Richard Wolff: Low wages, cheap money, and cheap equipment are driving higher profits and the politics of austerity
Story Transcript
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. Iām Paul Jay in Baltimore.
President Obama, as we reported on The Real News, sent Treasury Secretary Jacob Lew to Europe, and particularly to Germany, apparently to advocate policies that would stimulate growth. Well, I guess itās kind of funny, ācause people are asking, why doesnāt he send Jacob Lew to the United States and advocate such policies?
Any rate, now joining us to talk about all this is Jacob Wolff. Heās a professor of economics emeritus at the University of Massuchesetts, Amherst. Heās currently a visiting professor of the graduate program in international affairs at the New School University in New York. And his latest book is Democracy at Work: A Cure for Capitalism.
Thanks for joining us, Richard.
RICHARD WOLFF, PROF. EMERITUS ECONOMICS, UMASS AMHERST: Thank you, Paul, for inviting me.
JAY: So speak a little bit about the reaction of Lewās visit to Europe, and then weāll get into the kind of bigger question of just who benefits from these policies anyway.
WOLFF: Yeah. It was pointed out to Mr.Ā Lew by more than a few of his colleagues in Europe that coming to Europe and telling them how they ought to stimulate their economies with more growth sounded a little bit hollow from the emissary of a government whose major activity so far this year have been the exact opposite: theyāve been growth-killing austerity. Whether you look at the JanuaryĀ 1 increase, dramatic increase in the payroll tax on the 150Ā million Americans who saw their payroll tax go from 4.2Ā percent in 2012 to 6.2Ā percent this year, thereby crippling the economy because all that money taxed from working people will not be spent on goods and services, or whether you point to the MarchĀ 1 sequester, where the biggest buyer of goods and services, the United States federal government, is announcing dramatic cutbacks, which will mean, again, fewer jobs, or todayās or yesterdayās announcement about cuts in Social Security, these are the steps of an austerity program. And even if Americans dress it up as fiscal responsibility or other euphemisms, Mr.Ā Lew is in a tough position to tell the Europeans to do the opposite of what his own government is doing here.
JAY: Well, if I was to try to defend President Obama, I guess the argument would be what Lew really means is he wants the European Central Bank to do what the Fedās doingāyou know, buy government bonds, pour money into the banking system, and supposedly in theory thus make money cheaper to borrow, and through that you create stimulus, which I guess you could say theyāre doing here in the United States, although it isnāt working. So Iām not entirely sure what theyād be advocating, ācause I guess they made the banks look like they have more money, but it hasnāt done much in terms of actual stimulus.
WOLFF: It hasnāt produced much stimulus. The Europeans have been doing similar things, not quite to the extent that the United States has. Their results are also terrible, mostly in the southern and peripheral parts of Europe, but increasingly in places like France and the Netherlands as well.
So, yeah, itās a prescription for austerity, whether you call it that or not, but it is becoming less and less enthusiastic as the economic results of austerity make it harder and harder to sustain that policy. Thatās why you had the victory of Beppe Grillo in Italy of an anti-austerity program. Thatās how you had the total victory of the socialists in France on an anti-austerity program. Thatās why you have SYRIZA in Greece, the number one political poll-getter party, dead set against austerity. Itās looking like austerity is becoming a harder and harder sell for those countries that still keep beating that drum.
JAY: Now, President Obama, if he didnāt actually want these kinds of policiesāand he tries to position it as if heās, you know, being forced to accept some of these cuts, entitlement cuts like the Social Security reform in order to be able to get his tax on the wealthy, and it doesnāt even look like he may get that deal anyway. But let me put one caveat here: President Obama actually promised that he was going to go after Social Security within days of being elected in 2008, so I think itās a little disingenuous for him to position it as if this is just as a result of external pressure. But if he understands the need for stimulus and for various policies to encourage growth, youād think heād be getting ready for the next round of elections and position the argument so people see him fighting for this. Instead, is he not just buying the narrative?
WOLFF: Yes, I think that Mr.Ā Obama, like most politicians, in Europe as well as the United States, has in fact bought the narrative, has in fact decided that what we ought to be doing is engaging in a bit of a theatrical debate in which everybody kind of understands weāre going to have a little bit of stimulus but not a lot, and a little bit of austerity, and hopefully not too much, and weāre going to wobble between the two a little bit, maybe changing political parties along the way if needed. They do that in Europe. But basically thatās what weāre going to do.
We are going to allow the capitalist economy to go through its normal self-cleaning process. It does this every threeĀ to sevenĀ years. And then periodically, when the downturn is very severe, then the medicine, if you like, the self-cleaning is very severe. And I donāt think it changes much from period to period for the last 100,Ā 200Ā years. All that changes is the political theater, as various people put forward their proposals, a little more austerity, a little less austerity, a little more stimulus, a little less.
