← Economic Update with Richard D. Wolff
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Welcome, friends, to another edition of Economic Update, a weekly program devoted to the economic dimensions of our lives. Jobs, incomes, debts, our own, those of our children, those in the larger society we live in. I'm your host, Richard Wolff. I've been a professor of economics all my adult life, and I hope that that has prepared me well to present these weekly updates. To get an idea of what's going on in the economy around us, I begin one more time with the Uber Corporation. I talk about them because it's important to understand that the so called gig economy, or the so called startup economy has another side to it, which their publicity hides, but which it's important to understand first, the stark facts that were recently released. A year ago, 2016, hackers broke into the Uber system and thereby got all kinds of informationcredit card numbers, addresses, all of that of get this, 57 million Uber customers and drivers. A year ago, we learned about it over a year later, it was hidden by the Uber company. They knew all about it for a year. But the news gets worse. A ransom was demanded by the hackers in order not to use and go public with what they had achieved. And the Uber Corporation paid them $100,000. Good deal for the hackersto hide all of this. But as these things will, it came to light. What does this mean? Well, it means that Uber lied to us by not telling us 57 million of us that our information had been compromised for a year. Lord knows how many people's lives were messed up in terms of their credit and a whole lot of other things like that over that period of time. A ransom was paid. That's how the corporation handled it. Well, let's see what that means. Here's what it probably means. Without having the books of the Uber company available, you can't be sure, but it probably means that companies like Uber, which accumulate all kinds of very valuable information, ought to spend a lot of money making sure these private bits of information are secure. Clearly, Uber didn't do that. And maybe Uber calculates like no doubt other ones of these companies do, that it's cheaper to pay off the hackers $100,000 than to make sure that our information given freely to Uber is secure. And this leads to the general conclusion about companies like Uber. Basically, Uber provides taxi rides. That's right. They do the same thing that a taxi company does. You get involved with them, you call them, you hail them, and they take you where you want to go. That's what Uber does. Only this is a difference. Years ago, when taxi rides began and People discovered that the taxi might not be safe, might not be maintained correctly, might not have the adequate insurance it needs. We discovered that the private taxi company would shave the corners to make more money. And so to protect the public, we instituted commissions. And the commissions made the taxi companies take the necessary precautions. And that, of course, is expensive. So what the commissions did was set the taxi rides at a price that would pay the driver and pay the company enough money to meet the demands of the commissions for our safety. All that Uber is, is a way around the safety and thereby they can compete with taxis because they don't have to maintain the safety, they don't have to maintain the vetting of the driver, they don't have to main the insurances that a regular taxi company has so they could make more profits, which they did. And we pay the price. You know how the drivers aren't as good, the insurance isn't as good, the maintenance isn't as good. And now we discover that the security of our information isn't very good. Taxi companies didn't accumulate that information. We didn't have to be protected. Now we discover, like with taxis, we need a commission to oversee this company because in its drive for profits, it sacrifices the public. And that's a problem with a capitalist system where profit is the bottom line, not serving the customer. That's only the means to get the bottom line up there. And we can see what that means. My next update has to do with sugar. Sugar is a crucial item in the diet of the United States and of many other countries. Sugar producers, that is the capitalist companies that raise process, package and all the rest. Sugar have an association like all industry groups. It's called the Sugar Research Foundation. It turns out in an article published in the academic or scientific journal PLOS Biology November 21st of this year, they reported on research of three professors at the University of California in San Francisco that back in the 1960s, the Sugar Research foundation sponsored some scientific research to look into the question, what is the relationship between sugar consumption on the one hand, while heart disease and bladder cancer on the other? And when that research began to suggest to scientists that there was a connection that would be important to let everybody know about. The Sugar Research foundation abruptly stopped the research, stopped the funding of the research. And so in the intervening half a century, we have been kept in the dark about that potentially crucial research, obviously, because it was not in the interest of the sugar businesses to rescue us from what they were doing and making profits. It's another sign of the danger of putting the food production of our society in the hands of companies whose first objective is profits, not the safety or nutritional value of, of what they produce. My third update today has to do. This will come as a big surprise with President Donald Trump. I know you perhaps have already heard enough or more than enough about what he's doing, but this is something you may not have heard about. You know, in the past, politicians knew it was appropriate to keep a certain distance from between themselves as political officeholders and business interests about making money. With Mr. Trump, the notion of keeping a distance has disappeared. And in a way, that's very helpful because you can see what was kind of hidden before nice and clearly presented to you. So I'm going to go through five recent business activities that