Today’s economic crisis is the most severe since the Great Depression. Some put the blame on greedy bankers who pawned off credit-default swaps, subprime mortgages, and a smorgasbord of derivatives on hapless investors in a time of little or no regulation. Others blame consumers who irresponsibly took out loans they couldn’t pay back. Economist Richard Wolff says no single sector of the economy is at fault. The seismic failures are systemic and deep, and fundamental change is necessary to avoid future collapses.
Wolff has devoted a lifetime to the study of economics and capitalism. He is professor of economics emeritus at the University of Massachusetts Amherst and is currently a visiting professor at The New School in New York City. His 2009 book, Capitalism Hits the Fan: The Global Economic Meltdown and What to Do about It, is an account of the current crisis and its origins, with suggestions for structural changes rather than tepid reforms. “The issues raised by the crisis,” he says, “go far beyond the stale old debates between those favoring more versus less government. The capitalist system itself has been placed in question.”
The son of European immigrants, Wolff was born in 1942 in Youngstown, Ohio, where his father worked for the Youngstown Sheet and Tube Company, a steel manufacturer. Wolff got his undergraduate degree at Harvard, his master’s at Stanford, and his doctorate at Yale. (“I’m a poster boy for elite education,” he jokes.) His professors taught him to revere capitalism but also to ask tough questions. He supplemented his required reading with works by capitalism’s critics, Karl Marx being the most prominent. Marxism, Wolff says, has its own shortcomings and failures, but its analysis counterbalanced the perspectives of his teachers. “If you want to understand capitalism,” Wolff says, “you need to talk to people who think it’s wonderful, but you also need to expose yourself to the arguments of those who don’t think it’s wonderful, who think we could do better.”
Wolff’s analysis is proof that economics doesn’t have to be boring. He is witty, affable, and sensitive to the effects of joblessness on individuals and families. He avoids jargon and peppers his arguments with concrete examples. Though for many years he was seldom invited to speak publicly, he now has so many requests that he has to turn down engagements. The Occupy Wall Street [OWS] movement has placed income and wealth inequality — and the system that created them — at the forefront of the debate. Wolff’s time in the spotlight has come.
I interviewed him in Santa Fe, New Mexico, in early September 2011 and broadcast our talk on Alternative Radio, my weekly radio program. At that time he predicted a new movement would arise in the U.S., similar to the Tea Party but from the other end of the political spectrum. “We’re going to see an American working class that views what’s going on as not only unjust but intolerable,” he said. When we talked again in November, Occupy Wall Street was front-page news.
Barsamian: You write that Americans “had a remarkable 150 years during which workers enjoyed a steadily rising standard of living.” When and why did that stop?
Wolff: What distinguishes the United States from almost every other capitalist experiment is that from 1820 to 1970, as best we can tell from the statistics we have, the amount of money an average worker earned kept rising decade after decade. This is measured in “real wages,” which means the money you earn compared to the prices you have to pay. That’s remarkable. There’s probably no other capitalist system that has delivered to its working class that kind of 150-year history. It produced in the U.S. the expectation that every generation would live better than the one before it, that if you worked hard, you could deliver a higher standard of living to your kids.
Before we talk about why this changed, let’s think for a moment about the trauma the end of this trend represents to the working population. It is the end of the notion that a better future is the reward for hard work. And the trauma is made worse by the fact that there’s no discussion of it, no way to share the experience, because most of the population literally believes that it hasn’t happened.
Barsamian: So why did it end?
Wolff: There are many reasons, but I think four developments in the 1970s were key.
The first was the increasing use of computers, which made it possible for employers to reduce their number of workers, since one computer now did the work of many humans. For example, once upon a time supermarkets needed workers to keep track of how many boxes of cereal and rolls of toilet paper were leaving the shelves. Now a computer scanner at the checkout counter does that. One man or woman sitting at a monitor somewhere can tell exactly how many boxes of cereal have to be ordered at a hundred different supermarkets. They don’t need an army of workers to take inventory.
The second thing that happened in the 1970s was that employers moved production to other parts of the world, where wages were lower. Between the computer replacing workers and jobs going overseas, the demand for labor in the U.S. shrank.
The third event was that women joined the paid workforce in large numbers and stayed, largely abandoning the role of full-time mother and housewife. And, finally, we had a new wave of Latin American immigrants who came here looking for jobs and a better life. So while the number of jobs was declining, there was an increase in the number of people looking for work. This combination meant that, for the first time in American history, there was no labor shortage.
