Transcript
Richard Wolff (0:00)
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.