Mr. Trump has been involved in, because I think it's an important part of understanding what the leadership of this country now involves. Number one, in New York City, there is a Trump SoHo hotel in lower Manhattan. It is having a hard time. It turns out that New Yorkers and people visiting New York seem not to like to see the Trump name on the hotel. And so they haven't been going there. Occupancy rates are poor. Money is not being made. And so a divorce has been arranged between the Trump Organization and that hotel so that it won't be the Trump Hotel anymore, because that's the strategy of how to make this Hotel pay score one against Mr. Trump's financial interest. Here's another part of that story. That hotel is partly a hotel and partly a set of condominium apartments. The condominium owners have together sued the Trump Organization because they claim in order to buy those co op apartments, they were given figures by the Trump Organization which inflated the amount of money being spent and the number of these apartments that were being sold to create the impression that there was a groundswell of demand for these choice pieces of real estate. Turns out that those numbers weren't accurate. At least that's the claim of the condo owners living in the same building. But now it gets juicier. Let's turn to the following statistic, which I have to admit, when I first encountered it was so overwhelmingly I did a double and triple check just to make sure the numbers are right. Mr. Trump has been president for roughly 400 days. As we produce this program, on 100 days out of the 400 he's been president, he visited one or more of his own properties. Let me explain what this means. On a trip to some foreign country, he makes stops along the way, not because he has business to do in terms of Being the President, it's because he's got with him an army of press people who will take good pictures of him at this hotel, that golf course, this hotel and golf course. This is publicity that would cost millions if it were paid for. But it's on your dime and my dime, because he's traveling in the presidential jet. If he did it once in a blue moon, you'd think it was kind of tasteless. He did it 100 days out of the 400 he's been a president. This is a systematic self promotion of his business interests. In the month of November 2017, we have a new business on the Internet. It's called trumpstore.com it sells hats, polos and other golf gear with the Trump name on it.
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I want to let that sink in.
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And now the last Republican Party groups have decided it's a good idea to locate their events at the properties owned by the President. So the last one I heard of, and so I decided to bring it to your attention. In early November of this year, at Mar a Lago in Florida, the Republican Attorneys General association of the United States had a dinner with their most important corporate donors. It cost $125,000 per person to attend this event, and it was for a weekend at Mar a Lago. So all that money had to be paid to Mr. Trump, who owns the facility. This is a level of mixing politics and business that goes beyond what we've had in the past. And I'll leave you to draw your own conclusions before going on to the remaining updates. I want to remind you we maintain two websites that I want to urge you to visit and make use. Rdwolff, with 2F's.com and democracyatwork.info that's all one word, democracyatwork.info There's a great deal of material that we load up to these websites every day. It's there to enhance, to elaborate, to extend what we do on this program. It's available to you 24, seven, no charge whatsoever. These websites allow you also to communicate with us what you like and don't like about the program, what you'd like to see us do. These websites allow you to follow us on Facebook, Twitter and Instagram to see what we're doing on YouTube and so on. It's a resource that we make available to partner with you in making the reach of all that we do even greater than it would be if it was just us alone, rather than in partnership with you. For those of you that are listening to this program. If you would like to see the televised version of the program, please Visit us@patreon.com that's P A T R E O N patreon.com economicupdate for the television version of the program. Returning to our economic updates, I want to talk about what is for me a personal tragedy because I live in New York City. The tragedy I'm talking about is the subway system. This is a fundamental public service. Millions of people rely upon this institution to get to and from work, to get to and from business jobs, friends, associates, family members, you name it. It's the way you move around a big city scattered across five big boroughs. But the subway system in this, the largest city in America, the city most visited by folks from other parts of the world. Let me tell you about the conditions that it's in. First, daily ridership. 5.7 million people use the subways every day. That is double the number of people who used it to 20 years ago. In other words, we have an enormous increase in the need for the reliance on the social importance of this mass transportation system. The percentage of weekday trains that reach their destinations on time, 65%. That is the worst performance of any major transit system anywhere in the world, including other cities in the United States. There are many transportation subway systems around the world that have records in the high 90% of on time performance. There is no excuse, no necessity for this dereliction of service to the public. The amount of money that the mtathat's, the authority that funds the subways, gave to the subways this year is $250 million in 1990. That's 27 years ago. It gave the authority in today's dollars, $1 billion. Let me make it clear to you. We've doubled the number of people that use the subway and we've reduced by 75% the amount of actual purchasing power dollars we've given them. So there's no mystery about why the subways are late. There's no mystery for those of you that are not familiar with the New York subway system, no mystery