Sam (0:00)

Sam. Saint gonna change.

Richard Wolff (1:00)

Welcome, friends, Another edition of Economic Update, a weekly program devoted to the jobs, the incomes, the debts, all that part of our lives. I'm your host every week, Richard Wolff. I've been a professor of economics all my adult life and currently I teach as a visiting professor at the New School University in New York City. Here we are as 2015 comes to an end, and in this and the remaining programs this year, I am going to be trying to achieve a certain summarization of some of the major developments, economically speaking, across this year. But as usual, we're going to start with the hot items of this last week. Let me begin, however, by inviting those of you either living in the greater New York metropolitan area or or perhaps visiting the New York area during the holidays to come and join me at the Brooklyn Commons in Brooklyn, New York, 388 Atlantic Avenue, where I'll be giving a talk on capitalist decline and the way forward. It's 11 o' clock Saturday, December 19, for about an hour and a half at The Brooklyn Commons, 388 Atlantic Avenue. Everyone is welcome. I'll have some comments about our websites and other services we provide a little later in the program. Well, let me begin by the biggest item this last week, which was the decision of Janet Yellen, as the head of the Federal Reserve System in the United States, and her fellow board of Governors to raise interest rates here in the United States. And I want to mention a little bit about what that means and what the context for that is so that you can all think about it and draw your own conclusions. The Federal Reserve is the monetary authority of the United States. It's their job to manage the quantity of money in circulation, the level of interest rates you have to pay to borrow that money, and so on. They're the agency whose reputation got a little bit shaken, to be as polite as I know how, when they failed to see the enormous crash coming to the United States economy that hit in 2007 and 08. They didn't properly see it. They didn't properly prepare for it, and after it hit, they scrambled like crazy in order to produce a recovery which we are still waiting for. The we being the majority of the American people. It's been eight years or so since that crash hit, and the Federal Reserve has pumped a vast amount of money to keep the stock market in good shape and to boost the profits and viability of the banks. But they haven't helped the rest of us a great deal, to say the least. So with a reputation as poor as I've just summarized one could be allowed a certain skepticism as to whether it makes sense to raise interest rates. Now why, in fact, did they do that? Well, they're afraid, you see, because they pumped so much money, new created money into the economy over the last eight years to try to keep this economic disaster from being worse for most people than it already has been, that they got nervous about what might happen if all that money started at some point to be spent on goods and services, driving up the prices like crazy. To forestall that event, they've decided to raise interest rates. Now, the argument and defense they give is that, well, unemployment is down. Well, that's not quite honest, is it? Because we know, all economists know that the major reason unemployment has gone down is not that the unemployed found work, but much more because the unemployed dropped out of the labor force. They aren't looking anymore. And when unemployed people stop looking, they're no longer counted as unemployed. This is a fun game in numbers, but it doesn't change the reality that we're living in a depressed economy, which average Americans know only too well, since now they have to borrow not only for their home and not only for their car, and not only for everyday items paid for with a credit card, but even to get their kids a college education cost tens of thousands of loans. Well, with that background, let's return to what the Fed did. It raised interest rates. That makes it harder for average people to pay for all the debts they've run up, doesn't it? It means interest rates for credit cards will go up. It's the whole point of raising interest rates to make the cost of borrowing, whether it's for your college education, for your home, for your car, for, for your glass of water, more expensive. And if you're wondering whether in a time of economic difficulty, it's a good idea to solve economic problems by making the daily life of most people harder. You're asking the right question, and here would be a much better answer. Why don't we have what we did in the 1930s? Why don't we have a nice rollicking government jobs program, building up our dilapidated cities and infrastructure, taking care of the elderly in our society who are being thrown on the slag heap by what's going on, doing the daycare that our families need on a massive scale? We have lots of work to do, lots of people who would love a good job with decent income. There would be a difference you could make rather than raising the interest rates at this time. If you believe this is the right Solution. Please remember that the same Federal Reserve raising interest rates is the one that pumped so much money into the economy they scared even themselves. And the one that didn't see the