With so many people competing for jobs, employers discovered that it was no longer necessary to give raises to attract and keep employees. Since the 1970s American employers have enjoyed record profits. During that same thirty years, according to the Bureau of Labor Statistics in Washington, DC, the wage earned by the majority of American workers hasn’t changed. In real terms, adjusted for inflation, what a worker makes in 2011 is about what the same worker made in 1978.
Barsamian: And employees are working longer hours today, right?
Wolff: That’s right. According to the Organisation for Economic Co-operation and Development (OECD), Americans do more hours of paid labor per year than workers in any other advanced country. That is because, if you don’t earn more per hour, the only way to deliver a better life to your family is by doing more hours of work. So Americans have been pushing themselves, taking second jobs or working full time if they had worked only part time before. We have elderly people coming out of retirement to help their grown children. Teenagers are working on weekends to help pay bills. Americans have committed to an incredible number of work hours per household to try to achieve a rising standard of living. Let’s remember that we are constantly bombarded by advertising telling us that, to be a success, we need a better house, a better car, a better vacation, and a college education for our children. To be financially successful today, most of us have to work crazy hours.
And of course the other thing the American working class has done since the 1970s to keep their consumption rising is take on debt. When your wages don’t go up, and adding a few hours a week isn’t enough, you buy on credit.
In the 1970s we had to develop new mechanisms for providing credit to the masses. Before then the only people who carried credit cards were traveling businessmen with expense accounts, and the only company offering such a card was American Express. But then MasterCard, Visa, and others came along to make credit available to the rest of us, because there was such a hunger on the part of our working class for a better standard of living. American workers started to borrow money on a scale that had never been seen before in any country.
Barsamian: So wages were flattening out, workers’ hours and productivity were soaring, and Americans were accumulating huge individual debts.
Wolff: The amazing thing about the last thirty years is the collective self-delusion in the U.S. You cannot keep borrowing money if your ability to pay it back — i.e., your real wage — isn’t going up. You don’t need a PhD in economics to understand this.
So the current crisis really began in the 1970s, when the wages stopped rising, but its effects were postponed for a generation by debt. By 2007, however, the American working class had accumulated a level of debt that was unsustainable. People could not make the payments. They were exhausted: exhausted financially, exhausted physically by all that work, and exhausted psychologically because the family had been torn apart by everyone working.
Stay-at-home parents hold families together. When you move everyone into the workplace, tensions in the family become unmanageable. You can see evidence of this in popular culture. The sitcoms of the 1960s showed happy middle-class families, but many sitcoms today show struggling families. Americans are 5 percent of the world’s population, but we consume 65 percent of the world’s psychotropic drugs, tranquilizers, and mood enhancers. We are a people under unbelievable stress.
Barsamian: There have been other busts and recessions and depressions throughout U.S. history. How is this one different?
Wolff: This isn’t a typical business cycle. This is the culmination of a thirty-year postponement of what happens when 150 years of steady real-wage increases comes to an end.
Capitalism is an inherently unstable system. I like to tell my students that if they lived with a roommate as unstable as this economic system, they would have moved out long ago. Capitalism is notorious for its ups and downs. We have a whole vocabulary to refer to them: booms and busts; recessions and depressions; upturns and downturns. When people have a lot of words for something, it’s because it’s a frequent phenomenon in their lives.
You would expect that we would know this about capitalism’s history and therefore not believe that we could somehow manage to escape instability. But over the last thirty to forty years we, as a society, have been unwilling to think critically about capitalism. And it shows. We thought we weren’t going to have another crisis like the one we had in the 1930s, or like the one the Japanese have had since 1990. We imagined that these problems were no longer relevant to modern life. So we were unprepared for the mess we’re in. Nothing shows our unpreparedness better than the inability of either President Bush or President Obama to deal with this problem.
So another reason this crisis is so different is that it’s coming at the end of a long period of denial. Let me give you an example: When I began my work as a PhD student in economics, the typical curriculum had a course about the business cycle, to introduce students to the history of economic ups and downs in their own country and others. In 2007 the vast majority of graduate programs in economics had no course on the business cycle at all. We thought we had overcome it, outgrown it. We had come to believe that we were in a new economic system, a mature capitalism, and that we had all the mechanisms to control it.
