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Tom Weisskopf: Washington does not talk about real demand and wages in the US

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington. As the national debate about jobs intensifies as we head closer to the 2012 presidential election, one whole spectrum of the mainstream debate comes from the Republican Party, which says we need more inequality in order to have more jobs. Of course, they don’t frame it that way. They say, don’t tax the wealthy, because the wealthy are the job creators and they need their money to invest. From the Obama administration we hear more or less the same thing, except a little less inequality, a little more taxation on the wealthy. But perhaps the underlying assumptions are not quite so different. Now joining us to talk about all of this is Professor Emeritus Thomas E. Weisskopf. He’s attending a conference at the PERI institute at the University of Massachusetts Amherst called Capitalism On Trial, and much of the conference is actually built around his work. Professor Weisskopf is at the University of Michigan, Ann Arbor, and for more than four decades has been an important intellectual force in advancing radical economics in the United States. Thanks for joining us, Tom.


JAY: So what do you make of the current debate?

WEISSKOPF: Well, it is incredibly disturbing. The most fundamental need of our economy is to generate jobs, and for jobs to be generated there must be demand for the products that people make. But nobody’s talking about demand. Everyone’s talking about debt or about taxes.

JAY: Now, the sort of Keynesian school of economics says that if the government wants to, it can intervene at these times of crisis and create more demand in one way or the other in terms of stimulus or other kinds of circulation of–you know, of loans or other ways, even direct jobs programs. But what seems to be happening, because (I guess, to a large extent) of the concentration of ownership in the society, those that have real political power are not interested in any of this. And so what do you make of the moment we’re in?

WEISSKOPF: Well, first of all, I think, I mean, Keynesian economics still applies very well to the kind of situation we’re in, which is that of a deep recession, if not a depression. So basic Keynesian theory, with some modifications, would still help us find a way to get out of the mess that we’re in. But, unfortunately, nobody is speaking out on behalf of basic Keynesian solutions right now, except many radical political economists, and a few, perhaps, mainstream economists, but really a minority of the profession.

JAY: But–and what do you do about that, in the sense that maybe this is–is this not part of the problem with Keynesian theory is that you–the sort of powers that be, if you will, and have found ways to make money out of the crisis, so they actually–you know, jobs is really not the objective, in spite of the rhetoric.

WEISSKOPF: That’s right. I mean, the structure of the economy and the structure of power as changed a great deal since–certainly since Keynes wrote in the 1930s, and since the 1950s and 1960s, when his policies were implemented by many governments rather successfully to maintain fairly high employment. Things have changed. I think the first important thing that’s changed is that we now have a global economy, and most of our large corporations are operating in many different countries, so they don’t have any particular interest in the American workforce or making sure that there are plenty of jobs in the United States. Their interest is in making sure there are plenty of jobs in areas where they can purchase labor cheaply. And by the same token, they’re not particularly concerned whether the demand for the products, what they produce, comes from within the United States, as long as it comes from somewhere in the global economy.

JAY: And so they look to Asia as the savior of demand, although there seems to be a slowdown in China now anyway. But I was–my understanding is the United States’ consumption, if I have this correctly, is five times China and India put together. So not to care about consumer demand in the United States seems to be self-defeating, but they don’t seem to care that much. I don’t understand

WEISSKOPF: Yeah, it’s not that they don’t care about it, but they now have many more options than they used to have. And, in fact, while it’s true that consumption by Americans dwarfs that of any other country, the rate of growth of consumption demand is much faster in China and India, Brazil, and some of the other countries of the world. And so they’re very concerned and are taking significant steps to enter and expand their presence in those markets. And my point is simply that they’re–where in the past they really had to look to the American markets, now they don’t face those kinds of constraints.

JAY: Right. And, also, what is the significance of the financialization of the economy, in the sense that there’s a lot of money to be made just by gambling, you don’t–regardless of what happens to what they call the real economy?