train wreck coming that we are still living with. Where is America at Christmas time 2015? Well, I looked for a story I could relate to you all that captured what I think is happening to America. And I found one. And I found it in New Haven, Connecticut, a city that I keep track of because I lived most of my adult life in New Haven, Connecticut. Well, on December 12th, last Saturday in New Haven, Connecticut, there was a march of hundreds of people marching from downtown New Haven, Connecticut to the Yale New Haven Hospital, the major medical institution for that area of southern Connecticut. Before their demonstration was over, 134 of the protesters had been arrested by the police in New Haven. Christmas time in America. What was the issue? The marchers were demanding jobs. Yale. New Haven Hospital, like Yale University together, is the largest employer in the southern Connecticut New Haven region. That's why they were the target. They are also enormously profitable institutions, especially the hospital, but also Yale University, and you all know why. Yale is one of the richest universities on this planet. It has served wealthy Americans and a few wealthy foreigners for a long time. It now controls and owns this huge hospital that serves the area, a hospital that is right at the center of the medical industrial complex that costs Americans more for medical care than any people in any other country pay as a percentage of annual income. So these poor people who have no jobs. Let me tell you a little bit about New Haven. The unemployment rate among African Americans is 17%. The unemployment rate among Latino Americans is 18%. Half of new Haven is African American or Latino American. So we're talking about a massive unemployment problem. And these folks went to the richest, biggest employer and implored them to hire more people. Yale brushed them off. Yale told them it was not about to do any of it, and it was doing more than it could be asked to do. Well, this is an interesting moment, isn't it? You have the richest entity in the New Haven area giving its finger to the mass of people suffering very bad unemployment, the rich getting richer, and the mass of people in trouble. So gross and unequal was it that we had an unusual step. The mayor of New Haven, Tony Harp, endorsed and supported the protesters. The governor of Connecticut, Daniel Malloy, likewise supported the unions and the working people who demanded jobs from Yale and Yale New Haven Hospital, so gross that even the politicians normally doing the bidding of the corporations that run the society, even they found this one more than they could stomach. Christmas time, 2015. My next short update requires me to thank the person who brought this to my attention. So thank you, Daniel Lowenthal, for making me aware of something he brought to my attention. A book by a man named Peter Drucker. For those of you that are not into management and business schools, you might not know the name Peter Drucker, but anyone who has studied management of a business knows Mr. Drucker's worth and his work. For example, the Wall Street Journal called Peter Drucker the dean of this country's business and management for philosophers. He is the most prolific writer to have published work in the Harvard Business Review, which is one of the most revered journals of business and management in the world. So what does Peter Drucker have to say that I want to bring to your attention? Well, it's a definition of what a business is and what it means to run something like a business. I'm going to quote it to you what he wrote. This is in 1954, the first edition of his book the Practice of Management. And this comes from page 37 and 38 on that book. For those of you who might want to pursue this, here's the Marketing is the distinguishing and the unique function of business. A business is set apart from all other human organizations by the fact that it markets a product or a service. And now here comes the part I want you to pay close attention. Neither the church, nor the army, nor a school, nor the government does that. Any organization that fulfills itself through marketing a product or a service is a business. Any organization in which marketing is either absent or incidental is not a business. And now comes the line that is most important. It should never be run as if it were one. That's right. The leading guru of management and business says that neither church, nor army, nor school, nor government should be run like a business. I want you to understand that because there are lots of arrogant, ignorant businessmen and women, some of whom are currently running for president, who keep telling us that it is the ultimate in wisdom of business, that everything else should be run like a business. Mr. Drucker, the leading specialist, says the it would be a terrible mistake, according to Peter Drucker, to run something that isn't a business in the manner of something that is a business. And you heard it here. Next item for Economic Update, a little bit about Christmas time in America and the gun business. I thought after some of you wrote to me that it would be important for me to say something about the gun business since it plays such a role in people's thinking these days and deserves our attention. And I was conveniently assisted in this task