Professor Richard Wolff: Why the Economic Crisis Deepens | The New School

thank you all for coming I'm going to start today with something which at least I find positive and which is getting far too little play here in the United States I'll come back to talk to you about it a little bit later this has to do with the events yesterday across Europe something happened there that is historic and that deserves your appreciation in virtually every country of Europe simultaneously by planned arrangement yesterday the 29th of September trade unions teachers groups student groups church groups socialist parties communist party those institutions those latter ones are more important in Europe than they are here organized and mobilized huge demonstrations a hundred thousand people in Brussels the head of the the center of the European government at this time in the country of Spain there was a complete general strike and shutdown involving millions of workers there were major demonstrations in Ireland which is a very interesting phenomena and that is new the level of a militancy in Ireland the Polish trade union solidarity that you may remember from the role it played many years ago in the changes in Poland it was out today yesterday but in a different sense namely it was participating with all the other trade unions in these demonstrations millions and millions of people in a coordinated way trade union federations that often do not see eye to eye or work together did they built unified coalition's with all kinds of other social groups around one central idea the economic crisis they said will not be paid for by burdens placed on the mass of people who were not responsible for producing the crisis and who have already suffered its consequences the specific issue was no austerity programme that's what it's called in Europe when the government lays off workers and cuts back on social programs and though these were marches and demonstrations against austerity if you haven't been paying attention or even if you have but you're subject to the usual media in the United States you do not know that this is the culmination of months of this activity on the 7th of September earlier this month the French trade unions all six Federation's United and had a general strike there which drew two and a half million people into the streets and just to give you an idea numerically since I'm an economist and I play with numbers the French populations about one-fifth the population of the United States so two and a half million in France would be 12 and a half million on demonstration in the United States that has never happened in the history of this country and give you an idea the crisis is therefore in Europe and one liner that I will come back to at the end is that this is going to happen here too the crisis in Europe is beginning to change its character from an economic phenomena to becoming a political phenomena that's how big is the issue that's how big is the problem and the government on the edge of collapse now is the government of France and Mr Sarkozy whose popularity has dipped below that of George Bush in his worst month and that's not a happy place for a political leader to be okay here are the issues then I would like to address with you this evening first is the crisis o-over or is it deepening I'm going to argue with you that it's deepening and second what is being done and why isn't it working because if the crisis is deepening given all that has been done then clearly what has been done doesn't work and I need to address a little bit why that might be and then finally I'm going to be so bold as to suggest to you what kinds of alternative solutions are going to have to be dealt with if we're not going to suffer a downturn for an indeterminate amount of time we hear a lot in our government in recent years about an open-ended endless war against terrorism that seems to have no end no no boundaries one of the thoughts I'm going to leave you with is we may be entering into a much more important long term struggle with an economic decline that has no fixed dimensions and no boundaries either okay so let's turn first to whether this crisis is over or not I don't think so not even close we did have and there was much attention paid to it something called a recovery it lasted from the depth of the bottom of the stock market roughly March of 2009 and it was over by March of 2010 during that time three things got a little better in the United States number one the condition the financial condition of our banks particularly our big ones number two there was a recovery of roughly half or so of what the stock market had lost and number three corporate profits rebounded from the worst times they had had in 2008 and 2009 all of those developments are now over that is if you saw today's announcement the second quarter growth in the United States was about 1.6 1.7 percent that's a level of growth that is inadequate simply to provide jobs for the new people entering the job market it can and will do nothing for all the unemployed and indeed the prospective now is that unemployment this is the official perspective of the Bureau of Labor Statistics unemployment United States is likely to rise over the coming months not only not fall but to rise Bank situation has not gotten any better in several months now now after that recovery same thing with corporate profits same thing with the stock market I would submit to you that the recovery was a recovery only in part and for very limited sectors of the American economy the sectors who were the beneficiaries of the massive intervention of the United States government starting in 2008 that money that was thrown at banks improved their situation let me remind you the ration now for the focus on bank improvements buying their bad assets which the government did guaranteeing their obligations because they couldn't anymore which the government did and still doing all these things throwing all this money at the banks was given a rationale to unfreeze our credit system to enable these banks to then make the loans to individuals and businesses that would get our economy going again this was naive if not dishonest as any banker would have told you and has been willing to tell anybody who's willing to listen the problem in 2008 was one that they had lent money to people they should never have lent to number two that we were an economy in freefall and the last thing a prudent banker will do under those circumstances is make loans consequently the banks took the money from the government rebuilt their own balance sheets improved their situation and did not make loans since that was the way to do that so they made no public loans in fact what they did is turn around use the money the government made available to them to buy the debt of the government so it would have the money to help them if you understand that not only do you get an A in high finance but you will understand the games that are being played in this crisis that's number one number two the improvements in the stock market which have now sputtered and the improvements in corporate profits in the case of the stock market it was simply jumping into a very depressed market and bouncing back with it which is done with money when it's very cheap to borrow money and because the interest rates had been lowered so much this was a game that could be played and was played out for about a year and is now over in the case of corporate profits they renewed because not only did the government give all kinds of subsidies the stimulus program buying their output but likely also they cut their rolls they eliminated lots of workers they paired everything down which improved their profitability but of course contributed to the unemployment so what do we get we get a situation of improvement in three sectors banking stock market and corporate profits well what happened to the rest of the economy across this time well perhaps the most dramatic statistic is an interesting statistic called the number of paid jobs available in our economy that number if I could show it to you and I want to take the time to do it is a straight line down from December of 2007 to the present there are six percent fewer jobs in the United States paid jobs today than there were when this recession began in December of 2007 that not only means we have less jobs for our people but of course we have more people now than we did then so we are again falling further and further behind the unemployment rate shot up to around 10% and has stayed there even more importantly one of the particular employee unemployment rates and by the way the government keeps quite a few unemployment statistics one of them called you - six number six among the many unemployment measures is an interesting number and I bring it to your attention it adds together three kinds of unemployment the number of people looking for work adults looking for work who are not finding it the number we usually call unemployed who by the way went from FLE seven million in December of 2007 to 15 and a half million today it but it takes that number and it adds two other categories excuse me people who have a part-time job even though they want a full-time job and people who have given up looking for work who the statisticians give a wonderful name to discouraged workers which is one of those euphemisms you'd want to keep in your mind disagree if you add together the unemployed the involuntarily part-time workers and those who are discouraged and stop looking we're talking between 25 and 30 million Americans an unemployment rate officially of a roughly eighteen percent that means more than one in every six members of the workforce of the United States is in one of those categories and that means every single American family has somebody in that situation if not mother father son daughter then cousin uncle aunt or someone else this is a crisis that affects everyone and continues to affect everyone there's been no end to the level of unemployment indeed it is getting worse if you take the larger number it is getting worse if you look at the number of weeks the average unemployed person is without work which is at a historic high etc etc the same applies to foreclosures of homes running now at two to two hundred fifty thousand procedures begun every month in the United State League of procedure to throw people out of their homes and if we look at the people who haven't lost their homes and who haven't lost their jobs here's what we find the value of homes has dropped in the United States roughly 25 percent sudden in some places more in some places less but as an average which means if you own your home it's worth a good bit less than it was two and a half years ago if you have a job it has poor benefits lower benefits if you have a job it has less security associated that less opportunity for advancement the conditions of the working class the vast majority of people have been horrible and not improved in a significant way for the duration there's been no recovery when you read about anxiety that there might be a double dip for the vast majority of people there isn't a double dip because it never went up to dip again it's been a straight downward trajectory what does this mean it means that the efforts of the United States government massive efforts of intervention unprecedented in some cases undertaken by the bush administration when it was still in power and then done in a bigger scale of anything by the Obama administration has not succeeded it has not ended unemployment not come close it has not stopped the foreclosure and loss of homes by millions of Americans not at all and it has done nothing to turn around the declining wage level the declining benefit level the declining job security everything I mentioned it is not a success and likewise the regulation of the American economy to which a lot of people looked both during this crisis and in the past is also a story of pretty abject failure let me quickly remind you in the last occasion when the American economy collapsed 75 years ago in the 1930s we had a collapse on the scale of this one worse at least for the moment than this one but this is after all an economic system that has now collapsed twice in 75 years the agency that keeps tracks of the ups and downs of the American economy is called the National Bureau of Economic Research they are the ones who announced a few weeks ago that this recession ended in 2009 they keep track between the end of the Great Depression and the beginning of the one we're in now there were 11 