Loading summary
Transcript108 lines
- [00:00]
Richard Wolff
Sam. Saint gonna change. Welcome, friends, to another edition of Economic Update, a weekly program devoted to the economic dimensions of our lives, our jobs, our incomes, those of our families, our debts, and these kinds of issues looked at in a way that the mainstream media often ignores or bypasses. You're going to hear here other ways of understanding what's going on in order to make the flow of economic events clearer and more manageable for all of us. I'm your host, Richard Wolff. I've been a professor of economics all my life, trying as hard as I know how to make all of this clear and understandable and manageable. Today I work at the New School University here in New York City, but I've taught at other schools as well, and I try to bring that history of teaching to this program. I also want, before I jump into the Economic Updates for this week, to say how proud I am to welcome to this audience, the viewers who come to us through the Free Speech Television Network and programming. Free Speech TV is now a partner with our Democracy at Work Project. Very important to us, very valuable to us. We are proud to be able to reach more of you and to engage with you in a discussion about what's happening to us economically speaking. So welcome, especially those of you who come to us through the Free Speech TV system. And if you're interested, we are on Free Speech TV Sunday evenings, 7 o' clock Eastern Time and the corresponding adjustments for Central Mountain and Pacific times, 7pm Sunday in the evening for the next three weeks and then back to a normal time of 8 o', clock, but it's 7 o' clock now on Sundays. Okay. This last week has been characterized by a great deal of information, hoopla and press coverage of the activities of the Federal Reserve System, whose committee in charge of these things is deciding or has decided about interest rates. And much has been said about that. I don't want to repeat all of that, but I want to give some perspective on the Federal Reserve raising and lowering interest rates, which it has done periodically for many, many, many years. I want to remind everyone what the point and purpose of the Federal Reserve raising and lowering interest rates always was, and the purpose has been to manage the the capitalist economic system of the United States, and in a particular way, with a particular goal. The problem of our capitalist system, one of its major problems, is that it is highly unstable. Every four to seven years it has a downturn that can last. Well, this one has lasted since 2008. If you look at it seriously, the great one in 1929 lasted 11 years and they typically can last anywhere from a few months to as long as I just mentioned. And then capitalism can sometimes zoom too far the other way and have a crazy inflation where prices go nuts, as we saw in the 1970s and so on. The system is unstable. Between the end of the crash of 1929 that lasted throughout the 30s, and the beginning of the second worst crash of capitalism, the one that hit us in 2008 and 09, there were 11 other economic downturns. In other words, capitalism is unstable. The Federal Reserve was supposed to stop all of that, to overcome all of that, to prevent this instability. And the idea was, when the economy goes down, lower interest rates. Why? Because then it's cheaper to borrow. And if people have an easier time borrowing money for a business or for their own consumption, they'll spend more and that'll offset the economy's tendency to go down. And likewise, if the economy is in an inflation, raise the interest rates, because then people will have a harder time to borrow and then be less likely to do so and less likely to spend. You get the picture. Manipulate the interest rates, give that job to the Fed, and we won't have the. The ups and downs of our capitalist system. Why am I telling you this? The Fed has been doing what it was supposed to, doraising and lowering interest rates, just as it has been doing right through this week. Has it solved the problem? Has it succeeded in preventing this system from being unstable? And the only answer to that question is, no, it hasn't. It has failed at the task set for it. It hasn't overcome the instability. The only defense that you can really make for the Federal Reserve is the usual defense made by people who fail when they do something like this. And that argument goes like it would have been even worse if we hadn't done what we did. And you know something? That may be true. It's one of those statements that can always maybe be true, but it's a very limp response when the reality is the instability of our system remains and the Federal Reserve has not overcome it. I want to also mention that in this last week, the Trump administration named two more high leaders of its economic team. The first is James Donovan, who was nominated to become the deputy, excuse me, Secretary of the Treasury, a very high official that must be ratified by the US Senate. And the second one, I don't think needs to be ratified by the Senate, J. Christopher Giancarlo, who's going to be head of the Commodity Futures Committee Trading Commission. That may sound arcane, but that's the body of the government that oversees the derivatives market, a market of many, many trillions of dollars, which was a major cause of the collapse of 2008. That's an important market to be the commissioner of. Why am I mentioning these two men? Because they both come from an interesting place, Goldman Sachs banks. They represent even more of an influence of the Goldman Sachs Corporation on Mr. Trump than was already the case, even more than the influence of Goldman Sachs on the Obama administration, which was considerable also. But in light of the campaign, it's really hard not to mention these things. And I leave you to draw your own conclusions as to Mr. Trump's hostility, we are supposed to believe, to the banking leaders of this country for their role in what has happened. As if to underscore this point, let me turn quickly to the third short update of this program and to remind particularly some of you and to welcome the new ones watching today's program. In the first half of the program, I usually have these short updates. And then in the second half I have either an interview, as we're going to have today, with a guest on a