about the fact that there are rats, that it is dirty beyond all words, that it is noisy, that the bathrooms are not. You cannot even think about going in there. They're locked anyway because nobody does. On and on and on. What a travesty. And it makes a mockery of efficiency, that word used to describe American capitalism. There's no efficiency here. Millions of hours of work time are lost by people who are stuck on slow trains or don't get to work at All. Where's that accounted for? Nowhere. And here's the politicians don't spend the money to to maintain this subway. And why not? Because if they maintained the subway, they'd have to get the money by raising taxes. They dare not do it to the corporations and the rich because they threaten to support politicians against the ones who might do this, politicians who won't do it. So the politicians in office are afraid to tax corporations and the rich. And likewise they're afraid to tax the mass of people who already spend the too much money on the subway ride, who are already taxed beyond what they can care for and tolerate. And they're afraid of losing their votes. So the way that politicians work in this crazy system is by not taxing the money and therefore saving, by not maintaining the quality and the efficiency of the subway system. They hope they can get through four years on the commission, go on to a higher political office and let the declining subway become the next politicians headache. That's not a problem of these individuals, that's a problem of a system that works this way. This is a crazy way to function. It isn't efficient, it isn't appropriate, it isn't fair. Because obviously the people who are not paying the taxes are very different from the people who have to rely on an unstable, unsafe, unsanitary subway system every.
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Day of their working lives.
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I turn next to Britain not because I'm only interested in speaking to British people about their situation, but I'm doing it because Britain's reaction to the crisis of 2008 is rather close to that of the United States. Imposing an austerity on the mass of people, getting a recovery in quotation marks mainly for the corporations and the rich, and letting it bypass the mass of people. But focusing in the newspapers owned by corporations and the rich on the recovery they are enjoying with a little clever maneuver of suggesting everybody is enjoying it.
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When it's not the case.
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The latest statistics from the Institute of Fiscal Studies, which is the Office of Budget Responsibility, the leading official of the British government, indicates that household disposable incomes will fall for an unprecedented 19 straight quarters between 2015 and 2020. In other words, we are now in the middle of the longest sustained decline in the household income of of the British working class in the history of the country. That's what's called a recovery that only benefits a few at the expense of the many. This makes it the worst decade in the performance of the British economy, according to the Bloomberg News service on 23rd November. It makes it the worst performance decade in the British economy since 1812 when Napoleon invaded Russia.
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There's no way that you can do.
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Anything other than shake your head about such a performance.
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The last item I want to talk.
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About is, in a way profound. It has to do with Norway, a very little country, under 6 million, actually 5.3 million people. In other words, the country of Norway is a much smaller population than, say, the city of New York all by itself. But the country of Norway was lucky in a particular way and luckily has an awful lot to do with the economic story I'm about to tell you. A couple of weeks ago, Norway shook up the world market in gas and oil. Why? Well, to understand this, you have to understand that some decades ago, oil was discovered in Norway and the ocean around Norway. Good luck for Norway. A lot of oil. And what Norway did, understandably, was become rich, wealthy, grow with the revenue from all the oil. But the revenue was so enormous that the Norwegians understood, like other countries in this situation, that eventually the oil would run out. And if they made their entire economic well being dependent on oil, when the oil went out, so would their economic well being.
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So here's what they did.
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They established something called a sovereign wealth fund. What that is, is money set aside, in this case by the country of Norway. Part of the revenue they got from the oil and gas they were lucky enough to be sitting on wouldn't be spent for the ongoing functions of government, wouldn't be given to private enterprises, would be run by the government as a fund to be invested in companies around the world and to generate thereby a growing stream of income from a growing pot of wealth that would sustain the people of Norway long after the oil and gas they had was used up. And that is now in excess of a trillion dollars worth of Norway's fund. So what shook up the world? The decision of Norway to sell all of the stocks in oil and gas companies that their sovereign wealth had invested in. Why? Because they think the era of oil and gas is coming to an end, they said. So they don't want to be invested in the shares of oil and gas company. And as the world's use of oil and gas fades out and we shift to solar energy, to wind energy, to all of the other forms of generating energy that are either going to be cheaper or safer or both. And the Norwegians, even though their economy still depends on oil, were smart enough and careful enough to know, if you pardon the punishment, which way the wind.
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Is blowing in terms of their investments.
