← Economic Update with Richard D. Wolff
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Sam. Saint Gonna change one welcome, friends, to another edition of Economic Update weekly program devoted to the jobs, the money, the income, the debts, all of the economic dimensions of our lives, our children's prospects, all that. I'm your host, Richard Wolff. Been a professor of economics all my adult life, and I currently teach at the New School University in New York City. Before jumping into the updates for today, I want to remind you all that this weekly program is a project of a sizable group of people. And if you want to get an idea of who we are and what we do, we maintain these two websites that are designed to provide you, at no cost, of course, at 24 7, whenever it's convenient for you, access to all of the work we do. The first website is rdwolf, that's me, 2F's rdwolf.com and the other one is democracy at work. All one word democracyatwork.info info okay, let's begin with some economic updates of important subjects, but that we will treat in a short amount of time. China China looms larger in the world economy, literally with every passing day. It's frightening to some people, exciting to others, but it's something we have to come to terms with. Many of you have written to me and asked me to talk about it, so I'm going to be doing that more. But let me start off with a kind of shadow over all this conversation. The shadow can best be summarized by quoting from President Obama's 2015 State of the Union address. I'm going to quote china wants to write the rules for the world's fastest growing region. He meant Asia. Why should we let that happen? Asks President Obama. We should write those rules. Well, whatever you think about the United States arrogating to itself such a role in the words of its president, the hard reality is that the United States is no longer in a position to do that, however wistful Mr. Obama's hope to the contrary. Let me give you some ideas of the scope of what we're talking about. On the 30th of November last year, the International Monetary Fund announced that the Chinese currency, called either the renminbi, it's usually abbreviated with the capital letters rmb. The renminbi or the yuan, would soon be included in the basket of currencies that are the dominant major currencies in the world, and those are the US Dollar and the euro, the British pound and the Japanese yen. This is an enormously important symbolic, but also real arrival of China as a major world economic power. Another statistic since the launch in 2009 of a pilot program to settle trade agreements in Asia, India, in their own currency. In the Chinese currency. The share of Chinese trade settled in their own currency, not as they used to do in dollars, went from 3.2% to 25%. That's in six or seven years. That's amazing. China's share of the total output of the world GDP in something called purchasing power parity. It's one of several ways of, of measuring and comparing GDPs from one country to another. GDP standing for Gross Domestic Product has risen in 40 years from less of the. From less than 2% of world production to 16%. China produces one sixth of the world's output. It's extraordinary average per capita how much output per person is now expected to increase within a few years from 10,000 to $16,000 in dollars. In 1980 it was $250. Let me say that again. 1980 the per capita output was $250. By the end of the. By the 2020 it'll be 16,000. There are few examples in the history of the world of economic growth as rapid, as sustained for that many years as China is. It is now a major power. At the end of last year we saw a number of symbolic meetings where something called the Asian Infrastructure Investment bank was established. That is China's baby and is meant to be the counterweight to the Japanese led Asian Development bank and the World Bank. And it has almost as much money that it will be using to develop the world in the ways it thinks should be done so that that is no longer monopolized by the World bank which used to do it in the name basically of Europe and America. Then the Japanese wanted to get in on it. Now the Chinese do. What is my point? China has to be dealt with, has to be understood that it is an economic powerhouse. It has accomplished that in literally 30 to 35 years. It is extraordinary what they have done. And if you remember how poor they were 40 years ago, and if you remember that they are the largest country by population in the world and if you remember that they were led all this time by a communist government that was a pariah in the minds and in the policies of much of the world, then the achievement they've accomplished is even more impressive. The current collapse in the oil market has been very damaging to Russia, to Venezuela, to Nigeria, to the Middle Eastern countries that depend on oil. China is not a major oil producer, it's a major oil consumer. So it has not been hurt in anything like that way. As these other countries have. And that gives China yet more leverage, relative strength. China has arrived and it's a problem for the rest of the world if it keeps pretending that that hasn't happened and isn't a major