Tackling the Myth of the Big Bad Deficit
November 30, 2016
Firstly, thank you for all the work that you do. I haven't missed an episode of Economic Update in over two years and look forward to it every week. During much of this time I was hoping you might walk listeners through what I consider one of the biggest canards of conservative economics, namely that deficit spending and national debt is bad. After all, most people are very familiar with debt as a bane of life, knowing that if they acquire too much of it or don't pay it off, terrible consequences ensue. Most people don't realize that - for the American government - debt is not like the debt of a household or a business, mostly because unlike those bodies, the American government can print its own money. And while that doesn't mean it can go crazy and print all the money to satisfy everyone's wants and needs, it does mean that different rules apply, and that deficit spending is actually quite desirable, leading directly to private wealth. However conservative economists consistently and passionately make the case that the growth of the debt is some monster, and that its growth threatens our future, and that it necessitates drastic cuts in spending to spare us from the supposed (but never realized) horrors of national debt. I would greatly appreciate if you could use the megaphone of your program to talk about this in some detail. Perhaps you could find an economist who specializes in modern monetary theory to have as a guest and explain not only how money works at the federal level, but also the political implications and consequences of "fiscal responsibility" and how they have historically been used to ensure the mass of people believe that things like universal education or healthcare are "unaffordable."
Craftsmen and artisans in a post-capitalism economy
Hello Prof. Wolff, I have been an artisan for 14 years, and I was wondering how artisans and craftsmen fit into a post-capitalism economy. I have lately thought about maybe selling some of my work, but I haven't got a clue how to make it seem more socially relevant, but still be able to benefit from my own labor. While I love the idea of co-ops in the workplace, I was wondering if there was a socialist answer that gears more towards the individual craftsmen that wants to make a living plying his trade? Thank you!
Steady State Economics
November 29, 2016
Hello Prof. Wolff. I was wondering how you felt about steady state economics and whether it was worth pursuing as an alternative to the impossible growth dreams of capitalism ( http://dalynews.org/learn/blog/ ). I am particularly interested in how this topic pertains to sustainability and the climate. I also wondered if you could do a radio show/segment about it. I searched the Democracy At Work website for various related terms and it didn't seem to have been covered before. Thank you!
Alternatives to Finance Capital and suggestion for Guest on Econ Update
November 29, 2016
Dear Prof. Wolff and team: Thanks for your great work. You spend a great deal of time discussing WSDE as alternatives for industrial capital. But Marx also talks about finance capital, and if we are to "do better than capitalism" we must clearly also propose alternatives to the current financial system. I wonder if you might be able to suggest some reforms on that front either here on this webpage or on Economic update. I recently read this article by Prof. J. W. Mason on the topic which I found extremely interesting (https://www.jacobinmag.com/2016/11/finance-banks-capitalism-markets-socialism-planning/). I would certainly be very interested to hear your views on these proposed reforms and I would like to hear Prof. Mason as a guest on Economic Update if that be possible. Thanking you again for your excellent work which has taught me so much. Ali
Richard Wolff posted an official response
Thank you for your kind words. Might we begin the conversation with a recent short piece I wrote on finance? Here it is:
The Contradictions of Finance
Saturday, 17 September 2016
By Richard D. Wolff, ROAR Magazine | News Analysis
After the financial crisis, the long-term fate of Wall Street now hinges on the context of global capitalism and the emerging popular struggles against it. (Photo: David Ohmer / Flickr)
This article originally appeared in ROAR's third print issue, "The Rules of Finance." ROAR is a volunteer-run publication sustained by its subscribers. To read more,pre-order the print issue or subscribe online.
Like much else in economies, finance both enhances the economy's growth and development and undermines it. The balance between these contradictory effects depends on all the other aspects of an economy and society and how they all influence financial contradictions. From its first entrance into the economy -- that part of society concerned with the production and distribution of goods and services -- money has been contradictory. On the one hand it enabled trade and exchange far beyond the limits of barter and other pre-money systems. On the other hand, money introduced all sorts of new instabilities.
The role of finance and its contradictions changed especially after the 1970s. The old centers of capitalism (western Europe, north America and Japan) lost major parts of their global primacy. A combination of computer-related automation, political shifts and relocation of production to low-wage areas -- particularly in Asia and Latin America -- brought economic decline to most of the old centers' people. In effect, employers in the old center obtained access to a vast new, lower-waged labor force and the profit gains associated with it. The employers could relocate to where the new cheaper labor became available or else bring that labor into the old centers as immigrants. Most old center countries did both. The result nearly everywhere in capitalism's old centers was stagnation or decline of real wages coupled with sharply worsened inequalities of income and wealth.