according to them business cycle downturns during each of which millions of Americans lost their jobs businesses went bankrupt the economy turned south etc etc and some of them were very severe like the one in the 1970s that some of you may remember when New York City went technically bankrupt as part of that wave of crisis we live in a fundamentally unstable economic system to which every effort has been applied by Republicans and Democrats alike to avoid it to minimize it to prevent it in the future every president since Franklin Roosevelt has not only supported whatever measures he put in place as a way to get out of the recession they were in at the time but every president starting with Roosevelt promised solemnly that the measures they were asking the Congress and the people to support would not only get us out of the crisis were in now but then there was a pregnant pause in front of the radio microphone or the TV camera make sure we don't have this kind of crisis in the future that we do not subject our children to what we're going through every president promised and every president broke the promise or was at the very least if were to be kind unable to deliver on that promise that is why we're in one now and that's why we have so many and have them so regularly so the armature of monetary and fiscal policy and regulation didn't work didn't work at least not to prevent crisis the 1930s issued in major regulations they too had a bank collapse they do had a financial credit freeze they passed in case you're interested very important regulatory changes perhaps one of the most famous something called the glass-steagall Act in the middle of the 30s it was to prevent investment banks and commercial banks from mixing their money than their activities together it was thought dangerous for banks that have a deposit they have to give back to you and me to be able to use that money for long term investments in a company that they couldn't liquify couldn't get it back in the cash quickly so a rule was passed these two banks have to be separate if you do one kind of banking you can't do the other we know what happened or if you don't let me quickly tell you the banks who opposed that bill being passed in the 30s understood as regulated businesses always do that if you will lose the struggle to prevent a regulation there's still plenty of fight you can work after there's a commission thereafter there's an agency there after the law is passed to make sure it doesn't work in the intended ways you can evade it you can weaken it and if you're strong enough you can eliminate it glass-steagall is a perfect example first it does I designed ways to eliminate it then they were able after a couple of decades to weaken it and under the presidency of William Clinton they were able to repeal it and we're now back to square one the only difference is the next set of regulations all the regulated companies have accumulated half a century of experience in how to evade weaken and eliminate so they can now do it much quicker and we could see that in this last summer's exercise in futility the financial regulation bill I won't bore you with the details but the amount of regulation that that bill will in subject our financial industry to is very small it's very small because hundreds of millions of dollars were spent by the banks and hedge funds and others in the United States lobbying the Congress that's legal and they did that in aboveboard to make sure the regulation was minimal so let me make clear in the hopes that you all get it where did the banks get the money to lobby the government to minimize the regulation from the government that bailed them out so on behalf of the bank's I want to thank each and every one of you for the kindness of providing the funds to make sure they were not encumbered by unfortunate regulations that they would prefer not to have and I think you should feel good of being able to help them in their time of travail okay what did the government do in a fundamental way that we can summarize because they don't have all all might that might explain why none of this worked while we have a deepening crisis we are in the last months of the third year of this crisis this hit in the autumn of 2007 we are now in the autumn of 2010 this is the third year with no end in sight what is going on basically what the government did in all the bailouts and so forth and in the stimulus program was to try to improve the balance sheets that condition the financial condition of the financial industry number one and of industry in general number two that was the strategy you unfreeze credit you get the credit going again by taking care of the banks making them whole again and they're the largest thing the government did was basically an interesting act they moved bad loans bad assets mistaken investments off of the balance sheets of the private entities that had made them and transferred them on to the government's balance sheet we basically substituted public debt for private debt that doesn't solve an economic problem it just moves it it displaces it from the private sector which is an immediate danger and has the government take over if we had time I would now allow myself lots of sorry Casta humor about a society that celebrates private and excoriates public having such a collapse that everything becomes dependent on the public just give you one small statistic ninety-eight percent of all mortgages written in the United States over the last 18 months have either been guaranteed or purchased by the United States government without the United States government there would be no private mortgages written in the United States there'd be no housing market the value of your apartment if you owned one would have gone much further down than you'd see now and we would be talking about an economic crisis of gargantuan proportions as a result the federal government keeps shoveling and I use the term advisedly shoveling money into the agencies that buy all the mortgages that private banks Fannie Mae Freddie Mac you've heard their names they are all losing billions and billions of dollars that taxpayers are funding so that they can keep the housing market going because without the government there wouldn't be one but I'm not going to allow myself the sarcasm I just want to focus you on what it means if the government comes in and supports an economy either by taking the toxic assets off the bank balance sheets so they become property of the US government in short yours or the government borrowed money to stimulate the economy remember Obama's eight hundred billion dollar stimulus the payment for that was borrowed so the government is taking bad ass assets onto its balance sheet and it is borrowing record amounts of money one point seven trillion last year now let's look at that for a moment if the government borrows to stimulate the economy and by the way why does it do that because individuals and businesses are not buying anything they're terrified of where the economy is going and they're on a buyer strike the government comes in and substitutes its own purchases for the purchases not being made by the private individuals and private corporations so the government borrows and our government has gone like governments around the world into massive unprecedented levels of peacetime debt in order to do this not only is the government doing this but this is put forward by all kinds of fellow economists and the public as a stroke of genius as a deficit spending program that is going to solve our problem as if borrowing like that has no consequences we need to worry about as though we can blithely just borrow and it really won't matter and it will not be a problem and we'll fix that all in the future when our economy is healthy again and then we'll run surpluses and that'll negate the deficits and everything will be back to square one I don't mean to be unfair but that is the position of my colleague who many of you read Paul Krugman that's what all the governments have been doing borrowing like crazy and it leads among other things to the following peculiar conundrum when governments borrow of course there has to be a lender okay who's lending to the United States government to carry out all of this well here we have some peculiar answers number one all kinds of wealthy entities corporations individuals lend to the government because that's safer and more secure than lending to anybody else in an economy like this or investing in anything because things don't look so good that's not a growth procedure that's a churning of money in fact it's very ironic if you think about it because if our government really didn't want to run a deficit it could of course tax corporations and the wealthy then it could get the money to stimulate the economy without borrowing it's even more interesting when you reflect that when the government doesn't tax corporations and the rich choosing instead to spend money that it gets by borrowing it goes to the same people to borrow the money from for the standpoint of a wealthy person and a corporation if one has to choose between the government taxing it end of story versus the government coming to borrow it and use it for the same purpose and then pay you back with interest that's not a tough call I'd be a Keynesian deficit spending supporter myself if I were wealthy under these circumstances so governments have been borrowing I haven't the time again but if I did I'd enjoy talking to all of you about something I suspect you know that there aren't enough Americans with enough money willing to lend to the United States government so the borrowing we've been doing to keep our economy going has had to involve more and more borrowing foot by us from other countries and the country in the world that has lent the most to the United States to help it out of the crisis of its capitalist system is the People's Republic of China the communist government in China is financing the crisis activities of the capitalist government of the United States probably worth a few moments of thought but not for the media here but maybe you might think that some historical message might be lurking somewhere in this relationship and even if you don't want to think about it do think about this if the estimates of the total amount of government and agency debt that the Chinese own is roughly in the neighborhood of 1.2 1.3 trillion which are what the estimates suggests then it means assuming the usual interest rates that the United States government is now functioning as a collection agency for the People's Republic of China because every year we must send fifty sixty billion dollars to them an interest so you should all feel good that when you but drink a beer or buy a rubber tire or do anything that gives money to the federal government that part of that will not be wasted on services or anything like that part of that is just a collection process the government collects a portion of it and sends it to the People's Republic of China so they can build up whatever it is they're doing over there which seems to impress a lot of people and again on behalf of the People's Republic of China I want to thank each and every one of you for making this contribution if that strikes you as a bizarre way to fix a crisis good that's my point and it doesn't work it doesn't work the stimulus didn't work not only because it was borrowed money too which I will return but if you stimulate if you pump money into the economy we are now an economy that loses a lot of the money we have because we import so much every one of you is wearing clothing that doesn't come from the United States you know that and you're driving cars that don't combine and so forth and so on so if you give money to the United States people businesses and people it's hemorrhaged out of the United States you're actually helping building jobs and other places with your stimulus what is my point here it hasn't worked the stimulus didn't solve the unemployment problem making the bank's whole didn't lead them to lend to produce job it didn't work monetary and fiscal policy didn't work in these three years and it shouldn't have been even tried because we knew it wouldn't work and why do I say that a little historical example the last great collapse 1929 once Roosevelt got in few years later he tried every monetary and fiscal policy that the Obama administration used he tried that too and it didn't work for him either he kept trying he kept running into the problems that monetary and fiscal policy lead to he couldn't solve those problems and the