plague”, and become “economically independent”. I see two practical proposals in the ‘Syndrome’ piece. The first one is, actually, quite a good one – to introduce a land value tax so as to reduce the tax burden on labor (e.g. personal income tax). Land tax minimizes something that is called “excess burden” of taxes (i.e. distortions) because land supply is perfectly inelastic. William Vickrey (a 1996 Nobel prize winner in economics), for example, advocated replacing nearly all taxes with land value tax to improve economic efficiency. The second suggestion is more ‘fun’: “Latvia needs to act as a sovereign nation and denominate its debt in its own currency.” I presume Michael Hudson means private sector debt, but I wonder whether it also applies to the IMF/EU loan. This is equivalent to a default, of course. My interpretation of Mr. Hudson’s justification for this is that unknowing victims of global conspiracy by financial interests need not honor their obligations.
This brings me to what my problem with this is. I, personally, have no illusions that Mr. Hudson is, to put it bluntly, more than a little Marxist. A central theme of his “Syndrome” piece (and other work) is workers being ruthlessly exploited by capitalists with the aid of IMF, World Bank, and their loyal servants – neo-liberal economists. RTFL is trying to position itself as a liberal (U.S. sense) ‘New Deal’ force (read the “mission”), but have no illusions about it – it is Marxist through and through, rooted in the class-struggle view of the world. The ‘Syndrome’ is riddled with things like ” “free-market Bolshevism”, “neo-liberal junk economics”, “destructive neo-liberal Lisbon program”, and generally equating “business friendly” with “anti-labor”.
All in all, however, I think it’s good that Michael Hudson is busy developing, as it seems to me, economic ideology of the Saskanas Centrs. Finally, a more serious fight for people’s “hearts and minds” is about to begin. The message developed by Mr. Hudson is simple and attractive to the masses – as Bolsheviks’ ideas, no doubt, were in 1917. I am afraid there would always be a thriving market for ideas like “it’s not your fault you’re poor, it’s because of a global conspiracy of the rich and powerful”. Finally, no matter how fundamentally flawed his ideas are, I am sure Mr. Hudson will be more than a match for Latvia’s lethargic intellectual ‘mainstream’.