Do taxes fund spending at the federal level?
January 14, 2017
You often describe the dilemma of politicians -- corporations want the government to provide goods and services for them, and the people also want the government to provide goods and services for them, so these two groups pressure the politicians to provide for their own needs, while wanting to lower their own tax contribution at the same time. This puts the politician in a dilemma, which he or she often solves by borrowing -- satisfying everyone's desires, while not raising taxes. This is certainly true of state and local politicians, but is it also true of Congress? Since the federal government is the issuer of the U.S. dollar, does it really need to "tax" or "borrow" dollars to provision goods and services? Does the federal government even need to worry about "paying off" its "debt" at all?
Richard Wolff posted an official response
Modern Monetary Theory (MMT) is a group of economists who focus on this point: that the government can (and in large part already does) print money - or what is the same, create accounts for banks that contain deposits they can use. To stimulate and expand an economy, it can create money, and if and when there is too much money it can withdraw that excess money from circulation. Thus the creation of money is not limited by some non-monetary standard; it is whatever the creators of the money want it to be (pubic and./or private creators).
Historically, the power to print/coin money was withdrawn from kings and other politicians who abused it for political gains. It was made to depend on the willingness of the private financial authorities (banks chiefly) to cooperate and thereby enable raising or lowering the supply of money in an economy. Thats why we go through the ritual of having the govt print bonds, sell them to the private banks for money and then enable the private banks to cash them in to the monetary authority (central bank, federal reserve etc) for fresh new money. But the point of MTT is that the banks' intermediation here can be excised out to get back to the ability of a sovereign govt to control money as a lever to shape economic life.
Is stable GDP and negative GDP growth always an undesirable aspect of an economy?
January 14, 2017
It appears that the consensus in contemporary economics is that GDP growth is a good thing. Lets say, theoretically, that everyone in society has all their needs met, the population is no longer growing, GDP has leveled off and everyone is content. While this may be true for now, are there any views in which stabilized GDP can be a good thing.? Also, are there any theories on how an economy can prosper in the face of stabilized population growth or negative population growth (such as in Japan)?
Richard Wolff posted an official response
The basic argument these days for a stable or even falling GDP comes from environmentalists who point out that because the GDP calculations omit discussion or calculation of the ecological damages entailed by GDP growth, if one adds such considerations it becomes easy to show how and why steady ir falling GDP can be a very desirable way to save the planet, etc.
Likewise the strongest arguments about how an economy could "prosper" (to use your term) in the face of stabilized population or stabilized GDP or declining population are these: (1) that redistributing income (in various ways) and/or wealth could achieve that result, and (2) that reorganizing human relations and interactions in the workplace and work processes could do that too.
There is a growing body of opinion that the economics profession and therefore much public discussion has fetishized GDP data and thereby missed much about economic life that is not counted in GDP calculations and yet affects our lives in multiple ways and shapes even the size and rate of change of GDP.
To what extent, if any, is Marx's labor theory of value relevant in current economics?
January 14, 2017
Marx's theory of value (derived from a neoclassical standpoint) has caused much controversy since its inception. Theories such as the Subjective Theory of Value have come to take over economics and even claim to disprove Marx. Is there any validity in Marx's analysis and how does it show? Thank you very much.
Richard Wolff posted an official response
Marx's approach to analyzing capitalism had different objectives from those of his major predecessors, Adam Smith and David Ricardo. They loved capitalism, celebrated it and did their analysis within that framework. Marx was a critic of capitalism and approached it as a transitional system that could and should be gone beyond to something better. The classical and then later neo-classical economists made assumptions, used logics, and focused on empirical evidence that were all different from the assumptions, logic and empirical evidence that Marx deployed. Thus the issue is not (and never was) whether one approach is valid and another not - or one "more" valid than the other. These are different approaches using different methods to achieve different ends. Each theory illuminates different aspects of the economic system - capitalism - they seek to analyze. And which of the two theories you choose to learn and work with or how you make use of both of them, in what relation or balance will determine many of the conclusions you reach about capitalism. Of course, here in the US - where very few teachers expose their students to a systematic study of Marx's analysis - few people have the education needed to deploy Marxian analytic concepts - such as, for example, the labor theory of value, the theory of surplus value, and so on. This hobbles and narrows mainstream economics. In my view, knowing Marxian economics has always been a very helpful component of the tools of analysis I bring to my work. For a full, detailed analytical comparison among alternative economic theories, let me recommend R. Wolff and S. Resnick, Contending Economic Theories: Neoclassical, Keynesian and Marxian (Cambridge: MIT Press, 2012).
Time banking and time-based currencies?