Great Depression lasted from 1929 at least a decade till 1939 we couldn't get the unemployment back down to what it had been before the crisis hit what finally got the United States out of the Great Depression unemployment was not an economic policy those didn't work it was a radically different policy a radical difference in America we decided as a nation to go to war we took half our unemployed people and put them in a uniform and we took other half and put them into work in factories to make the uniform and the bullets and the guns that's how we got the unemployment problem solved the lesson should have been learned your normal run of monetary and fiscal policy about which the great debates every day in the press resound is a bit of a shadow boxing it's a bit of a distraction you might even call the conventional debates between conservative and Keynesian economics a kind of weapon of mass distraction because meanwhile what's happening as they debate as they go back and forth a little more Keynesian policy on a more leftist three months a little less Keynesian policy and a more conservative the next three months or as government changes maybe after the elections in November we'll go back to the right and then when that doesn't work we'll wobble back to the left meanwhile what's happening I would argue with you and I hope you get this message that while this shadowboxing debate is going on why while we're all supposed to get terribly excited about whether you are in favor of deficit spending or you're not in favor of deficits but the cycle the capitalist cycle is working its way through its normal process and what is its normal process a period of unemployment that's extended until workers are willing to work for a lot less because they've been out of work long enough and the prospects look bleak enough that a job and a salary they would not have accepted before becomes something we'll have to settle for likewise as the cycle unfolds and businesses go out of business the cost of second-hand equipment drops because the sellers who are desperately going out of business outnumber anyone who's buying and the rental cost of square-footage goes down and the lawyer you need to hire becomes desperate and will willing to work for left and on and on and on and when does it stop when the costs of doing business have been broken down far enough so that a capitalist an investor a businessman or woman sees the prospects of profit at such low wages and such low costs and then they go in and then the system has another period of growth for two three four years until we're back in the same instability of this system which no section or collection of brilliant economists has ever been able to figure out how to stop or control that's what's going on and I submit to you that's why so many Americans are angry because they're living this process for them these debates are empty they're not moved they're not interested they're not drawn into them the clever repartee is lost on them they see insecurity decline and no end are we surprised that their rageful and angry that tea parties attract them etc etc I don't see why the people in that situation begin to look for scapegoats somebody to blame the nasty bankers the awful immigrants or whoever that's also par for the course the history is full of this we don't have a government with policies that can solve this problem and they have proven that to us but they have done something they've now saddled the government with enormous debts and that is the new problem it's a crisis displaced it's not so immediate on the private sector although heaven knows it's still there but the urgent problem is the government all around the world all the governments they've borrowed up to here and so they're discovering a problem and again to be simple what's the problem when a government borrows you feel comfortable because it's the government is not just some person or some company but if the government keeps borrowing and borrowing and borrowing then the same I anxiety of a lender that applies to a private private borrower eventually applies to the government borrower - and here's how it works you're a big bank you're an insurance company or the kinds of folks that lend to governments and you see the rising indebtedness and you say to yourself Oh as the government debts rise the government has to use more and more of its revenue just to pay the interest and pay back the debts so more and more of the money that people pay in taxes doesn't come back to them in the form of a service of a school of a firehouse of an educational program of an unemployment check of a social security benefit no no that's not available because the money has to go to pay off the lenders and the lenders are not stupid they know that this is not a sustainable arrangement the political risk is that movements will develop that turn on their own governments and say what are you handmaidens for the lenders collection ladies bag people collecting our money and sending it to rich lenders because that's who they are perhaps even foreign rich lenders when in the United States for example will we awaken one day and have I'll be mean for a moment have glenn beck on the t v-- excoriating the american people to rise up so we stop sending our hard-earned tax dollars to the communists in china can this happen of course has it happened repeatedly some of you remain remember this summer it happened to a country called greece the lenders to greece looked at the situation and they drew the following conclusion the most militant labor movement socialist and communist movement in europe is probably the greek population you look at them all probably true if any country is going to rise up and stop being willing to pay interest on debt rather than have needed services it's those people so the lenders to greece said we're not going to lend you any more money we're not even going to riilu we knew the loans we have to you it's unsafe so you have to do one or the other of two things in order to compensate us for the rising risk we see with you you have to give us a much higher interest rate than we've ever charged you before of course the problem for greece would be if their people are angry at the amount of money they're paying an interest now they will be in a white heat of rage if they would actually have to pay but the lenders were adamant you either pay us much much more and we don't care what happens in your country or you're not getting any loans at all and in the case of greece as in many other countries that would mean the government couldn't function tomorrow and whoever the political leaders are will be immediately thrown out by an enraged population that can't get to work on the subway footnote historical footnote the government in Greece at this time during this summer and now is the Socialist Party of Greece who won the election and came to power a year earlier on the promise never to impose an austerity on Greece but when the lenders came and said you either do what we tell you or you're not gonna be here next week the Socialist Party is imposing austerity on Greece or trying to Greek has had a dozen general strikes in the last six months it's far from clear how that's going to work out so the problem is debts and the lenders are beginning to say we want you all including here in the United States we want you to put money aside to make sure that the interest is paid and the money is paid back or else we're not going to lend to you that's a problem for the United States also now not the kind of problem it is for Greece Greece is a small country a poor country lending to them is more risky than lending to the United States people prefer to lend here but not limitlessly in Washington right now in case you haven't been paying attention the government of the United States is confronting mounting pressure from lenders about the debts that we have and the debts were projected to have for the next several years deficits each year and demanding major adjustments or else the lending to this country is going to start atrophy signs in the wind the People's Republic of China reduced by a hundred billion dollars its outstanding ownership of US Treasury debt over the last year first time they've done that they're not keeping a human they are not willing to keep line lord help us if they dump the rest of what they have another sign in the wind President Obama nominated a Western politician to be the head of a commission looking into the Social Security and Medicare systems in order for the government to free up money to pay back the lending that it borrowed to solve the crisis in the ways I just showed you didn't work the only way to do that is to go after the really big costs the United States government has that are on the table and those are Social Security Medicare and Medicaid and there's already talk about changing either the amount that is given to those people who will get those benefits or charging you more when you go to the doctor if you're on Medicare or all the other ways that this is being handled and again this is the transformation of an economic crisis into a political assault on the mass of people that's what austerity in Europe has meant as they cut back the general strike in France that two and a half million people went out in the streets about was a general strike on a very specific issue the Sarkozy government in France proposed that Social Security eligibility be moved from age 65 to age 67 for full coverage and from age 60 to age 62 for partial coverage two and a half million people in France said no no no no no that's not going to happen and there are demonstrations are Saturday on the 2nd of October and again on the 12th in France in front of the Senate in an General Assembly in Paris this is becoming a a war inside this society might even begin to say a civil war inside the society as to who's going to pay for this and much of what is happening in Europe are pre figurations of the same issues here I'm sure we'll handle them differently here we do not have a unified powerful trade union movement we had one once we don't have it now I just described to you countries that have had general strikes and demonstrate we've had nothing we've had three years of a serious crisis we've had nothing comparable this Saturday in Washington the n-double-a-cp the afl-cio and many other organizations are having a demonstration sort of it's like a conference very mild very peaceful asking the president to do more about unemployment ah that is a long way for what you can see if you look on the internet just tap in September 29 for Europe and you'll have more photographs than you can possibly imagine of of general strikes and all the street scenes of it but I think it would be naive to imagine that the American people just going to roll over and accept the implications of making the mass of the American people pay steadily step by step for the immense costs of bailing out this economic system we live in as it works its way through the second major collapse in 75 years let me turn then and and work my way to a conclusion about how this is all playing out here in the United States which is the society I'm most interested in and where I live I think the massive people have already come to the conclusion in this country that things could have been handled otherwise that somehow the only way to proceed was not to throw all the money at the banks and take over their bad assets was not to stimulate the economy by a stimulus program that buys lots of stuff from corporations in the hope that they will then hire people it is a remarkable thing about the United States that these policies even when they don't work seem to have such a hold on us that we can't break free let me deal for a moment with what I think is a perception even if it isn't yet fleshed out with the statistics that's partly my job of a sense in the American people that something could have been done about the job circumstances the unemployment that wasn't we relied on an appeal to the private sector to hire that went nowhere and then subsidies in the form of demand by the government for products and hoped that that would stimulate companies to meet that demand by hiring people and that didn't work either in the sense of solving our problem I think the American people understand there's another option even if they couldn't occur to them and the reason they understand it is first of all it's very logical but even more than that it's our history as a nation in 1934 Franklin Roosevelt confronted with an unemployment larger than what we