Ironically, the post-war period had enabled the resurgence of a capitalism that had been hobbled by the Great Depression and the war. Coupled with the social-democratic gains achieved during the 1930s and 1940s, the years from 1945 to 1975 witnessed a decades-long celebration of rising standards of mass consumption paid for by rising real wages.
Indeed, depicted as the emergence of a comfortable "middle class," rising consumption was celebrated by capitalism's ideological champions as the system's great achievement and justification. Product advertising exploded alongside rising consumption, intruding into every corner of modern life. One key result was to make rising levels of consumption more than ever the measure -- the very definition -- of each individual's success in life. In the US, parents promised one another and their children an American dream of ever-rising consumption financed by ever-rising real wages.
The arrival and continuance of stagnant or declining real wages after the 1970s made the realization of that dream impossible. Yet it was so deeply internalized and desired by Americans, so ingrained in their expectations, that they were determined to achieve it even without the rising wages to pay for it. They would sustain rising consumption otherwise, partly by borrowing. The latter provided a new profit opportunity for financial capitalists: lending to consumers to enable their rising consumption.
Families determined to consume more usually turned first to sending more household members out to do more hours of work as real hourly wages stagnated. When those extra hours proved insufficient, borrowing remained as the only way to pay for rising consumption. In profit-driven response, the financial sector invented new forms of consumer credit extension (especially credit cards and later student loans) and greatly expanded old forms (mortgages and car loans). Banks bundled all these forms of consumer debt into asset-backed securities, enabling them profitably to tap globally dispersed sources of loanable funds.
Credit crucially supported the booms of the 1980s and 1990s into the new century, yet it also spread globally the risks that the huge new supplies of consumer debt instruments might not pay off. The spurt of financialization after the 1970s also included major new loans to corporations and governments. When the credit default crisis broke in 2008, it included all three types of loans: consumer, corporate and public. Financialization had yielded large new profits and the expansion of the financial sector relative to all the other sectors of capitalist economies around the world. It had also yielded their global collapse.
The financial expansion phase is often followed by its contradictory other, the contraction phase. The crash of 2008 proved to be the turning point this time between the phases. Bailouts, bail-ins and a wide variety of other monetary (and some fiscal) policies have been tried to "manage" the crash and its consequences with, at best, mixed results to date. Where some "recovery" has occurred it largely bypassed huge portions of the population. Recovery's impacts on the top 1 percent and 10 percent of enterprises and individuals also proved uneven.
Financialization facilitated the historic relocation of capitalism from its old to its new centers. Because this relocation was driven by the profit gains of capitalists moving from high to low-wage production, the result was a supply-demand imbalance. Lowered global wages rendered effective demand deficient. In this situation, debt could temporarily remedy the imbalance. Global finance thus profited in multiple ways from the globalization it promoted. Yet it also over-reached, took excessive risks, and eventually imploded. Its survival became dependent on state intervention and support.
As a result, financial industries are now stronger but also weaker, thereby perpetuating finance's intrinsic contradictory nature. Their longer-term fate now hinges most on what happens to the larger capitalist context. As capitalism declines in its old centers and leaves massive social, economic, ecological and political divisions and destructions in its wake, how far will the resistance there go? Will movements demanding state-financial enterprises to compete with private counterparts gain strength? Will initiatives to go beyond capitalism arise, grow and challenge the established financial institutions? Has that already begun?
In capitalism's new centers, will history repeat there the bitter divisions and working-class struggles that characterized the early development of capitalism's old centers? Might struggles in old and new centers find some common ground and bond to build an effective alliance in opposition to capitalism? Answers to these questions will have more to do with shaping the future of financial industries than the details of their practices.
This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.
Richard D. Wolff is professor of economics emeritus at the University of Massachusetts, Amherst, where he taught economics from 1973 to 2008. He is currently a visiting professor in the Graduate Program in International Affairs of the New School University, New York City. He also teaches classes regularly at the Brecht Forum in Manhattan. Earlier he taught economics at Yale University (1967-1969) and at the City College of the City University of New York (1969-1973). In 1994, he was a visiting professor of economics at the University of Paris (France), I (Sorbonne). His work is available at rdwolff.com and atdemocracyatwork.info.