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Something that other investors in oil and Gas everywhere in the world should be thinking about something that half the states in the United States whose incomes are dependent on oil and gas maybe ought to be thinking about. That's why it shook everybody up. But here's what I want to talk to you about. The absurdity of this, and this is not a critique of Norway. They're doing what this system makes reasonable to do. And I hope you've understood that from my description. 5.3 million people are deciding through their government what to do with trillions of dollars of wealth. Is that democratic? They are a tiny.00001% of the world, but they own over almost 2% of the world's stocks of corporations because they happen to be located where there happens to be oil. This is a very strange way of using the resources of this planet. It's like a game of lottery. You happen to get the oil under your country, you can shape how the world works for 100 years. And if you happen not to, you lose. No wonder then. The world is riven with conflict and tension and envy and bitterness. This is no way to use the resources of a planet. It ought to have been done in a democratic way, with a sharing of resources across populations. So we're all in this together and not at each other. With a kind of slavish subordination to private property and the happenstance of. Of geology and geography. What a way to organize a world economy. Everybody on your own, everybody preserving their little piece of the action, their little profit, no matter how chaotic. So a decision by 5.3 million people in Norway will change the prices of oil and gasthe energy we all rely on. For 7 billion people. Who are the dog and Norway is the tail? Who's wagging who here? That is an irrational way for capitalism to develop the world economy. And that's the most important part of this remarkable story from Norway. We've come to the end of the first half of Economic Update. I hope you have found that these economic updates shed some light on what is going on, shed some light on where we're headed, and they represent an important kind of economic news, unfortunately not reported on in any way that could and should be the case for an informed public. Stay with us. We will be right back. Welcome back, friends, to the second half of Economic Update. For today, on this second half, it is my pleasure to be able to have a conversation with an old friend of mine, an economics professor like myself. I first met her when she was teaching at the University of Missouri in Kansas City. She was there for quite a few years. She's now moved and has taken a position at the State University of New York in Stony Brook on Long island, where she is professor of Public policy and economics. She has also served as chief economist on the US Senate Budget Committee in 2015. She was an important economic advisor to Bernie Sanders during his 2016 presidential campaign, and she's a founding fellow of the Sanders Institute. So it is with great pleasure that I introduce you and welcome Stephanie Kelton. Hi, Stephanie.
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Hi, Rick.
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Nice to see you again.
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Nice to see you. Thank you for having me.
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Let's talk a little bit about one.
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Or the other of your many hats that you have worn as a former advisor to Bernie Sanders, someone who is of great interest to the audience that we reach.
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I was wondering how after a good.
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Year of this current administration, the Trump.
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Administration, how folks around Bernie, but you in particular, how you assess what you.
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Were trying to accomplish in the Bernie campaign with what has happened.
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Have your fears been recognized? Have you been surprised in terms particularly of the economy, which you and I study? What's your reaction a year in?
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Let's start with the reaction to the economy. I guess I'm not terribly surprised, to be honest, in terms of, you know, what the economy's been doing. It's been sort of slogging along at a kind of anemic pace for most of the recovery. So nine now going on 10 years. I don't think I expected much to change over the course of this year anyway. You know, the big surprise maybe is how little the Republicans, given that they run the table, they've got the White House, they have both houses, the Senate and the House, how little they've been able to accomplish in terms of legislation. I think that's been surprising to me, where we are as a country. Look, the people who put Donald Trump in office were, in some ways the kinds of people who were sympathetic to the Sanders campaign. That is, they felt like something wasn't working. They knew that the economy wasn't working for them. They knew that something wasn't right. It didn't feel right. Maybe it had to do with trade. Maybe it had to do with the, you know, tax cuts. Maybe it had to do with big banks, maybe, you know, I don't know. But they knew something was wrong. And they understood this block of voters that the person who was saying, give us basically eight more years and we'll keep the good times going, there was something wrong with that message. So in a lot of ways, it didn't surprise me that his message, like Senator Sanders Message won the day. Although obviously differences, right. Important differences. But in terms of the economics, there's still very much a need and those voices aren't being heard. And I think to some extent I'm a little bit surprised. I'm surprised at just how egregious this administration has been in turning their backs so quickly on the people that put them into office. There's basically nothing in this piece of tax legislation that's coming down the pike for all of these people who he said, you're hurting. We know you're hurting. And what did he tell them? Help is on the way. Help is on the way. There's no help for these people in this atrocious piece of legislation.
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So let me keep on that. Do you think either a movement of those people away from Trump towards something like Sanders movement is underway, or if you don't, is it coming?