particular topic and today it will be the housing crisis of the United States, or I offer a more extended discussion of one or two major topics. So the first half is short updates and the second half a more developed kind of analysis of a major issue of concern. And let me also point out that the way we choose the topics both for these short updates and for the longer discussions is based particularly on what we hear from you. We maintain two websites. The first is rdwolff with two Fs.com and the second one is democracyatwork.info that's all one word, democracyatwork.info. both of those websites allow you to communicate directly to us, to be a kind of partner with us. Let us know what you would like us to talk with you about, what you would like us to analyze, what questions to answer, and so on. Both of those websites allow you to follow us on Facebook, Twitter or Instagram if you wish. Both of those websites provide you with a wealth of information, video, audio, written materials that go far beyond what we have the time to do on this program. So if you're at all interested, make use of these websites. They're available 247 at your convenience. And there's absolutely no charge for either of them for anything that they provide to you. They are a service. They're part of why we make this program and why we have this project. So once again, democracyatwork.info and rdwolf.com okay, the next update kind of follows from the earlier ones. The Bureau of Labor Statistics, one of the most important sources of economic analysis and statistics in the federal government that every economist I know uses all the time. The Bureau of Labor Statistics issued its Regular report on March 15, the middle of this last week on what has happened to hourly wages in the United States. People who earn income by virtue of getting an hourly wage, which is the vast majority of American workers over the last year, February 2016 through February 2017. And so we're right up to date. Literally a couple weeks ago, there was a 0.0 change in people's real hourly wage. Here's what that means. The prices went up over the last year exactly as much as people's wages per hour went up. In other words, you couldn't buy any more with your wages in February 2017 than you could buy with your wages on average in a year ago. Absolutely no increase in the wage you get in terms of what it can allow you to buy. Unfortunately for American workers, over the same period the last year, the average work week in this country fell by 0.3%. In other words, the length of time the average worker could work fell. Well, when you put together that the amount you got per hour of work didn't change, but the number of hours you were able to work fell, you get the following. The real weekly wage of American workers on average not only didn't go up over the last year, it fell by 3/10 of 1%. That's a disaster in an economy like ours. It becomes immoral when you look at the enormous wealth accumulated by the top 1%, including over the last year. And it raises a profound question that people looking at the so called Trump effect or the bounce to the American economy supposedly accomplished by the election back in early November, now some months ago of Donald Trump. Well, whatever the bounce is, it may be happening to the stock market and it may be happening to corporate profits and it may make Wall street ecstatic. But for the average American worker, nothing, not even the same shrinkage is the story that comes out of the Bureau of Labor Statistics this last week. Let's move right along because we have quite a few to cover. My next economic update has to do with the Ford Motor Company and the General Motors Company. I don't have to explain to you what these companies are. They're icons of American manufacturing and both of them this last week made announcements. Well, let's put it more accurately, the Ford Company made announcements and in its Announcements. It compared itself to General Motors in a way I think you'll find useful. Let's start with what I found to be the most stunning statistic in 2016, for the first time in history, the General Motors Corporation, no, excuse me, this is in January of this year that's. It's very hot off the press here. January of 2017, for the first time in history, the General Motors Corporation sold more Cadillacs in China than it sold in the United States. I want to let that sink in. Why? Because it turns out in part that last year, 2016, General Motors built a factory in Shanghai to produce 160,000, you guessed it, Cadillacs a year for the Chinese market. This has the Ford Motor Company, a competitor, upset. Cadillac is muscling in on the enormous market of wealthy people in China when with the money and the desire to buy fancy cars, and now interested in American fancy cars. Before they were buying Mercedes and things like that, now they're buying Cadillacs. So the Ford Motor Company announced this last week with great pride, it is about to build a factory in China to produce the Lincoln Continental in China for the Chinese market. The quote from the head of Ford, the chief executive there, Mark Fields, goes like Ford's philosophy around the world is to build where we sell. Funny, it wasn't that long ago that Ford was telling President Trump that it wasn't going to produce in Mexico or come back to the United States. How exactly you square that with the philosophy that we build where we sell? If you're selling in China, well, it turns out we shouldn't pay too close attention, should we? American companies are building in China because that's what they have to do to make money. And in the contest between Mr. Trump's promises and what these companies profits require, if you're expecting Mr. Trump's promises to prevail, I think you're in for a disappointment. Next item. I want to talk a little bit about China and the United States since it follows so nicely from what we just discussed. Interesting statistics came out this last week from a group of people that do wonderful research. They're called the wealth and Income Database. World. Wid World. It's a group of economists, the famous ones, Thomas Piketty in France and Emmanuel Saez at the University of California in Berkeley. They have a group that keeps the best statistics on global inequality that we really have. They have a free website where you can go and take advantage of these