issue to deal with. Next item. Equally important, drugs. There have been recent reports in the United States, quite a few, of a shortage of drugs. For example, the New York Times on 29 January had a long story with the following. Drug shortages forcing hard decisions on rationing drugs, treatments. This was a long story by Sherry Fink, based in Cleveland. And Sherry Fink interviewed a lot of doctors in a lot of different places and discovered I found this shocking that drug shortages are endemic. They happen all the time. And these are drugs often for minor aches and pains, but also for major diseases, cancers particularly. And when these shortages show up, and they show up often, doctors and hospitals are put in what they call extremely difficult situations. Difficult, ethically difficult, morally. Why? Because if you've got more sick people than you have drugs to deal with those sick people, you suddenly have a terrible decision you have to make, namely, who gets the medicine and who doesn't. Who waits maybe never to get it, maybe never to get it in time before the disease becomes much worse or death arrives. These are life and death decisions as well as health decisions. What's going on? Well, I'm an economist. I'm looking at the economics of this. Otherwise I would talk a lot about the moral dilemma here, which is painful for the doctors and terribly dangerous for the public. What I want to, though, is focus on the economics. While there are several reasons why drugs are scarce, one of the reasons, and the article mentions this, even though it doesn't give it anything like the prominence I'm about to, one of the reasons is ready the low profitability of producing certain drugs. So let me be clear with you. We have a shortage of drugs that people need to get well or to survive. And we have that shortage because we allow drugs to be made by for profit corporations who can decide, because that's what free enterprise means. They can decide to produce fewer or none at all of a medicine because it isn't profitable. Their job is not in their minds to heal the sick. That's the job of the doctors. They just produce a commodity called a drug and they'll do it if it's profitable, and they won't do it if it isn't profitable. Now, one way to react to that is to say, well, they should raise the price. There have been quite a few scandals about folks raising Prices on drugs. The problem with raising the price is the it puts pressure on people who haven't got insurance to destroy their financial well being in order to handle an illness, which is most of the time not anything they are guilty of doing. It's something that happens to people, it doesn't happen by their own behavior much of the time. So to jack up the price means. Okay, you're basically saying to people you want to be healthy? Well then you'll have to become bankrupt to do it. Wow. And maybe you can't raise the price because the insurance company won't cover it or won't cover all of it. And then the company says, well, if we can't raise the price, there's not the profit, we're not going to produce it. And then we have the shortages and the ethical dilemmas as doctors decide who lives, who dies. Wow. Here's a thought. As an economist, why do we permit drugs to be produced as a matter of making profit or not? Why do we permit profit calculations to determine whether we have the drugs we need to heal the sick who need them? Maybe drugs should be produced in a different way, not as a profit commodity. Maybe drugs should be produced by planning the production, charging a price that simply covers the cost of doing it, not the profit to somebody we don't need that. Organize the production of medical equipment, the production of drugs, the production of everything having to do with health. Make it as cheap as you can by simply covering the cost of doing it and selling it at cost. No profit because it's done as a public service. It would be treated like a public park. Friends, when you go to the park in your town, that park is made available to you. It is made available to you because you pay for the cost of maintaining it. You know how you pay? By paying taxes. Part of the taxes you pay is taken by your city or your town or your state and sent over to a group of people to pay the costs of maintaining the camping site at the state park. The costs of the park where you can play with your dog or have a picnic. You don't make the local park run a profit and you don't make the state park run a profit. They don't, they're not profit making enterprises. Because we've decided as a society that park recreation is something people should have in their communities, in their states. We're not going to make it subject to profit calculations. Well, if recreation in a park is, is important enough to suspend the profit motive, get it out of there so we don't Have a situation where the park charges a lot of money so only people with money can go to the park. That's what we would do if we let the price go up. Why do we, excuse me, do that with drugs which are at least as important in keeping us healthy and keeping us alive? The economic reality is a profit based capitalist system for producing drugs is creating ethical