Richard Wolff, Economist and Professor at the New School in New York City, speaks to Paul Jay about the reform needed to pull the United States out of crisis. “If we say something is too important to let it die, too big to fail, then we’re saying it’s so important to the society as a whole, but if it’s that important, it can’t be in the hands of a few people in the first place. If you’re too big to fail, your too big to be in private hands.” He goes on to suggest that if there is chaos in the US economy, the rest of the world will have chaos as well. “We have an unknown situation, the outcome of which could be very bad, we actually have a vision of that already, Mexico, it’s a society in free fall.”
PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to next segment of our interview with Richard Wolff. He’s an economist who teaches at the New School. We’re in New York City, and we are talking about the American auto industry. Thanks for joining us, Richard.
RICHARD WOLFF, ECONOMIST, THE NEW SCHOOL: Thank you for having me.
JAY: So the new president of General Motors, when asked on Meet the Press—and we’ll play that clip again. We used it, and here it is again.
DAVID GREGORY, HOST, NBC’S MEET THE PRESS: It was said years ago that what’s good for GM is good for America and vice versa. Is that still the case today? And what is the GM of the future?
FRITZ HENDERSON, CEO, GENERAL MOTORS: GM in the future is a couple of things. One, it’s a globally competitive company. It’s a company that wins in the major markets. It’s a company that grows in emerging markets. It’s a company focused around products, fantastic products, and consumers. In terms of what we have to do to be successful, David, we need to take the tough actions to restructure our business. But it’s all about capturing the imagination of consumers with great cars and trucks, fantastic styling, winning the consumer back.
JAY: So the saving of the American auto industry is going to be more stylish cars. Seems to me we’ve heard—.
WOLFF: We’ve heard that before.
JAY: Been there, heard that before. Stylish cars, maybe with a battery. But now that you have government and union, more or less, control of the companies, I mean, doesn’t this mean there’s something new happening here?
WOLFF: Doesn’t look like it. It looks like they’re going to rely and may have to rely on basically the same old management structure, the same old logic of what the management does. They’re going to try to make competitive cars. Maybe people are imagining that Toyota will sit by and simply watch. That’s not the case. There is too much capacity for cars already in the world. We have more capacity to produce cars than anyone reasonably thinks we could sell under the best of circumstances, let alone in a crisis. China and India are now beginning to roll out the new production of cars that they have developed the capacity [inaudible]
JAY: Electric cars.
WOLFF: Electric, as well as gas-fired. We have a situation in which there needs to be a whole-scale rethinking of transportation, because if everybody continues to try to make a living producing cars, it’s a disaster that simply will continue, and more bailouts. It’s an unthinking attempt to get back to where we were a few years ago. But that was the problem. That was a situation that was bound to fail and has now failed. It’s not smart to go back and pretend we can do it the second time after we fail the first.
JAY: The model seems to be based, especially the equity that’s given to the union, on the idea that someday these shares are going to be worth something. So you’re going to be able to fund your health-care plan because someday, I guess, in principle what happens is you sell these shares back to private hands again, and all this equity UAW’s going to have is turned back, and somebody comes in and buys out the UAW’s share, and we wind back in the same model we were in before.
JAY: So what’s the alternative to that?
WOLFF: The alternative is to say that this is a national problem. It affects everybody in our economy, which it does. We all depend on energy; we all depend on transportation. And the auto workers have for 100 years, almost, in this country now been trend-setters for levels of wages and levels of benefits. If we crush these workers, if we take a step that makes their health-care dependent on the stock-market gamble, we are setting the pace for United States that’s going to have more, not fewer, economic problems. I think much of this has to do with leaving the decisions in the hands of the board of directors and the few major shareholders. They’ve been the ones making the key decisions in the auto industry for the last 40 years. They’ve proven themselves, in the case of GM, Chrysler, and Ford, to have done a really poor job of that, even though they were challenged in many ways. To leave it in their hands, not to make a radical change in how these decisions are made, seems to me a very big mistake.
JAY: So what’s a radical change? You’re talking about nationalization?
