Teaching Capitalism’s Crisis

After teaching both graduate and undergraduate economics since 1969 at Yale, at the City University of New York, and, since 1973, at the University of Massachusetts, Amherst, I retired at the end of 2008. The economic crisis that exploded across the second half of 2008 had suddenly created exciting new opportunities for Marxian critiques of capitalism to reach large audiences. As usual, the economics profession was far behind the flow of events; most economists continued to celebrate the private enterprises and markets that were so spectacularly imploding all around them. The premier heterodox economics program in the United States from 1973 to 2000, UMass-Amherst had been my academic home; I taught courses in Marxian economics every semester there for over thirty years to consistently overflowing classrooms with students mostly very interested to learn what I had to teach. However, even there, after 2001, the atmosphere—other than the students—had become progressively less hospitable to Marxian economics. So 2008 seemed a good time to leave.


Starting in August, 2008, invitations increased to give talks at colleges, in high schools, to labor unions and before community groups; simultaneously radio and TV invitations soared. Having published both academic and popular work over the last 35 years, I had enough exposure to generate such invitations. Before 2008 they had come only occasionally and despite my reputation as a Marxian economist; afterward they came frequently and because a critical or Marxian perspective was wanted. In fulfilling these invitations, I gradually produced an analysis of the causes, depth, and social costs of the crisis. It combined (1) the new Marxian theoretical framework I developed at UMass with my colleague, Stephen Resnick, with (2) an immersion in the fast-changing details of the global crisis and governments’ desperate efforts to control it. I learned to present the analysis (or parts of it) in forms ranging from 1-minute sound bites to half-hour media interviews and live presentations, from classroom lectures (I am now a Visiting Professor at the New School University in New York) to very short (1000 words) topically focused essays and eventually a 57-minute documentary film version of the analysis, CapitalismHits the Fan. A book-length collection of those short essays—a kind of analytical diary of the crisis from 2005 to 2009—was published by Interlink Publishing Group late last year and also titled Capitalism Hits the Fan.    
The critical explanations I offer and the solution I sketch have been remarkably well received by the measures of my invitations (far more in the last eight months than in the previous 25 years) and the audience responses. I refer here to the broad, public reception in high schools, community meetings, labor union halls, radio and television interviews (many with live call-in components), and college and university speaking engagements in addition to my own classroom teaching. As a teacher and active public speaker all my adult life, I can tell when an audience is bored, barely participating, or actively engaged. My conclusion is that the crisis has profoundly shaken confidence in the economy and the politics of the United States. It has re-opened people’s minds after 30 years of rightward drift coupled with a mass turning away from politics and civic engagement. The hope that Obama’s election would make a major difference is giving way to a deepening skepticism and disappointment. Simply put, there is a broader suspicion than I recall ever encountering in the United States that our economic and social problems are systemic, urgent, and going unaddressed in ways that threaten long-term decline.
The following, then, is a generic version of my presentation to diverse audiences. It uses my economics background but seeks to convey all the basic themes without requiring such background of my audience.
The Basic Analysis
This is not a financial crisis. It is rather a systemic crisis rooted in the conflicted relation between employers and employees across all capitalist enterprises in the United States. It flows from Main Street as much as from Wall Street. It engulfs households, enterprises, and the government. It is a crisis of capitalism and not merely of finance.
To see this, let’s take a brief look at U.S. history. For the 150 years from 1820 to around 1970, workers’ average productivity rose every decade. The hourly output of commodities rose because workers were better trained, had more and better machines, were more closely supervised, and had to work harder and faster. Over those same years, workers’ real wages (what their money wages actually afforded) also rose every decade. Because productivity rose faster than real wages, capitalists’ profits also rose faster than wages.
Thus our working class enjoyed 150 years of rising consumption as our capitalists enjoyed rising profits. No wonder U.S. workers would come to define individual self-worth and to measure success in life according to the standard of consumption: it kept rising. Successive generations of parents promised their children better standards of living and proudly kept those promises. Capitalists and workers could join in celebrating American exceptionalism since no other capitalism had such a long history of rising consumption.
