Yves here. Michael was unable to restrain himself. Yours truly could easily add much more on ZIRP, which the Fed quietly recognized as a failure save at stimulating speculation in leveraged assets, such as private equity. Recall that the Bernanke tried backing out of it in 2014 but was deterred by the taper tantrum.
By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is The Destiny of Civilization
I stopped calling myself an economist back in the 1970s when it became obvious that what I was talking about – mainly debt, the balance of payments, monetary imperialism and history – was not what the academic curriculum was all about.
When Paul Samuelson got the Nobel Prize for his unrealistic insistence that free trade made all countries gain and become more equal in their labor/capital ratios, I wrote an article in the Catholic publications Commonweal urging that the prize stopped being given. It was obvious that the awarders were right-wingers, and Sweden was already on its way to becoming Europe’s most unequal economy when it comes to the concentration of wealth in the hands of a narrow upper layer.
I published in Commonweal because I was part of the Liberation Theology movement sponsored by the two good popes (before the two reactionary ones moved to dismantle it). The Catholics were the only group sponsoring and publishing my views, including my first book, on The Myth of Aid, showing it to be an exploitative lever of U.S. imperialism.
And now comes today’s 2026 Nobel Prize to two orthodox economists. I don’t read the mainstream economic journals any more, and haven’t gone to economics meetings in over half a century, so all I know about the two new laureates is what I read in the Wall Street Journal and New York Times.
The most egregious winner, Robert Hall of Stanford and the Hoover Institution, co-wrote The Flat Tax in 1985, insisting that rich people (mainly the financial sector money managers, absentee landlords and monopolists whose fortunes were based on rentier income) should not have to pay higher taxes than labor. This was a big theme of Reaganomics at the time. He and his co-author, Alvin Rabushka, claimed that this would be “less distortionary,” according to the WSJ review.
Hall worked for thirty years at the NBER, whose doctrine is that business downturns are all self-curing thanks to “market adjustments” that are “automatic stabilizers.” He, like his co-winner Michael Woodford, wrote on the Keynesian macroeconomic concept of the consumption function (the proportion of income spent on consumption) – without mentioning the forbidden topic of debt, whose debt service has increased steadily in every business recovery since World War II, reducing consumption accordingly through debt deflation.
Woodward sided with Milton Friedman’s critique of Keynes, arguing that the consumption/income ratio (C/Y to macroeconomists) was not a stable function but reflected expected income. But there was no expectation of debt. The aim of this critique was to argue that cutting taxes in a recession was unhelpful, because the beneficiaries would not necessary spend more if they did not expect the gain to affect their long-term consumption.
Woodward’s 1978 paper was written almost fifty years ago, at a time when there was almost no discussion (apart from my own writing, which was not in polite company) about how debt would affect this. When President Trump sent his $2,000 check out to Americans in 2026 as the Covid crisis was peaking, most Americans used the money to pay down their credit cards and other debt, not consume more. So statistically, the C/Y ratio actually would have fallen (if we count Trump’s check as income).
But all this is a different world from times past. Woodward told the New York Times that President Obama’s “stabilization policy” of ZIRP – bailing out the banking sector from its junk-mortgage crash and derivatives gambles – “did contribute to better stabilization.”
But we all know what it did. Almost all the rise in wealth since 2008 has been to the top 10%, especially the One Percent, and above all to the 0.1% — thanks to the steady tax cuts and tax exemptions on the FIRE sector, whose recipients are now lording it over the rest of the economy. Their wealth consists of debt-service claims, and increasing rent claims. The Nobel Committee’s idea of “stabilization” is thus consonant with steady deindustrialization and austerity.
So all I can do is repeat my recommendation that the pseudo-Nobel Economics Prize be discontinued. Its role is to popularize a set of blinders to deter the public from seeing that today’s debt-ridden economy has no “automatic stabilizers” NBER style, but a steady exponential destabilization caused by debt deflation as Western economies replace the classical dynamics of industrial capitalism with the predatory and polarizing dynamics of finance capitalism.