January 12, 2017
eg Ithaca HOURS and new blockchain-based attempts such as chronobank.io. The idea being that individuals assign tokens to their labor time and buy/sell those tokens from each other for hours worked. My feeling is that they have well-meaning intentions, though even a decentralized labor token will ultimately result in individuals competing for scraps and thus working longer hours to generate a sustainable income. Thoughts?
Hierarchical Structure in Worker Co-ops
January 12, 2017
Dear Prof. Wolff. I am very much persuaded by your passionate pleas to move beyond the dying system that is capitalism and towards a system based around worker co-ops. However, a question always arises when I follow the reasoning through to its conclusions, and is the following. If all the workers in an enterprise are to be considered as occupying both roles of employer AND employee, how do we ensure that the enterprise doesn't fall into anarchy and that it can continue to be effectively operated? I am of course referring to the important skill of managing a workforce, and the way that any joint effort appears to necessitate leadership so as to avoid a scattering of resources and dissipation of the workers of efforts in unfocussed directions. In such a case, it seems that we would be forced to return to situation similar to the one we sought to escape, namely one in which we now have a (pseudo)-employer directing the work activities of the rest of the (pseudo)-employees. I am wondering if it is even possible for a workforce to be organized without this necessary hierarchical structure, or whether this is even a critical component in your understanding of the notion of worker co-ops. Thank you very much for you time and your valuable insights.
Richard Wolff posted an official response
It is my hope that communities of workers owning and operating enterprises will be able collectively to manage their individual efforts so that they achieve the best possible outcome, where best is a standard debated and developed democratically within the community. If it turns out that some workers believe that they need particular individuals - rather than the coop as a collective community, as a whole - to function as managers, etc., then the question becomes how to achieve such management while also preserving the democratic structure and functioning of the worker coop. One way to doing that would be to insist that managerial functions be rotated among all members of the worker coop, sequentially, so that no solidifying of some people into managers and others as managed occurs.
The Stock Market and the working class
January 12, 2017
Rick, You seem to say/think that only rich people "profit" from the stock market. Perhaps that is true statiscally, i don't know. I do know that many, like my family, through the prosperous years of the 1950s were able to invest some funds in the stock market and, if lucky, came to have a nestegg from these investments. In my generation, we were encouraged to put aside some money in 401k or other investments and, again with luck, managed to come to retirement with money to supplement social security. I see the stock market like all other gambling. If you are lucky you win, but most come out not winning. If you are lucky, you will have more money than if you left it under the pillow or in a savings account. Can you please address this. I think there are a lot of people like me who are in this position. When you generalize about the rich living off the profits of the rest, it doesn't ring true and challenges your credibility. Thanks for your presentations and all your work. It very useful and illuminating. Yours in solidarity. Steve
Richard Wolff posted an official response
Yes, of course, some non-wealthy people can and do set aside sums they save from current expenses - voluntarily or via job-related mandatory pension withholdings - to invest them in stocks and bonds. And those, as you say, can go up or down with the gyrations of securities markets. However, lets look at the statistics to see whether and how this matters. First, a tiny percentage of the population owns the vast bulk of securities purchased privately and not through pensions funds etc. Second, most Americans own little or no appreciable quantity of stocks and bonds, either individually or through pensions. Third, most pensions are managed by professional pension managers such that pensioners have neither control nor knowledge of what investments are made and often pay inflated fees for the management as well.
What I have said is that government policies (e.g. trickle down economics of the sort practiced by most US governments, Republican and democrat alike) can target either the corporations and the rich or the average incomes and poor. The trickle down policies can, for example, increase money supplies to the corporations and the rich and thereby boost the stock markets and thereby make the rich richer and thereby perhaps see some of that wealth trickle down to the masses.. Or they could target the mass of people - say via money disbursements to them or rising minimum wages or public employment programs - and thereby practice trickle up policies that enrich the mass first and from there perhaps benefit the corporations and the rich. In that framework, it is clear who profits most from stock market rises, etc.
It is usually the case that generalizations about major group differences in economics have exceptions. So, yes, there are average and maybe even a few low-income Americans with stock and bond portfolios. Likewise, there are a few top corporate executives who also do labor for wages to supplement their incomes. But these exceptions do not invalidate the generalizations all economists use to usefully designate major group differentiations in analyzing economies.