WOLFF: Yes. I think that we need to understand that if we say something is too important to let it die, too big to fail, whether it be a big banking system or our automobile system, then we’re saying it is so important for the society as a whole that we can’t let it go. But if it’s that important, it should never have been in private hands in the first place. What are we doing allowing a small group of people interested in higher salaries for management and high prices for stocks make decisions that the whole society depends on? If you’re too big to fail, you’re too big to be a private thing. You have to be something that the society as a whole undertakes. And if we did that we’d have a chance, because the society as a whole might really want to move from the private automobile to mass green transportation. If the society as a whole were making the decisions, they could integrate what is done in the auto industry with all the other parts of a comprehensive change. That would make sense. What we’re doing now doesn’t.
JAY: What do you make of the argument from the other side, by being sort of the free market purists who say let this stuff crash and burn? Let the bondholders lose their investment. Let the workers—. This is what happens in capitalism and free markets. People get laid off and lose their jobs. New companies will emerge to make cars, and they’ll hire these people back at some point. And you’ll have debt-free new companies, and perhaps more innovative. What’s wrong with that argument?
WOLFF: What’s wrong with that argument is it pretends we are not a system; it pretends that you can let the auto companies die or the banks die without having to worry about all of the ways automobiles and banks are tied into everything else. That’s wishful thinking, but it’s not true. They are too big to fail. Let me give you two examples. The bondholders who have lent money to the car companies, they weren’t stupid when they bought the bonds of the car companies. They insured themselves. Just in case the car companies couldn’t pay back, they went and got something called a credit default swap. That’s a contract that basically insures you: if the person or the company you’ve lent money to doesn’t pay you back, you have an insurance policy. Okay. Who has to make good on that insurance policy? All the big banks in America and all the insurance companies, led by AIG, that wrote all those credit default swaps. If we let the bank, if we let the car companies go, all those bondholders are going to be ruined. They’re going to turn to all the other banks and insurance companies that wrote those insurance policies, but they don’t have the money. So what’s going to happen now? Is the government going to have to bail out another trillion dollars in this sort of—.
JAY: Well, the argument that’s coming from some of the kind of more libertarian economists is let ’em all burn, let ’em all go down, and let new things emerge, and there’ll be chaos for a while, and then there’ll be something new.
WOLFF: Right. You know, a famous British economist named John Maynard Keynes said, in the long run, you know we all die; it’s the short run that matters. If we have chaos in the United States economy, which is the leading economy, still, in the world—which is the rest of the world depends on selling their goods here—if we have chaos, they will have chaos, and we have an unknown situation, the outcome of which could be very bad, and even if it were good, could take a very long time, during which the political toleration of masses of people for this disaster will show itself in very extreme forms. We actually have a vision of that already. It’s our southern neighbor, Mexico. It is a society that is in freefall right now. It is suffering not just swine flu but a disaster, as emigrants come back home because there’s no more work here, and the remittances that kept their economy going can’t be sent back, because the workers have no job. And this is a society on our border that is falling apart. That’s not a tolerable situation. We have now major warfare in Mexico between drug gangs and police in a situation that everybody who knows anything understands is a society that’s [disintegrating].
JAY: So this kind of “let it burn” is one step away from Mad Max territory.
WOLFF: That’s right, a very strange argument. What it does is it understandably says, “We’re very frustrated and angry at these big banks and these big executives. They shouldn’t be able to get away with this. They shouldn’t get a bailout that keeps them in their fancy mansions and their powerful positions.” All of that I agree with. But the inference that “therefore let them die” misunderstands an economic system whose parts are dependent on each other. That’s a luxury we can’t afford. That doesn’t mean we have to leave them in there, but it means we have to respect the linkages that we have and have a comprehensive plan. And that can only be done by the society as a whole through its government. It can’t be done by individual profit-seeking corporations, who are each covering their own situation at whatever social expense.
JAY: Okay. So, in the next segment of the interview, let’s flush out what you think the plan might look like. Please join us for the next segment of our interview with Richard Wolff.
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