Richard Wolff appeared on Kontext TV in Germany on November 29 to discuss the economic crisis that has permeated the United States and Europe.
Transcription after the fold.
David Goessmann: Welcome to Kontext TV, Mr. Wolff.
Richard Wolff: Thank you very much for inviting me.
David Goessmann: Talk about the financial and economic crisis in the United States, which is right now deepening. What are the causes of this crisis, and how is it linked to the crisis in the Eurozone?
Richard Wolff: Well to begin, it's the most serious economic crisis in the lifetime of the people alive in the United States today. The only thing like it was the collapse of the 1930's, the Great Depression, which is 75 years ago, so there are very few people left who have any clear understanding of it. So it came as a shock to the United States because it had been believed because of the ideology in the United States that we had a free enterprise market system that wouldn't have collapses, that wouldn't have this kind of a downturn as we call it that would last now - we're in the fifth year of this. So the first thing is, it's a very severe economic downturn. It is lasting longer than anyone expected. It is hurting, cutting in to the economic system much worse than was expected. So it is a major economic crisis and it is lasting so long that it has now produced a political crisis on top of the economic crisis, like in Europe in many ways, first.
Second, it is not a financial crisis. That is it is not produced by the banks. It is not produced by the financial economy. It is produced in the whole economy. It is just as much a part of the non-financial as the financial. The reason it is called the financial crisis in the United States is to comfort people that it's a crisis limited only to a part of the economy rather than a crisis of the whole economy.
This is big, and it can go a long way to explaining, although not justifying, why the meme of bankers feeling picked on exists. While the banking crisis is severe, it did not create this crisis. The crisis has been building systemically for decades. The banking crisis follows from the systemic crisis, but even if every effort were put into solving the banking crisis, it will be ineffective without addressing the underlying, fundamental failures of the system as a whole.
Let me explain. For most of the history of the United States, we were a society in which wages rose, year after year, roughly from 1820 to 1970, 150 years, producing in the United States the highest wages in the world, producing a belief that Americans have 'til this day that they are in a special place, where you are rich if you work hard, where you will have your children live at a better standard than you, and your grandchildren even better, and so forth.
All of that stopped in the 1970's when the long term labor shortage of the United States ended. You have to understand that the reason the wages rose was we never had enough labor. We had a successful capitalism without workers, partly because we killed all the Indians we found there when we first came, as Europeans, and afterwards, the capitalism was successful and there weren't enough workers, which is why we are a nation of immigrants, one after the other.
And slavery, but onward.
But in the 1970's it stopped. The computer meant we didn't need people so much. American corporations moved out of the United States in huge numbers for cheap labor elsewhere, for example China and India, and finally the women's liberation movement moved millions of women into the labor market, so you had less demand for jobs, because of computers and export of work, and more people looking, women and more immigrants keep coming. The result was real wages stopped rising for the first time in U.S. history as a country. Since the 1970's the real wage, the amount of money a worker gets adjusted for the prices that have to be paid, is flat.
This is a trauma. It is a psychological problem for a culture that has expected rising wages. Noone discussed it in the 1970's. It was not recognized as a problem. So every American family tried to solve it itself by doing two things. One, more work. Americans work more hours of paid labor per year than any other country, advanced industrial country. About 20% more hours of paid labor per year than a German or a French or an Italian, I mean a fundamental difference. And it meant over the last 30 years the American worker is physically exhausted, because the women leave the home to work, because the wages aren't going up, the family is falling apart because the women held it together, and they're now exhausted too. But the most important thing is that the working class of America, starting in the 1970's, to deal with the trauma of no more rising wages, decided to keep on consuming as they had been promised they could, as they had promised to their children "you will have a college education, you will have a car, you will have a nice home, bup bup bup bup." They borrowed the money. And for 30 years the American working class borrowed more money than any working class in the world had ever borrowed before. For their home, for their car, for their credit card, and for their university education. All workers are - all students in the United States now graduate with debt. 30 years ago, almost no students had debt.