by the Bloomberg News Service, which had a wonderful article on December 16th with the wonderful title Walmart, Guns and Santa, It's Christmas Time in America. Here's the things I learned from that article that I would like to share with you. From 1982, when these records start being kept, all the way up to around 2006 and 07, the sale of guns, long guns and handguns combined in America oscillated between half a million and a million and a half sold every year with the same kinds of statistics governing ammunition sold for those long rifles, long guns and, and handguns. But then things really took off after 2005, 2006, and I want to address with you what's going on in the last few years. Instead of sales per year between a half a million and a million and a half, we're talking about sales between 4 and 5 million guns a year. That's an enormous increase. What's that about? Well, if you want to get a quick answer coming from an economist, here's what it's about. In 2006 and 7, the American economy began to collapse and with it the middle class, which has been disappearing big time ever since. And with the anxiety level of Americans rising about their economic reality and even more about their economic future, sad to say, the gun producers saw an opportunity. They could approach the mass of Americans increasingly upset about their economic situation, tell them that their way of life was disappearing, which surely it is, and tell them that by buying a gun they could better protect themselves against the mystery, murky whatever it was that was taking away their standard of living. That last step, that buying a gun would change things, is and was absurd. But to a population frightened by what's happening, rarely given a straight story as to why it's going on, it proved not to be too difficult to get folks to buy guns. And who are the leading purveyors? Walmart. That's why Bloomberg titles its story Walmart the biggest seller of guns and an even bigger seller of ammunition in the American Economy. Indeed, the Walmart story in the Bloomberg News Service begins with a description of the reporter's visit to the Las Vegas, Nevada area, Walmart. I'm going to read from the story because I couldn't say this as well as as this creative reporter did, and I'm quoting. At the Las Vegas Walmart store, a middle aged woman talks with a cashier to clear her background check and to Purchase a child sized cricket 22 long rifle which comes in a black and Pink box for $114. On the box is emblazoned My First Rifle. And in her shopping cart is a blow up camouflage clad Santa Claus. It's Christmas time in America. Last quick update has to do with the oil business. The oil business is now a catastrophe. There is really no other word for it. We're down to around $40 a barrel. Not that long ago, a year or so, it was $100 a barrel. When you have a collapse in the price as severe as that, you know there's going to be suffering. The Canadian economy is suffering, producing big changes there because they bet so heavily as a country on the future of oil particularly and they never saw this coming. All those brilliant business leaders who invested in oil drilling, in oil rigs, in oil processing, all those brilliant bankers who lent billions for the oil business which was in their minds such a clear winner, they were all wrong. They all made drastic errors. So did the people in north and South Dakota, all through the mid part of the Americas, down to Louisiana and Texas, places where they borrowed too much on the assumption that they could bring up shale oil and all the other oil they can now dredge up out of the earth. And they assumed crazily that they would be able to sell that at 80, 90, $100 a barrel. What was the mistake they made? Their mistake was to imagine that if you add a new source of oil in, in massive quantities, which is exactly what the Canadians and the Americans planned on doing, that you would drive down the price of oil because the demand for it didn't go up like that. Suddenly the supply did. The first week of supply demand economics, you could learn what would happen then. So what did they think? They thought that the existing oil producers would, would all cut back. That's right. Saudi Arabia, Iran, Venezuela, Nigeria, the other oil producers would just cut off their own economic well being to convenience the Americans and the Canadians, well surprise surprise, they didn't do it. The Saudis, our great ally, has increased oil production. So has everybody else. At the November meeting, this last November of OPEC they decided to increase production. And at their December 4 meeting of OPEC they basically said anybody can produce any amount they want, knowing full well that what they were doing was keeping the supply of oil high so that what was produced in Canada and the United States, this new shale oil boom we were promised, would collapse the price of oil we which it did. That is driving fundamental economic trouble through millions of lives of Americans who've lost their jobs. There are more and more oil companies going out of business. No one yet knows how bad the impact will be on banks who are expected several of big ones to collapse because they can never get back the loans they made. Wow. Here is an interesting story, but because one of its fundamental lessons is that leaving