statistics if they are interesting to you. Here I'm just going to summarize some remarkable statistics about the United States and China, arguably the two most important economic players in the world today. The first statistic of interest is the level of inequality. Is China unequal? And the answer is absolutely yes. And I'm going to give you one. There are many statistics that show it, but just one, because I find it clear and dramatic. The top 1% of the Chinese people together own 13% of the country's wealth. The highest 1% own 13% of the wealth. Let me compare that to the bottom half of the Chinese people. We're talking in excess of 6,700 million people. China is the most populous country on this planet. The bottom half of the Chinese people together own 15. So how dramatic is that? Well, think for a minute. The top 1% has only a little less wealth than the bottom half of the people. That's an unequal distribution of wealth, but it is nothing compared with the inequality of the United States. Same group of economists using the same methodology. Here's their result for the United states, the top 1%. In this country, the United States owns 20% of the wealth. In China, the top 1% owns 13%. In this country, the top 1% owns 20% of the wealth. And how much of the wealth of America is owned by the bottom 50%? A mere 12%. These are stark numbers. In both the United States and China over the last 40 years, inequality has grown. Both China and the United States have seen inequality grow. But here is perhaps the most important statistics of all. Over those last 40 years, when inequality grew in China and the United States, it grew in a very different way. In China, the bottom half of the people appreciated, that is, they grew their income by 400% over those 40 years, 400% went up five times. In short, an enormous increase in the standard of living of the bottom half of the people. But inequality still grew. And why? Because the top 1%, they zoomed much faster than the bottom half, which is why the inequality got worse. But the inequality could get worse in China. And the mass of people could not complain much about it, could not disrupt the society in dramatic ways in anger about this inequality, because in a way they were quieted by the fact that, yeah, the rich were getting richer, but their standard of living was rising. And quite a bit. This was the situation of the United states until the 1970s. And one of the reasons the United States was able to become the powerhouse capitalist economy it is, or at least it was, is because, yeah, it was becoming more unequal over those years most of the time, but it was raising the standard of living of the mass of people enough that it kept the system okay in the minds of most of the people living in it. The United States used to have what the Chinese now have. Yes, growing inequality, but on the basis of a rising standard of living for the bottom half. But that's where the Chinese and the United States are now so different. Because in the last 40 years the bottom half of the United States has exactly stagnated. It has achieved no increase in its standard of living. Let me drive this. Over the last 40 years, standard of living of the bottom half of the Chinese people up 400% over the last 40 years in the United States, standard of living of the bottom half of the people nowhere doesn't change appreciably at all. That's why the inequality is such an issue in the United States. It is not because it's worse than other countries, even though it is. It's because it is an inequality based on the stagnation of the majority of American people's standard of living. They're watching the rich get further and further away from them. They feel, correctly, that they're left behind. When the famous author Arlie Hochield was on this program a few months ago with her new book about those folks in Louisiana and how they felt left behind and got involved in the Tea Party and so on, those people who felt left behind were living and feeling what the Bureau of Labor Statistics and this group of economists, the wid world, have now proven. They were left behind. They are part of that American majority that watches a growing inequality without the offset of a rising standard of living. Where that will go and how far that will go is anybody's guess. But it bespeaks a dangerous economic situation, particularly for the United States. This level of inequality based on the stagnation of the standard of living of the mass of people is a recipe for social conflict. One cannot overestimate. In their upset and anger about this situation, the British working class, the majority of British people, is quite like the United States. The statistic there are quite similar in the anger of the growing inequality based on no rise in the standard of living or even a fall. In the case of England over the last 30 to 40 years, the British voters surprised the world by their Brexit, by their decision to disengage from the European Community and go it on their own. A project that will hurt the British working class especially as long as they permit the management of this disengagement to be in the hands of the conservatives, who after all, are mostly responsible for what has happened to the British working class and likewise here in the United States. The decision, the surprise of an angry working mass of people to make Mr. Trump, the president puts an enormous burden on him. Is he really going to be able or willing alone or with the people he's gathered around him, such as those Goldman Sachs bankers, to be able to reverse the last 30 to 40 years of history, to really undo them in a way adequate to what agitates the American people? Let's put it this if he doesn't, he's going to be in for a hard time and so is everyone else. Well, we've come to the end of the first half of today's program, the short updates in a very few moments. We'll shift over. Please stay with us for the second half of this program because there you will encounter an interview about the housing crisis in the United States. Why the housing costs so much, what it means to the American economy, what alternatives there might be to get us out of this crisis. That seems to be yet another part of our lives where the pinch is on, where the good times seem to be left behind, as so many Americans feel these days. Stay with us. We'll be right back.