Hereās the bottom line. Whichever combination of stimulus and austerity you end up devising in each country, hereās what happens across the board. Millions of people lose their jobs. And because of that, millions of more people who keep their jobs discover that they have to accept, to avoid unemployment, lost benefits, lost pensions, lost wages, and so on. To make a long story short, the economic downturn, with or without austerity, with or without stimulus, involves declining wages, declining job conditions, and for the mass of employers, cheaper workers. At the same time, millions of small businesses, or at least hundreds of thousands of them, either shrink or go out of business, creating vast possibilities for cheap raw materials (because the demand for them is drying up), cheap energy, cheap office space, cheap truck rentals. All the costs of doing business, workers included [crosstalk]
JAY: And let me add one thing to that. Cheap money.
WOLFF: Cheap money. Absolutely. Cheap money, cheap workers, cheap equipment. Does it begin to make a picture for you? Thatās how capitalism gets through its crises. It explodes. It builds. It has a prosperity that is unsustainable. Then it collapses.
And what it wants is to give capitalists the incentive to invest again. And how do you do that? By making it profitable. And how do you do that? By cheapening the costs of going into business or expanding your business. And so you throw people out of work, you make every worker desperate, you make every worker willing to work for less. Thatās exactly what weāve had for fiveĀ years. And, you know, in that process, a little more austerity, a little less, a little more stimulus, a little less, doesnāt really matter.
JAY: I wonderāRichard, I wonder if this one isnāt a little different. What I mean by that is that youāve got the normal cycle, as youāve been describing, but you have a few other factors, one of which you and I have talked about in the past, the ability to produce at such a high level in Asia, Latin America, the amount of money involved in speculation, where you can make more money in speculation than you could invest in a real economy. And also I think something structuralās changing here in terms of the recovery, which is the higher-paid stratum of workers, you know, the autoworkers and in transportation and those kinds of areas, you know, that recession or no recession, even if there were layoffs in auto, you still had a lot of workers making $26, $30-plus an hour. Now, with these two-tier contracts that theyāve introduced with new workers in auto making $14, in Wisconsin, Harley Davidson, [kroUn] plumbing, you know, itās a 50Ā percent drop in wages. So that top tier that you could sort of depend on being back sooner than later in a recovery and having real disposable income, itās kind of disappearing.
WOLFF: Thatās right. And the way I would pick up on it is the first thing you said. We had a bad economic downturn of the sort that capitalism has had for 200Ā years, that every capitalist leader, at least in the last 100Ā years, has said he will devote himself to make sure we not only get out of that economic downturn, but that we never face this again. Every leader, every president of the United States since Roosevelt has said it. No president has ever been able to deliver on that promise. Itās a failed capacity of this system. It goes through these cycles in the irrational waste of people and resources that it has never overcome.
But what youāre right about is this one is different because it comes at the same time as weāve had a long-term building trend to basically move production out of the United Statesāfirst it was manufacturing, but now itās white-collar jobs as wellāto the places where the wages are much cheaper, the environmental control requirements are either nonexistent or much fewer and cheaper, where you can bribe your way into political convenience with less money than it costs to do that here. And so in a sense we have the downturn on top of the long-declining trend.
When I meet with large corporations in this city of New York, I keep hearing the United States referred to these days as a, quote-unquote, mature economy. And boy is that a scary word, because what it means is thereās no growth here. Thereās no point in a corporation, American or otherwise, building its hopes for growth on the American economy, because thatās not where itās happening. Itās happening in China, in India, in the BRIC countries, and so on where the growth is happening, because theyāre moving production out of the United States.
So, yes, I think the American working class is beginning to understand that what this crisis is about is a ratcheting down within a long-term decline to the point whereāand thatās the capitalist programāthe wages and working conditions and the expenses of production in the United States are down far enough that the lure of a daily wage in Vietnamāthatās barely over $1, by the wayāwill no longer have the effect itās had for the last 20Ā years, so that corporations wonāt go over there and incur the energy waste and the cost of shipping it all back to the United States.
But before that happens, weāre in this awful situation where whether itās two-tier jobs in the auto sector or the substitution of low-pay or upper-pay jobs or the elimination of benefits, the working class of the United States is discovering that the capitalist program is now to move production out of Europe and North America. There are plenty of other places to go. Modern telecommunications and computers allow the command and control from the headquarters, wherever they are [crosstalk]
JAY: But isnāt this strategyāI mean, isnāt it not crazy, in the sense that the main export from these countries theyāre moving production to is cheap labor that they want to sell back into the engine of the world economy, American consumption? So if youāre driving down the ability of people in the United States to consume, and you think youāre going to move production over, whether itās cheap, so you can sell back into this economy that youāre undermining the demand for, it seems nuts. But I donāt think we should underestimate the role of craziness in the making of history.