Barsamian: To what extent have the mainstream media contributed to this lack of understanding?
Wolff: I wouldn’t single out the media for blame, but certainly they’ve contributed. The mainstream media haven’t been critics of the system. I would describe the media, as I would my fellow economists, as cheerleaders for capitalism: it’s efficient, they say; it’s a growth engine; it will make everybody happy. We’ve produced a generation, maybe even two generations, of economists who think that economics is about celebrating capitalism’s greatness instead of assessing its strengths and weaknesses.
Capitalism is an institution, like our public-school system or our healthcare system. As a nation we think it’s appropriate to debate whether our schools and our healthcare system are working properly and meeting our needs. Why is it taboo to ask whether the way we organize the production and distribution of goods and services is meeting our needs?
The Cold War, for one, made it practically impossible to question capitalism. A normal exercise of a democratic society — evaluating its institutions — came to be seen as an act of disloyalty. And I’m afraid the mass media went right along with that.
Barsamian: There’s a certain market fundamentalism in the U.S. that equates capitalism with freedom.
Wolff: Yes, employers are free, in this system, to stop raising workers’ wages. But their exercise of that freedom has deprived the mass of Americans of a rising standard of living to accompany their rising productivity. Employers have kept all the benefits of the productivity increase in the form of profits. So one sector of our free economy has deprived another sector of its due. It’s the paradox of a democratic society: the freedoms of one group limit the freedoms of another. To face this fact requires a more critical notion of freedom and democracy than the happy, cheerleader mentality we have today.
How do you talk about freedom to the 20 to 30 million Americans who currently have no job? Are they free? They’ve been denied a living through no fault of their own. When 20 million Americans suddenly can’t find jobs, that isn’t a problem of individuals being lazy. That’s the problem of an economic system that isn’t delivering the goods.
Barsamian: Does long-term, chronic unemployment distinguish this economic crisis from previous ones?
Wolff: Yes. The statistics are startling. The proportion of the unemployed who have been without work for more than a year is greater than we have seen in decades. There’s no question that this crisis is more severe than any other since the Great Depression in terms of longevity of unemployment.
But there are plenty of other markers that indicate the severity of the crisis. Its length, for example. We have entered the fifth year now. It began in the middle of 2007, and we’re past the middle of 2011.
Also, other economic downturns in the U.S. have shown a brief “recovery,” even if the economy has later gone back down again. There has been talk of a recovery for two years now, but it hasn’t reached most of us. We did have a recovery from early 2009 to early 2011, but only for banks, insurance companies, large corporations, and the stock market. Those are important parts of our economy, but they directly affect a relative minority of the people. For the vast majority of Americans there has been no recovery. If you look at the unemployment statistics, or the number of people losing their homes through foreclosure, or the number of people whose benefits have been cut, you’ll see that most Americans have had an economic crisis in their lives for a good four to five years now. To talk about “recovery” to these people, as the mass media did, is cruel. It makes each individual who isn’t doing better feel like a failure: Everybody else is recovering, and I’m not. That’s adding a psychic insult to economic injury, and it fuels the feelings of anger and betrayal evident in the Tea Party movement and Occupy Wall Street. Part of the reason for that anger is the fact that we’re unable to debate our capitalist system and unprepared to deal with its ups and downs.
I like to tell my students that if they lived with a roommate as unstable as this economic system, they would have moved out long ago.
Barsamian: The conventional chronology of the economic crash has it beginning in the summer of 2008, when Lehman Brothers went belly up. What happened in 2007 that you identify as the start of this?
Wolff: The real shift showed up first in the housing industry, which had been in an unsustainable boom since 2001.
Barsamian: Why was it unsustainable?
Wolff: Because it was based on credit. We had a stock-market crash early in 2000. From then until September 11, 2001, the American economy was in a bad position, with a major economic recession bearing down on us. The response of the government at that time was to drop interest rates. Over a one-year period the Federal Reserve reduced interest rates faster and farther than ever before in American history. This reduced the cost of borrowing money on an unprecedented scale. It’s like fighting an addiction with more of the drug. The American population was already borrowing too much, and the Fed made it even easier for them.