disasters and public health losses that we don't need. We know how to produce the medicine. We know what the medicine is we need. We know how to distribute it. We're not producing it because we're letting it be done in an economic manner, a capitalist manner, which doesn't make sense if health is what's on your mind. Speaking of health, here's another update that caught my attention. This had to do with a struggle going on in California between the California Medical Exchange on the one hand and the United Health Care Company. Here we go. Capitalist enterprise providing health care, basically. California Exchange chief, a fellow named Peter Lee has accused UnitedHealth of doing the following. I don't know. I haven't had the time to investigate it. So I'm not commenting on whether this charge is true or false. I don't know that yet. But Kaiser Health News reports and I want you to hear the story, according to Peter Lee, head of the California Exchange, how masses of Californians are now getting health care. The United Health Group Corporation made a whole series of investment blunders. They invested in the wrong things, they charged the wrong prices. They lost a lot of money the way capitalist corporations do when the people at the top, the tiny number of people who make the key decisions, the make bad decisions. You know, like those oil companies that went into fracking and have brought up all that oil, collapsing the price and losing their shirt. They made a big mistake. Or the big banks that lent them the money to make this disastrous investment. They made a big mistake. These folks made a mistake. We live with the consequences. Well, it turns out that when United Healthcare made a lot of mistakes and lost money, according to Peter Lee of Covered California, the exchange there, they took an interesting step. He said they blamed Obamacare. They saw an opportunity in an issue that is hotly debated in the United States. Those who think the Affordable Care act was a great step forward in insuring the American people for medical coverage versus those who think it's an unwanted intrusion of the incompetent government on the private sector. This debate is useful for companies that lose money because they can blame it on something that at least a good part of the public might actually Believe, as I said, I don't know the details of the case, but it makes you aware, as I have become aware, that when you hear a critique of Obamacare, you got to look real carefully when who's making it and why they're making it. Because it may have nothing to do with the goods and bads of Obamacare. It may be a convenient excuse to help some executives get out of blame for what in fact they've done. Next item has to do with the great country of Ireland. Ireland has been put forward by people who should know better as a case study of a country that collapsed in 2008 with bad bank behavior, uncollectible mortgages, much like the United States. But it has been put forward as an example of a country that found a solution that worked and that restored its banks. It's just a wonderful example. And yes, they had a little bit of austerity along the way, but they imposed some burdens on their people and now they are out of the woods and things are better. Well, that's not true. And the interesting thing is that over the last couple of weeks there was a report commissioned by the European Central bank that's the European equivalent of the Federal Reserve here in the United States, a 400 page report about what happened in Ireland. And it's very, very interesting because it points out that what the Europeans did to bail out the Irish collapse is actually very similar to what they did in Greece, Portugal and elsewhere. The particulars were different, but the basic story was the same. These European central banks came in and they bailed out those banks. When the Irish government which took over the collapsed banks in Ireland, when the Irish government said part of this has to be paid for by wealthy people who had lent to those banks. No, said the Europeans, you can't punish them. You have to put the burden on the Irish people as a whole. Austerity was the way to pay for the bailout because you did not. The Europeans did not allow the Irish government, some of whom wanted to make the wealthy who had invested in these banks that had gone belly up because of all the mistakes those bankers made. No, no, no, said the Europeans, we are going to protect the senior bondholders. They were called the investors in those banks. They were bailed out, the average people in Ireland had to pay the full freight for the banks they didn't own, for the banks they didn't run, for the say they didn't have. They were nonetheless held responsible. And has Ireland at least climbed out of the disaster having been made to pay the Price. Well, the answer is no. Here's the truth about Ireland today. The country continues to suffer the effects of the crisis. Hospitals. I'm reading from the New York Times. Hospitals are postponing operations because of funding cuts. Unemployment is 9%, and the number of people leaving Ireland continues very high. Folks, you don't need to be an economist to understand if the young