But all that changed in the 1970s and never returned. Real wages stopped rising as U.S. corporations (1) moved operations abroad to pay lower wages and make higher profits, (2) replaced workers with machines (especially computers), and (3) hired ever more U.S. women and immigrants at lower wages than men received. Real wages in the later 1970s exceed real wages today.
Meanwhile, productivity—led by computerization—kept rising. Simply put, since the 1970s, what employers got from each worker kept rising while the real wages paid to each worker stagnated. The difference between rising outputs and stagnant wages—the source of capitalists’ profits—grew bigger and bigger. As employers’ profits exploded, those entitled to portions of those profits have done well: the managers they hire, the shareholders who get dividends and capital gains, and so on. The specialists who handled each employer’s mushrooming profit—the finance industry that invested it, lent and borrowed it, managed it, —thereby got growing portions of the rising profits.
What happened to a working class that measured individual success by rising consumption when it no longer had rising wages to pay for it? It could not and did not forego rising consumption. It found two other ways to cope and thereby laid the groundwork for one part of the current crisis. First, if individuals’ real wages per hour stagnate, earnings can rise if each household does more hours of paid labor. Thus, millions of housewives entered the paid labor force over the last 30 years while husbands took second jobs and both teenagers and retirees found paid work too. Today, we work on average 20 per cent more hours per year than workers in France, Germany and Italy.
With more household members out working, new costs and problems beset American families. Women wage-earners needed new clothes, a second car, and services like daycare, prepared food, psychotherapy, and drugs to handle new pressures and demands. Such extra costs soaked up women’s extra income; not enough remained to fund other expected and desired increases in household consumption. Moreover, households were badly strained by the exhaustion and stress of overworked spouses, alienated children, and growing rates of divorce, alcoholism, and drug dependency. In such conditions, the American working class took another step to maintain rising consumption levels. It borrowed money in unprecedented quantities. Soaring household debts proved to be another part of the groundwork of today’s crisis.
The U.S. business community then grasped a fantastic double opportunity. First, it could reap huge profits from the combination of flat wages and rising productivity. Second, it could lend a portion of those profits back to a working class traumatized by stagnant individual wages to enable it to consume more. Instead of paying their workers rising wages (as in the 1820-1970 period), employers (directly or through the banks) flooded very profitable loans onto desperate and often financially naive workers. For employers generally, and especially for financial corporations, this seemed truly a golden age, the validation of capitalism’s celebrated magic.
Underneath the magic, however, workers were increasingly exhausted, their families were disintegrating, and their anxieties were deepened by unsustainable debt levels. At the same time, banks, insurance companies and other financial enterprises profited by taking ever greater risks and by designing and selling ever more questionable securities to systematically misinformed investors. In those heady times, non-financial industries also took bigger risks believing that “the new economy” touted by Alan Greenspan would only ever expand. Before long, workers by the millions began to default on their debts. Then corporations did, too. The credit house of cards collapsed; housing prices tanked; and recession descended. The system had long celebrated the idea that this could not and so would not happen. When it did, nobody was prepared. Since mid-2008 the crisis has deprived millions of their jobs, income, homes, and wealth in the trillions. A desperate population demanded explanations and solutions, changes that would fix the economic disaster. It dumped Republicans and hoped for an economic revival from Obama.
Bush and then Obama poured trillions into the finance industry (guaranteeing the debts of and/or investing in the nation’s biggest banks and insurance companies). Obama then did likewise in organizing the bankruptcies of Chrysler and General Motors. The steps aimed to “kick-start the economy” or to “get the economy moving again” or to “fix the credit markets”: in short to resume the happy state of the economy before the crisis hit in 2008.
This strategy is absurd because were it to succeed (far from certain), it would only return the economy to the web of problems that produced the crisis. This strategy fails to take account of those problems and their historical depth. An exhausted, anxious, and over-indebted working class cannot sustain a widely corrupted, bankrupt, or over-leveraged corporate sector and a government now adding trillions to its national debt.