- [28:01]
Unknown Singer
Here come old flop top he come grooving up slowly. He got jew jewel eyeball he won holy roller he got hair down down to his knee. Got to be a joker he just do what he please. He wear no sho shine he got toe jam football he got monkey finger he shoot coca cola he said I know you, you know me. One thing I can tell you is you got to be free Come together right now over me. He back reduction he got walrus gumboot he got oh, no sideboard. He won spinal cracker he got feet down below his knee. Hold you in his armchair. You can feel his disease come together right now over me.
- [29:56]
Richard Wolff
Welcome back, friends, to the second half of this week's economic update. Once again, I'm your host, Richard Wolff. And in the second half of this program, we're going to have an interview. And my guest for this interview is a specialist in the housing crisis that besets the United States economy. So first, let me introduce him to you. His name is Walter South. He's here in the studio with me. Walter has been educated at a number of universities. I won't give you the long list. He has taught at a number of universities, including the City University of New York, the Rutgers University Law School, New York University. He holds a variety of degrees. But why I have him here is not all of that impressive as it Is, but because he has spent the last 50 years of his life working on housing organizing, managing, literally, building housing in the United States, roughly a total of 1,000 units. That's quite a bit. And knows more about housing than anyone I've met in a long time. So since we have a crisis that everybody is talking about, I wanted to bring him here and have a conversation with him about that crisis, what it means, and what can be done about it. So first, welcome, Walter. I'm glad you're here.
- [31:23]
Walter South
Thank you.
- [31:25]
Richard Wolff
All right, start off by giving us a thumbnail idea of what this crisis is. Why do we call it a crisis? What's the problem that besets housing in the United States that you would put at the top of your list?
- [31:40]
Walter South
The basic problem is a lack of affordability. The housing has increased, and the cost of housing has increased beyond what the average person can pay. And it used to be that we thought that if you spent 25% of your income for housing, that was perfectly fine. But.
- [32:04]
Richard Wolff
That would make it affordable.
- [32:05]
Walter South
Yeah, theoretically. But what happened? And this 25% came out of something called the Brook Amendment. Senator Brook passed an amendment to the housing policy asking people in public housing to pay 25% of their income.
- [32:24]
Richard Wolff
In other words, the government thought at that time that that would make an apartment affordable in its own units. So 25% became a standard. Yeah, gotcha.
- [32:34]
Walter South
But a few years later, Congress raised it to 30.
- [32:37]
Richard Wolff
Okay.
- [32:38]
Walter South
So right now, generally speaking, if you're paying more than 30% of your income for housing, your rent burden, Your rent burdened.
- [32:47]
Richard Wolff
In other words, you're living in a housing where you're paying more than you really can afford and more than was understood to be reasonable to ask of you.
- [32:59]
Walter South
Right.
- [32:59]
Richard Wolff
Okay.
- [33:01]
Walter South
But unfortunately, when they talk about the rent burden, they don't include a few things like transportation. So if you add transportation to the cost of what you're paying for rent, then it goes much higher than 30%.
- [33:16]
Richard Wolff
Well, I know from many cities I've lived in and other people have lived in that the less money you can afford to pay for your housing, the further you usually have to go from where your job is likely to be in order to find the housing. And so the joke is, you make a decision whether or not to rent a place based not just on the rent of the apartment, but how much it's going to cost you in transportation, driving to or from, et cetera, et cetera. So, of course, you should put the transportation into the equation. And if you do, then what are kind of the Results you get in terms of what Americans are actually shelling out for their housing.
