Economic Update with Richard D. Wolff

Episode: Housing Crisis US – March 16, 2017

Episode Overview

In this episode, economist Richard D. Wolff tackles the economic challenges surrounding the US housing crisis. The first half presents a series of updates on recent economic events—from the Federal Reserve’s actions and wage stagnation to wealth inequality and patterns in the auto industry. The second half features an in-depth interview with housing expert Walter South, who unpacks the core issues behind the US housing crisis, explores why housing has become unaffordable, and discusses potential systemic solutions, including models from Europe and new approaches to equitable housing development.

Key Discussion Points & Insights

1. Federal Reserve and Economic Instability

• [02:10] Wolff contextualizes recent Federal Reserve interest rate changes:

  • The Fed’s mandate is to stabilize the capitalist system by manipulating interest rates.
  • Wolff notes, however:

    "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." (05:01)

  • Instability persists, with cycles of downturns and inflation.

• [03:30] The defense that "things would have been worse without the Fed's actions" is, according to Wolff, a "very limp response."

2. Continued Influence of Wall Street in US Policy

• [07:05] Trump administration’s appointments (James Donovan, J. Christopher Giancarlo) signal continued dominance of Goldman Sachs and Wall Street interests in economic policy—contradicting campaign rhetoric.

3. Wage Stagnation and Declining Living Standards

• [10:06] Bureau of Labor Statistics data (Feb 2016–Feb 2017):
  • Real hourly wages: 0.0% change—no increase in purchasing power.
  • Average workweek shrank by 0.3%.
  • Real weekly wages actually fell by 0.3% for American workers.
  • Wolff:

    "That's a disaster in an economy like ours. It becomes immoral when you look at the enormous wealth accumulated by the top 1%..." (12:20)

4. US Auto Industry: Globalization and Reality vs. Rhetoric

• [14:09] Ford and GM's expansion in China:
  • GM sold more Cadillacs in China than in the US (for the first time ever).
  • Ford to build Lincolns in China following the mantra "build where we sell."
  • Companies’ profit motives override political promises to bring manufacturing home.

5. Growing Inequality: US vs. China

• [15:44] Insights from the World Wealth and Income Database:

  • China: Top 1% owns 13% of wealth; bottom half owns 15%.
  • US: Top 1% owns 20% of wealth; bottom half owns 12%.
  • In China, bottom 50% saw a 400% increase in standard of living over 40 years.
  • In the US, the bottom 50% have seen no appreciable increase.
  • Takeaway:

    “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.” (21:40)

• [26:41] Warning about the social instability this breed of inequality may bring (“recipe for social conflict”).

The Housing Crisis – Interview with Walter South

Introduction to Walter South

• [29:55] Housing organizer and specialist, involved in building and managing 1,000+ units over 50 years.

Roots of the Housing Crisis: Affordability

• [31:40] Main problem: Lack of affordability

  • Previously, housing was considered affordable if costs stayed at ~25% of income (per the Brook Amendment).
  • Later raised to 30%; now, if you pay more, you are "rent burdened."

• [33:00] This measure doesn’t account for transportation costs—crucial for most Americans.

The True Cost: Housing + Transportation

• [34:00]

  • Average American spends 48% of income on housing + transportation (vs. a target of 30% for housing alone).
  • Implication: “the American people as a whole, on average, are living in housing beyond what they can afford.” (34:18)

• [34:39] Young adults rely on parents for rent; 50% of 25–34-year-olds live with parents—a level not seen since 1940.

International Comparison: US vs. Europe

• [35:26]
  • In Sweden, average housing cost: 26% of income; Denmark: 27%; EU: 23%.
  • US: 48%!
  • South:

    “So Europe as a whole, half, as a percentage of income, goes to housing compared to this country.” (36:02)

Structural Roots: Fragmented Local Government & Tax Inequity

• [36:24]
  • The 10th Amendment’s “states’ rights” leads to a patchwork of 89,004 local government entities.
  • Each can set its own property taxes, fueling inequality—wealthy areas can fund better services, poor areas are left behind.
  • Example: St. Louis County has 90 municipalities. In places like Ferguson, high numbers of underwater mortgages led to funding shortages and over-policing (ticketing for revenue).

Highways and Suburbanization

• [39:32]
  • Federal highways enabled affluent families to leave cities for suburbs, resulting in income and racial segregation.
  • Car-centric development created dependency on automobiles and further segmented communities by wealth.

Tax Code: Favoring Homeowners Over Renters

• [43:21]
  • Mortgage interest and property tax deductions overwhelmingly benefit the wealthy.
  • “Richest 20% of households receive 73% of these benefits.” (43:38)
  • Subsidy for homeowners is larger than that for any other group.
  • Renters, by contrast, receive no such tax advantages; the gap is a driver of inequality.