Another Obama strategy favors government re-regulation especially of the finance industry. The premise is that deregulation since the 1970s caused the crisis. Yet the history of past regulations in the United States challenges such a strategy. FDR’s New Deal did regulate (the social security system, unemployment insurance, restrictions on bank and insurance companies, new business taxes, labor relations, constraints on businesses). Regulation was intended not only to overcome the collapse of capitalism in the 1930s but to prevent future collapses. Neither intention was realized. The Great Depression persevered despite regulations; only World War II finally ended it. Moreover, because regulations impeded profitability and growth, employers had strong incentives to evade, undermine, and, if possible, destroy them. After World War II, many corporate boards of directors spent lavishly on lobbying, funding think tanks, bribing, and campaigning in the mass media to undo almost all of them.
The 1930s regulations not only gave employers incentives to undermine them; they also left employers in the position to decide on the uses made of enterprises’ profits. Employers could and indeed did use those profits to undermine regulations. That is the history of regulations from the 1930s to this day. Like FDR’s, Obama’s proposed regulations thus display a built-in self-destruct button.
A reasonable solution now must learn the lessons of past capitalist crises. Today’s government bailouts, regulations, etc. must not reproduce that self-destruct button. Boards of directors must be deprived of the incentives and resources that have ended up negating the rules and controls that aim to make economic activity serve social needs. This requires a basic change: the workers in every enterprise should become collectively their own board of directors. For the first time in American history, the workers who depend on a socially regulated economy would then occupy the position of receiving enterprise profits and using them to make regulations succeed rather than sabotaging them.
This proposal for workers to collectively become their own board of directors also democratizes the enterprise. It gives the majority in every enterprise the power to decide what is produced, how and where it is produced, and what is done with the proceeds. Such economic democracy inside enterprises is not only a necessary crisis response; it also fosters real democracy across society as workers will demand similar democracy in the communities where they live. Finally, the desire of the mass of people to hold meaningful and decently paid jobs, to live and also work democratically, would then no longer be undone by their employers. In our capitalist system, the employers are chiefly corporate boards of directors and those coporations’ major shareholders. They retain the power, incentives, and resources both to generate crises and to resist effective means to prevent them. That system is the underlying cause of and problem for today’s global crisis. It is long overdue for a basic change.
Explaining Audiences’ Reception
To explain why diverse audiences seem to respond well, I would begin by stressing that my presentation provides a manageable overview of the crisis. I provide a framework with which to organize the flow of “news” and “alarms” about the crisis and about the so-called “recovery,” a flow that is otherwise overwhelming, diffuse, and confusing. The sad reality behind the confusion—and why I place quotation marks around “news,” “alarms,” and “recovery”—is the abysmal level of economic understanding among those charged with gathering, organizing and presenting economic analysis. That understanding, built upon decades-long and facile cheerleading for the capitalist status quo, dissolves into troubled incomprehension when its object collapses catastrophically.
The same social forces that produced the crisis also produced the last thirty years of economic education. The latter consisted of a largely uncritical celebration of capitalism’s virtues rather than a balanced appraisal of (1) its strengths and weaknesses, past and present, (2) the social costs of its unbroken history of periodic breakdowns (business cycles, crises, etc.), and (3) the relative and comparative strengths and weaknesses of alternative economic systems. One result was near unanimity in the dominant political, academic, and mass media circles that contemporary capitalism, especially in the United States, had arrived at the exalted position of “a new economy” in Alan Greenspan’s words. Our economic system, the mainstreamers assured us, was no longer subject to catastrophic breakdowns. It would always provide us with prosperity and growth. There simply was no reasonable, let alone desirable, alternative to modern capitalism, nor did the world need one. Indeed, the rest of the world could best emerge from poverty and inefficiency by replicating U.S. capitalism as soon as possible. The International Monetary Fund (IMF), the World Bank, the World Trade Organization (WTO), and today’s super-efficient multi-national corporations would gladly help them do that (with assists from U.S, civilian and military agencies as needed).