WEISSKOPF: I think that’s the second major change that I think we need to talk about, globalization being the first, financialization of the American economy being the second. The role of finance in our economy has grown astronomically over the last three decades, and that has had quite a number of unfortunate consequences. First, of course, finance and sectors related to finance employ far fewer workers, especially middle-class and lower-middle-class workers, than do industry or the agricultural or the kinds of services that we used to produce in greater amounts. And secondly, it means that the well-being of those who run our major corporations, both in the nonfinancial sector but especially in the financial sector, their well-being depends much more on, you might say, financial health than it does on general economic health of the country. And financial health–the general economic health of the country affects all of us, and financial health involves a relatively small fraction of the population that is in the banking and real estate and finance industries. And they are–now that looms much larger in terms of economic importance, political power, and hence policymaking in this country.

JAY: I mean, in the sense that reality asserts itself, in the last few weeks it seems to be having some effect, in the sense that not just the European crisis, but if you read the financial pages, they actually seem to be talking about demand now and actually where is this going to come from, and they seem to recognize a possible global recession as result of it.

WEISSKOPF: That’s right. You do begin to hear more about this. In fact, it’s striking that the head of the IMF has been very unhappy with the austerity policies of the United States and Western Europe and is calling for more expansion, more expansionary policy. The IMF used to be well to the right of everybody else on economic policy spectrum. They recognize that the sources of demand in the world economy are insufficient to employ the world’s labor force, and that austerity policies are increasingly counterproductive. The problem is that austerity policies do serve the interests of what you might call the rentier class of capitalists, whose wealth depends primarily on financial returns and is much less linked to the general health of the economy.

JAY: Yeah, explain that a little bit more. I mean, why–you know, when you see the–what’s going [on] now, even in United States, the kind of layoffs that are going to take place at the state and municipal levels, you know, unemployment’s going to stay very high for a long time. Why does that benefit certain capitalists?

WEISSKOPF: It’s not that that benefits capitalists, but it doesn’t hurt them in any particular way. It’s the–the financial interests do not depend for their incomes, by and large, on what’s happening to the labor force at large. Now, I should say that if things get considerably worse than they are now, that would impact everybody. And you would think that the financial interests would recognize that an economy that is sputtering along at the rate that ours is is–down the road is going to be–is definitely unfavorable to them as well. But even as the economy sputters, for one thing, the banking sector is doing fairly well. Their profits have been–they had one bad year at the bottom of the crisis a couple of years ago. They’ve recovered fairly well, although they’ve had to lay off many of their own workers. But those who are by and large in charge–the CEOs, the major owners–have come out of this economic crisis pretty well and can expect to do fairly well unless the situation becomes significantly worse, whereas most of the rest of the economy is really in deep trouble now.

JAY: Well, with austerity measures there’s going to be continued layoffs in the United States and in Europe in the public sector and the attacks on public-sector unions. And then, on the other thing, there’s a five-letter word that never gets talked about in any of this discourse. I went through the G-20 Toronto documents. I could not find this word once in the entire G-20 document. That word is wages. There’s almost no discussion about wages needing to go up. Quite the contrary, contract after contract, wages are actually going down. You’re having this two-tier wage system where new workers are starting at half the wages of older workers. I mean, between austerity and the attack on wages, this seems to be a spiral into a far darker place.

WEISSKOPF: Yeah. Well, it is hard to understand why so many corporate leaders, the non-financial corporate leaders, at least, are going along with a policy that limits the demand for their products and that forces them to lay off workers and indeed cuts into their profits in the short run. I think you can look at it, though, perhaps as part of a longer-run strategy, whereby if they can establish, essentially, a new order in which wages will be on the whole lower and in which regulations will be cut back and in which taxes will be reduced, then they can start supporting measures to re-stimulate demand and to kind of rebuild their corporations and their sales levels on a much more profitable basis than would have been possible if they would have right away urged the government to take job- and growth-stimulating measures. So it could be part of a longer-run strategy, where you kind of take something of a hit in the short run to establish an even greater degree of power over the economy, and then you call for expansion and renewed stimulus measures once you’ve got a stronger position in which to operate. [crosstalk] they’re also counting on help from demand from places like China and India and Brazil.

JAY: Yeah, which seems a little bit delusional, if they think it’s going to make up for what they’re going to lose in American purchasing power [incompr.]

WEISSKOPF: In the long run it’s delusional, but in the short run it can keep things going and, you know, keep them from collapsing themselves. And so I think as a short-run policy it–as I said, I think the only way to think about it–it’s hard for me to put myself in their shoes, but it looks like a policy that in the short run is going to inflict a lot of pain on many people, and even some pain on some of the elites and some of the financial and economic, you know, business leaders, but as a kind of investment in a longer-run situation where they can operate more comfortably and more profitably.