So starting in 2002 and 2003 Americans began using their houses as cash machines, refinancing their homes to borrow more money, which the banks were eager to lend to them at very low interest rates. This artificially boosted the housing boom. Also, young people were able to borrow huge sums of money with very little down payment, so houses were being built like crazy. We had an explosion of home building until the middle of 2007, when the number of new homes started going down because it had become clear that many people who had borrowed money at low interest rates didn’t have jobs that would allow them to pay those mortgages. And many middle-class families who had built an addition or bought a second home because it was so cheap to borrow money now couldn’t sustain that. All kinds of pressures made it impossible for them to keep up the payments. Maybe they’d lost their jobs, or suffered cutbacks, or had medical expenses.
As people were defaulting on their loans, houses were being put back on the market. There were so many foreclosed homes available for sale that builders saw their market collapse. This dragged the whole economy down, because the economic boom had been built on the credit bubble that had fueled the housing industry. A year later, in late summer of 2008, it became a wholesale collapse.
Barsamian: You mentioned earlier that, although wages became stagnant in the 1970s, American workers continued to become more productive. So someone has benefited from the past thirty years.
Wolff: Yes, it’s been the best thirty years that employers in this country have ever had. More product was being produced, but employers didn’t have to pay workers more. This was impossible before the 1970s, because the labor shortage meant employers had to keep paying more, which is why we had that wonderful growth period from 1820 to 1970.
So after the 1970s profits went through the roof. What I find funny — because I don’t want to cry — is the story the business community told about these profits. They probably knew they were getting the benefit of stagnant wages and rising productivity, but they developed a kind of folklore that said the reason profits were so big in the 1980s and 1990s was that executives were geniuses. We made folk heroes of Lee Iacocca at Chrysler and Jack Welch at General Electric. They became icons, as if some mystical ability of theirs accounted for the profits.
Every economist who looks at the numbers knows executives didn’t suddenly become geniuses — as if they’d been dumb before. Shifts in the economy enabled them to stop raising workers’ wages yet keep getting more out of them. No mystery there. Of course, there was a reason for this fairy tale about CEOs: if the executives could convince everyone that they were responsible for the profit increase, then they could demand higher salaries. It was in the 1970s that U.S. corporations began to pay their CEOs out-of-whack sums of money, plus multimillion-dollar bonuses at the end of each year and huge stock options. Nothing like that happened in Europe or Japan, because other capitalist nations weren’t experiencing the same economy we were. Now Americans are angry when they read about Goldman Sachs executives getting big bonuses. I’m glad the American people have woken up, but they’re about thirty years late.
The last three decades created another problem in our economic system: a widening disparity between rich and poor. If the mass of workers have wages that are flat while all the profits go to the top, then shareholders and top executives and managers of the companies are the only ones getting rich. You’re giving 5 or 10 percent of the people an enormous boost in income while everybody else gets nothing. Thirty years ago the U.S. was one of the most egalitarian societies in terms of wealth. Now we have the greatest disparity between rich and poor of all the advanced industrial nations.
That is the root of this crisis: we have put the American people in an impossible situation, so they are not spending money. Those who are unemployed obviously cannot, and everybody else is so frightened by the prospect of unemployment or reduced benefits or loss of value in their home that they’re holding back. They’re paying off their debts if they can; they’re saving a little money if they can. But they’re not buying more. American corporations are reacting by selling to the rest of the world, because the American market is exhausted.
When 20 million Americans suddenly can’t find jobs, that isn’t a problem of individuals being lazy. That’s the problem of an economic system that isn’t delivering the goods.
Barsamian: Income inequality is well documented, but you’re also talking about wealth inequality, which is a whole different set of indices.
Wolff: Yes, although I do think they have a common root. The wealth inequality in the U.S. has occurred due to an explosion in the value of the stock market over the last thirty years. That’s where the rich have become richer. People who hold a significant portion of their wealth in stocks have participated in this boom, but the vast majority of Americans either have no stocks or a trivial amount of them. Only a tiny percentage of our citizens are serious shareholders.
Most Americans have no appreciable wealth. They live paycheck to paycheck. Those who do have any wealth tend to have it in one form: their home. And houses have dropped in value by 25 to 35 percent across the U.S. over the last four years, making the inequality of wealth even greater. The so-called recovery in the stock market from 2009 to 2011 recouped some losses for those who have significant amounts of stocks, but those whose only wealth is their home are now roughly 30 percent behind where they were in 2007. Their jobs are not more secure, their wages have not gone up, and their benefits have been reduced. Wealth inequality is a more serious problem than income inequality in terms of this crisis.