have now went on the radio and he said to the American people if the private sector either cannot or will not hire the people then the government will do it thank you very much between 1934 and 1941 the government under Roosevelt II was the president the whole time as you know created 11 million jobs 11 million jobs directly hired by the government to perform a task that the government assigned these people to do they reclaimed all kinds of land this was green green economics long before the term existed they built many of the national parks in the West that many of you I know have enjoyed one of the most creative programs ever devised in the United States the WPA amazing program the government hired actors singers sculptors painters poets group them into troupes and hired them and sent them all over the United States particularly into smaller towns and smaller cities which had never had an upper troop perform before or poetry lessons for the public at the public library on Saturdays there was a distribution of culture to the American people greater than anything we had had before and anything we've had since Wow and those people all had meaningful work and they all had an income which mean they all could maintain their mortgage payments and didn't lose their homes and they felt real good about themselves and all of that transmitted itself somewhere the American people understand at least the following question why in the world hasn't that been done again what what's going on here if you repeatedly appeal to the private sector to solve the unemployment problem and they either cannot or will not do it what you just sit there but of course there was a difference in the 1930s wasn't there we had an explosive labor movement the Congress of Industrial Organizations the CIO was sweeping American industry organizing factories the way we had never seen it before this was a powerful labor movement that was flexing its muscles and letting the government know as the Europeans are doing now you better do something we had a strong socialist party we had a strong communist party again like Europe now and so mr. Roosevelt had the mass demand and the mass support for taking a step he might not have wanted to but he really didn't have much choice and it at least reduced the unemployment he could not get the Congress to make the program big enough to solve the unemployment problem but he was able to go a lot further transforming the lives of millions of Americans for whom by the way Roosevelt became a quasi saint and if you know about the shape of American politics and the growth of the Democratic Party it was never the same after that that period of time none of that is happening there's not even a a major effort by the Congress or the president to even debate the question of a public employment program and it's not as though we're importing it from the Soviet Union or giant this is it using a precedent of our own government our own president the same political party and not that long ago it's remarkable but it sits there as an awareness however unformed in people's minds of a gap between what could be done and what is being done and I think it's having profound political effects as it begins to move inside the American people as a sense of anger and resentment at what is happening to them and I think a fear that this is going to continue a few supportive statements earlier this week the US Census Department released a report about poverty in the United States if you missed it poverty is getting worse in the United States significantly worse millions of people added to the number of folks living on the poverty poverty line etc etc interestingly our poverty population is also changing in terms of age basically the younger you are the more likely you are to be poor which means that the impact of poverty and changing and damaging your life is an impact we're going to have for decades into the future since it disproportionately affects our young people that is a very serious issue that deserves much more discussion than we're having I also want to bring your attention to the changing distribution of wealth and income in the 1960s the United States was distinguished by having one of the least unequal economic systems in the modern industrial world the gap between rich and poor was narrower in the United States that in places like France or Italy and so on now we have the dubious distinction of having the most unequal of the advanced industrial societies for 30 years our real wage in the United States some of you know I work a lot on this and I've talked about it before the real wage of the United States has basically gone nowhere if you adjust the wages per hour of the average American worker for the price he or she pays for goods and services that's what the real wage means it is about the same today as it was in 1978 and Americans have reacted to that by borrowing money that is a way to keep consumption going when your wage isn't going up is you borrow going into an or if ik debt and work more hours and send more members of the household out to work particularly the adult women who moved out by the millions into full-time work in the last 30 years but when all the dust settles and you look at the numbers the inequality got worse and worse because of it more and more of the salaries of Americans are used to take care of their debts and they're falling further behind as the inequality grows social tensions grow what is interesting is in this crisis the situation is getting worse one of the reasons is that the crisis has disproportionately affected our housing industry for most Americans if they have any asset at all that's worth something it's their home it's by far the most important valuable piece of wealth that most Americans have in a crisis like this where average houses have dropped by 25 percent you have devalued the asset that most Americans count as their only significant piece of wealth therefore their relative situation to the really wealthy has has deteriorated the gap has become more severe and that is felt by the American people in the following statement that poll after poll shows us a sense of a growing number of Americans that this country is going through some long open-ended period of decline in the world felt as a political decline a cultural decline of military decline and an economic decline and they don't know quite where to look and how to grasp all of its dimensions but that sense and that feeling is as important in shaping our future as anything else that is happening as a consequence of this crisis okay if this crisis is as severe as I've tried to suggest to you it is if there's no end in sight and if the collection of governmental policies to try to cope with it have not worked what then in the world is to be done and I will conclude with comments on that I'd like to use a metaphor drawn from farming activity I know many of you spend much time in if you have a farm it's possible that you also have a large building known as a barn a barn is a very useful structure it allows you to store wood and hay and keep your animals and it's vital for many many farms to have a barn and people who have farms get attached to their barns in all kinds of emotional and spiritual ways given the importance of the structure and the time spent in it so when a barn begins to tilt when a barn begins to leak when the barn begins to have many of its problems there is an understandable effort to repair it to fix it to patch it up to replace a window sill to all the rest you keep doing that and it takes more time and more labor as more and more of the barn begins to break down at a certain point an intelligent farmer and/or his/her spouse says listen the amount of time and money that we are spending and the amount of losses we are suffering from a barn that has done its useful thing has served us magnificently but there comes a time when you have to say look there are nowadays radically new ways of constructing barns let's take this one down save a few pieces and hang them on the walls so we remember and build a new barn from the ground up okay try to keep this metaphor in your head as I go through my conclusion we live in a kind of economic system very particular kind it's called capitalism it's been around for a few hundred years like a really good barn and has served us well like a really good barn it is not working real well anymore it has broken down globally twice in 75 years and it is driving gaps between rich and poor both across countries and inside countries on a scale that ought to have any reasonable person terrified it is producing anger and rage and violence that go with extremes of wealth and poverty that coexist close to one another which modern technology means everybody we all watch each other on television or on the YouTube or on Facebook or wherever we however live in a country more here in the United States than anywhere else in the world which has as a legacy of a long and difficult Cold War on a version of fear and a disinclination to ask the question is capitalism the best way for us to organize the economic dimensions of our lives we're the only country that does not have significant large mass movements of people who answer that question know we can do better than capitalism they mean different things by it but that discussion that issue is on the table in those societies and more so today than it has been in a long time it's on the lips of most of the people in the streets of Europe over the last 24 hours we're afraid of that here it's associated with scary prospects and a cold war that is far from over in terms of its lingering effects and I think that is something we have to begin seriously to think about I think that's the lesson of this crisis that we dare not not learn let me tell you what I mean are there alternatives to capitalist arrangements yes but they're not the alternatives you may have thought about in our society as a legacy of the Cold War when the issue even came up a little bit it was always couched in the same terms and I don't think these are the useful terms and they were the terms I mean are this more government or less government capitalism is somehow understood as less government whereas socialism communism and those are more government or private enterprise government enterprise or private market transactions versus government planning you notice the dichotomy more government less government very strange argument if you do any real concrete research it dissolves on you it doesn't make any sense and let me give you why the United States has been dependent on the government our economy is wrapped up with the government and has been from the day we were born as a nation this notion that the government should be kept out of the economy that's crazy that's crazy that's never been true never been closed all of you have in your pockets if you're lucky this green stuff money most of you believe more or less that money makes the world go round the money is the government monopoly we did have early in our history a situation where we allowed others private people to make money that was so chaotic we forbade that a long time ago so money kind of crucial in our economy when you think about it is it governmental activity and so are thousands of other things and in case you haven't had the time to do it if you ever study the history of the Soviet Union they never did without markets markets were everywhere in the Soviet as they are in China and as they always have been an economy without markets that not at all or here's another one private property private in the revolution in Russia begins in 1917 the only way Lenin Trotsky and Stalin come to power is they make an alliance between their tiny party the Bolsheviks and a really big party called the socialist revolutionary party which represented the peasants of Russia who were a significant part of the population ninety five percent and those peasants had one goal at that time to get their own land finally and so the deal struck by the Bolsheviks with the socialist revolutionary party was we will demand socialism in the industry the government takes it over but we'll make a deal with you and we'll give you what the peasants want so the day of the revolution the communist government of Russia distributed land to all the peasants that was their private property from 1917 to the end of the 1920s for the first decade or more of the Russian Revolution it was a revolution that gave people private property that established much more private property than had ever existed in Russia before so the