JAY: Right. Now, what do you make of the role of the unions? When President Obama was elected–and I interviewed John Sweeney from the–at the time was still head of the AFL-CIO, and I said, you know, what’s your big objective out of this administration, and he said real health care reform that includes a robust public option, and EFCA, the Employee Free Choice Act. So they didn’t get the public option, and no one’s even talking about the Employee Free Choice Act, which would have strengthened the hand of unions in organizing and in theory might have done something to raise wages. Yet the unions’ national leadership seem to be almost entirely without criticism of the Obama administration.

WEISSKOPF: Well, I wouldn’t say that. That really depends on who you’re talking about and which unions. But it’s certainly–the first thing to, of course, recognize, as we’re all aware, is that the strength of the union in numbers and resources has declined over the last two or three decades as part of a long-run process in which organized labor and the interests of labor in general have been suppressed and have been diminished through conscious political strategizing by the representatives of big business and financial interests. So labor has taken it on the chin for several decades now, and so they’re in a much weaker position than they were before, and so they have a limited scope for trying to rescue the situation and do something about wages. And I think their hesitation–again, there are some people who are quite outspoken; there are others who hesitate to speak out. They have to maintain connections and support within the Democratic Party. They don’t have an alternative. And so to some extent they need to go along with the Democratic Party politicians and policies, which are far short of what they and I would hope to see, but which are nonetheless considerably better than what we might expect from a Republican president. So in a sense they’re tied to the Democratic administration and Democratic congresspeople to at least try to maintain something of what they had and to build for the future. So I think that may limit the extent to which they go into direct opposition, although it varies very much, dependending on who you’re talking about.

JAY: Yeah, I’m talking more or less the leadership of the biggest unions at the AFL-CIO. I know there are some smaller unions that have been more outspoken. But they don’t make that support conditional. Like, they don’t say, we get EFCA or you don’t get us. You know, they don’t–there’s no lines drawn in the sand. They lose ground one piece after the other, and nothing much seems to get said about it.

WEISSKOPF: Yeah. Well, I think–I mean, it is a depressing situation, but I think part of it is that they know–and certainly the Obama administration has essentially decided that politically they really need to go after the center, and they will stick to the center as it’s now defined. Of course, we’re now–the current center is well to the right of where it was several decades ago. But the Obama administration and much of the Democratic Party has decided that basically if they position themselves as a center or even sort of moderately right of center party, they at least have a chance of competing against the [incompr.] right-wing Republicans, who are both increasingly right-wing and increasingly powerful in view of the growing role of money in politics. So it’s kind of a defensive crouch. It’s understandable, but it’s disappointing.

JAY: Yeah. So what ordinary–what should ordinary people do?

WEISSKOPF: Well, I think ordinary people should be as loud and as vocal as they can in supporting the relatively few voices in politics today who are really representing not only their interests but what I argue would be the common interest of the country. I mean, they need to support the Bernie Sanderses, the Elizabeth Warrens, the liberal sort of left Democrats who have consistently fought for what is good for the country, what is good for the working class, and indeed what is good for the middle class. They need to–and in order to put as much pressure as possible on the Democratic Party to move back to where it used to be and not to continue sliding to the right. I don’t think, given the nature of our political system, that a third party, third left party option can be successful, at least not in the short run. So, again, putting as much pressure as possible on the Democratic Party to remember where they came from and to limit the degree of compromising that we’ve seen so much of in recent years.

JAY: Well, is it–I mean, if you talk about the people that were appointed to run Obama’s finance policy, it doesn’t look like they’re compromising in the sense that they’re going against their own values. That team, they more or less have been doing what they want to be doing, aren’t they, I mean, in terms of they all come from Wall Street and that’s the interest they seem to share?