Barsamian: The great Canadian singer-songwriter Leonard Cohen has a song that goes, “The poor stay poor, the rich get rich / That’s how it goes / Everybody knows.”
Wolff: I do think everybody knows what’s going on, but it’s taboo in this country to discuss it. We all know that our economic system is broken and is causing us grief, pain, and anxiety, but there is still a taboo about admitting that it’s happening. We have to develop different ways of thinking and coping, or else this is going to continue. People want to believe that the crisis is going to be over next week, but it isn’t.
Almost every single president since Franklin D. Roosevelt has seen at least a brief economic downturn while he was in office — none as bad as today’s or as bad as the Depression, but they’ve had downturns. And every one of these presidents has come up with a set of economic policies and announced that these policies would not only get us out of the crisis but prevent future downturns. And every one of these presidents has been a liar, because none of them has prevented future crises.
I think we’re looking at the potential for a ten- or twenty-year downturn of the sort that Japan is now suffering if we don’t stop and have a long-overdue debate about capitalism, with the goal of making our economic system work for the majority of people.
Barsamian: One factor you haven’t mentioned is the decline of organized labor, which used to act as a check against the rapacious appetites of some employers. What’s happened to the union movement?
Wolff: You’re absolutely right. The trade-union movement in the U.S. has had a fifty-year period of decline. Year after year the number of Americans who are represented by a union has shrunk, despite efforts by the labor movement to change that situation.
Today only 7 percent of U.S. workers in the private sector belong to a union. Ninety-three percent of people working for private industry do not have the protection of a union contract or a union organization to make sure they are treated properly. And now governors in a number of states — Wisconsin being the most visible — are attacking the public-sector employees’ unions.
During the Depression Roosevelt was elected on a conservative, balanced-budget platform. After three years in office he realized that the crisis was severe and the weak measures already taken by the government were ineffective. In other words, he was in a situation quite like the one President Obama is in now. But he did something that Obama hasn’t done, at least not yet: he radically changed direction.
In 1934 FDR went on the radio to the American people and said, in effect, that if the private sector could not or would not hire tens of millions of Americans, then there was no alternative but for the government to do it. Between 1934 and 1940 the federal government under Roosevelt created and filled 11 million jobs. It put people back to work and gave them a decent income so they didn’t lose their homes. But there’s a missing part of this story: Roosevelt also made the wealthy in this country pay for the effort. He raised taxes on companies and the rich to obtain the money to hire all the unemployed. What is unthinkable today was doable then. Why?
In the 1930s we saw the most sweeping growth of the union movement in American history. It was called the Congress of Industrial Organizations, or CIO. It went on to partner with the American Federation of Labor to form the AFL-CIO, which swept across major industries — steel, auto, rubber, chemical, and so on — and organized millions of workers in a very short period of time. Those unions demanded that something be done about unemployment and the suffering of working people — or else. The Socialist Party and the Communist Party, too, were mounting large demonstrations in the streets.
This gave President Roosevelt a crucial card to play. When he told the corporations and the rich that they were going to pay for the jobs program, he not only pointed out how they’d benefit from citizens having the money to buy products; he also pointed out that the socialists and the communists might otherwise take over. There was enough fear of this that the rich and the corporations agreed to pay far more in taxes than they pay now.
When you advocate taxing corporations and the rich to give jobs to the unemployed, you’re not talking socialism or communism. You’re talking about re-creating a chapter of our history in which a president, enabled by a powerful trade-union movement, led the country in a radically different direction. Today, of course, we have a weak trade-union movement, and the socialists and communists have basically disappeared from our political life.
Barsamian: Do you think the Occupy Wall Street movement could provide similar political pressure?
Wolff: Occupy Wall Street is an immensely important step toward reconstituting a genuine Left in the U.S. Its stunning success — despite media dismissals, police overreactions, and politicians’ disregard — proves that OWS is drawing sustenance from a deep-rooted set of grievances over the worsening economic inequality of the last thirty years.
OWS is breaking the ideological and political hegemony of the Republican and Democratic parties, who now chiefly represent their financial backers. It’s opening U.S. politics to new social agendas. As an American who believes that democracy should include all perspectives — rather than systematically excluding some — I welcome this.
OWS’s basic slogan — about the 99 percent against the 1 percent — signals that the economic system is a key part of the problem. Rather than focus on this or that smaller problem or injustice, as so many social-change movements before them have done, they want to change the system.