people of your country, the ones that you've invested an entire education in, they've been going to Irish schools, paid for by Irish taxpayers, to learn to read, to write, to develop a skill. And when finally they are young adults ready to give back to society, we what their education has enabled them to contribute. The conditions for life, the jobs they can get, the incomes they can get, are so awful that they leave the country of their birth, the country they know best, going elsewhere, where the languages are different, the customs are different, everything is there. You have to be desperate. You have to be in a condition of economic depression, economic limits that are extreme. Austerity has devastated Ireland. That's why it's losing its people. It hasn't been a success. You saved the wealthy, those who had invested in those banks that didn't work well. Capitalism took care of the people at the top before they broke down the capitalism, before capitalism broke down, during it and after. And the Irish people, the mass of people are still paying the price. That's what the Greeks resisted. And my guess is the Irish are resisting. But like the Greeks, the Irish too are leaving their country of home in an exodus that reminds us of the worst periods of Irish and Greek suffering in the 19th century. In the time we have left, I want to respond to a question. Is there any place in the United States where taxing the wealthy is a real proposition? And the answer is yes, indeed. And I just want to mention one. A new bill has been introduced in the legislature in Massachusetts. It is to put a tax on millionaires. If you earn over a million dollars a year in Massachusetts, the government of Massachusetts is debating whether to hit you with a 4% tax on the grounds that you are the most able to pay. You are part of a community that has become much richer over the last 30 years ahead of everybody else. And that is your civic duty. I don't know whether that bill will pass. But in answer to the question, are there Americans that are beginning to want to tax wealth? The answer is yes. Even more interesting in Massachusetts was a column by Meredith Wilson, a conservative columnist in the Boston Globe recently, saying, look, why could limit yourself to taxing millionaires? You ought to tax the billionaire private colleges, Harvard, mit, places like that. They ought to be taxed too. There was an effort to do that in 2008. It failed, but the effort is being renewed now as the inequality in this country keeps spiraling out of control. The inevitable is coming, which is the desire of the mass of people to use politics to correct an economic system whose inequality is not acceptable. We've come to the end of the first half of this program. I want to thank you for your attention, ask you please to stay with us and to remember also to make use of our two websites, rdwolf.com and democracyatwork.info to follow us on Facebook and Twitter, to share what we do here to through social media, and to let us know what you think about this program so we can plan based on your comments. Stay with us. We will be right back Come gather.
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Round people wherever you roam and admit that the waters around you have grown and accept it that soon you'll be drenched to the bone. If your time to you is worth saving Then you better start swimming or you'll sink like a stone or the times are changing. I'm writers and critics to privatize with your pen and keep your eyes wide the chance won't come again and don't speak too soon for the wheel's still in spin and there's no telling who that it's naming for the loser now will be later to win for the times they are a changing. Come senators, congressmen please heed the call don't stand in the doorway, don't lock up the hall or he that gets hurt will be he who has stalled the battle outside region will soon shake your windows and rattle your walls for the times they are a changing. Mothers and fathers throughout the land and don't come criticize what you can't understand your sons and your daughters are beyond your command your old road is rapidly aging please get out of the new one if you can't lend your hand for the times they are a changing. The line it is drawn, the curse it is cast the slow one now will later be fast as the present now will later be passed the order is rapidly fading and the first one now will later be last for the times they are a changing.
