YouTube video

Part Two coming soon.
Wolff says that crisis is not simply result of mistakes or lack of regulation, or that there was just a failure to look far enough ahead. The structural changes that lowered wages in the 1970s are at the root of the current crisis and that’s what must be addressed. At a minimum, wages must go up as productivity goes up.

Story Transcript

Will the stimulus work?

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay. We’re in New York City. And I’m joined by Richard Wolff, who teaches at the New School, and he’s an economist. And we’re talking about the economy, President Obama’s speech. Thanks for joining us.


JAY: So, before we get into the speech, just give us very quickly some sense of your own preoccupations as you follow the economy.

WOLFF: Well, this is the first economic crisis in my lifetime and, therefore, in the lifetime of most of the people that are going to watch this problem. And, therefore, for me as an economist by profession, this is on the one hand a nightmare, and on the other hand the most interesting economic breakdown of my life, and is in a sense a test of everything I’ve learned and what I think is going on and what I can come up with in the way of some alternative solutions that offer a better chance than those that have been pursued so far.

JAY: So those who wish just to live in interesting times have had their wish fulfilled.

WOLFF: More than.

JAY: So let’s look at a piece of President Obama’s speech. This is the beginning, and essentially it’s his analysis of how this crisis came to be.


Courtesy: C-SPAN

BARACK OBAMA, US PRESIDENT: We have lived through an era where, too often, short-term gains were prized over long-term prosperity, where we failed to look beyond the next payment, the next quarter, or the next election. The surplus became an excuse to transfer wealth to the wealthy instead of an opportunity to invest in our future. Regulations were gutted for the sake of a quick profit at the expense of a healthy market. People bought homes they knew they couldn’t afford from banks and lenders who pushed those bad loans anyway. And all the while, critical debates and difficult decisions were put off for some other time on some other day. Well, that day of reckoning has arrived, and the time to take charge of our future is here.


JAY: So what do you think of President Obama’s assessment of why we’re in this crisis?

WOLFF: I think it’s a well-articulated version of what most of the people in these days are saying, and that it focuses on mistakes that were made, bad judgments that were pursued. And, frankly, I don’t doubt bad mistakes were made. They usually are. I don’t doubt that there was bad judgment. There usually is. But to blame this level of crisis, this serious a downturn that is not only here but in every other corner of the world, on bad mistakes and on misjudgments, really misses why it is that bad mistakes and bad judgments should have this result now, when in the normal run of things they don’t have this result.

JAY: So what you’re saying is the issues are systemic; it’s not just about some mistakes.

WOLFF: That’s right. That’s right.

JAY: So let’s get into what you think is the fundamental systemic issue we should be looking at.

WOLFF: Well, the best way to describe it is to compare two phases of American history. From 1820 to 1970—150 years—real wages, the actual amount of money a person got for working, went up every decade. It made the United States a magical place for the rest of the world. It brought millions of people here. They could anticipate a rising standard of living, and they got one.

JAY: And this is connected to increasing productivity.

WOLFF: Absolutely. It’s one of the ways that paid for it. American workers became more productive, and their employers shared with them part of their extra productivity in rising wages.

JAY: Okay. Very quickly, especially for some of our younger viewers, in 21 seconds, what does that mean, “increasing productivity”?

WOLFF: It means more stuff is produced for every hour that a human being works. But because of machines he or she works with, because of the technology, because of the organization of production, more stuff per hour comes out of our labor than used to be the case. That’s rising productivity.

JAY: And in theory that’s more wealth, so some of that, in theory, goes to more wages.

WOLFF: Perfect. Part of the extra wealth is given back to the worker as his or her share of the productivity that, obviously, the worker helped to create, and the rest goes to profits, that is, the income of the employer. And so for 150 years that went up and Americans got used to being in a magical kingdom where wages go up in a way that no other country had achieved. In 1970 that stopped. For the last 30 years, the real wages, what you actually get to spend for an hour of the average American’s work, hasn’t gone up. We’re earning about the same per hour as we did 30 years ago. That’s a traumatic change in a society that for the previous 150 years had a rising wage. The relationship between capital and labor, employer and employee, radically altered, and everything that has built up in the last 30 years to this crisis comes out of that fact. And that’s not a fact that has to do with misjudgments or mistakes or bad policy; that’s a basic change in the way this economy works.

JAY: So, before we get into what that means now, why did it happen? What happened in the 1970s for this to take place?

WOLFF: Something as big as this always has many causes. So let me mention the key ones. First, and perhaps in some ways the most important, we had a key technological breakthrough that replaced people with machines. It’s called a computer, and it started around the 1970s to really become part of our production system, and it has been increasing in that way for 30 years. Number two, the post-war position of the United States as the only one to come out of World War II with its economy intact was over by the mid-70s. That is, Germany, Japan, and other countries had caught up, and American producers discovered real competition for the first time in a generation. And when they couldn’t beat that competition, when it turned out that the Germans and the Japanese could make cars and cameras and a whole lot of other things as well or better than we could, American corporations began to see the need “If you can’t beat ’em, join them.” And we have the exodus of jobs. To put this together, computers replaced jobs, and the export of jobs replaces, in a sense, jobs. The two other things that happened at the same time was that American families began to react to the end of rising wages. Having expected to consume more, having planned to consume more, and their wages not enabling them to do it, the first thing they did was to send more members of the average household out to work. That’s a way to increase the household income: women. And so we had the mass movement of women started in the ’70s into the paid labor force when they had either no job or only a part-time job before. This combination of fewer jobs because of automation and export of jobs, coupled with more people looking, is the made-to-order circumstance for the employer to lower wages, or in our case not raise them anymore. And that’s what happened.

JAY: Talk about the extent to which globalization, the export of jobs, but not necessarily to Japan and Germany, but to low-wage countries, and to what extent is this kind of competition down the [inaudible].

WOLFF: Exactly what happened. The Americans went abroad. That made the competitors in the European companies also try to find cheaper labor. So the export of jobs, which started out being to places like Canada and Europe, becomes a global phenomenon—Asia, Africa, Latin America. But globalization had another effect which made this worse, and that was through telecommunications and the coming together of whole parts of the world, a whole new wave of immigration moved into the United States. So, in addition to everything I mentioned before, we have the millions of people, particularly from Central and Southern America, moving into the job market here. If you put together the immigrants and the women on the one hand and the automation and the export of jobs on the other, you have an explosive situation which the business community, the employers, took advantage of so that that historical rise in wages came to an end and never resumed.

JAY: So, in a sense, you wind up having a low-wage country inside the United States.

WOLFF: That’s right. And because it comes in, and because the jobs are leaving, everybody’s job is in jeopardy.

JAY: We do these in segments. So in the next segment of our interview, let’s talk about the impact of all these pieces of the puzzle on unionization, because unionization rates have been going down since the 1970s as well.

WOLFF: Right.

JAY: Please join us for the next segment of our interview with Richard Wolff.


Please note that TRNN transcripts are typed from a recording of the program; The Real News Network cannot guarantee their complete accuracy.

Creative Commons License

Republish our articles for free, online or in print, under a Creative Commons license.

Richard D. Wolff is a Professor of Economics Emeritus at the University of Massachusetts, Amherst, and currently a Visiting Professor of the Graduate Program in International Affairs at the New School University in New York. He is the author of many books, including Democracy at Work: A Cure or Capitalism, and Imagine: Living in a Socialist USA.