Barsamian: What practical steps could the Obama administration take to address the inequalities that the protesters are pointing out?
Wolff: It might be too late for that. Obama had many chances and took none of them. He repeatedly compromises with the Right and ignores or throws minor concessions to his core constituents. Nothing short of a major reversal of everything his administration has done would convert him into an ally of OWS.
The U.S. and the Soviet Union, the two adversaries in the Cold War, had one thing in common: each side told its people that they belonged to a classless society. It wasn’t true in the Soviet Union, and it wasn’t true here either.
Barsamian: Is there anything that has surprised you about the Occupy Wall Street movement?
Wolff: Several things. First, the welcome OWS has extended to the labor movement, which has long been far too hesitant to enter into alliances with social movements. Second, its steadfast refusal to be pushed by its enemies — and also some of its friends — into articulating a set of specific demands, as if the demand for a different economic system were somehow “vague.” Instead OWS has held fast to its basic message of 1 percent versus 99 percent.
Barsamian: Warren Buffett, one of the wealthiest Americans, says, “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” Why isn’t there more discussion about class in this country?
Wolff: We like to believe that we don’t have separate classes in the U.S. I point out to my students that the U.S. and the Soviet Union, the two adversaries in the Cold War, had one thing in common: each side told its people that they belonged to a classless society. It wasn’t true in the Soviet Union, and it wasn’t true here either. Class in the U.S. is an explosive issue, like sex or religion: you’re not supposed to talk about it, even though you’re probably thinking about how you’re doing in relation to your neighbors and others.
Barsamian: There is one class that’s often discussed: the magical, mystical middle class.
Wolff: Right. Almost everybody in the U.S. — from the wealthy to the poor — says he or she is middle-class. We can’t afford to live any longer in the make-believe world where we’re all in the middle. The middle has disappeared. Stores in this country that served the middle class, like Sears, are threatened. Americans shop at discount stores like Marshalls or T.J.Maxx or Target or Walmart. Or, at the other end, Americans shop in boutique shops and pay five times what everybody else pays for more-or-less similar items. It’s an economy that’s splitting into the haves and the have-nots, with a shrinking number of think-they-haves in the middle.
Warren Buffett is the first well-known member of the wealthy class to face reality. He did a survey of the twenty-odd people who work in his office — secretaries, clerks, and assistants — and found that he pays a lower tax rate than any of them, even though he’s the richest person there. The hidden message in his statement is that the have-nots are going to get angry about this one day, and his fellow members of the rich class would be smart to take steps to deal with it rather than wait for that anger to grow and overtake them.
It’s not just wealthy individuals. Corporations also pay taxes at very low rates. If you go back to the end of World War II, for every dollar that Washington got from American taxpayers, it got $1.50 from corporations. In other words, taxes on corporate profits brought 50 percent more money to Washington than taxes on individuals. In 2011, for every dollar that the federal government gets in revenue from individuals, it gets twenty-five cents from corporations. Corporations have lobbied successfully to shift the tax burden from themselves to wage earners. That’s class warfare.
Now let’s look at the history of the individual income tax. In the 1950s and 1960s the top income-tax bracket for an individual was 91 percent. That means that for every dollar an individual earned over a certain amount — let’s just say one hundred thousand dollars — he or she had to give Uncle Sam ninety-one cents. Even in the 1970s it was still 70 percent. What is the tax rate for the richest Americans today? Thirty-five percent. Think of it: the tax rate for the richest Americans went from 91 percent down to 35 percent. Now, that’s a tax cut the likes of which has never been enjoyed by the vast majority of Americans.
So over the last forty or fifty years, the tax burden has shifted away from corporations and the richest individuals and onto the rest of us. Keep that in mind when you’re angry at the government about taxes.
Barsamian: So who is most to blame for the mess we’re in?
Wolff: We should be beyond blaming the poor or the rich. Everybody did his or her part to contribute to this crisis. The bankers did what bankers do; the working people did what working people do. Everyone tried to make this system work for them. Workers couldn’t pay back their debts for understandable reasons. Employers stopped raising wages because the system allowed them to do it.