In Response To Your Recent Article - CAPITALISM IS THE PROBLEM
January 11, 2017
I was so happy to see this article as I often complain that Richard Wolff doesnt often lay out his program in a clear concise format anymore. The radio show being mostly news updates and not much of a re-hash of old ideas, which is good. So this article was great for me to send around to my friends and family as an eye opener, I had hoped. Something to wake people up to the fact that hey maybe something isnt right here... Well here is my first response from an old college roommate, a self professed "scholar of political science" and this is his reply. I am curious what would be a constructive rebuttal as I am tempted to just call him names and move on. Said reply... "I see where he is going but he is super rosie about human nature. the trust and rational collective action necessary is beyond human capacity" My initial constructive response is that it is certainly NOT beyond human capacity as we have done it, look at Spain for example, both Mondragon and their civil war, but I am hoping for something more in tune with a lay persons experience with economics. Any thoughts or insights from anyone here are appreciated. Thank you
Richard Wolff posted an official response
For thousands of years, the human race functioned in small family, tribal, village economies within which property was owned collectively, work tasks were organized democratically, and the distribution of output was managed in a collective, solidary way to support and protect the family, tribe, village. That's where phrases were born like "it takes a village to raise a child" and settled deep into our consciousnesses to rise again in later, different social organizations.
What human nature consists of and what it may be capable of are topics about which human beings have long debated and never found any universal consensus. I dont know the answer, but neither do I believe anyone else does either. Thus for someone to tell me that he/she knows that human nature cannot accommodate something suggests to me that such a person does not like or want that something but instead of saying that simply and forthrightly, he/she instead seeks to strengthen his/her dislike by asserting (because that is all it is or can be) that the basis for collective/cooperative work places is beyond the capacity of human nature.
Lastly, consider this: for centuries in slave societies, it was believed that human nature divided some into masters and others into slaves, so that abolishing slavery was "against human nature." Most of us now believe that such arguments were little more than efforts to support and preserve slavery. It turns out abolishing slavery was not against human nature. The same applies to the feudal system of lords and serfs. So now we have people living in capitalist conditions - where participants in production are not divided into slaves and masters, nor lords and serfs, but rather into employers and employees. And the same ideologies that cannot imagine a different arrangement - such as cooperative workplaces - trot out the same old arguments about what human nature can and cannot be or support.
Human nature does not only shape social conditions; social conditions and their conflicts, contradictions, and tensions also react back to shape human nature. That nature and that society shape one another in constant change. Fixing either one into something asserted to be permanent and unchanging is actually the odd, artificial thing to do.
Where do we find people willing to take the risks of starting these co-op businesses?
January 11, 2017
And how are we going to keep the governments off their backs long enough to give these co-ops the chance to succeed? There are so many rules and regulations that new businesses have to contend with.
Value of ideas
January 11, 2017
Dear professor Wolff, if I suddenly come up with a brilliant idea that can make production more efficient (more products in a fixed length of time), what the labor value of my idea would be? Can we calculate SNL for innovative ideas?
Distribution of products of God's labor
January 11, 2017
Prof. Wolff, I have a very simple question. Capitalism and its early forms such as slavery and feudalism are mechanisms for organisation of production. Let's assume there's a society with no production. How could goods of non human labor like land, water, energy sources, air, etc be distributed? There are options: everything is divided equally between everyone; there's one group of people who are entitled to more and another who are - to less; one group have all, another have nothing. In the third case people of the 2nd group are excluded from society. Now let's assume there's a third option system with little production: people from the 1st group are employing let's say 30% of those in the 2nd; but here in contrast to slavery they don't give workers any natural resources for self sustenance; instead, with a portion of surplus workers are allowed to keep they have to buy from the 1st group both natural resources for sustenance, any beyond that they need and products of human labor they need. 1st group people, when they see success of those in the 2nd can raise prices of non humane labor products endlessly, as they please. For example a worker had to sleep on the ground aiming to secure a spot of land to build a shack; once the master sees him close to succeeding he increases price of land (rent), water, etc, preventing him from doing that. How would you classify this system? Do I understand it correctly that slavery was a 2nd type distribution option, where slaves were entitled to minimum of natural resources for self sustenance and in addition to that were allowed to keep part of the surplus they produced? How are the names of economic systems we use today relevant to distribution of natural resources and with which one it should be done?
Richard Wolff posted an official response
Every system - slavery, feudalism, capitalism, etc - has its distinctive way to distribute natural resources and likewise to develop technology that determines what natural resources are (e.g. atomic energy made uranium an important resource which it was not before, etc etc.)
Slaves are not "entitled" necessarily to anything. If there are abundant inflows of new slaves into a slave society, the masters may choose to deprive current slaves of any resources and simply replace them when they die with new slaves etc. Comparable decisions can be made in each system. Only in a system in which the master-slave or lord-serf or employer-employee production relationships disappear - where the workers and the employers are the same people - would the access to natural resources not reflect an underlying contradiction/opposition/conflict of the sort your question poses.