Worker co-ops without planning
November 29, 2016
On the subject of workers’ co-ops, I am intrigued by the possibilities co-ops offer, but also puzzled by how the problem of social production is to be approached in this model. What is envisioned when different co-ops offer the same goods or services – will there not be a competitive, market-driven situation in which they attempt to out-perform another in order to survive and prosper – leading to the classic problems of overproduction, employment redundancy etc? Socialists historically looked to a centrally planned economy to organise production rationally and to avoid the just-mentioned destructive tendencies of the market economy. What happens in an economy based on independent worker co-operatives: can production be rationalised to deliver the maximum benefit across society and to avoid the pitfalls of a market-driven system?
Richard Wolff posted an official response
This question arises often, so thanks for the opportunity to reply. Independent capitalist enterprises (that emerged out of previous, different economic systems such as feudalism) found ways to organize production by using markets and competition and government regulation. Independent worker coops will find their ways as well. It is possible that worker coops will adopt and adapt markets, competition and government regulation as well, but will do so in different ways because the goal of worker coops is to have the markets, competition, and regulation serve to reproduce and strengthen worker coop workplace organization, whereas in capitalism the goal is to have the very different capitalist organization of production be reproduced. It is more likely that worker coops will take from the older, anti-capitalist socialist tradition the use of planning (central or decentralized) as the way to achieve coordination among worker coops. That is, a democratic planning mechanism will be developed that prioritizes broad democratic allocational decisions over individual market transactions.
Perhaps most importantly, the values driving worker coops might well be expected to finally settle the following issue (that could never be faced in the history of capitalism): separating the employment issue from the particularity of the product. What this means is this: if demand falls for any food or service or if technology makes one producer more productive than another or if supply of anything exceeds demand, laborers are reallocated and/or the labor-leisure division is changed, but no one is ever involuntarily unemployed since that is manifestly irrational in a way that a worker-coop based economy can see and accept unlike a capitalist-based society. Once workers know their jobs and incomes are secure, shifting from one to another activity according to some system of eligibility/seniority/preferences will stop being treated as if it meant unemployment (as in capitalism) and thus become routinized without fear/resistance attached.
What would happen if worker cooperatives dominated an industry?
November 25, 2016
Do you think we would have similar problems as when capitalist ventures dominate an industry?
Richard Wolff posted an official response
No. The whole point of building a significant worker-coop sector of the US economy is to allow real practical experience to show Americans what the benefits are of (a) working in a democratic workplace (vs the capitalist top-down, undemocratic worplace organization) and (b) having the real choice to use your dollar of purchasing power to support a democratic rather than a capitalist workplace by buying the products of the former rather than the latter. Unless and until a real worker coop sector is established across the US, Americans will continue to be denied the freedom of choice between the two workplaces and the two ways of using dollar purchases.
Is the John Lewis Partnership in Great Britain a true worker cooperative?
November 25, 2016
Is the John Lewis Partnership in Great Britain a true worker cooperative?
Richard Wolff posted an official response
No, definitely not. While all employees are considered partners and together elect 20% of the Partnership Council, that Council is NOT in charge of commercial activities. Commercial decisions are the work of the Partnership Board whose majority is controlled by the Chairman and Deputy Chairman. A real worker coop would have the workers themselves function - in a democratic, one-worker one vote manner - as their own board of directors. The John Lewis Parntership falls well below that standard of worker coop organization. It is, however, a very successful example of workers having considerable ownership and influence and profit sharing compared with the norms of US capitalism.
Trickel down
November 23, 2016
I want to explore trickel down and my mentor says this. Greenspan, another progressive globalist elitist, never spoke for Reagan...thank GOD!!! Hunter, here is something I did and you could do as well if you want to check to see if I'm right. I started with carter and ended with clinton checking all the President's just to see if trickle down economics really worked and helped the average American working for an hourly wage. I took the federal government's figures for the average hourly wage for non-agricultural workers and the government's figures for the average cost of a loaf of white lite bread so we could keep inflation out of the picture for each of those 4 presidents. Then I figured out how many loaves of bread per hour the workers described above earned. If you will check you will find the average worker had a much better life under Reagan than any of the 3 other presidents who were all progressive globalist elitist bastards. So yes trickle down economics did work. Don't be lazy.....letting others do the research and telling you what to think! Spend the time and do it yourself!. I countered with the argument that the cost of living drove the wage down thus making it appear that trickle down worked when it didn't....Who is right?
Richard Wolff posted an official response
Not sure I follow exactly what you are saying. Trickle down is merely ideological whitewashing of policies that pander to those at the top. They justify that by saying that some of the benefits to the top trickle down to others. True enough, but irrelevant. If your policies targeted primarily those at the bottom, some of their benefits would trickle up to others. The bottom line here is who gets the chief benefits and who is left to wait for and be satisfied with whatever trickles.
Is Global Retail having its "Moby Dick" moment?