As the economic crisis became a public reality since 2008, journalists, politicians, and teachers at all levels were uniquely unprepared to provide coherent explanations for the frightening speed, depth, and duration of a systemic economic breakdown. Modern economics had stopped studying capitalist crises and substituted mathematical “proofs” that they would no longer happen. Right-wingers were blindsided by the ease and speed with which leading U.S. private bankers, facing collapse, welcomed state monies and oversight. They fell silent or else blamed the crisis on poor people taking mortgages they could not afford and on the Clinton administration making bankers provide such mortgages. However, casting the big banks and highly paid bankers as crisis victims rather than perpetrators stretched the credulity of many even on the right wing.
Liberals instead blamed Wall Street’s bad corporate apples for their greed and Republicans since Reagan for deregulation. They also blamed the whole finance industry for having grown to dominate and distort something they approvingly called “the real” economy. They said little about why the system collapsed because of a few bad apples, or why liberals had mostly supported deregulation, or why finance had grown.
The blame game has been the repeated substitute for analysis since the crisis struck. Floods of Bush and then Obama administration announcements about the crisis have made matters worse. Like crude advertisements, they aim chiefly to celebrate whatever the administration is doing. Likewise, corporations blame their troubles on lenders, workers, or the government. The only constant in the chaos has been the daily news of rising unemployment, home foreclosures, and bankruptcies, and of local, state, and federal government fiscal crises that promise public service cuts and tax increases.
In contrast, my analysis is crafted to begin with a reasonable history of the crisis’s origins, to develop a logical explanation of its eruption, spread and deepening, and to end with a proposed way out. This evidently meets a need in audiences who used to reject the kind of radical interpretation it offers. I see the same in media personnel who increasingly use my analysis to organize their investigations, interviews, and presentations on the crisis. The historical opportunity offered by this crisis to radicals (and to radical teachers especially) is thus extraordinary.
The second possible explanation for the response I get is the feeling of betrayal that I sense in many audiences. The great, exaggerated promises of capitalism in general and U.S. capitalism in particular seem to have been broken. Things are not working out as they were supposed to. Older people have to revise downwards their retirement plans. Young people face grim prospects for finding jobs. Those with jobs worry about their durability and the standards of living they will enable. Everyone’s debts loom ever more burdensome. The big banks, insurance, and auto companies get bailout billions from the government; the average tax-payer got $250 in 2009. Many see something terribly wrong in this picture.
Yet no credible political force seems able or interested in doing anything about one central reality: too many people’s personal economic circumstances keep deteriorating. The Republicans seem determined to nay-say whatever Obama tries. Obama keeps promising that his actions (chiefly larger versions of what Bush did earlier) need time to yield their solution. So a sense of betrayal sets in even as a likely majority keeps hoping that Obama’s promises pan out. The hope is fragile—as Obama may discover to his political peril—while the daily dose of bad economic news is strong. It seems that my analysis, and especially its focal stress on US wage history, speaks to audiences’ sense of betrayal.
A third explanation for their reception of my analysis is that it leans heavily on phenomena known to most people from personal experience. Those people are deeply and daily worried about their job security and their debts (mortgages, credit card balances, etc.), actual or looming cuts in their health care and pension coverage, public service cutbacks and tax or government fee increases, their children’s education costs and job prospects, and so on. They resent as well as envy fabulous corporate pay packages and bonuses. They suspect collusion between Washington and big business to “solve” the crisis—achieve “recovery”—at their expense. I deal directly with all those issues while minimizing references to unfamiliar technical terms about financial instruments and programs most audiences have no contact with (asset-backed securities, credit default swaps, TARP limits, and so on). My explanation does not fit into the mold of, nor pander to, standard Republican versus Democratic blame-mongering. It thus keeps audiences from feeling the need to make quick judgments about whether my analysis accords with their leanings in terms of conventional politics. At the same time, it apparently increases the chances of their listening to see if my explanation might actually make sense of the crisis.