WEISSKOPF: Yeah. I think you can make a distinction between some of the people that–in the Obama administration and Wall Street. It’s certainly true that Wall Street has had a big influence and he has quite a number of Wall Street people there. I don’t think it’s a completely [incompr.] takeover, so to speak, by Wall Street. And, in fact, Wall Street is likely to pour considerable–considerably more money into the Republican Party this year than the Democratic Party, even though the Democrats have in many ways been friendly to Wall Street in recent years–I’m talking about the administration. So I think it’s not quite as–I don’t think that–I wouldn’t say that the Obama administration has simply kowtowed to Wall Street. They certainly brought in some important Wall Street figures who’ve had a significant influence on policy, but they’ve also brought in some more progressive, more liberal figures. And I think the fact that the more Wall Street-oriented people have tended on so many important issues to win out over the more liberal folks in the Obama administration has probably a lot to do with the political–the calculations of the political people in Obama’s entourage, who feel that as a matter of contemporary American politics and given the lay of the land, the Democrats have to move and capture the center if they’re going to have any hope of staying in power.

JAY: But how much is that because they so much ceded, you know, the political-ideological fight? I mean, they–you know, they didn’t–they ceded this issue that debt’s the real problem. They give up on the stimulus debate. I mean, once you give in on all that, you know, ideological territory, how do you–then of course the only fight’s left in the center right.

WEISSKOPF: That’s true. That’s true. And [incompr.] the fight was really lost in the very first few months of the Obama administration when it became clear that the sort of center of gravity was going to move to the right. Actually, in a sense, the fight was, I would say–maybe I should take that back. The fight was lost earlier, when the Tea Party captured popular rage against Wall Street and the financiers and the gamblers that led to the economic crisis, rather than the natural constituency, that is, the left, the working people, [incompr.] poor people, and the traditional constituency of Democrats, when the popular rage was captured on the right, thanks to a tremendous infusion of economic and ideological support from the right [crosstalk]

JAY: But also because the unions would not critique Obama. So, you know, if you had some of the–the biggest organized, best-financed force who could have done something wouldn’t go after President Obama. So, you know, the rest of the left doesn’t have a heck of a lot of force.

WEISSKOPF: That’s–again, I really don’t–I’m not an expert on politics, but I would say, certainly, what you’re saying did happen: the unions did not make this case very strongly, although there were some–during the electoral campaign I do remember hearing some very progressive statements by Richard Trumka and others that suggested that they might really be pushing Obama to the left and beginning to recapture the popular rage against the elites in this country that had been dominated by the Tea Party. But that–as you know, that didn’t get very far. And I think once the die was cast and it became apparent that the right had captured popular outrage and the left was unable to put up a significance struggle, then the kind of [incompr.] to the center that we’ve observed in the last couple of years became very difficult to counter.

JAY: So there’s an occupation taking place on Wall Street now, and apparently some of the unions are going to support it in the next few days. There’s talk of another kind of occupation in Washington in October. You had, you know, for a while some real mass action in Wisconsin and some of the other states. What do you make of the state of the movement?

WEISSKOPF: You know, well, it’s–this is–certainly what happened in Wisconsin was tremendously encouraging, and the degree to which people turned out to oppose the right-wing policies of the governor, Walker, and the Republicans in Wisconsin, that was tremendous. And if it had only succeeded in–and it came so close–in bringing about a Democratic majority as a result of the recall contests in Wisconsin earlier this year, I think it would’ve had a tremendous [incompr.] tremendous boost to the left in kind of reclaiming the political initiative. Now, of course, the movement fell just short, which was frustrating, and I think it’s still–it continues, and there’s still a potential. But now, when it comes to the New York demonstration, I think that’s great. I think the more noise that can be made, the more attention can be brought to the despair of the working people in this country, the poor people in this country, and the middle class in this country, the better. But we’ve got a lot more work to do before we can really challenge the right-wing. And so I would say this is encouraging, but it’s going to be a long haul before we can really become a force in American politics again.

JAY: Thanks very much for joining us, Tom.

WEISSKOPF: You’re very welcome.

JAY: And thank you for joining us on The Real News Network.

End of Transcript

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Thomas is Professor Emeritus at the University of Michigan, Ann Arbo, where he teaches economics and also teaches in the Social Science Program of the Residential College. He holds a Ph.D. in Economics from MIT. He is a long-time member of the Union for Radical Political Economics and the Democratic Socialists of America. Thomas E. Weisskopf's most recent book (co-authored with Samuel Bowles and David Gordon) is After The Waste Land: A Democratic Economics for the Year 2000.