November 23, 2016
I would like ask what source was used during a recent Economic Update when Prof Wolff spoke of high rates of retail space per capita where the USA was 25 square foot, Canada was 16 square foot and Australia was 11 square foot? I remembered those numbers vividly and noticed this article in one of major Australian Newspapers today: "New retailers set sights on Australia http://www.theage.com.au/business/property/new-retailers-set-sights-on-australia-20161122-gsurev.html More international retailers are eyeing off the viability of entering Australia, depending upon their ability to secure flagship sites in capital cities or in expanding suburban malls, according to Colliers International research." Is Global Retail having its "Moby Dick" moment? The desperation of overseas retailers fleeing their own declining and depleted markets to set up shop far away in 'tiny' Australia, a country that would a best in volume still only represent 1-2% of all global sales. Domestically, it will look like more imported made in Asia stuff sold in a fancy shed somewhere, from an imported company (well imported by the landlord, - sorry - 'inticed') most probably by (self-)imported workers. (Australia has had the highest immigration and population growth rate in the OECD for many years now, far beyond anything sustainable. The growth rate in some cases is higher in absolute terms than a much bigger country like the UK and Germany, although Australia is really a continental desert.) Thank you for your reply.
Richard Wolff posted an official response
You are noting some of the many irrationalities within a profit-driven capitalist system. Investments flow where private profits attract diseregarding the economic and social and ecological "collateral damage" of the investment since that is not charged to the private investor whose decisions incur that damage.
Gail
November 22, 2016
Hello Professor Wolff, Are you familiar with Gail Tverberg? She has some very interesting things to say about falling oil prices and the connection to lower and lower wages. She has an interview, check out the 25 minute mark: https://www.peakprosperity.com/podcast/102796/gail-tverberg-why-theres-no-economically-sustainable-price-oil-anymore Also her website is Our Finite World
Richard Wolff posted an official response
Thanks....will do
Family dialogue on worker coops and automation
November 22, 2016
Prof. Wolff's radio talks about worker cooperatives have initiated an exchange of emails in my family about their strengths and weaknesses. Here are two entries on the topic of worker coops' ability to adapt to technological change.
First, from my son, Reid Sherman. Reid is a scientist with a PhD in astrophysics from U. of Chicago.
Since you all know more about labor economics than I do, a couple of questions so I understand better:
1) Are worker cooperatives more successful in those industries that haven't had as much technological change as in others? Trying to think of good examples, and not coming up with a whole bunch, but food-related services come to mind. Technology can help a restaurant with the reservation-management and inventory-management, but since industrial dishwashing machines came around quite a while ago, the main labor of cooking and serving has not been overtaken by any robots. Are there successful worker cooperatives in industries like that?
2) Why would a worker cooperative be so resistant to new technology? If it would make a capitalist owner richer, wouldn't it make the worker owners richer and/or let them work less? If 400 laborers owned a factory, and then they could get technology where they only needed 200 workers, they could all make the same money and work half-time or retire younger. If I were in the private sector I'd be on board with working less for the same money. Or am I not understanding something important?
The following response to Reid is from my brother, Len Sherman:
One short and one longer response.
In response to your first question, obviously, some industries are more conducive to automation than others, and as a result, we've seen a steady transfer from manufacturing intensive industries to services. There shouldn't be a big shock here, as we went through a massive conversion from agricultural to manufacturing employment a century ago. Food is more abundant than ever, despite a significantly lower percentage of farmers in the workforce. While 5-star restaurants don't have to worry about losing jobs to automation in the wait staff, the industrialization of fast food sector has dramatically reduced the number of workers per dollar of revenue in this sector. And I've heard that fully automated burger flippers are on the horizon. The inexorable trend is that automation will continue to dislodge former manual labor tasks and that AI will increasingly substitute for knowledge worker tasks.
Your second question is more complex. I'm not a labor economist either, but I think the reason that worker cooperatives would be so resistant to new technology is that such forms of management may inherently lack the risk profile to keep pace with technology-driven entrepreneurship. Richard Wolff rightfully points out that worker cooperatives can operate more efficiently than capitalist organizations by avoiding bloated overhead structures. I suspect that one area likely to be skipped would be an R&D function, devoted to pioneering next generation products and production processes. As long as current products and production processes are on the efficiency frontier, worker cooperatives can actually be more profitable for its owner/workers. Now suppose in such beneficial circumstances, one of the more farsighted workers proposes at a meeting that each worker should forego some of their current compensation to fund an research effort aimed at coming up with a huge reduction in required production labor. This worker further explains that if successful, the workers would then have to agree to take on the additional risk (and loans) to fund full scale commercial implementation. And if all that worked out, the workers might then come out better by being able to work less for the same or more money, and/or retire earlier.