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Welcome back friends, to the second half of Economic Update for today. I want to turn today to a number of important basic issues in economics that demand our attention. The first one picks up from the first half of today's program to talk about public higher education that is at the end of the first Half. I mentioned that in the state of Massachusetts there was an effort back in 2008 and it's renewing now to tax the endowments of super rich organizations, mainly colleges and universities that have more than $1 billion in assets. That means the Harvard and MIT and the monster institutions, there aren't very many of them that have amassed an amount of wealth that is literally spinning out of control. And the people of Massachusetts are determined to tax that as a way of redistributing wealth from those at the top to everybody else. And the rationale for that, in case you're wondering, is that the last 40 years have seen a redistribution of wealth from the middle and the bottom to those at the top. I've gone over those statistics many times. I'm not going to repeat them here. The gap between rich and poor has grown larger. Another way to say that is we wealth has been redistributed. So there's less of the total wealth of our society in the hands of middle class and lower class people and more and more of it concentrated at the top. Putting a tax on billion dollar endowment big universities like the millionaire tax imposed that they're debating imposing in Massachusetts that I talked about in the first half hour. These are attempts to redistribute in the other direction. It is a mistake to see these efforts as oh my goodness, we shouldn't do redistribution. You can't have it both ways. If you don't want to redistribute wealth, then you should protest now. And you should have been protesting for the last 30 years on the way the capitalist economy of the United States worked. But because it was redistributing wealth from the bottom and the middle to the top. You can't oppose redistribution only when it goes in a direction you don't like and not when it goes in the direction where you're the beneficiary. Or at least that's not a logical or ethically defensible position. It is, however, the position of conservatives who seem only to be worried about redistribution when it goes against their patrons. That is something to wonder about. But that's not really my major focus. My major focus is to make everyone aware that while there are rich universities with endowments that they don't want to pay taxes on. What is happening to public higher education? The colleges and universities maintained mostly by the 50 states in the United States that are available for the folks in the middle and the bottom public higher education institutions are cheaper, often quite significantly cheaper, than their private counterparts. And that is because they are sustained by tax money. They are public. And let's make sure we all are on the same page here. Three quarters of the students that go to colleges and universities in the United States go to public institutions. Higher education is a predominantly public institution, a public enterprise. For those of you who think we live in a private enterprise economy, this may come as shocking news, and I want to be the first to congratulate you on having finally heard it. So if most people are educated in colleges or universities in public institutions, how are they doing? We know that the rich private ones at the top are doing smashingly well and that all of them are united in the notion that they shouldn't be required to pay any taxes at all. Well, the story on public higher education is grim. We are living in a time of higher education downsizing. Oh, yes, I'm aware that many schools, universities and colleges, public ones, are busy telling everybody they're streamlining, they're updating, they're modernizing, they're shifting, they're becoming more user friendly, they're becoming more modern. And all of that is. I'm trying to be polite here, froth public relations blather. The reality that that is meant to cover over is the reality that they are downsizing. And even that's an unnecessary word. They're getting less money. The states in this country are shortchanging public higher education. The money crunch caused by capitalism's breakdown in 2008. When you throw millions of people out of work and they therefore don't earn an income, and they therefore can't pay income taxes, and they don't have the money to make the purchases they used to. So the sales taxes coming into the government shrink. When you have an economic downturn on the scale that we've had since 2008, the revenue coming into state governments is much less. What do they do? Well, one of the things they do is spend less money on social programs. If they're conservatives, they try to make a virtue out of that. Look at the money we're saving. As if there wasn't a question to be what are the social consequences of saving money? They often act as if saving money is some inherently good thing to do, which is something real close to stupid. I'm going to give you an example from public higher education. Did the states cut spending since 2008 on public higher education? You bet they did. There's a very important research group in Washington, D.C. i've mentioned it before. I'm going to be relying on their statistical work in the next few minutes. Talking about public higher education. So I wanted to let you know where you could go to look up this information yourself. The institution is called the center on Budget and Policy Priorities, CBPP and you can find them on the web at CBPP. January 28th, Michael Mitchell did a report on higher education funding cuts state by state. You can actually look up your own state and see exactly what happened to you as well as what happened in all 50 states. I've done that. Here are the summary findings of what the states did when