- [34:00]
Walter South
Well, a study done by a group at Chicago whose offices I visited a few years ago, turns out that 48% of the people in this country, I mean people are now paying 48% of their income for both housing and transportation.
- [34:16]
Richard Wolff
That's the average in the United States.
- [34:18]
Walter South
Yes, right.
- [34:19]
Richard Wolff
In other words, it is way above a little bit. So in a sense. So there's the, the crisis is that the American people as a whole, on average, are living in housing beyond what they can afford. And that must mean that the rest of the things they need to buy, they can't buy, they can't afford.
- [34:39]
Walter South
In fact, the New York Times has reported that one half the people in their early 20s, their parents are helping them with their rent.
- [34:49]
Richard Wolff
One half of people in their early 20s.
- [34:52]
Walter South
Right. And the Post reported that 50% of the 25 year old to 34 year old people, kids, were living with their parents.
- [35:01]
Richard Wolff
50%.
- [35:03]
Walter South
This has not been this high since 1940.
- [35:06]
Richard Wolff
Since 1940, when there was a real housing shortage because of the Depression and then the war that was about to begin.
- [35:13]
Walter South
So it seems we have a little bit of a problem. And not only do we have a problem, the problem is getting worse as the years go by.
- [35:21]
Richard Wolff
Can you give us some sense of why that is or how that's working?
- [35:26]
Walter South
Well, the interesting thing, if you look at Europe, you find that in Europe, the amount that you're expected to pay for housing is considerably less than what you are paying here. For example, in Europe, The Swedes pay 26% on housing.
- [35:40]
Richard Wolff
That's what they're actually paying. Now let me just hammer at it, Walter, because this is really important. So Swedish people on average are paying 26% for their housing and Americans are paying 48%.
- [35:54]
Walter South
Right. The Danes are paying 27% and the EU members are paying 23%.
- [36:03]
Richard Wolff
So Europe as a whole, half, as a percentage of income, half goes to housing compared to this country.
- [36:10]
Walter South
Right. So that's the problem right there.
- [36:16]
Richard Wolff
Tell us why. I know these are big questions, but I want to get at the core of these things. So why are we in such a.
- [36:25]
Walter South
Mess in the first place? I think you've got to look to the 10th Amendment, to the Constitution. The 10th Amendment leaves to the states all the rights not specifically given to the government, federal government. As a consequence, we have a lot of little municipalities in the United States. Every state has, you know, little municipalities. And every one of these little municipalities has a mayor, has a city council, has A police chief has, a librarian, has, you know, everything under the fire department. And these are all funded from taxes, real estate taxes levied on houses in that area. So if you can have a rich area, you got a lot of taxes. So if you want a lot of taxes, you don't want a lot of poor people living in your neighborhood.
- [37:12]
Richard Wolff
Right.
- [37:13]
Walter South
So it turns out that as of now, in the United states, there are 89,004 local governments, there are 3,000 counties, 19,000 municipalities, 16,000 townships, 12,000 school districts, and 37,000 other districts.
- [37:34]
Richard Wolff
So we have a welter of these little institutions, each of whom can decide what tax to put on houses. So we allow a housing situation to develop in which one of the major costs of housing, whether you own one or you rent one, is the taxes you have to pay on it. And those are set by all these little municipalities. And your point is that this allows, for example, a municipality to say, let's have a relatively small number of people who are very wealthy, take big tracts of land, big, big expensive houses, and they will then be taxed at a rate which for them being rich isn't significant. We can provide wonderful services for their children in the school, in the parks, and we can all do that and force people who can't afford to live in a community where correspondingly less will be possible to be raised and less services will be provided.
- [38:41]
Walter South
It's interesting, matter of fact, in St. Louis county, there are at least 90 different municipalities in the one county around St. Louis.
- [38:49]
Richard Wolff
Yeah.
- [38:50]
Walter South
This may explain Ferguson.
- [38:51]
Richard Wolff
Yes, may explain why some communities have nothing, really.
- [38:56]
Walter South
No Ferguson, since they have all these costs for the cops and for the fire department, for the school board and for the schools. They were running out of money because 40% of Ferguson housing was underwater. And as a result, they told the police, go out and get tickets. Give tickets.
- [39:16]
Richard Wolff
Well, when you say underwater, they owed. The people who lived there owed more money on the. On their mortgage than the house was worth. So they couldn't pay taxes or they wouldn't pay taxes. So the city had no money. So it made people give tickets. Right, the cops gave tickets and the situation blew up.