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I'm not sure that it's underway because I don't know that the signal has been sent that there is that alternative still lurking there for them. Okay. So in terms of the revolution, you know, there's a movement afoot and all that sort of stuff, I don't know that it's underway in a very powerful way, but I think it's ripe for the taking. And I think that to the extent that that message continues and voters begin to see, and they will, it's going to take a little bit of time before people put two and two together and figure out we got totally bamboozled by this messenger. He said he was going to be there for us. He's not. And the more believable messenger, I think, for millions of Americans is Senator Sanders.
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Let me continue. I'm very interested in what goes on in Europe, and I follow, for example, very much and very closely now what's happening in England. In England, you have a figure who many have compared to Bernie, namely Jeremy.
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Corbyn, who has gone from a marginalized.
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Disrespected, almost laughable person not taken seriously, to now in most polls in England, is going to be the next prime minister of the country.
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And this morning a major New York.
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Bank has predicted for the first time that there will be an election in 2018 in Britain. There doesn't have to be, but they think there will be because of the Brexit chaos. Does that suggest to you the very possibility of what you just said? In other words, the British, who are like us more than almost any other European country, are clearly showing that there is a mass anger and resentment at what austerity has meant for the mass of the British people. Is it a fore indication of what could happen here?
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I think it is. I think it absolutely is. You know, this is, you're right. These are two candidates who are similar in many ways with a message that is very similar for the many is what Jeremy Corbyn's sort of message is. Right. And Senator Sanders message is the same sort of thing. We're not going to let them divide us up. It's us against the big guy at the very top. It's the 99%, you know, we the people. Right. It's our revolution, it's our movement. And so I do think that what happens in the UK is very much something of a bellwether. It's telling us that the tides are shifting, that people are paying attention and engaging in the politics in a very different way. That ideas that were once viewed as scary and too big and too much overreach are now being normalized in a way that says, you know, like Senator Sanders did with looking at all these other countries and saying if they can do X, why can't we? Everything from health care to universal childcare to college for all. You just go down the list. How come all these other countries can do these things and the United States of America can't? And it got people thinking. Got people thinking, yeah, why can't we? Why is that so impossible? Why is that so out of reach in a country like the United States of America? So I think that you're going to see see more and more people welcoming the idea of a government that takes proactive, a proactive stance on behalf of the people and begins to turn away from this corporatist expression of the only way for the economy as a whole to do well is if we make sure the guys at the very top are doing extremely well.
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I noticed that Corbyn in his speeches in England regularly mocks trickle down economics, regularly says phrases that are almost like.
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Why don't we try trickle up?
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In other words, why don't we help at the bottom of the income and wealth distribution and then let the purchases trickle up into corporate profits and all the rest. He stresses one of his planks now is free tuition in all British universities. He wants to tax the top 5% basically of British society that's he's targeted them. And what is most intriguing to me is he has a strong commitment, stronger I think than Senator Sanders, at least so far, for worker co ops for there to be a systematic British government intervention to build up the cooperative sector alongside the traditional Capitalist sector as an alternative organization of enterprise because it works better for the British people. That's an amazingly strong position. And he hasn't withdrawn as he's gotten more and more popular with the polls. He hasn't moderated the message and it seems to be working for him. Again, the same question, are we there too? Can we do that too? Can we demonstrate the way he has that things that were spoken of as.
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Unthinkable a very few years ago are.
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Now part of the popular discussion?
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I think that's exactly right. And I think that's what Senator Sanders did, putting some of those things on the table. With respect to worker co ops, you may have seen his 12 point agenda. This was sort of the platform for the campaign. Worker co ops were there, but you're right, it wasn't as out in front. He did not make that as much of a public issue as he did a number of other things. So if the question is, were he to do it over or to do it again perhaps and make worker co ops something that he talked about on par with health care or college or something, could he popularize the notion in the same way that now you've got Medicare for all polling at 66% over across party lines, making public colleges and universities tuition free, 63% of the population across party lines supports. So could you do something like that by educating people? I don't think very many people in this country have the slightest idea what a worker co op is. So first you have to have a lot of education about that. People know what health care is, they know what education is, but you got to do some education. And then you've got to persuade people that this is a 4 of empowering and strengthening workers. Right? As an alternative to what we think of as traditional employment, private sector employment with private ownership.
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I do a lot of speaking both on this program and around the country in public speaking, where I talk in great detail about worker co ops. And all I see is, you're right, this is a new idea for many people or a very underdeveloped idea. But as we get into the conversation, the excitement in the audience palpable, you can see the excitement of the recognition of what this might mean in their own personal lives, in the daily workspace that they spend five out of seven.