idea that this thing can be understood as a negation of private it's silly just like the idea of capitalism as the negation of the power of the state is an illusion but I want to take it much further we're not trapped by we're not limited by anything that has been done as an alternative by the Soviet Union China or any of those models we all know enough about the dangers of concentrated power at the top that we don't have to stop the conversation looking for alternatives to a system that doesn't work by imagining that all we can look at are those other models that we don't like either what else might be thought about and here I want to provoke you with something human beings have found to be an extraordinarily interesting alternative for a very long time suppose the problem isn't about more and less government suppose all societies are going to have to learn how to mix the central authority of a government with the decentralized authority of groups of people that we need mixtures of some planning in some markets which is what most countries actually have and some public in some private which is what most countries publicly have and that that's not the issue maybe the question is a different way of organising production the enterprise the things the institutions in our society that actually make the goods and services we all depend on here's a thought suppose we changed that suppose we changed the way we do an organized business so it worked like this Monday through Thursday you come to work at your job and you do what you always did your specific task your skill your specialty now Friday you come to work just like you normally do but you don't do your specific task on Friday you come in at nine o'clock you sit down with all the other workers in your enterprise whether they be ten or a thousand and you spend the day in meetings and you decide what to produce how to produce where to produce and what to do with the profits your work generates in short on Friday you become the collective board of directors of your own enterprise everything would change every decision would change if you recall a few minutes ago I told you that one of the great switches in the American economy that brought on this crisis was the end of rising wages in America around 1970s when they flattened out and never rose again if workers had run their own enterprises in the United States in the 1970s that would not have happened workers would have gone on raising their wages their real wages as had been done for a hundred and fifty years in America before that time they would have raised their wages because their productivity was going up as it did they would have kept on sharing in their own rising productivity as had been the case before and then they wouldn't have had to borrow all that money and we wouldn't have had the financial speculations built on that we would have lived in a different kind of economic system we wouldn't be living in a system in which the key decisions corporations make are made by a tiny group of people a board of directors fifteen to twenty people usually selected by the major shareholders of a corporation another group of fifteen or twenty people they decide those tiny groups what to produce how to produce where to produce and what to do with the profits and we live in an economic system that is the result of the decisions they make and one of the first things that ought to occur to Americans is if the pattern of outcomes from those kinds of decisions are as systematically dysfunctional as they have been and now are that the minimum reasonable thing to do among the questions we ask as a people is what we to question and change the way we organize doing business the enterprises that we have to produce and in case you're wondering is this a new idea it is not all through the history of the modern era and back beyond it there have been these other ways of organizing business they have very interesting names some of you heard of coops community enterprises collective enterprises all kinds of names and you know if I could argue for it for a moment just to provoke you at least into understanding that we ought to have been discussing this not that you have to agree with me but that we should be discussing it and that to not discuss it is to have a taboo that we really ought to question if all the workers in an enterprise participate in the decision there's a name for that it's called democracy it's a democratic way of organising production if you believe in democracy I would want you to ask yourself a question does your belief in democracy mean it only happens outside the workplace but not inside and where did you get that idea for did you read the Thomas Jefferson right um only here but not there not that I know of it is our culture that celebrates democracy outside the workplace and and somehow has decided it doesn't belong inside the workplace and for those of you that are saying well how could all the workers get together to make the decision that would be chaotic to you I would like to tell two little concluding historical parables once a time it was thought that the only way to organize any Society was to have one man at the very top it was called the king or the Emperor or the Czar and he had to make all the decisions and tell everybody what to do and the very idea that we wouldn't have it that way would mean our society would crumble our civilization would disappear and we'd all become animals in the jungle and then one day in that funny country that seems to surface in these stories all the time France they cut off the heads of the kings and lo and behold things didn't fall apart at all turns out you can do without a king might not have thought it but Wow another parable once upon a time it was thought that when you reach puberty and so on and becomes time to think about making a family and you need to have a partner that the only conceivable way to do that of course is to have your parents find you a suitable partner you're too young you haven't lived long enough you don't know what you're doing your hormones are racing around and confusing your judgment so your parents will appropriate people to find you a partner and that if we ever had the crazy idea to let young people actually go out there and look around themselves why then the world would fall apart the family would cease to exist chaos and ruin would beset us all then someday somehow it emerged not everywhere yet but in most parts of the world that when young people get to that age they manage this process nicely thank you very much on their own and try to tell their parents at least it possible that they can get away with for as long as possible most of the time and for good reason turns out these things are not necessary here's a thought for you maybe a hierarchical way of organizing enterprise with a tiny group of people at the top who make all the decisions and a mass of people who do the work and have to live with the results of those decisions even though they don't participate in them is not necessary and it might have some very powerful positive transformations of getting people to be involved not only in the life of the job but maybe finally if we get people to have power on the job they might better understand the need to participate in the democratic processes in the community as well we haven't been terribly successful there either but I'm not arguing for this or that particular change although you can see which one I like I'm arguing that if we don't do it if we stay with an economic system as dysfunctional as this one and continue to find it impossible as our political leaders do as our mass media do to raise the question of capitalism as a system if we keep thinking monetary and fiscal policies will get us through this again with their sad record if we choose to scapegoat you decide it's the evil bankers she decides it's the nasty immigrants he decides it's the Obama who is a socialist or some other crazy idea then we will not solve our problems and those problems are changing this country and changing it quickly in directions that ought to make you nervous about your own future in the future of your children so this is an appeal for a recognition of what's going on and a breaking out of an inadequate set of categories with which to understand it it hasn't worked neither the system nor the procedures in place that are supposed to solve it and that requires all of us to begin to take action and participate on a scale we have not before because if we don't the cost will be heavy thank you very much for your attention I'd be glad to entertain comments questions or anything else so there are two parts of the question one part is about military spending and whether a change in the portion of our economy that's devoted to military spending would be at least a partial solution or our response and the second one was a more urgent statement of feeling that a lifetime of activism and marching and even being in jail hasn't produced a change or hasn't produced at least the changes that you had hoped for I don't know how much I can say I'm on the second one it's of course a very important one I have learned and I've done a fair bit of that myself I've learned over my lifetime that the more the folks in power tell you that they will not be affected by your marching the more certain you should be that your marching is scaring the pants off of them that the statement that it makes no difference is simply a mechanism to try to get you not to do it never underestimate the impact of even a small number of people doing something it means thousands of others who see it who hear about it now have a more realistic feeling about such a thing it may take them several more months or years before they ever go but the possibility of they're going just got a little more real when they see you standing there doing it it's not as strange it's not as hopeless it's not as impossible because it's been realized by another person who's not so different from them it's very very powerful and I think it would be a terrible shame I'm not diminishing the price that those people who take the lead in that pay and the costs of it but I don't think you should despair it takes a long time but when the change comes it often comes very quickly there's a famous quotation from a person named Lenin whom I like to quote if know if for no other reason than simply the shock value of quoting Lenin but he said once sometimes it takes many I'm going to mess this up it sometimes a few months feels like an eternity and sometimes an eternity is transformed in a matter of minutes so the time doesn't proceed in a straight line you know before the Soviet Union collapsed in 1989 nobody foresaw that nobody could imagine in or out of the Soviet Union that it would disappear but it did the the use the old language the contradictions and the tensions accumulated below the surface but when they blew things went very very quickly so it may take a long time of lots of little demonstrations and then suddenly a large number of people get that idea and the newspaper may not know where it got it but it got it from all those little moments number one number two the thing with military spending is and this may disturb some of you but as an economist I have to tell you we have been dependent as a nation for a very long time World War two got us out of the Great Depression there's been an association ever since that war is a way to solve domestic problems that was settled in the American consciousness and it was one of the reasons not the only one why even though the war was over the military production never stopped was kept on and by now every state in the Union every city is tied into networks that are involved with military production to really withdraws to really reduce our activities of a military nature would take a dramatic massive intervention of out of this government simply to accomplish all the adjustments that we have would have to make to that not being such an enormous part of our economic activity that's not an argument not to do it but it's an argument to understand you are not asking for a minor adjustment you know let's produce plowshares rather than swords in the same Factory with the same work it's not like that whole states in this country depend whole communities have been laid out highway systems river systems for example in the southwest there's a whole economic structure of this country has been built for 50 years around a central massive growing role for military spending if you really wanted to do something about that you would have