My explanation’s focus on the systemic nature of the crisis especially interests audiences. It stresses, as a basic theme, that capitalism—the system—is the problem, the source of the painful symptoms gathered in the term “crisis.” Workers, employers, bankers, government officials, and so on are all shown to occupy particular positions in this system. Capitalism’s complex structure of rewards and punishments drives the occupants of those positions to act in ways that produced the current capitalist crisis (and, indeed, the system’s recurrent crises). Rather than choosing this or that participant in the system to blame, my explanation identifies the system as the problem and system change, therefore, as the solution. Audiences seem to find this approach refreshing and novel, perhaps reflecting the absence of critical systemic perspectives from public discourses over recent decades.
Finally, the solution I suggest—to change the organization of business enterprise in the United States—intrigues audiences. I had originally worried that it would seem unworkable or utopian or perhaps simply too radical. Instead, I found that it tapped into the desires of many in my audiences to “run my own business,” to avoid working at some supervisor’s beck and call, to escape the alienation and drudgery of working in some corner of an immense corporate bureaucracy. Audiences do, I believe, see the solution I propose as radical and not likely to be realized anytime soon, yet they also find it novel and interesting. “We never thought of that possibility” has been a frequent comment.
These factors seem to explain the remarkable sense of solidarity and appreciative welcome that greets my presentations. Some members of my audiences are frustrated that I say too little about the solution or spend too little time on the intricacies of bank bailouts; others are impatient that the time I always do spend on the history of wages and productivity in the United States is excessive and unnecessary. Yet the content and tone of questions and comments almost always signals agreement with and even enthusiasm for the basic themes of my explanation. That is different from my experiences in public speaking before 2008. Then, instances of skepticism, hostility, or lack of interest in my quite similar themes were not unusual.
While not always foregrounding it, I neither hide nor deny the theoretical framework that informs and enables my explanation of the crisis. It is Marxian, although not the classical sort most people presume. It is rather a different kind of Marxian framework shaped by the major breakthroughs and changes that occurred inside Marxism over the last several decades. My audiences clearly do not know about those changes, and I have avoided burdening my explanation with distracting digressions on theoretical developments. Yet, particularly older members of audiences sometimes explicitly identify my explanation with Marxism, socialism, or leftism. Interestingly, such identifications are very rarely tinged with disagreement or hostility. I account for this as follows: (1) Marxian explanations of the sort I offer are new and fresh because they have been excluded from public discourse for a long time; (2) right-wing attacks on Obama as a “socialist” have made millions of his supporters feel positively about someone or something else also identified as “socialist”; and (3) the demise of the USSR and their eastern European socialist allies and changes inside the People’s Republic of China have reduced popular associations of socialism with “enemy countries.” As Cold War legacies fade, capitalism’s current crisis finds U.S. audiences remarkably receptive to Marxian analyses and proposed solutions. Not the least tragedy of this crisis would be our failure to reinsert the rich tradition of critiques of capitalism into public debate over causes and solutions. Today, large audiences are open to the contemporary insights derived from new developments in that tradition.
About Capitalism Hits the Fan (the film and the book)
For those interested in a graphically enhanced documentary film version of my explanation, Capitalism Hits the Fan can be previewed and an inexpensive dvd purchased at the website http://www.capitalismhitsthefan.com. It has proven to be especially effective as a teaching aid. Schools, colleges and universities are invited to preview the film at the website of its producer, the Media Education Foundation: http://www.mediaed.org.
A book of short, generally accessible essays on economic and political aspects of the crisis as it evolved from 2005 to 2009, likewise entitled Capitalism Hits the Fan, was published late in 2009 by Interlink Publishing Group; see their website http://www.interlilnkbooks.com or send inquiries to info@interlinkbooks.com.   To see the"written, audio, and video renditions of the 
basic analysis in more or less detailed versions suited to every level of interest" go to Rick Wolff’s website www.rdwolff.com.
Richard Wolff, Teaching Capitalism’s Crisis, RADICAL TEACHER, No. 87, Spring 2010, pages 10-18


Visit Professor Wolff's social movement project, democracyatwork.info.

Permission to reprint Professor Wolff's writing and videos is granted on an individual basis. Please contact profwolff@rdwolff.com to request permission. We reserve the right to refuse or rescind permission at any time.