Episode Overview

Podcast: Economic Update with Richard D. Wolff
Episode: Keynesian Vs. Marxian and Neoclassical Economics
Date: September 13, 2018
Host: Richard D. Wolff, Democracy at Work

In this episode, Professor Richard D. Wolff examines how the United States responded to two systemic breakdowns of capitalism: the Great Depression and the 2008 Great Recession. He contrasts the policy choices made in each era, questions the popular narrative around Keynesian economics, and explores the influence of grassroots movements on government action. Through a historical lens, Wolff argues that meaningful change is not driven by economic theory alone but by the collective pressure of organized people.

Main Theme & Purpose

• Exploring the Differences in Policy Responses:
  The episode aims to dissect why the U.S. government's response to today’s economic crisis (post-2008) is so much less ambitious than the New Deal response of the 1930s, despite both being massive crises of capitalism.
• Challenging Economic Orthodoxy:
  Wolff questions whether the shift in the 1930s was truly inspired by Keynesian economics or rather by social and political pressure from below.
• Role of Mass Movements:
  The episode highlights the decisive impact of unions, socialists, and communists in shaping economic policy.

Key Discussion Points & Insights

1. Comparing Economic Crises: The 1930s vs. Today

• Wolff sets the stage by positioning the Great Depression and the current crisis as profound breakdowns of capitalism.
• Great Depression:
  • 1933: Official unemployment at 25% (three times higher than post-2008 recession).
  • Government budgets were strained due to lack of tax revenue.
• Today’s Crisis:
  • Unemployment is severe, but not as high as the 1930s.
  • Despite a richer society, government response is limited or regressive.

2. Policy Responses: Roosevelt vs. Present-Day

• Roosevelt’s Transformative Actions:

  • [02:45] Social Security Initiated:
    "First, he announced the establishment of an entirely new system called Social Security. We had never had that before in the United States." – Richard Wolff
  • [04:30] Unemployment Compensation Introduced:
    "He declared the establishment of an unemployment compensation system. We had never had that… This meant that every unemployed American… would get 12 years weekly unemployment compensation payouts."
  • [05:45] Massive Federal Jobs Program:
    "Between 1934 and 1941, Roosevelt created and filled 12 and a half million federal jobs."

• Current Government Policies:

  • No Expansion, Only Cutbacks:
    "What is being debated in Washington today is the exact opposite. Reducing Social Security payments, making you wait longer…" – [03:45]
  • Absence of Federal Employment Programs:
    "Today there is no federal employment program. Not only has President Obama not created what Roosevelt did, he hasn't even proposed it." – [06:45]

3. The Keynesian Explanation: Wolff’s Critique

• Popular View:
  Many attribute Roosevelt’s policies to the influence of John Maynard Keynes and the adoption of Keynesian economics by U.S. policymakers.

  • "Some people want us to believe that the advisors around President Roosevelt in the 30s were somehow suddenly converts to Keynes theories…" – [08:00]

• Wolff’s Counterargument:
  "I would respectfully like to disagree. I don’t think President Roosevelt had a great theoretical breakthrough and I don't think his advisers did either." – [09:00]

4. The Real Driver: Mass Pressure from Below

• Unprecedented Labor Organizing:
  "First, we had the most profound, far-reaching labor union movement that the United States has ever seen… In a matter of months, millions of American workers… joined unions for the first time." – [10:15]
• Growth of the Socialist and Communist Parties:
  [11:00] Socialist parties expanded rapidly; so did a “new and powerful communist party."
• Unified Influence:
  The mass movements converged:
  "Many of the people in each of these was also active in the others… Together, the union drives. The socialists and the communists basically turned to the President… You must do something for us in this period of capitalism's breakdown, or else..." – [12:15]

5. The Historic Deal: Capital, Labor, and the State

• Roosevelt’s Bargain:
  He persuaded portions of the business community to accept higher taxes and loans to fund relief programs, under threat of wider social upheaval.
  • "I need to take care of the American people, because if we don't, we're not going to stay in our positions as capitalists much longer." – [13:35]
• Concessions from Labor & the Left:
  In exchange for social programs, unions and the left were pressured to tone down talk of revolution:
  "You've got to shut up about going beyond capitalism... you’ve gotta back me." – [15:00]
• Result:
  This alliance secured Roosevelt’s New Deal and his continued reelection.

6. Why No New Deal Today?

• Absence of Mass Movements:
  Today's lackluster or punitive policies are not due to a lack of Keynesian ideas but a lack of organized pressure from below.

  • "The answer is we don’t have a mass movement from below, at least not yet. Occupy Wall Street may be the first step in that process..." – [17:00]

• Theoretical Debates Are Downstream:
  "What happens in the realm of politics, like what happens in the realms of… economic theory, is shaped by what is happening on the ground in the real world of the mass of people as they try to live their lives." – [18:00]

Notable Quotes & Memorable Moments

• On Roosevelt’s Boldness:
  "In the 30s, when the depression was worse and government had less money coming in, they created a program. Whereas today… we're not only not increasing a Social Security system, we're cutting it." – [04:20]

• On the Myth of Keynesianism:
  "No, no, no, that's not quite right. That's the revisionist history that gets written later. The reality is it was pressure from below." – [15:40]

• On the Modern Absence of Change:
  "It isn’t about Mr. Obama or Mr. Roosevelt, and it certainly isn’t about Keynesian economics versus some other kind of economics." – [17:45]

• Closing Insight:
  "What happens in the realm of politics, like what happens in the realms of… economic theory, is shaped by what is happening on the ground in the real world of the mass of people as they try to live their lives." – [18:00]

Key Timestamps

• [00:10] – Introduction and framing the two crises
• [02:45] – Description of Great Depression vs. contemporary crisis
• [04:20] – Introduction of Social Security
• [05:45] – Introduction of unemployment compensation & government jobs program
• [08:00] – Keynesian and Neoclassical explanations examined
• [10:15] – Role of labor unions, socialists, and communists
• [13:35] – Roosevelt’s wager with business leaders
• [15:00] – Deal between labor/left and government
• [17:00] – Why today's crisis lacks a New Deal response
• [18:00] – Concluding thoughts: the need for mass movements

Takeaways

• The government’s response to economic crises is not dictated by economic theory alone but deeply influenced by the balance of social forces.
• The dramatic policy turn in the 1930s was not a result of Keynesian theory, but of sustained mass pressure from labor and the political left.
• Today’s lack of bold economic change stems from the absence of such organized movements—suggesting that theory follows reality, not the other way around.

This episode offers a compelling historical and theoretical perspective on how economic solutions emerge—challenging conventional wisdom and calling for renewed grassroots engagement to address systemic crisis.