to call it by its real name you'd have to engage in massive economic planning to prepare for it to execute it you could not rely on the private sector there's much too much of a vested interest that has been built up millions of Americans income the depend on theirs their jobs their homes the viability of their neighborhoods all of that it's been too big a part of our economy for too long so I think it would have to be dealt with in a kind of major reorganization it is true that having no real enemy at this point and having not had one for twenty years might have been a window in which to afford an effort to do that but that would would have required the political will that simply wasn't there at that time yeah well in terms of what I was saying and thinking in the first half of this decade but overwhelmed me at that time was a sense that the American people and the economics profession which is what I've been doing all my adult life had simply not wanted to take account of an absolutely crucial event that begins this decade I'm not talking about 9/11 obviously an important event I'm talking about a financial event in March of the year 2000 first year of this decade the American stock market crashed it could I use the word advisedly it crashed the Nasdaq which is really the most important of our stock markets now reached a level around that time a peak level of five thousands and index of the stock market it collapsed it is today half or less than half of 5,000 it collapsed and it never recovered and I remember thinking and talking with my colleagues there is no way you can have a country as focused on stocks and stock markets as this one is experienced a collapse in a short amount of time of that magnitude without it shaping and teaching you about what's going on on a scale that would require a massive discussion in this population what to do what this means and what to do about it we had none of that we had a panicked government so terrified that that collapse of the stock market would usher in a major recession that they took an unprecedented step they collapsed interest rates the United States drove them down faster further than we had ever seen the Federal Reserve do before pumped a huge amount of money into the economy and of course as we now know looking back the collapse of interest rates in a population of people whose wages hadn't been going up so they were desperate to borrow meant that they went and borrowed because there was no no cost to it anymore relatively little so we produced an exploded credit bubble as our way of preventing the collapse from the stock market spreading but again this is not a solving of a crisis this is displacing it like I said earlier today we moved the crisis from the stock market to the realm of credit and housing finance and all of that and it took a few more years and that that went down so I was in the first half of this decade saying the American economy is in worse shape than I have ever seen it in my life something I keep saying I say it today and I meant it five years ago as well but many of us who said that and who said this displaced crisis is only going to be worse for having postponed dealing with it like a disease it's better to catch it earlier than later when it is spread people did not pay attention I remember giving talks where people would make fun of me because I sounded like a professor at the the NYU Stern School of Business whose name you may now have heard and in Nouriel Roubini so people made fun of me I sounded like Roubini mr. Roubini is now a culture hero around the world because he had a much bigger reputation than I did then has been heard as a person who said it was coming and of course you look very smart if you say that and it and and then it hits the fan the way it did but he was not the only one I was not there were plenty of people who said my goodness we looking at this this looks like a train wreck waiting to happen and this is not a society that wants to hear it and that's like a society doesn't want to hear about capitalism having its limits you know every other economic system the human race has concocted has served for a while gone through some changes and then been set aside why would we want to believe that we've now arrived at a time and a place in a system that can't be improved upon cannot be superseded cannot have its time and then be asked to move on what is this what is this terrible fear and exactly what does it support the continuation of a system that is brought you here this evening because you're concerned that absorbs me on a scale and I don't mind saying that to you in a way that I've never had before in my life I mean I am on the radio and television and all this other stuff and I don't deny for a minute the ego gratification it provides there's plenty of that but besides that I am in this amazing situation that I'm talking to the to the audience all teachers want people who really want to know who have burning urgent questions nothing makes us a better student for a teacher that someone with that kind of commitment and I now go all over the place because people are really scared for good reason concerned worried and eager to try to do something to change what looks like a a very kind of serious situation I didn't have time and it occurs to me I should have to talk to you about another dimension of crisis in this country and that is the impact of this crisis on state and local governments all around this country we have you know if this country is unique we don't have everything done by one level of government the federal government does something state government to other things and in local city and town governments do others we have a law in the United States very interesting very important cities and states are not allowed to borrow money for their ongoing budgets that's forbidden only the federal government can borrow and so we can spend more than it raises in taxes cities and towns can't do that they can borrow money but only for what are called capital projects like building a sewer or school but not for their ongoing budgets what this has meant is that as the crisis unfolds and as we have millions of unemployed people the tax revenues flowing to cities and towns and states have collapsed so every city and state in town has to come to some kind of resolution the overwhelming majority but not all the overwhelming majority have decided ok if we're going to have less taxes coming in we dare not raise taxes on those people who still have job to offset those that are not coming in from the unemployed partly because raising taxes is the no-no of American politics but also because in a time of economic difficulty hitting up people for more taxes your average person would seem to be absurd and dangerous so basically what most cities and towns are doing or cutting back they have less revenue coming in so what they lay off public employees they cut back on public services now let stop let me repeat that cities and towns are cutting back in states in California tens of thousands of state employees have been fired teachers crossing guards police men and women and all of that here in New York we saw a governor proposed seriously I don't even know exactly where it is that the subsidy given to school children in New York who were allowed to ride on the subways and buses without paying for the ride to and from school this was to be taken away we're going to make it harder for the young kids to get to school a society that does that to itself is shooting itself in the foot it is a system it's a sign that a system is dysfunctional but think even in the broader terms when you have an economic downturn the need for the services the state provides or greater the unemployed person's child is having more trouble in school not less we know that unemployed people have more physical problems more mental problems more familial stresses and all the rest of it we need more from the government but because the taxes to the government are less it gives us less when we need more friends that's a sign of a dysfunctional system and everywhere this kind of exacerbation you know when the federal and the state government in California lays people off it worsens the unemployment problem so we respond to an unemployment problem by having the cities and states layoff more people that's a dysfunctional system but I told you not everywhere so let me give you a piece of good news in case you haven't heard it there was a state in the United States suffering from the crisis that cut back all of its tax revenues drastically as has happened every state but this state one of the 50 decided it was not going to layoff any public employees and not going to cut any public services I won't keep you in suspense the state is Oregon anyone here from Oregon okay I would have applauded you at this point here's what happened in Oregon in the summer of 2009 when the crisis hit the legislature and Oregon passed a bill both houses passed it the bill said we are not going to cut services even though we anticipate a 700 million dollar shortfall of revenue over the two years 209 a 2009-2010 we're not going to layoff any public employees we're not going to cut any services we're going to solve the problem here we go now by raising taxes on business and raising taxes on wealthy people where wealthy people were defined as those earning over two hundred and fifty thousand dollars per year families they passed that in the legislature of Oregon they delivered the bill to the governor who signed it at that point the business community the wealthy and the Republican Party went crazy in Oregon and because it's Oregon that our western states have a very easy way to force a bill that's been passed by the legislature to be subjected to a referendum they believe in the direct democracy we don't have that Prop here in the east but in the West they think that's important so that it's very easy in places like Oregon to get a referendum so the business community very quickly collected the signatures to force an election and the way it works in Oregon as in other western states is this if the majority of the people who go to vote on it on the day of the election vote against the bill it's nullified the fact that the legislature passed it and the governor signed it are overwhelmed that Kansas by the action of the people and by the same token if the people vote for the bill it's that instantaneously the law on January 10th I believe it was of this year 1.2 million Oregonians went to the polls and clearly and decisively supported the bill and that's the law so the idea that we couldn't possibly here in America solve the problem of cities and states worsening the crisis is simply not true of course we can do that Oregonians did it and I mean Oregonians that was a people 1.2 million people of the state participated in this decision and voted clear leading was 56% in favor which was more than they needed to make this the law and I can see from some of your faces you're wondering isn't it now possible that a business will leave Oregon to escape this or a wealthy person sure it's possible but this would be an escalation of a conflict everybody can play this is a tit-for-tat kind of arrangement if the business threatens to leave now the question will be what will this state do confronted with such a step ditto with wealthy people the state has a lot of resources and a lot of recourse to all kinds of steps if you really want to take on the state of Oregon you're going to have quite a struggle and it's going to last and the outcome isn't so clear so guess what very little movement by the businesses very little movement by wealthy people because remember the wealthy people also have to worry that if they leave and they move to another state that's very expensive and where they go might do the same thing and one of the reasons I try to tell the story of Oregon and I won't embarrass anyone here is because like the big demonstrations in Europe over the last 24 hours the coverage of the unique steps taken by Oregon is rather poor across the United States so that most Americans couldn't imagine such a step or if they heard the story would think it applied to a Kiev or Beijing but not to the good ol US of A yeah when the American a bridge American denied an average American wakes up everyday he's confronted by a spate of advertisements for credit cards and facilities to indent himself to a third party and all too often in my case personally in the case of my fellow citizens we yield to these blandishments we an get ourselves to a bank to institution