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Days in, what that might mean.
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And there's a real. My guess is if you push this, if you make this a priority, it will tap into enthusiasms and commitments that you haven't touched yet before. And so I think it's happening in England. And I think it's very interesting that it would happen here. Am I correct that your focus in Stony Brook, at the State University of New York, where you now are, will have something to do with economic development in the Long island area? And might there be a place for cooperative workspace development in all of that?
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C
I'll tell you what we're involved in, what I'm involved in, in. So there's a new center launching at Stony Brook University. It's the center for the Study of Inequality and Social Justice. And the center, the director, was approached not too long ago by the Long Island Progressive Coalition. And they came to us with a proposition, which is first they said, listen, we have this cool thing we're trying to do. We want to talk about it. We said, okay, what's the cool thing? And they said, we are paying a lot of attention to what they're calling the Silver Tsunami. All of the people who are baby boomers, who are approaching retirement, who own their businesses, who are going to be doing something beyond retirement, what are they going to do with the business? If the kids don't want to take it over and run it, what happens to the business? Do they sell it off or do they allow the employees to buy the company and run it themselves? And so what they're trying to do is figure out just how big an opportunity there is on Long Island. How many of these potential Silver Tsunami individuals could we go after and educate them? Because most of them have never thought about the possibility of leaving the business to their employees. And so they came to us and they said, can you help us identify the opportunity here on Long Island? And then sort of we'll take it from there. We'll go and we'll make the personal contact and we'll reach out. So the center is working with the organization, with the Long Island Progressive Coalition to try to provide them with the research that they need to get this thing going.
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Well, one of the things I discovered which you might find interesting is in my travels around the country talking about worker co ops, I expected that the bulk of the enthusiasm would come from the workers, that they would be the ones to see the advantages, the attractiveness, the potential.
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And I have gotten a lot of that.
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But what surprised me was that at least an equal number of people following up with me were the employers, the owners of businesses in the range of 50 to say 300 employees, sort of medium level companies who were exactly what you described approaching retirement age. Their children were into other things they didn't want to close the business, it's in their life work to create it.
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They didn't want to sell it to.
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Another company because for all they know, that would leave their workers whom they know personally and have accumulated over a lifetime, leave them in the lurch. They didn't want to go public and become a share company for the same basic reason. They didn't know what to do. And for them, the idea they could sell it to their workers, that would keep the job jobs that would keep the revenue flowing to the local community. They were excited. So I think that the potential for what you may have in Long island is enormous if you can find it and tap it.
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C
That's what their argument is. And they're working already with some business owners who've decided to go this route. And that's exactly the kind of thing they're hearing. They're hearing that we want to leave the company to someone who's got an interest in the preservation of what it is that they've spent a lifetime building. They're in the company. Right. They're not going to turn their backs on it or treat the business as somebody who would chop it up, sell off portions of it, you know. So, yeah, we're hearing exactly the same thing.
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Same thing.
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Very interesting. Okay, let me change the subject a.
- [43:09]
B
Little bit and draw on you as a fellow economist. You've been doing work recently on a topic that we get emails literally every day about student debt. I mean, I teach at the New School University here in New York City and I would say once every two to three months I will have a student come into my office and we'll talk a few moments about a term paper or an exam, the usual. And then when that conversation is over, I can sense they don't want to leave, they want to talk some more.
- [43:41]
A
So I say, look, let me get.
- [43:42]
B
To know you a little bit because I'll be a better teacher if I know my students.
- [43:46]
A
Students.
- [43:46]
B
And then out it comes. Either they've just had a painful conversation with their parents or with their spouse or with. And what's the issue? The debt, they can't afford it. The parents can't give them the help of X thousand dollars that they had hoped to be able to give and.
- [44:03]
A
Now they will have to borrow, but.
- [44:05]
B
They already owe so much and so they're thinking of leaving. But then they've wasted all of the debt and the tears come because people are in an unbelievable squeeze play that is damaging to them, to everyone around them, and to our economy.
- [44:23]
A
Tell us a little bit about Your.
- [44:24]
B
Research and what you're trying to do with it.