Parasitic or beneficial?
January 11, 2017
Over the past century, artists in different mediums have used their art and craft to highlight social issues and other important issues that concern mankind. In the process, the artists or the owners of the artistic content have monetized it and earned profits. Is this parasitic or does this benefit society in any way, which can be measured?
Richard Wolff posted an official response
Art objects are socially defined/constructed/understood in different ways in different societies. Their qualities (parasitic or otherwise) and social benefits depend on just how their societies define/construct/understand them. In modern capitalist societies, art objects can be entered into market transactions (in societies that think and act via markets and market mentalities). Then they become subject to market mechanisms of supply and demand. Each art work can be seen as unique and individual and thus non-reproducible. In that case, the supply of that object into a market is rigidly limited to 1 unit once it is produced by the artist. However, the demand for that object can involve countless people who bid against one another to buy it (in an economy like capitalism in which art objects function as commodities to be bought and sold). Then its price can and will rise, thereby "monetizing" the art work and enriching sellers who were able to buy for less than they sell the object.
As to whether to call this parasitic or socially beneficial, why pose it as an either/or? As commodity, the art work enables traders to become rich (i.e. parasitic in this case) without themselves creating or producing anything. Meanwhile if the art object teaches viewers something of social value about and if the owners permit others to view the art object, it can also be socially beneficially alongside its parasitic monetization.
Value of the tool
January 10, 2017
Dear professor Wolff, Suppose that a self-employed shoemaker works 4 hours a day and produces 1 pair of shoes. Now I invent a tool that enables him to produce 1 pair in two hours. How many pairs of shoes is my tool worth?
Richard Wolff posted an official response
In value theory, the value of a tool is determined by the amount of socially necessary labor (SNL) it takes in an economy to produce that tool. In an economy where exchange of products occurs - i.e. where products of labor go through a market exchange process in passing from producer to consumer - produces become "commodities" and thus acquire a value in exchange (or exchange value): for example, a tool equals so and so many pairs of shoes, etc. If the exchange vale is the same as the labor embodied value (which may or may not be the case depending on the economic conditions specific to time and place), then the exchange value of a tool would depend on how many SNL hours were embodied in the tool relative to the SNL embodied in the pairs of shoes.
Your example of a boss acquiring a new technology.
January 10, 2017
If a boss lets everyone work 20% less when a new tech is acquired, do the workers also earn 20% less? Thank you. I guess they could get a part time job if they needed one.
Richard Wolff posted an official response
No, the point of the example was this: if a new machine enabled the same output with 20% less labor, the typical capitalist would fire 20% of workers, sell the same output as before the net machine at the same price yielding the same total revenue. But instead of paying the 20% fired workers' wages, he would now pocket that part of the total revenue for himself as expanded profits. The profits of the capitalist thus come NOT from the technology but rather from how the technology is used in the business. Now consider the alternative: no one is fired; instead the new machine enables all workers to do 20% less work (Fridays are now made par of the weekend) while getting the same pay. The capitalist gets the same revenue and the same profit as before the machine was installed. The winners in this alternative are the workers who all get a 20% reduction in labor. If worker coops replaced capitalist enterprises, the alternative would be far more likely how technology is used than the typical capitalist way.
Comment on news regards to Sanders townhall
January 10, 2017
Hello Prof. Wolff, I would like you to comment on events happened on Sanders Townhall. One is a clash between Sanders and a small biz guy from Pennsylvania. http://thehill.com/homenews/senate/313447-sanders-trump-supporter-spar-over-obama The "small business" guy basically arguing with Sanders with ROP rhetoric, he thinks regulation is catching onto them, is bad, (funny enough, I know a lot of small business owners' main income source is tax invasion). They know 1% is getting the biggest tax cut, but as long as they (small business) can get a cut, fuck working class people (aka everyone else). So my question is, could you share some comments on this, I feel that small biz class (I know today's small biz is very different from Marx's old definition) are naturally alienated from the left movement. Thank you.
Why doesn't the AEA get it about pubic's rejection of their policies?