- [39:32]
Walter South
Yeah, exactly what happened. The other thing, of course, happened was after the second World War, we had this tremendous expansion of the federal highway program under the guise of a defense, improving the defense of the country. And I think up until, as of 2012, the federal government built about 47,000 miles of highways. So this meant that if you wanted to leave the city, you could, and you could leave fast. The same thing happened In Ferguson. And Ferguson was one of the early suburbs, was the first suburb of St. Louis. It was on the first train stop outside of St. Louis. And when the highways opened up, the golf clubs moved out near the airport. And as a result, everybody moved out to the golf courses, left Ferguson empty. And this is all because the federal government had built an interstate highway system.
- [40:29]
Richard Wolff
Right. And so this has always fascinated to me and been so important in American history. The government comes in and builds massive highways. The first thing, I'm an economist, so bear with me for a minute, Walter. The first thing this is, is a massive subsidy to the automobile companies. Everybody needs to understand you only buy a car to the extent that there's a road to run it on. If there weren't roads, the attractiveness of a car would be much lower and the need to spend money to fix it if it were rolling over the countryside would be astronomical. So what the government did was say to the car companies, we're going to create a market for that car you produce. Gm, Ford, Chrysler, by creating a spectacular new highway system that you don't have to pay for. Wow. But then it's then now your point. Not only does it create a demand for cars, it allows people, as you say, to escape the city. Anyone with enough money. And we know what happened in the 40s and 50s and 60s as people left the city, those who could afford it, and move to the suburbs, where then they would need a car to get back into the city. Or two cars. That's right. Especially the more adults that worked. That's right. Especially because public transportation was everywhere, limited or pinched. So you created the demand for a car. But what we didn't understand, those of us who saw that part of it, was that you also created now the opportunity for each little subdivision that decided it was a township or a school district or a city or a town or a village to set up its own desire of what kind of people it wanted. And everybody wanted the upper income people because they buy fancy houses and can pay the taxes. So you created the segregated patterns. And I don't just mean segregated by race, although that happened as well, for the obvious reasons of our history at that time, but also segregated by income level, segregated by educational level. And you get this crazy quilt which ends up producing for the mass of people a housing stock. Because all of this affects how profitable it is to build a house in this area versus that one. Well, you put all this together and the end result is what you've told us, namely that the American people are unable to afford housing and are suffering as a result of what they have to pay to get housing.
- [43:21]
Walter South
Of course, another thing that's happened is our tax code. If you own a house or own a co op, you can deduct the interest on your mortgage payment and your real estate taxes. So if you're paying a lot money for taxes, what do you care? It's a deduction.
- [43:38]
Richard Wolff
Right.
- [43:38]
Walter South
And it turns out that, what is it, the richest 20% of households receive 73% of these benefits.
- [43:49]
Richard Wolff
In other words, the way the tax code is written is it's built in a kind of a subsidy to the homeowner compared to the renter.
- [43:58]
Walter South
Right. And this subsidy is larger than what we have for any other group of people in this country.
- [44:05]
Richard Wolff
So would you say is the following then, am I reading you right, that we have created a system in which we have favored the homeowner over the renter? The homeowner ends up having less to pay as a share of his her income than the renter because. Because they can get these deductions and the renter can't. Yeah.
- [44:30]
Walter South
The lowest income people in our society probably can get up if they own a house, can probably get about a $400 deduction. Whereas the richest group in our society, 73% of these benefits, they get $50 billion a year and deductions.
- [44:53]
Richard Wolff
Tell me, how are we to understand the difference? What would you guess? Why are the Europeans able to provide housing to their people at a lower percentage? What would you get? Or why are we paying much higher? What's the disconnect in the way these two parts of the world function to make housing so much of a problem of affordability here for the mass of people? I understand the rich in both parts in Europe and here don't have these problems, but for the mass of people.
- [45:28]
Walter South
Well, Michael Moore made a movie called Where Do We Invade Next? I don't know if you've seen it, but it was very surprising. If you watch the movie, you find everybody says we, we. They're not saying me, me. And I'm sure if that movie had been made in this country, everybody would be saying me, me, and not we, we.
- [45:47]
Richard Wolff
So you think it's a more general sense of community or a sense of.
- [45:51]
Walter South
The one scene that struck me was these motorcycle employees were punching up for lunch. And the guy said, where the hell are these guys going, man? He said, they're going home to have lunch. He said, going home to have lunch? Are you kidding? Well, I mean, after all, we have to have a decent meal you know, so, you know, it's just a complete difference in attitude.
