Prof. Emeritus James R. Crotty teaches in the Department of Economics at the University of Massachusetts, Amherst. He is a Research Associate at PERI. He's a macro economist with broad interests whose research in theory and policy attempts to integrate the complementary analytical strengths of the Marxian and Keynesian traditions. His writings have appeared in such diverse journals as the American Economic Review, the Quarterly Journal of Economics, the Cambridge Journal of Economics, the Review of Radical Economics, Monthly Review, the Journal of Post Keynesian Economics, and the Journal of Economic Issues, and in many edited collections.
His research interests include: economic methodology; the implications of radical uncertainty for macro theory and policy; theories of financial markets and their implications for understanding financial booms and crises; Marxian and Keynesian perspectives on investment theory; the structure and performance of the global neoliberal economy; theories of competition and their impact on theories of macro dynamics; the financialization of the non-financial firm; and the political economy of South Korea.
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington. The American elite once went to war with itself about how to exploit American labor, and that, of course, was the civil war, one of the main issues being whether or not slavery or wage slavery would form the dominant means of exploiting American labor. The forces backing wage slavery won. That fight in another form emerged again, and that was in the beginning and during the Great Depression of the 1930s, where one section of the American elite said, we need to make a deal with the American workers. And it, of course, called the New Deal, and it was a form of compromise between those who owned most things and those who worked. That battle continues to today. Now joining us to talk about this history is Professor James Crotty. Professor Crotty is at the PERI institute in Amherst, Massachusetts. He also is a professor emeritus and Sheridan Scholar at the economics department at UMass Amherst. Thanks for joining us, James.JAMES CROTTY, ECONOMICS PROFESSOR, PERI, UMASS: It's a pleasure.JAY: Talk a bit about the battle within the elite on how to deal with the crisis as from the '20s entering the '30s, and then tell us the story going forward.CROTTY: There's two stories. One is about a battle between or within elites, which is important in the 1930s. But there's a more serious battle, which is between the elites together and the middle class and the working people in the United States. And it's all relevant to this whole idea about the battles over austerity and the deficit. So maybe the place to start would be to go back to the 1920s. In the 1920s, we had a boom in the second half of the decade, and it was a pretty rigorous boom, and it represented kind of an ideal situation as far as the elite were concerned. We had very little government regulation, we had extremely weak unions, we had very low taxes on the rich and on corporations, we had unrestrained financial markets, and we had immense inequality. In the growth or the boom in the second half of the decade, the top 1 percent got about 70 percent of the income gains, and the bottom 90 percent got about 15 percent. This is kind of the ideal elite model, or the ideal conservative elite model. But it all crashed with the stock market crash, the financial market crash, and the Great Depression. And as you mentioned, then there was some split in the elite about what should happen, and parts of the elite supported Franklin Delano Roosevelt and the growth of the New Deal, and parts of the elite didn't. And the parts of the elite that didn't tried to undermine the New Deal, beginning already in the 1930s. They weren't successful. So we got our first--everyone thought from the financial collapse and the Great Depression that the idea of unregulated capitalism and free markets was insane, it was destructive. And so we had this move towards social democracy or democratic capitalism [incompr.] mixed economy or whatever you want to call it. The New Deal was the beginning of all that. It regulated finance, created Social Security, created public work jobs, and so on. After the war, this kind of New Deal or social democracy grew and became bigger and bigger. We finally got Medicare, we got the War on Poverty, and bigger government, more taxes, and we had the most prosperous period that we've ever had in American economic history, sometimes referred to as the Golden Age. But the people who hated the New Deal and wanted the 1920s back continued to struggle against this enlarged New Deal. But they weren't successful, because this new arrangement, this new social democracy, was in fact immensely successful. We had tremendous growth. We had growth with relatively low inequality. We had a reduction in poverty. We had growth in security. We had the highest profits ever. And so it was difficult for the people who wanted to undermine this system and go back to the '20s, that is, some rich people, some corporate people, and what we might call the moderate conservatives. This kind of right-wing coalition was not successful, because things were prosperous. The movements continued right into the '70s. Richard Nixon in fact did a lot to enlarge this New Deal activities. But by the end of the 1970s, things began--the economy didn't--it began to work not as well as it had before. We had some inflation. We had higher unemployment. We had cultural conflicts and the rise of the religious right. And this was kind of the beginning of a period in which corporate ideas, free-market ideas, corporate money in politics, rich people's money in politics began to be quite impressive. So we had large corporations putting lots of money in PACs, political action committees, that they could put into the political process, and we had lots of rich right-wing families putting money into the political process, people like the /pjuz/ and the /"oU.lInz/ and the Coors and the Mellon Scaifes and so on. And we reached a point where big money began to dominate the political process, just as the economy was going through struggles. And even the Democrats began to see that they needed this money in order to run and stay in office. And so the Republicans started shifting to the right, and the Democrats started following them in the shift to the right.JAY: Is part of what's driving this that America's share of global wealth starts to decline as it starts to get more real competitors? Both sort of Europe comes back much more into play, the rise of China, even places like Brazil. Chomsky gave a figure recently, in the immediate post-World War II environment, America's sort of share of global wealth was something close to 50 percent, and now it's down to something like under 25 percent, so that this kind of New Deal, the compromise with American workers to some extent getting a share of this wealth that America had accumulated after World War II, to kind of maintain the levels of profits that the American elite had, they needed to start going after their own workers--you couldn't just get it out of the rest of the world. Is that a factor in all this?CROTTY: Well, I think it is a factor, although I think it's not the only factor. There were many paths we could have followed after the problems of the '70s. There's never any such thing as you have one single path to follow. There are many kinds of--many capitalisms, many kind of paths to follow. And there were, I suppose, competitive pressures that were impinging here. But there was also a serious political debate about what kind of economy and society that the right wing and the money people wanted to see, and I think they're both germane. But in either case, what we got is Ronald Reagan. So in 1980, Ronald Reagan comes in, and this signifies a kind of radical shift away from this social democracy, which is now kind of tottering to some degree, and its replacement with--at least philosophically and in terms of--and also in terms of policy, with a kind of right-wing dream world. So Ronald Reagan does the following things. He creates a new economic model for the United States which is really the opposite of the New Deal model.JAY: James, before you get into that, let me ask you--just back up a few words. The social democracy model was kind of "tottering". What do you mean?CROTTY: It had delivered the goods in the '50s and the '60s, and even into the '70s, and now it wasn't so clear it was--in the form that it existed, without being adjusted, that it was going to deliver the goods as well as it had before. It wasn't, after the mid 1970s. There were problems in that model. That's what I mean. So there was--something probably had to be done. The question then is: what? And Reagan's answer is: let's move back towards the philosophy of the 1920s; at least, let's begin that movement. JAY: And what wasn't working about that model? What were the signs of that?CROTTY: A burst of inflation in the early and late 1970s, associated primarily with tripling of the oil prices through OPEC, which created inflationary pressures. The inflationary pressures then presented the government policymakers with a decision: should they use monetary and fiscal policy to sustain unemployment and keep it from going too high, or should they use it to fight inflation, in which case unemployment was going to go high? And they chose it to fight inflation. And unemployment rose substantially. It went up to 8.5 percent in '75, which was a rate which economists said we'd never see again. So there were difficulties that had to be addressed. There were also problems in the banking system. So there were problems that had to be addressed. I would argue that there are ways to address these problems which didn't require this shift towards the right-wing model.JAY: In the next segment of our interview with Professor Crotty, we'll pick up the story with Reagan and the austerity debate. Please join us for that, part two, on The Real News Network.
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