- [44:27]
C
Okay, So I worked with a team of economists. We worked for a little over a year and a half on this report. We thought when we took this on, it was going to be about a three month project. So a year and a half. This is a massive report. It's going to be released the first week of December by the Levy Economics Institute. And so we asked a question which was just a hypothetical, right? The hypothetical was what would happen if we just canceled all of the outstanding student loan debt? We're Talking about nearly 1.4 trillion surpassed credit cards bigger than credit card debt. And you're right, it touches more than 44 million lives directly, people who have student loan debt today. But it also indirectly touches, as you said, the family members and the loved ones, spouses and so forth of all these people. So this is a huge, huge issue. So as a hypothetical, we said what would happen if we just canceled all of it? So a couple of things happen right away. One is there's this big wealth effect, right? If you take away a liability from 44 million people's balance sheets, you don't owe that anymore. Their net worth automatically increases. So you get a $1.4 trillion increase in wealth in this country. Then another thing that happens is there's an income effect, which is to say all of these people who currently take out their checkbook every month and write a check to service their student loan debt don't have to do that any longer. So now, instead of writing A$350, let's say a month check to pay your student loans, you can do something else with that $350 million. You go shopping, maybe you buy a car, maybe you save some money, maybe you pay back your parents because they helped you out and it was a loan, right, for them or something. So you imagine that doing something like this would have a pretty big economic stimulus effect. And so that's what our paper does. We ran a couple of different models. We worked with Mark Zandi and his staff at Moody's. They graciously allowed us to use the, the Sandy model to do some runs. And we used another big large scale macro model called the fair model. And the results will be published. I probably shouldn't give away too much until the report is published, but the average person could probably tell you what the results show, which is that the economy would enjoy a pretty significant boost if we were to lift this blanket, get people out of this debt trap, and take this big wet blanket off of the economy in the form of student loan debt.
- [46:47]
B
I've always been struck in discussing student loans by the fact that there are, I believe it's now six European countries that have canceled all tuition, including Germany. As we said, Corbyn in England is committed to doing that were he to become the next leader there. So it's almost as if other capitalist countries are going in the opposite direction of what we are doing. They are not loading up their young people with this debt or reacting to.
- [47:16]
A
What they've done, which is less than a year, by going back and saying, that's a mistake, we should never have.
- [47:22]
B
Done it, let's undo it. It's extraordinary.
- [47:25]
C
They are learning much faster than we are. For those countries, like you mentioned Germany, Germany was tuition free. And then they began to move toward this other model where they said, we're going to start charging people tuition. And that didn't go very well. And they quickly realized this was a policy error and we got to reverse this. Right.
- [47:43]
B
And so even though it's a conservative government that made these decisions, it encountered popular resistance, but it also encountered a kind of notion that the dividends, socially considered, of letting young people make a decision about the university that wasn't constrained by having to accept a mountain of debt, was in the long term interests of everybody in the society. And it was a way of calculating the social efficiency rather than the private profit efficiency that is so difficult for Americans, or at least a large number of them, to get their heads around.
- [48:24]
C
Yeah, because we tend to think it's such individualized terms. And so I've had people, well, what about me? I paid off my loans, right. So I'm against this because it doesn't benefit me directly because I just finished paying my loans off last year. And you say, wait a minute, you do benefit and you got to walk them through. You have to put them in a frame of mind that helps them to understand that they're one part of this broad thing we call the economy and that they're going to be dividends, as you said, and benefits to the larger society as a result of this.
- [48:55]
B
You know, how do you explain, though.
- [48:57]
A
We went through this in the United.
- [48:58]
B
States with public education when it was first decided back in the 19th century that we wanted to have public schools. You had to go through this procedure with people who didn't have children.
- [49:09]
A
Why should I pay taxes to support a public school system?
- [49:13]
B
I don't have children, you know. And it became painful to have to explain to them, well, if you live in a society where people are illiterate.
- [49:22]
A
And therefore can't hold a job.
- [49:24]
B
And you can't therefore do all kinds of things. Don't you see how a public education program will benefit you in a thousand ways? And you know, you had to. But it's sad that in a sense you have to do it again with.
- [49:39]
A
This process, because it really is. Again, do you want to educate your.
- [49:44]
B
People in a proper way?
- [49:46]
C
Yeah. We don't talk about public goods the way we should in this country. And so people aren't. Their ears aren't attuned to hearing people talk about education and these sorts of things as a public good. And so you really do have to start, in a sense, from ground zero and begin to push forward with some of these ideas that enhance the type of society, the type of economy that we could have. And I should say society over economy. Right. It's a vision of the type of society you want to live. Right.