- [46:15]
Richard Wolff
And you think that plays out by giving them a housing stock that is less costly?
- [46:22]
Walter South
I mean, if you want to go to school in Berlin, for example, you're German, you can go to college for nothing.
- [46:28]
Richard Wolff
Actually, in Germany they make a big point that it's available not only to Germans, but to foreigners as well. The last I looked, there are 25,000American young people who have gone to Germany in order to register and get a four year college education with no tuition.
- [46:47]
Walter South
Well, that's one of the reasons I'm doing my PhD program in Slovenia.
- [46:53]
Richard Wolff
Yes, it's becoming. The world is changing, to make a long story short. Okay, let me turn and push a little in another direction. What would you do if you were in a position to change, to contribute to a real wholesale transformation of the housing crisis? Of the fact that we have, and I know we don't have the time, but to talk about the homelessness problem in this country, which, you know, living here in New York City as I do, I explain to people that when I leave my home, as I did today, to come to this studio, to prepare this program, I stepped over sleeping people. This is in a city which is now experiencing below freezing temperatures for several days. Now, put all that aside. Let's deal with the housing problem. The way you've summarized it, that the mass of Americans really can't afford it. What do we do?
- [47:53]
Walter South
It goes beyond affordability. The first problem we have to address in terms of new housing in this country is climate change.
- [48:00]
Richard Wolff
Oh, good. How does climate change play in.
- [48:03]
Walter South
There's a German standard of building housing called the passive house. And every community board now in New York City has passed the resolution that every building in New York City being built has to be passive house.
- [48:15]
Richard Wolff
What is passive house mean?
- [48:16]
Walter South
Very highly insulated unit. And it's so highly insulated that you have to have an air handling unit in every unit to get fresh air in. Yeah. And so the utility costs are lower and the amount of pollution is considerably less. So the first thing that we really need to address in any type of housing program is changing the way we build our buildings. The second thing we need to address is the whole problem of transportation. You know, we need to build housing where you have public transportation. You could have a car if you want it, but you don't need a car. But that.
- [48:54]
Richard Wolff
Well, let me stop you there. So do we need to. In other words, to solve the housing problem, we need also to do something about mass transit. We are A society with very poor mass transit in an enormous part of our country. If I had time, I'd remind everyone now of the history of the automobile companies undoing the street railways, the bus systems, in order to create the demand for the private car, even though it's the major killer and injurer of people in our society, the major polluter of the air, the major waster of fossil fuels, et cetera, et cetera. So you're talking about building houses near public transportation, but also then making public transportation, extending it, improving it, enlarging it, so that we can build houses where people could then afford them, partly because they wouldn't need a car. Right.
- [49:55]
Walter South
I think the other thing we could do if we built housing near public transportation is that we could begin to address the poverty problem and the segregation problem in our society. Because it's interesting. One of the leading ways to take people out of poverty is to get them to move, particularly in an area where there's public transportation.
- [50:20]
Richard Wolff
There are studies that indicate if poor people are moved to a different neighborhood from the ones where they have been languishing, then opportunities open up.
- [50:29]
Walter South
And, yeah, particularly for their children. They may not themselves improve that much, but we know if they live in a different environment, the kids are going to not be the same as they would be. So I guess what I'm saying is that we have to begin to live more democratically, which leads me to believe that we have to build housing which has skewed income levels.
- [50:53]
Richard Wolff
And what does that mean?
- [50:55]
Walter South
That means that there are 40% of the people in new buildings which are passive. House would be earning 60% of the area median income or less. And the 30% would be earning between 61% and 165 of the area median income. And 30% would be living above that, earning above that 165. Right.
- [51:20]
Richard Wolff
In other words, housing would become democratized in the sense of being composed of people at diverse levels of income.
- [51:29]
Walter South
Right.
- [51:31]
Richard Wolff
How do you think the American people and the American culture would handle such an.
- [51:37]
Walter South
There's a model called limited equity. And in limited equity, you would pay to buy stock in a co op. And what we could do is we could charge for the lowest 40%, we could charge one time their annual income. And for the middle 30%, we could charge twice their annual income. And if you earn over 165, then we could charge you 2.5 times your income. And then if we put the amount of money you have to pay on your mortgage, subtract that out from 30% of what you Earned, the difference can go for the maintenance in the building and you could pay your mortgage.
- [52:20]
Richard Wolff
In other words, you would begin to apply formulas to the cost of housing.
- [52:26]
Walter South
Right.