So, by 2007 we had an exhausted working class. It couldn't work any more hours, it couldn't borrow any more money, it couldn't send any more people out from the household to work. They were finished, and the rise in the economy was over, and it collapsed. The economy built on rising consumption for 150 years couldn't anymore, there was no way it was going to happen. At the same time, the wealth of America got shifted. For 30 years that the wages were the same, the productivity of workers kept rising, so the worker produced more each year: better machines, more machines, new computers, faster labor, better training. So the worker output that delivered to the employer goes up for the last 30 years, every year, but what the employer gives to the worker is flat for 30 years, because there's no longer a labor shortage.
So you have the working class can not get any more money, has to borrow all the money to keep on consuming, but the employer class is wealthier than ever before, because they get all the gains of productivity for 30 years, and they don't have to raise their wages, and it has transformed the United States. First, the employer class paid themselves fantastic salaries. The executives at the top of American corporations get much more relative to executives at the top of German or French or Italian. They paid themselves this enormous sum of money. Number two, they moved in to shape politics. They were smart. They understood that if they become relatively more wealthy and the mass of people don't, you better control the political system or else the working class will use the political system to nullify what you're doing.
So, American workers, who were exhausted with all their labor, withdrew from politics, and the employers took all the extra money and moved in to shape politics, so that now the Republican and Democratic party are both dependent on money from the same employer class, which is why whether you have Bush or Obama, the differences are very small. We have one party with two factions in the United States, and no opposition to handle the new problem of a highly unequal society. And so the crisis comes when the mass of people can not keep it going, and the rich have speculated on all the debts.
So when for example I say to you that over the last 30 years the American working class borrowed more money, who do they borrow it from? From the employer. Because they were making the employer richer and richer, the employer lent them the money instead of paying wages increasing, which is what they had done previously. So from an employer's point of view, it was fantastic. You no longer raise the worker's wages. Instead you lend them money so they have to pay you back and pay interest. But of course, after 30 years, as the debt of the working class goes up but the underlying wage doesn't, you reach a point where you can't pay your debts.
I've been saying this for years. Rent, food, education, healthcare, it's all rising faster than inflation. And for the majority of people who have been able to even keep their jobs, 2% raises are the standard. In real wages, workers have been losing money every year, before even considering those who have been unable to find work. What we are witnessing now is the result of compounded real wage loss as an aggregate phenomenon rather than an anecdotal one. Keep in mind that government and union contracts are the most likely to contain COLA's, and then remember why it was so important to kill those arrangements by the employer class.
Anyway, back to the transcript.
In 2007, the crisis begins when masses of people can not pay their debts. It's a little bit like thinking of the American working class like the Greeks today. They can not pay. Their debts are impossible and therefore the system has no way of solving the problem. The only way to enable the working class to resume consumption is to hire all of them and pay them higher wages. The capitalist class can't do that, doesn't want to do that, resists every effort to make them do that. And the irony is, by doing this, the capitalist class undermines its own situation, and that's why the crisis is so severe. There's no way out without massive changes that the capitalist class, the employer class will not do.
And so you have this situation, and it is just as serious in the United States as in Europe, in many ways more serious. The irony is that all the attention these days is on little Greece or Italy, but the much bigger problem is the United States. The debts of the United States, of one country, are much larger than those of Greece, Spain, Portugal, Ireland, Italy, France combined! So it is a peculiar situation that the world right now is focused on Europe, southern Europe, when in fact the big problem coming down the road is the United States. We already have as debt more than our GDP. When the trouble with Greece began, their debt was 130% of their GDP. Ours, now, is already about 105 and 110, and moving towards 135, fast. For example, in 2011, the increase in our debt will be 10%. 1 1/2 trillion, on a debt of 14 1/2 trillion. So roughly 10%. The estimated rate of growth of economic output this year, 2%. Our debt is rising 5 times faster than our GDP. It's only a matter of 2 or 3 years before we are at where Greece was when the crisis in Greece began. But people are not looking at the situation. They're not accepting, because they don't want to, how serious the crisis is. Not in the United States, and here in Europe because you're busy looking at your European problems, you don't see that there's a large elephant running towards you, and you sooner or later are going to have to do something about this elephant.
