Economics Professor Richard Wolff details the problems of capitalism and urges our recognizing its obsolescence and replacing it with institutions that truly serve the people.
For 150 years, American wages went up due to labor shortages. This was to induce European workers to move here and take advantage of fertile farmland, slave labor, and easily navigable coasts, and then raised again to keep them from moving West. In the 1970s, wages became flat as productivity increases from computerization and the offshoring of labor became standard business practices, and as more people (women, minorities, Latin American immigrants) became available to the labor market.
However, consumers didn’t stop spending. With the invention of credit cards in the 70s, consumer debt rose and has largely kept rising. And since their wages didn’t rise, American workers began to put in more hours instead, and we are now one of the most (if not the most) overworked populations in the modern world.
During the 80s, as business balance sheets bulged from flat wages and rising productivity, the executive class started paying themselves vast sums of money, which has raised the average CEO pay from 30-50x their average employe to 350x. Even more ingeniously, all of the money that they should have been paying to their employees was instead borrowed by those employees, creating huge stacks of debt. Hedge funds emerged as a way for the executive class, who literally had so much money that they didn’t know what to do with it, began to invest. However, those hedge funds began to make riskier and riskier bets backed with that debt in order to compete for investor dollars. (Editor’s note: this was largely made possible by the deregulation of the 90s and the destruction of the firewalls established by Glass-Steagall.)
In 2007, it all fell apart. The working class ran out of credit and couldn’t physically work any more hours. Lending completely stopped, even between banks, because every major financial institution was essentially bankrupt. All of the consumer debt assets were worthless. And since this was important, “unlike national health care policy which requires years of careful debate,” governments handed over trillions of dollars to float financial institutions through the crisis.
The only problem is that any institution that has actual money has seen world government spending skyrocket, and they are concerned about the government’s ability to repay. “Not because the politicians wouldn’t pay, because they own the politicians, but concerned that the citizens of the country wouldn’t allow it.”
So, there are three ways for governments to raise money if they can’t borrow it: to print it, which can lead to inflation; to tax it across the board, which loses elections; and the third option is by cutting government spending. (Editor’s note: cutting spending is just another form of a tax increase, since those services are probably still a necessity, and the money will now come out of your pocket instead out of the taxes you’re already paying.) Governments have chosen the last option.
Now, for a country like America, we’re still able to borrow money because our economy is so enormous. But for smaller countries like Greece, who mostly borrowed from foreign banks, they are being forced into austerity by their lenders and by others in the Eurozone. The problem with austerity is that it again is punting the costs further down the road, but instead of just costing paper money, there is a very real chance that foundational damage to the economy will occur. This is because austerity damages infrastructure that is expensive to replace, not only for things like roads and bridges and electrical grids, but for education and social services that create the quality of labor that is required for dynamic and successful economies.
In a nutshell, the power structures in our societies are trying to lay 30 or 40 years of economic planning mistakes squarely on the shoulders of the working class, and it’s too much, even according to billionaires like Soros and Buffett.
He then goes on to list what happened in response to the Great Depression: Social Security was created, unemployment compensation was created, and between 1934 and 1941 FDR hired 12 million people since the private sector was unable to do so. And the rest, of course, received employment during the war.
Where did Roosevelt get the money to accomplish all of this? He raised taxes. During his presidency, for every dollar collected in taxes from private citizens, $1.50 was collected in taxes from corporations. Today, every dollar of individual taxes is matched by twenty five cents from corporations. The highest income tax bracket became 94%. (Editor’s note: today, effective tax rates for the very wealthy are between 15-20%.)
After Roosevelt was gone, the business community decided to take back what they had given away, and that’s pretty much the story since the end of the war.
over the last 40 years the New Deal has been rolled back through tax and spending cuts and finally in1999 Clinton repealed Glass-Steagull: regular depositers banks could take risks and reap the benefits. Eight years later the banks fail.
Corporations have concentrated decision-making into a tiny number of wealthy shareholders, they have bought the political system.
Workers have no say in this decision structure, all decisions that effect them are made by others, they vote in elections but it doesnt matter, both sides have to fill their campaign coffers with corporate money.
Occupy has brought this unbroadcastable state of affairs into a public conversation, their open about the real culprit: the entire economic system where they actually have no meaningful say.
We need worker-run businesses.