the capitalist meltdown cut their revenues and and they decided to respond not by taxing rich people, not by taxing corporations, but by cutting spending on social programs and in this particular case, on public higher education. Out of the 50 states, 47 cut spending per student. The three states out of 50 that didn't cut spending per student were Alaska, North Dakota and Wyoming, three of the most partially populated states in the country. The cuts in the other 47 states out of 50 were significant. Average state spending per student fell $1,805 per student per year. That's a cut of 20% in how much money the state allocates per student to support higher education. Because the state cut, the costs to students went up. Annual tuition at four year public colleges since 2008 rose by $2,068 per student per year, 29%. So let me be real clear here, so there's no mistake. In a period that is one of the most difficult economic times for the American mass of people, the middle class and the lower class of our people by income, terrible times. Since 2008, millions of our fellow citizens lost their jobs. Millions of them saw their jobs, lose benefits, losing, lose job security, lower wages. Millions of our young people couldn't get a job at all. Millions lost their homes. Really difficult time. In that difficult time, the states of this country lowered the support they gave those people in terms of funding. One of the few ways they could make a living in the years to come, get a job, get a decent income, namely getting an education. They added a burden to the families of our people of $2,068 per student per year. At a time of economic difficulty for the family that pays for this. You are savaging the place where three quarters of our young people get their education. At the beginning of this program, I talked about the growing importance of China in the world economy. The United States doesn't sit on top of the world economy the way it did 40 years ago, 50 years ago, 30 years ago. We now have to compete in a world economy and nothing is more indicative of whatever success we can hope to have than the quality and the quantity of people going to get higher education at the place where most Americans get that, which is in public colleges and universities, and those are being savaged by cuts. We are shooting ourselves in the foot as a nation. That's how the capitalist system of this country works. It's not efficient, it's not effective, it's not fair, and it's self destructive to boot. Last point. The quality of education falls because the governments support education less. It doesn't get more modern or updated, it doesn't have more computers. It falls. And when students have to come up with $2,000 more per student per year, they have done what of course they had to do in hard times, which is to load up on debt, which means the rest of their lives are going to be spent pinched in a dozen ways by the debts they carry and the interest that's piling up and the penalties that are added to means. Millions of young people are going to decide to take a job, not that they love, where their creativity and their productivity will be high, but a job that they don't like anywhere near so much because they've got to start getting income to start paying down the debt that's accumulating. They're choosing not to get married, they're choosing not to have children. Gee, isn't it interesting? The very same conservative forces who talk endlessly about family values are the same ones cutting the allocation to higher education that makes young people decide not to have a family at all. That's the least of the contradictions of a system that does not work. And the sooner we get over our hesitance about facing that, the sooner we'll come up with alternatives, solutions. But I'm not done with this education. The public school teachers in Chicago are moving again. They had a tremendous strike in 2012, a strike that the Chicago Teachers Union won. And now the school system hurt by the economic downturn of, of 2008, that the leaders of that state did not manage well at all. So they don't have enough money now to run neither the schools, nor the city, nor the state. Well, let me be careful here. They don't have enough money if they don't tax the rich. Illinois is a very rich state. It has lots of big rich corporations and, and big rich individuals. It could tax them on the grounds that they've been doing real well the last 30 years. They're the ones who can afford it most. They're the ones who've done the best. They're the ones who maybe now ought to kick in what's needed to keep this society from breaking down. That would require them to foot the bill for. For a decent school system in Chicago. It serves 400,000 students. The Chicago school system, we're talking a major educational institution, but they're not. Mayor Emmanuel Rahm Emanuel and his school's officials are proposing cuts. Hundreds of millions of dollars in cuts. This is a school system that had a kind of strike or job action a few weeks ago that I reported on because schools are falling apart because rats and rodents and painting is painting, chips are coming off, et cetera. This is a school system that isn't up to snuff