Do you hear that? While the "right" has been pushing the debt crisis as the preeminent issue facing the country and the "left" has been pushing the banking crisis, and BOTH sides have been acting like the other side is full of shit, the truth is that neither side has the courage to address the root cause that has precipitated ALL of these symptoms. The root issue is TOTAL SYSTEMIC FAILURE.
At the root of everything is an extremely rigid capitalist economy that is forced to deal with a labor surplus that started over 30 years prior, along with the deferred cost of ignoring that issue for the duration. There are no solutions to this issue that do not either disrupt the status quo of zealous capitalism or condemn huge numbers of people to death and destitution, thus directly "reducing the pool of labor".
Of course, the United States has been doing this for, well forever. It just happens to be harder to ignore now that it's become as pervasive as it has within the country.
Next, Dr. Wolff discusses the promise of the Occupy movement.
David Goessmann: We are seeing protests all over the place, we're seeing the Occupy movements in the United States. Yesterday there was a general strike in Oakland, unprecedented strike one has to say. We are seeing protests in Greece, Spain. What are your thoughts on these movements, and where are they heading?
Richard Wolff: I think the movements are successful in bringing an immense array of people together with very different issues, priorities, and programs. So they refuse to pick one or two; they're not going to tell us, and that's very, very smart, because they are gathering together 30 years of people, angry about this problem, racial issue, economic issue, gender issue, whatever it is. They're gathering, they're saying to all of them, "You have tried little social movements for your own issue. It hasn't worked. In order to make real progress around gender, racial, ethnic, we have to get everybody together. We can only change the system if we are unified and have the strength of enormous numbers. And this is working. That's why people are coming together. They are not fighting each other: "It should be that we fight for racial issues, or it should be that we fight against a war in Iraq and Afghanistan." No, no no. They understand, "We are bringing everybody together. Later on we'll worry about which issue when. But at first, we have to be strong enough to make a difference. We are not going to make the mistake of being, fighting out and then separating and splitting, this group does this. We're not going to do that." Very important.
And that's why they're so successful. Every attempt has been made by the police to repress it. Failure! The police have failed, including in Oakland. If you followed what happened in Oakland, a bad case of the police overreacting, the mayor, who ordered the police in, went on the television the day after, mayor Quan, a woman, and completely recanted, said she was sorry, she made a mistake, she should never have done that. The police chief is now openly fighting with the mayor. We haven't seen this before. There was a general strike, yesterday. It was very successful. It closed the port of Oakland, one of the most important ports on the west coast of the United States. It had walkouts of public employees, private employees. There hasn't been a general strike of this sort in the United States for at least a quarter of a century if not longer. This is the first one, and it was quite successful.
So, I think you're seeing a movement determined to grow, determined to question the whole thing.
Let me make one more point about it. From the beginning, this movement has said that it is against the entire system. It doesn't want a little change here, the law changed. That's not the problem. The problem isn't this or that or the other. It is the system as a whole, and they've been willing to give a name to the system, and the name is capitalism.
I've been active in every major political movement in the United States since 1955-60, because I've been around that long. In the past, those of us who wanted to argue that capitalism is part of the problem had great difficulty to do that. That was seen as dangerous or disloyal or too much. That's not the case anymore. I go everywhere, I've been speaking at many of the Occupy movements. I talk about "the problem is capitalism" and that's acceptable. Not everybody agrees!- but it's an acceptable part of this movement. That's another way this is completely different. This is a challenge to the system as a whole, and it is determined not to be reduced to something affecting this subgroup or that subgroup. This is a change. And it's been successful in getting that across to the American people. A movement which says openly that capitalism is the problem is now getting between 55 and 60% sympathy in every national poll, conducted by the New York Times, CBS, and so on. Here's a movement that is more radical than anything we've seen, and within 1 1/2 months of existence, has the majority of the American people expressing sympathy. The left never believed it could do that, and we've already done it, and we're just at the beginning.
David Goessmann: Thank you for being with us, Richard Wolff.
Richard Wolff is a fantastic speaker, so if you didn't get a chance to watch the video, please do.