Economics is supposed to be so scientific. Yet it is amusing to face the most contradictory forecasts as to prices, employment, and deficit. We study the so-called ‘market sentiment’, as if we could peer into the future, and as if market sentiment corresponded to what we need as a society. I am speaking of huge institutions, with money, statistics, and top analysts, like S&P Global Ratings, or Moody’s, or Fitch, which gave investment grade to Lehman Brothers as it was deep in bankruptcy. They are essentially paid by the corporations they evaluate. And we can get good advice from KPMG, Deloitte, PwC, Ernest&Young, so impressive. We saw the overall chaos in the 2007 global crisis. No one had imagined it, or even identified the fragility. Well, there always is someone who was right, with so many contradictory forecasts. It is not science, it is opportunism and wishful thinking.

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When Trump started the tariff war, we should consider first that Trump had no clue what would happen to the US economy, but economic analysis follows political opinions, basically, what people wanted to believe. The figure above shows the changes in prices expected by Democratic, Republican, and Independent voters. Democrats decided prices would soar to 7.9%, meaning this government is bad, while Republicans that they would fall to 0.9%, as if they had a clue. This perfect wishful thinking is confirmed by the Independents, for whom prices would find a place right in the middle. This is Economics. In French, it sounds even better, Sciences Economiques.

This is not about stupidity or disinformation: it is about interested reasoning. At the top, in these financial institutions, they push extraction to the limit, knowing the rope can break. But a more moderate approach would mean not taking advantage of getting richer. This is the world of virtual money, just information on computers, running on the so-called high frequency trading, where even generating a crisis can lead to a winning position, if you have control over the pulse of it. And the dominant issue is short-term profit maximization. In the 2007/2008 crisis, 4 million households lost their homes, and the financial corporations got their money back through government support, with the taxes the Americans paid. As was summed up, they are too big to fail. Presently, speculation is making money like it never has: The good days are back. Trump did not get to be president alone. In fact, Trump is not the problem; it is the symptom. Wolfgang Streeck rightly wrote that this system does not need democracy anymore.

But for most people, the financial gears are mysterious. So many people do not understand how they got so deep in debt. This goes for the 4 million mentioned above, the students stuck for decades to pay for their studies, over 100 million in the US are in debt with the health insurance corporations. And the fortunes of the billionaires, exploding in recent years, are supposed to be legal, therefore legitimate, even if not based on productive activities. Exploitation through low salaries is clear enough for workers, but the financial world is too complicated to understand unless you are part of the system. Welcome to the Rentier Capitalism Brett Christophers presents in detail.

Allow me to present a step-by-step presentation of the deformation of the basic economic cycle. The starting point is that you do not understand economics if you study the isolated parts; it is a movement of interdependent gears, to be viewed as a totality. And once you ‘get’ the logic of the overall movement, things become understandable. If it is too obvious for you, please forgive me, I am reacting to so many who thanked me precisely because I organized the obvious1.

The family is at the center. The economy has to work for our economic well-being, not the other way around. Brazil produces 4 kilos of grain per person per day, yet we have millions going hungry, so many children among them. This is simply wrong. The basic logic is that the needs of families represent demand, the most important engine in the economic system. The money families make is used to purchase the goods companies make. The families are the central players in this game. But if the mass of the population is reduced to poverty, the economy will work for the happy few, as it is in Brazil, or even in the US nowadays. Consumption and resulting demand are the basic engine.

The adults in the families work to earn money, and this is the link with the second player, productive companies. The productive companies provide jobs, pay salaries, and sell the goods and services that are produced. This balance is central in the economy. This is one of the most obvious relations in the economy: if the population has no money, there will be no demand for the products. Needs, but not demand. Even Henry Ford had it clear: reasonable salaries must be paid, for the products to be purchased. However simple this relation is, it is at the center of the economic wars. Individually, a corporation may make more profit if it pays lower salaries, but overall, in the economy, stagnation will result, due to a lack of purchasing power in the hands of consumers.