January 09, 2017
Dear Prof. Wolff Here is the link and the article: http://www.wsj.com/articles/top-economists-grapple-with-public-disdain-for-initiatives-they-championed-1483916701 CHICAGO—The nation’s leading economists are suffering an identity crisis as many of the institutions they helped build and causes they advanced have come in for public scorn and rejection at the ballot box. The angst was on display this weekend at the annual conference of the American Economic Association, the profession’s largest gathering. The conference is a showcase for agenda-setting research, a giant job fair for the nation’s most promising young economists and, this year, the site of endless discussion about how to rebuild trust in the discipline. Many academic economists have been champions of free trade and globalization, ideas under assault among rising populist movements in advanced economies around the world. The rise of President-elect Donald Trump, with his fierce rhetoric against elites, in particular, left many at this conference questioning their place in the world. “The economic elite did many things to undermine their credibility while people’s economic fortunes were taking a turn for the worse,” said Steven Davis, an economist at the University of Chicago. But a road map for regaining trust is elusive. “I used to think facts and analysis will ultimately carry the day but now I’m not quite sure.” In November a group of 370 economists, including eight Nobel laureates in economics, signed a letter warning against the election of Mr. Trump. The conference took place in the shadow of the 1,400-foot Trump International Hotel and Tower, with its giant embossed letters glistening above the Chicago River: TRUMP. Chicago’s single-digit temperatures meant anxious discussions took place among economists quite literally shivering in black or gray overcoats. “Economics has done a poor job integrating political concerns,” said Athanasios Orphanides, a professor at the Massachusetts Institute of Technology and former governor of the Central Bank of Cyprus. Surveys from the Pew Research Center have documented dwindling support for free trade. In 2014, 60% of Democratic voters and 55% of Republican voters supported such trade agreements. In an October survey, however, support among Democrats had fallen to 56% and support among Republicans had nose-dived to 24%. Over a billion people moved out of poverty in developing countries in the last 25 years, lifted in part by global trade and other economic prescriptions, but those same policies created winners and losers in the West. Another Pew study last year compared views of whether it was good for the U.S. to be so involved in the global economy: 86% of scholars said it was good, and just 2% bad. Among the general public, 49% thought it was bad, and just 44% good. A separate survey from Marketplace-Edison Research, conducted in READ MORE Economics Conference Tests Job Seekers’ Mettle http://www.wsj.com/articles/top-economists-grapple-with-public-disdain-for-initiatives-they-championed-1483916701 1/8/17, 8E20 PM Page 2 of 4 October, asked U.S. adults how much they trusted data about the economy that is reported by the federal government. A quarter of respondents said they “do not trust it at all” while another 19% said they somewhat distrust it. That is difficult to comprehend at a conference like this, where 13,000 attendees assembled for more than 500 presentations, many of which are built around findings that heavily use that government data. The profession sees its successes as overlooked—the U.S. is wealthier than ever. The unemployment rate is below 5%. Challenges facing those who enjoyed little economic gain in recent years are among the topics economists are trying to diagnose and the subject of dozens of papers at this year’s conference. Presentations throughout the weekend had an exasperated tone— Princeton University economist and Nobel laureate Angus Deaton gave one titled “Where In The World Is The World Headed?” Another Nobel Laureate, Columbia University’s Edmund Phelps, delivered a presentation titled “How the Left and Right Are Failing the West.” Mr. Phelps said that neither the economic policies of Mr. Trump nor the left “can be expected to revitalize the West since neither serves to stimulate the business innovation that is essential for rapid economic growth.” Stanford University’s John Taylor and Columbia’s Glenn Hubbard said Mr. Trump’s plans to simplify the tax and regulatory codes could indeed boost the economy’s growth. Both economists served in the past in the White House Council of Economic Advisers, long populated by academics who present at the AEA conference every January. This year, academics are out in the cold. During the election The Wall Street Journal contacted every former member of the CEA, including those going back to President Richard Nixon. None had been tapped as an adviser to Mr. Trump’s campaign, nor did any publicly endorse him. The president-elect is “not particularly interested in hearing from the academic economist club,” Mr. Davis said. That could leave him missing needed advice. Still, the profession may have brought this on itself, said Joseph Stiglitz, a Columbia professor and Nobel winner. Anger among voters was to be expected, because globalization in particular was sold in part with broken promises. “The promise was that globalization, together with liberalization, lowering tax rates, and advances in technology, would make everyone better off,” said Mr. Stiglitz. It was economists, not the economics, that over-promised, he said. http://www.wsj.com/articles/top-economists-grapple-with-public-disdain-for-initiatives-they-championed-1483916701 1/8/17, 8E20 PM Page 3 of 4 “In many ways, economic science was more honest,” he said, referring to the fact that some would win but others could lose from free trade. “It only said that under certain conditions winners could compensate losers, not that they would.” Write to Josh Zumbrun at [email protected] Copyright ©2017 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com. http://www.wsj.com/articles/top-economists-grapple-with-public-disdain-for-initiatives-they-championed-1483916701 1/8/17, 8E20 PM Page 4 of 4