Culture & Policy: The “We” vs. “Me” Lens

• [45:27]
  • South points to European “we” culture vs. US “me” mentality (as illustrated in Where to Invade Next?).
  • Implies this shapes public willingness to support affordable housing and robust public goods.

Solutions and Alternative Models

a. Passive House Construction & Climate Change

• [47:59]
  • New housing should be highly energy efficient (“passive house” standard), reducing utility costs and carbon footprint.
  • NYC already moving toward this in new construction.

b. Integrated Development & Mass Transit

• [48:53]
  • Housing should be built near public transportation to reduce reliance on cars, increase affordability, and address poverty via access.

c. Mixed-Income Developments

• [50:53]
  • Implement a housing mix:
    • 40% for those earning ≤60% of area median income (AMI)
    • 30% for 61–165% AMI
    • 30% above 165% AMI
  • Goal: Democratize communities and break down economic segregation.

d. Limited Equity Co-ops & Progressive Pricing

• [51:37]
  • Residents buy shares at a price tied to their income; resale rules restrict windfall profits:
    • When leaving, seller recoups their amount paid; any appreciation goes to building maintenance.
    • Model emulates progressive taxation, sharing prosperity rather than concentrating it.

    "So in a way, your proposal is modest...that should be applied to housing in order to deal with the unaffordability of housing now. And it would also have a democratic dividend..." (52:26)

e. Locking in the Model: Trust for Affordable Housing

• [53:28]
  • Create a nonprofit (501c3) to buy sites and lease them to limited equity co-ops.
  • Lease terms ensure continued affordability, prohibit speculative resale, and direct appreciation to the community.
  • For commercial-residential mixed use, potential for “virtually no mortgage at all.”

f. Changing Mentality on Homeownership

• [56:18]
  • South likens housing resale profit expectations to selling a used car for a premium: culturally ingrained, but not the norm elsewhere.

  • "You need a change in mentality." (56:39)

Notable Quotes & Memorable Moments

• On wage stagnation:

  “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.”
  – Richard Wolff [12:40]

• On inequality:

  “They're watching the rich get further and further away from them. They feel, correctly, that they're left behind.”
  – Richard Wolff [21:40]

• On housing/transportation cost burden:

  “48% of the people in this country... are now paying 48% of their income for both housing and transportation.”
  – Walter South [34:00]

• On US vs. Europe:

  “So Swedish people on average are paying 26% for their housing and Americans are paying 48%... Europe as a whole, half, as a percentage of income, goes to housing compared to this country.”
  – Richard Wolff and Walter South [35:40–36:10]

• On cultural approach:

  "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."
  – Walter South [45:46]

• On changing expectations around housing:

  "Suppose you had a car and you drive it for 10 years and you’re going to sell it for a profit. No... 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."
  – Walter South [56:18]

• On the need for new thinking:

  "You need a change in mentality."
  – Richard Wolff [56:39]

Timestamps for Key Segments

| Timestamp | Segment/Topic | |-----------|--------------------------------------------------------------| | 00:00 | Introduction, program purpose, Federal Reserve overview | | 07:05 | Trump administration and Wall Street | | 10:06 | Bureau of Labor Statistics: Wage stagnation | | 14:09 | US auto industry globalization, China manufacturing | | 15:44 | Wealth and inequality: US vs. China | | 29:55 | Introduction to housing segment & Walter South | | 31:40 | Definition of the US housing crisis: affordability | | 34:00 | Cost of housing and transportation for Americans | | 35:26 | Comparison with Europe: housing costs | | 36:24 | Local governments, property tax, and housing inequality | | 39:32 | Highways, suburbanization, and US housing policy | | 43:21 | Tax code: homeowner vs. renter advantages | | 45:27 | Cultural differences: 'We' vs. 'Me' in housing solutions | | 47:59 | Climate change and the passive house standard | | 48:53 | Importance of public transport and mixed-income communities | | 51:37 | Limited equity co-ops: models for equitable ownership | | 53:28 | Trust for Affordable Housing: locking in affordability | | 56:18 | Changing the mentality around profit in homeownership |

Conclusion

This episode presents a sweeping critique of the US housing system—drawing connections between policy, culture, and economic outcomes. Richard Wolff and Walter South not only diagnose the problem (chronic unaffordability, rooted in policy and structure), but also offer concrete alternatives—focusing on community-minded, equitable, and climate-forward models from abroad and innovative new approaches tailored for the US context. The conversation closes on the note that technical fixes are necessary but insufficient without a broader change in mentality—a shift from individual gain to community well-being.