The key issue here is to understand this relation between two engines of the economy, the families, which contribute to the working force and demand, and the productive companies, which provide goods and services, and pay salaries. China chose, right from the beginning of the revolution, to organize the economy for the inclusion of the poor rural population, while the public policies supported productive investment. This resulted in a virtuous circle, broad-based development, leading to the present prosperity. Brazil followed the reverse example, stating that we should make the cake bigger and distribute it only later. This led to the present situation, nicknamed Belindia, meaning a prosperous Belgium within a poor India. We are among the ten most unequal countries in the world. The US is following our example, even if at a much higher level of prosperity.

Balancing the levels of activity of the two main interdependent engines, the families and the producers, is a key role of the third key player, the public sector, which rightwing Americans call the ‘State’, baring their teeth. Democracy was among the most important inventions humanity made. I say was, because it is hard to consider the present governments that were purchased with money and sold with social media as representative of the population. This is why so many qualifiers have been invented, from plutocracy to technofeudalism. But let us consider the welfare state, fulfilling its role, related to families and productive companies.

Families purchase goods and services, with taxes included in the prices. And the different productive activities also pay taxes, resulting in money in public hands. This money goes to key activities. On the one hand, infrastructures – energy, transportation, telecommunications, as well as water and sanitation – which have to be planned for the long term and should serve the overall public interest. You do not create more or fewer railways according to price fluctuation in ‘markets’. Great Britain privatized water and sanitation systems, and presently faces pollution dramas in all its waterways. A private water company makes money selling water, while sanitation incurs costs. Privatized monopolies generate systems that are regulated neither by market mechanisms nor by public planning. Infrastructures work better in public hands and are well planned. China has over 40 thousand kilometers of high-speed trains, cheap and fast, and the US is building its first 700 kilometers.

On the other hand, the public sector provides social services, basically health, education, public security, and different social protection services for the poorest. Whatever our political opinions, the fact is that social services work best when they are provided as universal, free public services. An obvious example is the cost of health services in the US, over $11,000 a year per person, as compared with Canada, where they cost $5,000. Canada is among the top countries in health of the population, the US is among the last in the OECD rich countries group. One can also compare private education costs in many countries with the public free system in Finland, top results in the world.

In the countries that work, roughly 60% of family economic well-being results from money in the pocket, while the other 40% results from access to free public goods and services, the so-called indirect salary. It is cheaper and more efficient for everyone, and makes sure some essential human needs are in everyone’s reach.

There is no mystery here. Paying better salaries and investing in the economic inclusion of the population, in broad-based economies, leads to both a higher quality of life and more dynamic businesses. And providing money for the public infrastructure and social policies makes life more comfortable and cheaper for society as a whole. We experienced this in the welfare state policies, which led to the “thirty golden years” in the post-WWII period. China pursues it to this day, and it works.

From the 1980s on, with Thatcher and Reagan, the economy has been reorganized for the happy few through financialization. Brazil is a showcase of how things can go wrong. Starting with families, their purchasing capacity has been drained through inflation until 1994, when hyperinflation got under control. But what was gained through price stability was substituted by interest rates. In 2025, private families will pay 54% on their loans from banks, not from street loan sharks. With inflation around 6%, this means large-scale systemic usury. Around half the adults in the country are in default with their banks. Instead of purchasing goods and stimulating the economy, the population is paying interest to the banks. This is a drain estimated at 10% of GDP. Instead of fomenting the economy, banks are draining it.

As to the productive companies, they are being equally drained: the average interest rates reached 21%, while they are around 3 to 4% in Europe. Multinational corporations in the country take loans in international financial markets, but the roughly 5 million small and average-size businesses in Brazil pay these rates in local banks. In these last decades, industrial activities fell from 22% to 11% of GDP. Here also, the financial system has become a drain, not a financer. What these companies pay to the financial rentiers is on the order of 4% of GDP.