with all the severity that in getting oneself to another person or another entity in the society entails we invent our selves for our education and we blindly march along pridefully looking at the number of credit cards we have excited about the fact our children have a series of credit cards and really accepting with the same quantity the fact that our lives are dictated by our credit score how is it that a group of people myself included so benignly in print set with great saint buddy accept this play okay let me very briefly tell you the story why i think that is and it has to do with something remarkable and unique about the united states from the time we became an independent nation and broke away from britain as best we can tell from the historical statistics we have 1822 1970 a hundred and fifty year period real wages in the united states rose and there was a simple reason for that it wasn't that employers were nice folks I mean I'm sure they were but if they didn't do this out of the goodness of their heart they were very successful capitalism grew quickly in this country and there was always a labor shortage after all the people we found when we came here we did a way with so they couldn't work and so we never had quite enough people we brought black folks here against their will and we brought waves and waves of immigrants because we were always short of the labor that was needed to to allow growth to happen as much as capitalists were interested one result was it was always a problem for a businessman a woman to get a worker and to keep a worker because it wasn't just a question of getting them because we had a big open tree a worker who you didn't treat right and who didn't like his job or her job could run away and get some land in the West and so it was in order to get a worker and keep him we had to raise wages so for a hundred and fifty years 18 20 1970 wages real wages what you could actually get for your money kept rising no other capitalist country ever produced that for its work is absolutely unique those of you have heard the phrase American exceptionalism something unique about it that's it that's the core idea Americans began to believe that there was something magical spiritual special about the United States nowhere else in the world did you have rising wages all the time people undertook the perilous danger of leaving wherever they came from in Europe and beyond to come to the United States in the hope that they'd have a better life here it was a reasonable hope and most of them realized it and it began to be the American view that it's kind of built into America each generation will live better than the one before you'll do better than your folks and your children will do better than you and it's it's you work hard and you'll get ahead and other people don't think like that Americans could indulge that view because it happened here they didn't attribute it to a labor shortage you need a lot of kind of help to see that so they attributed to good luck or the beneficence of a lovely God who'd shown on the United States in a way that he or she didn't shine elsewhere etc by the time you get to the 1970s this is a way Americans have of evaluating themselves I'm a person who started with relatively little and look at me now every president tells that story whether it's true or not because it's part of our national heritage I worked hard and everybody believes it because that's the that's the story of the United States imagine with me for a moment what would happen be an amateur psychologist what would happen to a population that for 150 years has internalized the idea that I'm going to live better and I'm going to deliver to my children the American dream of leaving still living still better suppose suddenly that the one thing that made that all possible rising wages stopped suppose the 1970s was the end of rising wages and they never rose again which by the way is exactly what happened what would these people do of course they could decide well happened to be born at the wrong time so the American dream is over and I tell my children screw you they not could happen for you I'm the last one you can't go to Community College because the money isn't there you can't you can't you can't it's over well we might have had such a population reaction if there had been a national debate about wow the world has changed our history is now different we have to make up none of that happened there was no discussion at all so each American working family experienced this as their own failing I'm not able to deliver the American dream other people are but I'm not so I've got to be the disappointing parent that tells the children you're not going to get the good news you get the crap most people can't do that and if the cost of participating in the dream even when your wages don't permit it is for you to go into debt that's a small price to pay the party continued from the 70s through let to three four years ago Americans convinced themselves that they could eventually pay it off there would be a better job down the road that would allow them to pay down the credit card meanwhile they could deliver to their wife their husband their children the kind of medical care the kind of education the kind of occasional vacation come on with the people who invented advertising with the people who define consumerism we measure one another by the house we live in the neighborhood we live in the car we drive the clothes we wear you know this story that's not because we're peculiar people because we lived in a culture that celebrated this consumerism of course we would be the ones to lead the way as we have been for working people to borrow and by the way the business community understood it advertising was born here it understood as it does to this day that the best way to get you to buy what you cannot afford is to make you believe it's part of the American thing and if you don't have it you're not really in the club and therefore you're strange you're weird you're you're off somehow and remember also that the business community saw the wealth for them in this you know in the United States working people for most of the history of this country could not get a loan you could not get a loan because you had no collateral the vast majority of Americans had no property they didn't even have a house so if they went to a bank they couldn't borrow money from a bank because you got no collateral no security only by the way in the 1930s a little history lesson in the 1930s to get us out of the depression Roosevelt thought through a clever idea he would create a demand an upsurge in the economy by a radical new thing giving individual Americans their own home but of course he was the problem Americans don't have any money a house is expensive your salary you can't buy a house end of story the only way you could buy a house is if someone lent you the money but the banks would never lend the money because you're too risky as a worker how do you solve this problem solution the government established the federal FHA the forerunner of Fannie Mae and Freddie Mac and gave the government a guarantee the government basically went to the banks and said give the Smiths a more because even if the Smiths can't pay you back the government will owe at that point the bank is willing to lend money to the Smiths that's another little lesson in without the government nothing called suburbs whatever happened in this country right so it is a step in which the government moved and we had then a kind of consumer revolution around your house but it's the history of America to provide the American people with consumer goods we would have had to come to a massive change in our society to cope with the end of rising wages we never did it and so every family tried some other way worked more hours teenagers went to work the women went out to work but when that wasn't enough we borrowed and the banks were there and they said not only will I give you a loan backed up by the house backed up by the government but and this started in the 70s I'm gonna give you a new kinda loan that I've never given you before I'm gonna give you a credit card only rich people had credit cards before the 70s the American Express and a couple others it doesn't for wealthy people a mass phenomenon like that it's called in economics it's called unsecured credit a credit card there's no collateral the bank can't go after anything that there's no property it can take if you pumped on your credit card solution get the government to allow the charging of interest rates off the roof way higher than than a mortgage a mortgage over the last 40 years has averaged five six percent credit cards have averaged 15 to 20 percent credit card is the most lucrative way to lend money to masses of people it became possible in the 70s as the bank's discovered that the American worker whose wages weren't going up anymore was desperate to participate in the consumer culture that he and she had been to to expect as their birthright as Americans and the banks discovered there's no end to how much credit these people will will absorb and they were right and you produced a generation of people who are in way over their heads which by the way is now in a perfect example of chickens coming home to roost is now coming back to haunt us because one of the reasons our economy is not coming out of the crisis is that consumers are not buying they're choosing to take their money to reduce their debt because they've been traumatized by what happened to them when they couldn't cover that they see the people next door losing their home because they can't make their debt payments and they see the car repossessed and the TV taken out and all the rest of it and you're going to have now a long time where Americans are hesitant to shop and that is going to affect our economy yet again the idea that these are all solutions that have no long-term consequences is part of the American hesitancy to see us caught up in a system and the system isn't working and a little fix over here and a marginal adjustment over there it's like another repair on the barn that has outlived its usefulness yeah first of all you're right that we have been moving work out of the United States jobs for a long time neither Republicans nor Democrats have really done very much about that the major corporations in the United States are almost all involved one way or another in this process I like to remind people that just a simple statistic but it speaks volumes roughly 60% of the goods that come to the United States from China made in China are made by the subsidiaries of American corporations in China so while it is correct to say their imports from China that's true the implication that it is somehow Chinese enterprises or Chinese businesses that are producing that's a mistake the majority of that stuff is an American company that for the reasons you specified goes over there because it's more profitable to produce there and ship it here than to make that material here and I don't imagine really anything that I could reasonably expect from Republicans or Democrats or any of the usual types of folks making policy is going to do much about that since the demand of corporations has always been that they want the freedom to do that and they tell terribly dire stories that if we don't do that then it'll be only Chinese people who make it and then cetera et cetera and it'll be worse is the basic message so what do you do about this well if you're going to leave the decision-making in the hands of private corporations then you can only expect more of what we had but it's clear for example that if enterprises were organized differently if the workers inside the enterprises made the decisions one of the decisions is highly unlikely to make is to close the place and move it to China then not likely to do that and they wouldn't have done it but make no sense and they wouldn't do it just as it makes sense for the existing organization of enterprise to do it it would not make sense for people to eradicate their own jobs their own lives their own communities not going to do it and great that's the the standard answer what about the American consumer okay so now we have to balance we have to balance the needs of the American worker with the needs of the American consumer who are after all the same people so we'd have to balance that out and here's a here's a thought we might have balanced it as follows that the government in order to facilitate cheapening the cost of life would put an enormous effort on developing