There are a lot if IF's in this scenario, and in theory, there's no reason a worker cooperative couldn't push for an ongoing technology investment program. But I believe worker cooperatives are more likely to seek to preserve current jobs and business practices than agreeing to divert current compensation towards investments in uncertain and long-term outcomes. If so, economists would say, such worker cooperatives have a very high discount rate with respect to investment options. Don’t get me wrong… many corporations also cling to current products and production processes as well (think Kodak, Blockbuster, Blackberry), but these companies tend not to do well (or survive) over the long run. I guess the question comes down to whether worker cooperatives are as capable as any other organizational structure to manage an enterprise effectively for long-term growth. I have my doubts. Let’s not forget that the most entrepreneurially successful companies have been run by tyrannical CEO’s (e.g. Steve Jobs, Jeff Bezos, Trevor Kalanick et al), motivated by a very different set of personal objectives than what likely would guide a worker cooperative.
This is Joe Sherman again. We are very interested to read (or hear on WBAI) what Prof. Wolff has to say on this subject.
Richard Wolff posted an official response
The research on the comparatively greater productive efficiency of worker coops vs capitalist hierarchical enterprises is pretty straight forward. You might look at University of Leeds Business School Professor Virginie Perotin's work: http://www.uk.coop/tag/virginie-perotin. Nor is there any theoretical mystery about why this would be the case. Likewise no evidence that worker coops are less open to technical change than capitalist enterprises; quite the contrary and again for both theoretical reasons and from the historical evidence. GM and Microsoft currently pay the Mondragon Cooperative Corporation to enable their scientists to work alongside MCC scientists at their research labs....as a hint.
Los Angeles Affordable Housing Economics and Initiatives
November 22, 2016
I've seen many articles that seem to argue against affordable housing initiatives similar to the one recently passed by the city of Los Angeles, with the core of the argument revolving around how counter-productive it is to interfere with the free market and how affordable housing laws make the issue actually worse. I know you've touched on gentrification in the past, but what, if any, is a proper response to articles such as this? http://johnhcochrane.blogspot.co.nz/2016/11/how-to-raise-house-prices-and-inequality.html Thank you so much for the work you've done.
This is how we got to the climate precipice...
November 21, 2016
...and why the market went up on the news of the new president elect... https://amstephanovich.wordpress.com/2016/11/08/the-system-will-self-destruct-if-left-to-itself-intelligence-may-indeed-be-a-deadly-mutation/
Germany's party SPD (Social Democratic Party)
November 21, 2016
Dear Richard, our SPD did it again! The Employer's Association in Germany made the suggestion that the work time rules are too strict and that these should be eased. And our Secretary of Labour (Andrea Nahles) now pointed out that she is willing to change the laws just as the employers want it. Working of more than 10 hours a day, cutting of resting time between two working days a.s.o. In the Gerhard Schroeder chancellorship the SPD made the HARTZ IV rules, which forced unemployed people to take every work that was offered no matter how low the payment is. This was the reason that the SPD went down from 35 % of the votes to 22 %. The leaders of this party are not willing to back of of this policy. Sigmar Gabriel will never become chancellor this way. Unfortunately the LINKE is not able to make profit of the SPD downturn, because the Germans still think of them as a GDR-related party.
Richard Wolff posted an official response
Your point makes good sense. The SPD was captured long ago by neoliberal ideology, the notion that capitalism was permanent and could, at best, only be reformed, not superseded. Making the LInke taboo as connected to the GDR will only do its political job until the decline in the conditions of the mass of workers makes them unwilling any longer to be controlled by that taboo. Here in US workers long tending toward Democratic Party were so angry at their long-term economic decline that they held their noses and voted instead for Trump as a hope for change that the democratic Party had betrayed. The lesson for Germany is clear.
Fallout of Trump Election Regarding Personal Finances
Professor Wolff, America is reeling with the results of the presidential election. I have heard you talk about how this can be viewed as a natural outcome of our capitalist system. What I am interested in is your views on how the Trump presidency might effect our personal economic wellbeing. By that I mean the effects on our retirement accounts, investments, home and other real estate values, employment and career opportunities, and so one. I am 62, a carpenter, with an IRA, some thoughts of investing in rental property, and two young adult children whose future I am concerned about. With Trump ascendant, I feel completely unprepared for what may lie ahead. I realize Trump is a huge cypher, but assuming he governs like the authoritarian or neofascist he campaigned as, what does history tell us to expect?