Public finance has equally gone down the drain. In 2025, interest rates on the public debt reached 15%, on a debt of around 80% of GDP. This is not a high level of public debt, compared to the US or Japan, but the interest rates are absurdly high, generating a drain on the order of 10% of GDP. This is money from our taxes going straight to the 10% richest persons, to banks and other speculators, instead of funding education, health, or infrastructure. It kills private productive initiative, for three reasons: demand is slow, because the population is paying interest on their debt, instead of consuming; if a would-be entrepreneur needs a loan from the bank, the interest rates are prohibitive; and he has the possibility of placing his money in public bonds, paying 15% for an inflation of 6%, a solid net profit, with zero risk, and just pressing “enter”. Rentierism at the top has taken over. This is almost a third of the public money (budget) diverted to financial groups.

If we consider the 10% of GDP drain on family finance, 4% on productive businesses, and 10% on public debt, this stalls the economy. Families are not buying, businesses are not investing, and the government pays money to the financial sector instead of funding public services. The money in the banks is from our deposits, and the money the government pays as financial rent is from our taxes. It is a systemic drain.

To this, we must add tax evasion. The population pays the taxes already included in the prices they pay, and income tax on salaries is deducted at the source. Tax evasion is in the hands of the rich and represents 6% of GDP. To this, we must add tax waivers, on the order of 4% of GDP. Tax evasion and waivers are not money drained from the budget, but rather not contributing to it, even if they should. They use banks and lawyers in this area of the economy. They call it ‘tax optimization’, not ‘tax evasion’. Here we also have 10% of GDP that could contribute to growth.

And we must add tax exemptions: since 1995, distributed profits and dividends pay no taxes in Brazil, with the justification that the companies already pay taxes. This is a tax exemption for the very rich. Another scandal is the tax exemption on the production of primary goods for export (Lei Kandir), which means that draining minerals and agricultural commodities from the country is free of charge, stimulating an overall reprimerization of the economy. We are back to colonial times, with top technologies.

Taken together, the usury system, the evasions, and the exemptions generated what I call the integral financial flow, a powerful tool to make clear the loss of the productivity of the financial resources. It is much more than tax havens. Even if we consider that some of this money does come back to the productive sector, in Brazil, the overall unproductive drain certainly reaches more than a quarter of the economy. The Brazilian case is a particularly severe deformation, but the US, for example, is paying over one trillion dollars in interest on its public debt alone, and education, health, real estate, and other areas have generated an indebted, stagnant society. A key option in China is ensuring money goes to productive activities.

Ellen Brown sums it up: “We have two economies – the material economy in which goods and services are bought and sold, and the monetary economy involving the trading of financial assets (stocks, bonds, currencies, etc.) – basically 'money making money' without producing new goods or services2.” Thomas Piketty has a key role in showing that big money in what we still call capitalism is made not through production, but through finance. Virtual money, just a sign on our computers, has become a giant money-making machine.

Return of the Robber Barons, Michael Hudson calls is, and it defines what we are facing. “The postmodern form of class war is that of finance capital against both labor and industry. Employers still exploit labor by seeking profits by paying labor less than what they sell their products for. But labor has been increasingly exploited by debt – mortgage debt (with “easier” credit fueling the debt-driven inflation of housing costs), student debt, automobile debt, and credit-card debt just to meet its break-even costs of living3.”

A generation of economists is rescuing us from what Michal Hudson named junk economics. Brett Christophers calls what we face rentier capitalism; Marian Mazzucato calls it extractive capitalism; Yanis Varoufakis technofeudalism; Zygmunt Bauman parasite capitalism. In fact, this is speculation, making money without the corresponding productive contribution. This is not about the accumulation of capital, the key characteristic of industrial capitalism. It is about rentierism. We are destroying our natural world, generating unsustainable inequality, and the best we can hear from a leader is “Drill, baby, drill”.

Notes

1 Understand the economy in 15 minutes on YouTube.
2 Another Look at the Financial Transactions Tax on Scheerpost.
3 Return of the Robber Barons by Michael Hudson, The Democracy Collaborative.