new technologies to provide cheaper goods and services here in the United States to the workers in the United States in order that they not leave the country with the jobs in other words you'd make this an explicit goal of policy that's not a mirage that's not an impossibility I want to remind you we have had at various times in our history a determined effort to get something done when we have been able to mobilize large numbers of people and large amounts of resources to make breakthroughs in production and technology you know we invented the atomic bomb because we felt threatened as a nation so everyone from Albert Einstein the robert Oppenheimer and all the others involved in that were you know in los Los Alamos out in the desert unbelievable amounts of resources and personnel were brought in to solve a problem and that was a harder nut to crack than to make an arrangement in which we spend some resources to lower the price of consumer goods as the cost for keeping the jobs here for allowing people to continue to have productive lives here and you know something in the course of the technological effort that would involve my guess is we would discover 50,000 other products that American companies could then become you do know how breakthroughs like the computer and so on that's not a private enterprise the computer was developed at MIT under contract from the United States the department of defense as part of the war effort back way back in world war ii and in the Korean War and then that was delivered to the private sector but it was a public concerted effort that transformed technology and transformed our economy the only difference now would be that it would be designed around the program to maximize the welfare of the American people as workers and consumers nothing like that is going on now we are leaving it to the private profit-making decisions of those corporations to decide when where how its profitable for them to move to Panama or Bangladesh or somewhere else and we all live with the consequences but we do not participate in the decision let me use an argument from economics we teach students in economics that an economic decision like building a Factory or moving a factory should only be made after something called a cost-benefit study is undertaken and here's what that means you look at all the costs kind of all the bad things that will happen if you move a factory over there and you then weigh that against all the good results that will come from it and the basic rule is if the total of good results outweighs the bad consequences it's a good thing to do and if the bad outweigh the good you shouldn't do it and not a complex idea okay now let's look at the decision of company a to move to China the bit the good things are cheaper labor no environmental rules facilities provided by the Chinese government's of what and so on and that all make great profits good news for the company now let's look at the costs decimated community empty factory broken civil services because there's no money anymore coming all the course I'm exaggerating but not by much all the costs ready are not costs for the company they're the costs that are borne by the community by the neighbors by the children of the workers who have to live with the car the company is not required to cover the costs if you look at the costs they outweigh the benefits the move should never have been made but because the decision-maker doesn't look at the costs and doesn't have to bear the costs the decision-maker makes a decision that is not the one society needs the employer goes because they get the benefits and they don't have to pay the costs somebody else pays the costs we do and by the way if you want to see the cost to United States there's a little personal footnote find a way to visit the city of Detroit and you will see something that really no words can describe as to what can happen to a society like ours when you enable decision-makers to go where they can get benefits and leave the costs behind for everybody else to pay for as long as we leave this situation that way we really have ourselves to blame for not having stopped a system that is now functioning dis functionally not well bad outcomes we should never have allowed this but now it is really transforming us so that we have more and more parts of cities looking like Detroit sorry ma'am on the latter point it's again an example of bringing the resources and the skill of the United States which are very impressive to bear in a concentrated way but that has to be a social program of the government they would have to do it my guess is all kinds of wonderful products could be made in the old GM plants but you would need all the government support to make that possible to fund the research to develop the transportation and all the associated things right that would be a different kind of stimulus just like hiring large numbers of people would have been on the medical it's a good way to end since we've run out of time let me say to you only the following and I'm sure most of you know it but it bears repeating every other advanced industrial country in the world has a National Health Insurance Program they do that for a simple economic reason among other reasons the healthier your population the more productive the healthier your population the more civic and civility you have in the interactions of people in the course of their days in their lifetime it really is in the end a right to be educated to be at peace to have a public park to go to and to have your medical needs attended to in every advanced industrial country that has a national health insurance which is almost all of them or is all of them the cost of medical care delivered to the people is significantly lower than what it is here and the ikan their medical outcomes are better they live longer they have fewer children died in the first year of a of age their diseases do not let I mean all the indices we know of they all point to the same thing so what have we got I would argue it's the same thing I just told you about companies moving out for the drug companies for the medical insurance companies for the hospital companies they're private they're privately profitable in the system we have now they want to keep it they don't pay the cost of the fact that your husband dies three years before he really needs to that's your problem his problem the company that employs his problem but it's not their problem so they are doing something that is good for them and I want to remind you that's how this system works the board of directors of the Merck or any of the other come that's their job to do the best they can for the profit and growth of their enterprise in this system they're playing by the rules and those rules are do what's good for the company and don't worry about the costs if they're not costs for the company if they are cause for the government of course you have to worry about them but if they're not if this system can be so arranged that the costs are borne by others individuals communities and so on then this is the route for us to do and to fight like crazy so the drug companies were allowed in our system to pour huge amounts of money into the lobbying efforts to make sure that that health program did not disturb their interests it got the insurance companies millions of new customers forced in a sign of a bizarre arrangement of how that would be necessary I'll end with a story ten years ago I was a visiting professor for a semester in Paris at the University of Paris number one used to call the Sorbonne it's a beautiful old part of the university system and because I was an employee Oh a footnote France doesn't have private universities because in France the idea is if you have a private university in a public that would be unfair and undemocratic because the private one would be the one that the elite go to and the public one would leave for everybody else so the only fair and democratic arrangement is that it's all public I can see from your faces at least some of you we're not aware of this that is the case in France so inside the public that can also be divisions for sure but it's at least a thought I just wanted a thought that you don't allow that to be formalized in a private-public dichotomy so in any case as a visiting professor I was then an employee of the French government which paid my salary and they put me immediately on the National Health and I got sick in the first semester and something with my throat and I was told you should go get a strep throat test where they look at down your throat and so forth so I went to the clinic with my little card and the first thing I noticed is nobody in the clinic except doctors I expected clerks and secretaries and nurses and nothing the doctor comes out takes the card sticks it in a machine and there comes my medical history all on the card and the doctor looks at me tells me I need to go down to the clinic down then I'll go to the clay there's nobody there except the technician who does the activities no no money changes hands no record keep nothing that's why they save all the money everything is a kind of an automated system it's just you and the medical professional dealing with you and all the rest of this stuff is just gone so it's no great mystery wide so much cheaper to deliver quality health care to a mass of people because they've arranged a system that do that it isn't it that the corporation's here would want to keep a system that by the way the most profitable industry in this country is the medical care industry sabe you're talking about big corporations doing very well that they would like to stay that way to keep that profitability is hardly surprising that's how our system works that the American people accept a system that costs a much more and delivers to them much less and are in large numbers proud that they've retained it that's the trick and that's something we can do something about because with information and X nation and some agitation in the population people could have a different conception than the one that makes this an acceptable arrangement if you were astonished when I explained to you that we bailed out the banks who used the money to make sure we wouldn't regulate them there's the same thing with the medical without the guarantees of the government and now this enforced enrollment and everything else they would not be in a position to have the resources to keep a system going that is good for them but dysfunctional for the mass of people which is the basic argument closing hospitals closing clinic I live near st. Vincent's and it's all boarded up it's not very far from here and you can see what the effects are and there was a wonderful thing and with it there was a wonderful bicycle chained to the st. Vincent's it had a little sign on it and you know this used to be a place where people could go when they were sick the bicycle was there for months it's gone now and it's replaced by an immense American flag with a sign about how we should all remember 9/11 that's the United States rather than face the problems it has it uses symbolism like patriotism and 9/11 to kind of hold on to a refusal to face the level of problem but you can't do that anymore the cost to this country of what this crisis is unleashing it ought to make everyone significantly more open to asking the long deferred questions about this system than they have been and if my going around the country speaking is any sign let me tell you there's a lot we can do the audiences are open for this on a scale that I have never seen in my life before I can say what I say and I have nobody tells me to run to go away in an unpleasant manner and nobody refuses to listen people and they don't necessarily agree but it's a changed America it's not just the Tea Party it's a lot of other people who've changed their ways of thinking are asking questions and are open to alternatives that they have not been before but we've over stretched our allowance from the universities provided the auditorium thank you very much again for coming

Channel: The New School

Views: 1,433,270

Rating: 4.2019949 out of 5

Keywords: The New School, New School University, New School, Richard Wolff, Economic Crisis, Finance, Economy, Globalization, Financial Crisis, US Government, Recovery, China, Politics, lecture, educational, Richard D. Wolff (Academic), Professor (Job Title), Economics (Field Of Study)

Id: n30zO0ABFqc

Length: 122min 21sec (7341 seconds)

Published: Wed Oct 20 2010

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