When a system has everybody playing more or less by the rules and achieves the level of dysfunction we have now, it’s time to stop looking for scapegoats and understand that the problem is the system itself. It’s driving everyone in it — corporations, individuals, banks, businesses on Main Street, whomever — to act in ways that are bad for the economy as a whole. It’s like when your refrigerator is on the fritz, and the repair person says, “Look, I can fix it, but it’s going to cost you fifty dollars for this, and forty-seven dollars for that, and fifty dollars for that. You can pump money into it, but you’ve gotten twenty years out of this fridge. I think it’s time to move on and get a new one.”
We’re at that stage with capitalism as a system. We need to decide whether it can be fixed or whether we need a new refrigerator.
Barsamian: What immediate steps would you recommend?
Wolff: I would focus on one short-term step that ought to be taken immediately, and one intermediate step that will be harder to take.
Let’s deal with the easy one first: We ought to have a national jobs program to put our unemployed back to work, and we ought to end the plan that has now failed for four and a half years, the plan of Presidents Bush and Obama, which is to provide incentives for the private sector to hire people. Unemployment is as high now as it was three years ago, or worse. It is unconscionable and unethical to stick with a policy of proven failure.
Two and a half years ago President Obama designed a stimulus program that was supposed to put people back to work. It offered incentives of various kinds: tax cuts and subsidies that would hopefully lead the private sector to hire more people. It cost roughly $800 billion and was passed by Congress. It didn’t solve the problem. In September 2011 President Obama went on television again to propose yet another stimulus, only this package was half the size of the one before it. Obviously if the first one failed, this one cannot work either.
The solution is for the government to hire people directly. Use every dollar of the program to create government jobs, not to provide incentives, some of which will end up in the hands of executives or shareholders. You want to put people to work? Hire them, and pay them a decent salary. We need day-care centers and programs for the elderly. We could be insulating our homes or building public transportation. In the 1930s the government built national parks, constructed levees in flood-prone areas, and so on. Those projects turned out to be useful for generations to come. It is unconscionable to have millions of people who want to work while one-quarter of our productive capacity — factories, machines, and tools — sits idle. When we have unemployed workers, unused tools, and unused raw materials, we’re losing out. So a jobs program ought to be enabled right away.
But more important than that, and a bit more far-reaching, is the need to democratize our enterprises. Right now the majority of people come to work Monday through Friday, 9 AM to 5 PM, and use their brains and muscles to operate equipment provided by the employer to produce a good or a service, which the employer then sells for as much money as he or she can. All the decisions in this arrangement are made by a tiny group of people. In most corporations that group is the board of directors: fifteen to twenty people who decide what to produce, how and where to produce it, and what to do with the profits. And who selects these people? The major shareholders, another group of fifteen to twenty people. The vast majority of working people have no voice. If the board of directors and major shareholders decide to close down a factory in Ohio and move those jobs to China, all the people in the community who depend on that employer are going to suffer. But we permit that decision to be made by a tiny minority. In a democracy the people who have to live with the consequences of a decision ought to participate in making it.
What if the employees themselves ran these enterprises? How would that work? Maybe Monday through Thursday you would do the job you always did. On Friday you would come to work and sit in meetings with the other workers, making decisions democratically. You would collectively decide what to produce, how and where to produce it, and what to do with the profits.
If we’d had such an arrangement in the 1970s, the workers would not have stopped raising their own wages, so the whole credit-card borrowing frenzy could have been avoided. Would those workers have destroyed their own jobs by moving production overseas? Highly unlikely. Would those workers have employed technologies that pollute the local environment? I don’t think so, because they live there. They’re not going to risk their health and the health of their families the way that a board of directors living many miles away might. Would they have used the profits to speculate in risky derivatives? I doubt it. Would they have allowed some managers to earn astronomical salaries while the rest of the workers didn’t get raises? No. In fact, every part of our economic history over the last thirty years would have been radically improved if we’d had a different way of organizing our enterprises — not the top-down, undemocratic, and bureaucratic arrangement of corporations today, but a much more cooperative, collective, community-focused method that is democratic at its core.
For a country that prides itself on its commitment to democracy, we have always had a terrible gap between the private and public sectors. The most important activity of an adult’s life in this country is work. It’s what we do five days out of every seven. If democracy belongs anywhere, it belongs in the workplace. Yet we accept, as if it were a given, that once we cross the threshold of our store, factory, or office, we give up all democratic rights. If this agreement at least delivered a rising standard of living, it might make sense that people would accept it. But now we have an economic system that imposes an undemocratic workplace and doesn’t deliver a decent economy in exchange.