huge decisions about something as fundamental as the energy supply of a society, which oil is an important part of, is much too important, affects many, too many people to be left in the hands of private profit driven elites who make catastrophic failures, bad guesses, false investments that we all have to pay the price for, but we didn't have any say in making those decisions. There's an argument, if ever you needed one for transition, to democratically arrived at decisions whether to shale oil, raise that up from the ground with the fracking and all the damage to our ecology, whether to do that, whether to do that on the gamble that Saudi Arabia and other countries will simply lose out graciously to American millionaires becoming billionaires. These are crazy decisions would not have been made if the light of day, if rational debate, if a democratic collective decision making process were in order, rather than leaving oil in the hands of the oil men who have done a disastrous job. Okay, let me turn to responding to one of the questions many of you sent to me this last two weeks. Actually, you've been reading quite correctly and I commend you for your research. You've been reading and hearing stories that the Chinese economy is slowing and that as a result of the Chinese economy slowing, all kinds of countries producing the inputs to the Chinese economic growth story of the last 20 years, those countries, whether they sell copper to China or they provide rubber, or they provide all kinds of inputs to the Chinese industrial juggernaut. Now that China is slowing down, they're slowing down. And as they slow down in Asia, Africa, Latin America, well then the whole economy of the world is in trouble. And that will reach the United States sooner or later too. And so we are invited to blame the Chinese for slowing down. I find this somewhere between astonishing and silly and absurd. Let me tell you why. Let's first begin by talking about China and slow economic growth for the last 15 years. The United nations keeps a list of what economies in the world. Out of the 180 odd countries that the United nations reports on, which is virtually all of them, which country is growing the fastest? And over the last 15, 20 years, the country that appears number one on the list, the fastest growing country in the world is the People's Republic of China. Slow growth Not a Chinese problem. Number two. This year, 2015, the Chinese government announced a growth rate of 6.9%, which is indeed slower than it has been in the recent past. But let's compare it to economic growth in 2015 in the United States, which is in the neighborhood of 2%. That's right. The United States is growing slowly at 2%. China is growing more than three times faster. Not hear it about Chinese slowness as a problem in the world economy. But here's the most important part which I've left for last. If China is slowing down, and if that is making difficulties for other countries, and that those statements are indeed true, we should ask, of course, the question why? Why is China slowing down? And the answer is obvious and clear. China 20 years ago hitched its development to being an exporting country. That is, they decided to become a rich industrial country. They were a poor and agricultural country 25 years ago by producing exports for the rich parts of the world. North America, Western Europe and Japan, by and large. And they were successful in that. Why? Because the working classes in Western Europe, North America and Japan were the highest paid working classes in the world. Their wages had stopped rising 25 years ago, the way they had in the previous century. But that was still okay because they had substituted borrowing money for raising wages in those societies, allowing another 20 years of explosive growth. We all know that here in America, as we here in America, like our European and Japanese counterparts, began increasing our indebtednesses of various kinds. Credit cards, car loans, you name it. So the Chinese were having a great time building up their industries, producing exports to be sold to the evermore indebted with working classes of Western Europe, North America and also Japan. But then, in 2008, we know what happened. That system crashed. Working people could no longer borrow since their wages hadn't gone up since the 1970s. The game was over. The rich were becoming richer. More and more of the wealth of Western Europe, North America and Japan was being concentrated in fewer and fewer rich hands. The statistics there are something I report on all the time. And now what happened is the mass of people can't afford what they once did, they can't borrow, and their wages are going nowhere. So the Chinese are slowing down because the working classes in the advanced part of the world can't buy what they did. It's not China that's the problem. It's a capitalist system that works this way. China, China, like every other particular part, is caught up in that system. Blaming China is childish and ignorant. We've come to the end of the first half of this program, please make use of our websites rdwolf.com democracyatwork.info for all the various services, the connections to Facebook and Twitter, the newsletter that is free, and so on. And stay with us. We will be right back for the second half of Economic Update.