- [52:27]
Richard Wolff
That are similar to the progressive taxation of our income that we have now. In other words, the income tax in the United States is progressive in the sense that it takes a larger percentage of people, the higher the income they get. And we've accepted that for a century. Basically we've argued over what the rates should be, but the principle that the higher your income is, the higher the percentage you pay has been accepted. So in a way, your proposal is modest. Here you're saying that should be applied to housing in order to deal with the unaffordability of housing now. And it would also have a democratic dividend, you might say, in creating housing that is diverse and is not the way we do in this country now, rich people live over there, middle income over there, and poor people left behind with all the results that we know now.
- [53:29]
Walter South
The only problem is if you have this kind of model, how do you lock it in and the way that I propose locking it in.
- [53:35]
Richard Wolff
Help us. What does lock in mean?
- [53:37]
Walter South
Keep it. Keep it? Yeah. You can't change it.
- [53:40]
Richard Wolff
Okay.
- [53:42]
Walter South
What I've done is I've set up a corporation called the Trust for Affordable housing. It's a 501c3 tax deductible corporation. And the corporation is going to buy sites and lease the sites to limited equity co ops with the income mix. And I figured out that if I do a mixed use building, in other words, have three stories of commercial and the 100 units above of limited equity co op, that I can sell the apartments to each shareholder and probably end up with virtually no mortgage at all.
- [54:17]
Richard Wolff
In other words, it's doable.
- [54:19]
Walter South
Yeah, I think so. Now why do I have the leasehold? Because the leasehold determines what can be done in the apartment. The leasehold says you have to live in the apartment, you can't sublet it. And if you sell the apartment, fine, you have to sell to the same class that you bought it in. And if there's any difference between what the new AMI is and what it was, meaning income, you get your money back. All the appreciation goes back to the building for maintenance so there's no profits. You get a decent place to live at a price that you can afford.
- [54:57]
Richard Wolff
And you take out when you leave only what you pay, which is what you put in.
- [55:01]
Walter South
If it's over, you may lose, but generally speaking, the AMI goes up. So you might get a modest, you won't get a modest return. Any return would go back to the building for long term maintenance.
- [55:14]
Richard Wolff
So if you live there for 20 years, then all the other people who sell while you're living there, if the value of the building goes up and so on that additional value, because that's mostly because of.
- [55:30]
Walter South
It's not the value of the building.
- [55:31]
Richard Wolff
It'S the value of the apartment.
- [55:32]
Walter South
No, no, no.
- [55:33]
Richard Wolff
It's the value of ami, of the median income. So that goes up in the area. But what happens when they sell at a higher price than they paid?
- [55:43]
Walter South
They get their money back and the building gets the difference.
- [55:45]
Richard Wolff
So they do get the difference.
- [55:47]
Walter South
No, they don't get anything. The building gets the difference.
- [55:49]
Richard Wolff
Gets the difference.
- [55:50]
Walter South
Right.
- [55:50]
Richard Wolff
Yeah, but that's what I'm saying. So if you live in the building for a while, the building can improve its quality of life for you by using the growing appreciation, appreciation of the ami. And that's an old idea that the growing appreciation of the society is nobody's particular creation and should go for the housing stock available in a sense to everybody rather than be grabbed by a few people. So it has a democratic dimension that way too.
- [56:18]
Walter South
You may think it's a little bit bizarre, but the fact of the matter is, suppose you had a car and you drive it for 10 years and you're going to sell it for a profit. No, I mean, you know, definitely. But if you have a house, you think it's some sort of illegality if you can't sell the damn thing for a profit. So it's not quite as bizarre as it might seem.
- [56:39]
Richard Wolff
And I think it changes. You need a change in mentality.
- [56:43]
Walter South
Yeah.
- [56:44]
Richard Wolff
Walter, thank you very much. I hope you've shed some light for our viewers and listeners. This is Richard Wolff. We're at the end of this program of economic update. I want to remind you quickly that we look for you to be our partners. Make use of our websites rdwolff.com and democracyatwork.info and see if there are ways you can partner with us as we hope to partner with you. I want to thank again Free Speech TV for adding us to their menu. I want to thank truthout.org, that remarkable independent source of news and analysis that has been a partner with us for a long time. This is Richard Wolff, Economic Update. And I look forward to speaking with you again next week. Gonna be my time, my time, baby. Change, change, change.
- [57:47]
Walter South
Thing going to change.
- [57:49]
Richard Wolff
Yes, it is.
- [58:06]
Unknown Singer
Sam.