Barsamian: You’re talking about the government spending more money. Yet we hear from Democrats and Republicans alike that the government must balance its budget. This seems reasonable. We all have to live within our means; why shouldn’t the government?
Wolff: For the last fifty years the Republicans and Democrats have consistently voted for unbalanced budgets, which have been passed under every president. Despite their homilies about what the government ought to do, in their votes as our representatives they ignore that rhetoric.
In the summer of 2011 we witnessed an astonishing political theater in Washington, DC, as Republicans and Democrats yelled at each other in front of the cameras about the national debt. Here’s the reality: By the end of the fiscal year 2011 the government was scheduled to spend roughly $3.5 trillion. For that same year it was scheduled to take in roughly $2 trillion in taxes. This means the 2011 budget, which had been voted into effect by Republicans and Democrats a year earlier, required the government to borrow $1.5 trillion — or, to say it another way, $1,500 billion.
So what were the Republicans and Democrats debating this past summer? The Republicans began with a bold plan to cut the government’s deficit by $100 billion. Remember, the size of the deficit is $1,500 billion, and the Republicans’ “drastic” proposal was to cut it by $100 billion. But then they came down to $60 billion. The Democrats countered with $30 billion. Finally, after much yelling at each other and much invocation of the importance of deficit reduction, they reached a compromise and cut $38 billion — out of a deficit of $1,500 billion. This was portrayed by the politicians and the media as a grand historical struggle, but the truth of it was, both sides agreed that the government had to spend at least $1.4 trillion more than it took in last year.
Much of the rhetoric on the Right is . . . a thin fig leaf for private business interests. When the Right says it wants the government to “create jobs,” it means it wants subsidies for private business and bigger defense contracts.
Barsamian: Can the government pay for the sort of jobs programs you recommend without more deficit spending? How worried should we be about the deficit?
Wolff: The reason the U.S. government takes in less than it spends is because it chooses not to tax corporations and the rich at the rates applied to them in the 1950s and 1960s. Then the government turns around and borrows money. It borrows from foreign governments, but also from banks, insurance companies, large corporations, and rich individuals who purchase Treasury bills, notes, bonds, and securities. In effect corporations and the rich can not only keep more tax dollars; they can then turn around and loan the money they kept to the government and earn interest on it. The interest that must be paid to them comes either from taxes levied upon the mass of Americans or from the savings the government achieves by cutting its payrolls and programs. So the rising deficits are a result of an unjust tax system. Eventually, as the financial burdens grow and the public grasps why, social tensions will rise. The U.S. tomorrow could look like Greece today.
Barsamian: The Right says the government should not be in the job-creation business. That should be left to the private sector.
Wolff: Much of the rhetoric on the Right is less an ideological debate than it is a thin fig leaf for private business interests. When the Right says it wants the government to “create jobs,” it means it wants subsidies for private business and bigger defense contracts, but not higher taxes to provide funds to hire government workers. Direct government hiring of people to produce goods and services threatens private business with actual competition — and they might lose — so the Right opposes it.
Barsamian: Do you think we can reform the system but keep it intact?
Wolff: Reform is what was accomplished the last time the economy collapsed, in the 1930s. Reforms are never secure. The banking reforms of the Depression were later repealed. The taxes on corporations and the rich were later sharply reduced. The federal employment programs were ended. Social Security benefits are now being cut. When reforms are not accompanied by a reorganization of enterprises, they leave power in the hands of people who have the incentive and the resources to undo those reforms. Major shareholders and their boards of directors use profits to buy the political power needed to undo the reforms that mass movements manage to win. Thinking people are already saying no to reform proposals. Systemic change must now be on the agenda, just as the Occupy Wall Street movement suggests.
Barsamian: Capitalism is resilient. It’s been up against the ropes before and bounced back. Can’t it do that now?
Wolff: No one ever knows — despite grandiose claims to the contrary — when an economic system has accumulated so many problems that its survival is no longer possible. Every economic system has made it through crises. It’s only reasonable to expect capitalism to do the same. Capitalism survived the Depression in the 1930s. But today’s circumstances are quite different. This is a deep and long-lasting crisis with global impact. Although I cannot predict whether a tipping point has been reached, I am glad that the question of whether capitalism continues to serve people’s needs is now on the minds of millions worldwide. That is a long-overdue development.