- [50:17]
B
And what kind of associations you want to have and what it means to be surrounded by people who have an education, who have had an opportunity to learn about music and architecture and history and literature because their conversation over the.
- [50:32]
A
Supermarket checkout line is a better quality.
- [50:35]
B
Than it will otherwise be.
- [50:36]
A
It makes all of your life richer.
- [50:39]
C
Yes.
- [50:39]
B
And why not do it? Especially when other countries are busily. Including countries we think of as competitors.
- [50:46]
A
Or models, so on.
- [50:48]
B
All right. We're running out of time, so I want to pick your brain. What do you think? And I know this is a difficult question.
- [50:56]
A
What do you think is going to.
- [50:57]
B
Happen over the next two or three years in this country economically? Many people are saying we've been a relatively long time since the last major downturn. If you study the work of the National Bureau of Economic Research, we're due for an economic downturn more or less every four to seven years, 2009. Do the arithmetic. We're due.
- [51:19]
A
And there are a lot of people on Wall street who think we're going.
- [51:21]
B
To have this at some point. If you look at the American economy the way it is now, and you add the possibility of a fairly sharp downturn term, say in 2018, what. How does that factor in? And I understand it's just your imagination, but you study this economy.
- [51:42]
A
What do you think?
- [51:43]
C
I do study the economy. In fact, I'm giving a talk on exactly this question in January. So it's coming up here. Pretty soon it's going to be here in New York City. And the title of the talk is meant to be provocative. It's Recession Looms. Right. Can Trumponomics extend the recovery.
- [51:59]
B
Can you tell us where and when.
- [52:00]
A
In case folks are interested?
- [52:01]
C
Yeah, I can pinpoint it to the hour if you'd like. No, no, but no, seriously, for me, I don't want to look in the rearview mirror to try to spot the next recession. And so the idea that recoveries die of old age and that sort of a thing that we're due, this has been the history. I think that with the right macroeconomic policy, we can extend this recovery a very long time. I don't believe that we can defeat the business cycle. I don't believe we're ever going to reach the point where we don't have a boom bust cycle. I think we're always going to have that. But I think if we got the policy right, we could extend this recovery. Another I don't want to put a number on the number of years, but I think that Mr. Trump could end his first term with an economy that doesn't go into recession. Recession. I think that's a perfectly reasonable thing to believe is possible. Do we have the kind of policies coming down the pike that are likely to generate the growth and sustain the growth that would be needed to do that? I'm not seeing that. So that's the concern.
- [53:04]
A
What about the 1.5 trillion deficit spending.
- [53:07]
B
Program that these deficit hawks have decided is now okay?
- [53:11]
A
What about that?
- [53:11]
C
Yeah, so you could have a 1% trillion dollar stimulus in the form of additional deficit spending that I think could do a lot to boost growth and job creation. But the way that they're going about increasing the deficit is with a few spending cuts. But mostly it's big tax cuts and it's mostly big tax cuts that go to those people who aren't going to turn around and spend any of the windfall gains. So you give these huge tax cuts to people who can already afford all the Ferraris, all, all the yachts, everything that they could possibly want to buy, and then you give them even more money and what do they do? They stash it in their offshore accounts. They buy some fine bourbon or some artwork or they make investments in the stock market or something. These are not the kind of things that are going to boost the economy and create jobs. I think the Republicans know that they're selling it as a job creation and a growth bill. I think they understand that that's not what it is. And I think.
- [54:04]
B
But it is a payoff to their donors big time.
- [54:07]
C
Oh, it's a payoff to the donors. And I think that what you're seeing already is if we get this thing through, which they may well succeed in doing, the next thing we go after is infrastructure. And my thinking is that they're going, oh, shoot, we need something that's actually going to boost growth and create some jobs. And the tax bill's not going to do it, but if we can get infrastructure in behind it, then we can point to the tax cuts when the economy starts producing some more jobs, as if it did. We told you so. Right. Tax cuts are boosting the economy.
- [54:39]
A
Good.
- [54:39]
B
That's what I wanted to get out on that.
- [54:42]
A
Thank you very much, Stephanie.
- [54:43]
B
We kind of run out of time. I hope you'll come back and do.
- [54:46]
A
This again now that you're closer to.
- [54:48]
B
Us here in New York.
- [54:48]
C
I'd love to.
- [54:49]
B
All right.
- [54:51]
A
And I want to thank all of you as well for joining us and to listen to what Stephanie Kelton, an important economist in this country for quite a while now, what she has to say. And I also hope that you will join with us again next week for another edition of Economic Update. Sam.