already and it wants to make cuts. Damaging the quality and quantity of education makes this country worse. Makes it harder to solve our economic problems. It is an unintelligent, uncreative and fundamentally unfair policy. It protects the wealth of those who have the most at the expense of everyone else. If that sounds like what I talked about in the first half in terms of the Irish banks, good, then I'm being clear. Massachusetts won't tax, although maybe now they will wouldn't tax back in 2008, the multi billion dollar rich universities. So the rich universities continue to be as rich as they are. 37, I believe $38 billion is the endowment of Harvard. Spectacular. They're protected. But the public schools, colleges and universities, they're cut. And the children in Chicago, they're cut. That's what this all is. It's all an austerity policy in its hundred forms. Take care of those at the top. Even though they've done best in the last 30 years, even though they are richer than they've ever been, even though these taxes on them wouldn't stop them from still being rich. Just not quite as rich. Wow. We live in a society in which those people cause most of the problems and then are exempted from suffering the results. That's our job. If you accept that, it will continue. If there's any lesson history teaches, that's it. Let me turn now to also dealing with a topic that so many of you have asked me to deal with and that I will spend a little bit of time on, but not quite as much as you might have hoped. This has to do with the monetary system of the United States. Money. It is a topic that has always mystified people ever since money was invented. Where does it come from? Why is it worth what it is? What makes a piece of paper served this way and so on. So let me try to cut through it and get to the essentials. What is money? Money is a means we have to buy things. It serves some other purposes. It's a way of storing our wealth. We can hold money and put it in a box or put it in a bank, but mostly we use money to buy things with. And it's sort of magical, if you think about it. We take a piece of paper. That's what money is nowadays, a piece of paper, sometimes a coin, but mostly it's a piece of paper. And we give that piece of paper to another person, who in turn gives us something substantial like a hamburger or a haircut or a piece of software or an ice cream cone. In other words, to sort of magical. We give them a piece of paper and they give us the product of labor. The piece of paper wouldn't take much labor to produce a piece of paper, but it takes quite a bit to produce a software program, a haircut, a hamburger, or an ice cream cone. Money is these pieces of paper. So here in the United States, for example, the major kind of paper that serves as money is actually the check, you know, that you get from your bank. You write checks. Checks are a major form of money. They're pieces of paper. You write your name, you write an amount of money, and you go out and you spend it. Another piece of paper is a piece of paper you don't actually see kind of. But it's really the same thing. It's when you use a credit card, you give a merchant, a person, you're buying something from your piece of plastic, they run it through a little machine, and you don't see it right then and there, but paper is moving around. A piece of paper shows up at your bank letting them know that you've used the card and you now owe the bank money. Because the bank on a piece of paper lets the merchant know that they're giving your money to him to pay for what you just used that card for. And at the end of the month, you get a piece of paper, you know, your monthly statement. Some of you do that electronically on a screen, but it's still, for many of us, done with paper. Money is either paper or a screen version of that paper. And then there's the money that the government produces. They also produce money. That's the actual green bills that are in our wallets less and less because checks and credit cards are taking more and more of the money business. But we still have quarters and dimes and nickels and $5 bills and that's the government producing money. So the private sector banks produce money, physical paper, electronic representations of paper via credit cards, checking accounts, and the government produces the green bills and so on. That we see. That's money. That's how money is created. No mystery. No outside authority controls it. The banks can issue as much money as they want to. Here's how it works from a bank, how the banks do it. You go to a bank and you say, I'd like to have a loan. $50,000. Okay? The bank says, looks at you, studies your situation, and let's say for the moment, it agrees. How does it work? It simply creates an account at the bank for you and says, presto west. Oh, you've got $50,000. That's how the bank creates the money. It gives you a checking account. You can start writing checks or using your credit card and using the 50,000 they just created for you to go out and buy things. They have created money by giving you a loan. Wow. That's how it works. That's how it works. Banks. And you know why banks do it? Because when they give you a loan of 50,000, you've