The Insider’s Economic Dictionary: I Is for Ideology
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By Michael Hudson
This piece first appeared at University of Missouri, Kansas City economist Michael Hudson’s website. See the rest of the Insider’s Economic Dictionary here.
Ideology: A set of assumptions so appealing that one looks at their abstract logic rather than how the world actually works. (See Insanity.)
Ignorance: Socrates said that ignorance was the source of evil, because nobody knowingly commits evil. But by pursuing their own narrow interests, the financial and property sector destroy the social unit, which is the essence of evil as viewed from an evolutionary vantage point. Thomas Hobbes wrote in Leviathan (1651) that “Ignorance of remote causes disposeth men to attribute all events to the causes immediate and instrumental: for these are all the causes they perceive.”
Corporate practice has become a combination of the Ken Lay “Enron” defense of executive ignorance (“We didn’t know what was going on”) and the Nuremburg defense for subordinates (“We were only following orders”). The presumption that the assertion of ignorance is a lie is provided by the fact that chief executives were paid millions of dollars in salaries, plus tens of millions of dollars in bonuses and stock options. What were these unprecedented sums paid for, if the executives did not know what was going on and played little role in management except for being fools?
IMF: The International Monetary Fund, created at Bretton Woods in 1944 along with the World Bank.
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Increasing returns: Over time, increasing returns are the rule for advancing economies as production costs decline in agriculture, industry and services. This results in mathematically indeterminate solutions not preferred by mathematical economists. Their desire to “close” economic models by making them result in a single determinate solution (so-called equilibrium) has led economists to retain the notion that economies are typified by diminishing returns.
Independence: The point at which imperial powers shed their fiduciary responsibility to their colonies and turn purely exploitative without having any reciprocal political or social obligations. Under colonialism the mother country had a fiduciary obligation to administer colonies in a way that developed them. Granting them independence was a means of shedding this obligation, enabling the former imperial powers to under-develop client countries by making them food- and debt-dependent. The usual strategy is to turn control over to client oligarchies. The right to make political decisions can be granted once a country’s hands are tied economically, leaving it with little opportunity to make important decisions that might not benefit the former mother country. Political and control was replaced after World War II by a more globalized creditor leverage applied by the IMF and World Bank. (See Stabilization Programs).
Inflation: Central banks rationalize their monetary austerity promoting high interest rates by claiming that these rates will deter industrial companies from borrowing to invest and hire more labor. The aim thus is to deter wage increases, on which price gains are blamed. This rationale has two fatal errors. First of all, companies do not borrow funds to invest; they finance new investment out of retained earnings. Second, higher interest rates usually are reflected in higher rates of inflation, as debt charges are factored into prices so that “fighting inflation” in this way is counter-effective. (See the Gibson Paradox.)
These days the “inflation” in question almost invariably refers only to consumer or wholesale prices. When asset prices are inflated for stocks, bonds or real estate, it is called “appreciation,” or even more confusingly, wealth creation, as if it were not a cost (e.g., of obtaining a home, office space or other site value, or of purchasing a retirement income stream). Hyperinflation invariably is caused by a collapse in the foreign-exchange rate resulting from the attempt to pay foreign debts beyond the debtor country’s ability to earn sufficient foreign exchange.
Information economy: A frequent euphemism that the FIRE “service” economy (a term whose linguistic root is “servile,” meaning slave). Its economic analysis could equally well be called a disinformation economy. The strategy of financial populism is to convince people that the economy’s bottom 90% are best served by pursuing policies that favor the top 10%.
Stated more bluntly, parasitism succeeds by lying. Camouflage is a kind of lying – pretending to be innocuous but actually being dangerous. Taking control of the host’s brain is supplying disinformation. (See Neoliberalism and Neoclassical Economics.) As Marx put it in the “Afterword” to the 2nd German edition of Capital (Vol. I, [1873], London: Lawrence & Wishart, 1954:25), in the wake of classical political economy, “Scientific bourgeois economics … was thenceforth no longer a question of whether this or that theorem was true, but whether it was useful to capital or harmful, expedient or inexpedient … In place of the disinterested inquirers there stepped hired prize fighters; in place of genuine scientific research, the bad conscience and evil intent of the apologetic.”
Inner Contradiction: An analytic principle of irony pioneered by Karl Marx, based on the tendency of capitalism to impoverish the working class by seeking to make high profits via low wages – thereby drying up the market for the products of industrial employers. Imbalance in one direction (such as asset-price inflation) sets dynamics in motion that counteract it (e.g., debt deflation). The principle of security for private property leads to monopolization, financial foreclosure and hence expropriation. Democratic control of government enables the vested interests to shape voting patterns through their control of the mass media via advertising and direct ownership.
Insanity: Doing the same thing and following the same policy repeatedly, and believing that next time the outcome will be different. In economics, an ideological repetition compulsion. (See Free Market, Ideology and Labor Capitalism.)
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