WOLFF: Absolutely. And I think that youāre seeing businesses decide that the American consumer is kind of the past, and that two kinds of consumers are emerging in the Third World, we used to call it, but now the developing, the rapid, the not-mature-yet economies: on the one hand, those at the top, because the inequality in the BRIC countries is staggeringāChina, India, Russia, and so on. So theyāre going to be able to find luxurious buyers. China last year produced more new millionaires than the United States did, etc., etc. Youāre going to get an upper-class crust for the luxury industry, and youāre bringing in literally hundreds of millions of people who were out of the modern consumer market in the rural agricultural parts of India, China, South Africa, and so on. Theyāre coming in to be a mass low-level market. And thatās where theyāre going to grow, and thatās where theyāre going to produce.
Theyāre going to do it cheaply and profitably by locating production in cheap-wage areas and producing for those markets, ācause despite their difficulties of low wages, theyāre the up-and-coming, and the United States is the over-the-hill story, so that the real question in many ways is this: will the working classes of Europe and North America, used to 100Ā years of being the pioneers in working out rising wages as their compensation for the rising productivity of their labor, will they accept now all of that to be taken away from them, from some of them quickly, from others of them more slowly? Will they permit a capitalism to relocate somewhere else, building its support among Indian and Chinese workers, but not in the old centers? This is an old problem for capitalism. It has abandoned parts of the world before. Look at Detroit. The hope of capitalism is that America will be as docile about being hollowed out as Detroit or Camden, New Jersey, [crosstalk]
JAY: But isnāt the strategy is now is perhaps to have some production come back to the United States, but on the basis of a low-wageāAmerican low-wage economy, that if youāand nowāthen you canāthen you startā. And President Obama, when he presents what his economic plan is, itās mostly about exports. Well, based on what? Cheap labor in the United States.
WOLFF: Absolutely. And if you look at the long-term numbers, itās all craziness. Manufacturing has been shrinking across the last tenĀ years. The line is unmistakable and quite dramatic. And you would have to have spectacular shifts before thatās going to be significantly reversed. A casual story here or there of a manufacturer coming back to the United States doesnāt change what the aggregate picture looks like.
And if you really wanted to develop the United States as a base for exports, youād have to do it on a mass scale in order to make any economic difference, and that would require a ratcheting down of wages and working conditions far faster than what is already being experienced and producing trouble.
JAY: So whatās the alternative?
WOLFF: I think here in the United States youāre seeing a capitalism that offers the American people no alternative. Thatās why itās relentless. Thatās why on JanuaryĀ 1 you increase the flow of money from the mass of Americans into the Social Security program. Thatās what raising the payroll tax meant.
And two and a half months later you announce youāre cutting the benefits. This is in a Social Security program where the flow of money into the program was already higher, significantly higher than the flow of money out to beneficiaries. What possible logic is there to increase the money coming in when itās more than what you need going out? The answer is that the excess in the Social Security fund is given to the United States government and saves the politician from having to call the tax what it is. Instead of calling it an income tax, he calls it about saving Social Security.
But this is a hustle, and as these pinches on the standard of living of the American working class work their way into the livelihoods of people and into their consciousness, youāre going to see major trouble here. Letās remember, you cut Social Security, youāre not just hurting the older folks whoāve given a lifetime of work, but youāre saying to their children that the Social Security benefit their older parents got, which wasnāt enough anyway and which required their children to help them anyway, that those children, strapped to borrow money for their kidsā college already, strapped because of the higher payroll taxes they have to pay, will now have to stretch even more to help their conditionally needy parents. You cannot keep doing this without an explosion from below.
And the real question is, as I said, for the European working classes and the American: how far can this go before you get to swelling the welling up from below? And letās remember, in the 1930s thatās what saved capitalism, the CIO, the socialists, and the communists saying in the depth of the Depression, you canāt go any further. No more austerity Ć la Hoover. Youāve got to turn it around and build from below, create Social Security, pass the minimum wage, create unemployment compensation, and do a federal employment program, all of which Roosevelt did for fear of what would happen to the capitalist system in this country if he didnāt.
That lesson is being relearned now. Granted, the institutions from the ā30s, the unions, the socialist and communist parties were destroyed precisely to undo the New Deal. So we have to start from scratch. But there is no alternative, because this is a capitalism hellbent on beefing up the profits by hiring the cheap workers elsewhere and letting the American working class fend for itself under ever decreasing conditions of life. So unless thereās a blowback by the working class, that project will continue.
JAY: Alright. Thanks for joining us, Richard. This is just the beginning of a discussion.
And thank you for joining us on The Real News Network.
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