got to give them back the principal, the 50,000 loan they gave you, plus an interest rate. That's how they make their money. So they have the incentive to pump out the loans. Because what you pay back above repaying the loan is the income for the bank. That's what pays for the building to be there. That's what pays for the computers, and that's what pays for the lollipop that the clerk at the bank gives your daughter when you visit. Banks create money. And all through the history of capitalism, because banks create money, it has become a constant problem that they do so irresponsibly. What does that mean? They give loans to people who can't pay it back. Well, you say, why would they do that? Well, they're hoping the folks pay it back. They're afraid that if a person comes for a loan and they don't give it to them, then go to another bank and do it there and the other bank will get the interest. Capitalist competition leads banks to constantly lend money. But since that's not all banks do, they also accept deposits. If you have some money, the bank will keep it for you. And you do that because you're confident that you can go to the bank and get that money out. Right. That's why you put it in. Well, what does the bank do with the money you put in? Lends. It lends that out too. It lends out the money that's deposited, and it lends out the money it literally creates. And what happens if people don't pay it back? Oh, my God. Then they don't have money. They've lent it all out. It's not coming back. People default. Then they can not only keep going, they can't give the money back to the depositors who freak out because they thought they were safe. And banks did this all the time. That's why we have things in our history called bank panics and money panics or runs on the bank. That's when people hearing that the bank had made loans it couldn't collect on, because banks are always doing that, worried that they might lose their deposits and ran to the bank to get it out. This is chaotic banking. Always was. This could break down. It always did. So eventually, in capitalist economies, an agency was set up, a central bank, to try to control this a little bit. The banks didn't want to be controlled, but they too worried about it spinning out of control. So we have the bank of England, the bank of France, and in this country, the Federal Reserve to kind of monitor it, to control it a little bit, work it all out with the banks. Don't squeeze them too much. Give the banks a lot of say on what's going on. Sure. That's what we have. We have a banking system that is partly governmental and partly run by the very banks that are being supervised. And if you worry that there might be a problem with having an agency on which the banks sit, who are the ones being supervised, that there might be, heaven forbid, a conflict of interest, Good. Now you understand how and why it was that the Federal Reserve was. Didn't figure out that we were building to a boom, that it blew up on US in 2008. Why didn't they see the subprime mortgage coming? Why didn't they take steps to deal with it? Why are they so incompetent as to let such a collapse of capitalism happen in 2008, especially since it's so similar to what happened in 1929. And we know how bad that was. And you might also wonder, gee, they haven't been doing real well since 2008. Yeah, the folks at the top have done real well. The stock market's okay, banks have recovered, but for the mass of people, not so much. And now here we are, early in 2016, the Federal Reserve finally decided to raise interest rates, and our stock markets are going crazy, and our economy looks like it's shaky again. Is the Federal Reserve in charge? Yes and no. It's a mess. Banking is a mess. This is no way to run a monetary system. The banks are all in it for the profit. It's really like that drug story in the first half of today's thing. Money is too important to be subordinated to the profit strategies of individual banks. That's why the supervision doesn't work real well. That's why the periodic explosions and meltdowns happen. The people who sit on the top of this system don't care. They want it to work a little better, but they don't want to change the system. That's up to the rest of us. If you think the monetary system is under control, you you're not paying attention. It's always been out of control periodically. It's not explosive. But that never lasts very long. We'll return to this subject in future programs. We've come to the end of economic Update for today. I want to thank our partner, truthout.org, that remarkable independent source of news and analysis. Check them out@truthout.org and please, as always, share with us. Share with other people what we do on this program. Make use of our websites, follow us on Facebook and Twitter and let us know what you like, what you want and what you don't. It is a pleasure to produce this program, but it will work better with your participation. I look forward to talking with you again next week. For the own of the road, baby they ain't gonna change. Baby your time now baby baby but after a while Going to be my time my time babe Thing going to change. Thing going to change yes, it is. Sam.