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The Insider’s Economic Dictionary: R Is for Rentier

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Posted on Apr 14, 2014

Photo by Cal Dellinger (CC BY 2.0)

By Michael Hudson

(Page 3)

Road to Serfdom: An economic policy in which society relinquishes or loses its choice to centralized planners. During World War II Frederick Hayek wrote The Road to Serfdom to depict all government regulations and planning as leading inevitably to centralized bureaucratic planning. The book became the ideological bible for subsequent neoliberals such as Margaret Thatcher to dismantle government authority and privatize the public domain. But inasmuch as every economy is planned, their efforts left a political vacuum, which has been filled by large financial institutions operating globally. Their mode of planning via the IMF, World Bank and Washington Consensus has turned out to be the new road to serfdom by loading down economies with unproductive debt, imposing economic austerity, and using the resulting financial crisis to assert dictatorial powers over government.

Democratic government policy was supposed to lead the world away from the vestiges of feudalism, but financial planners now impose client oligarchies, economic austerity and debt deflation, replacing the public Treasury with a central bank. Whereas governments plan to uplift living standards, protect the weak, promote greater economic equality and tax wealth in ways that promote rising productivity and prosperity, financial planners reverse this program in an economic counter-Enlightenment by untaxing wealth via a tax shift of the fiscal burden onto labor and pursue related anti-labor policies. (See Labor Capitalism and Race to the Bottom.) And whereas progressive governments aim at maximizing domestic employment and economic potential, financial planners aim at maximizing the price of real estate, stocks and financial securities relative to wage levels. The danger of an economy following a road to serfdom thus lies more in dismantling government and turning its planning power over to the financiers than in empowering democratic governments pursuing progressive economic policy, tax policy, fiscal policy and monetary policy.

Rule of 72: The Rule of 72 provides a quick way to approximate the number of years needed for debts, savings or prices to double at a given compound rate of increase, by dividing 72 by the interest rate. The result is fairly accurate up to a rate of 20 percent. To double money at 8 percent annual interest, divide 72 by 8. The answer is 9 years. In another 9 years the original principal will have multiplied fourfold, and in 27 years it will have grown to eight times the original sum. A loan at 6 percent doubles in 12 years, and at 4 percent in 18 years. But as Herbert Stein famously quipped: “Things that can’t go on forever, don’t.”

Ruler: Applied to the Bronze Age predecessors of hereditary kings ruling as alien conquerors, the word connoted society’s political coordinator who set rules by taking measures. The basic idea of measure is standardization, traditionally in the form of the basic income needed for self-support. Rulers accordingly proclaimed Clean Slates to preserve basic economic equilibrium.

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Michael Hudson is Distinguished Research Professor of Economics at the University of Missouri, Kansas City and president of The Institute for the Study of Long-Term Economic Trends (ISLET).


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