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Discussing the roots of the economic crisis, economist and author Richard Wolff says, “we took on a level of debt that no working class in any country at any time in the history of this planet had ever did before, and the result is that you build an economy on a house of credit cards.” He continues to say that, “the fundamental issue is that we’ve run out of ways to keep this going, the wages are not going up and the credit is now tapped out.”

Story Transcript

A house of cards

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. Paul Jay in New York City. And we’re continuing our interview with Richard Wolff, who’s an economist who teaches at the New School. Thanks for joining us.


JAY: So in the first part of the interview we talked about some of the factors that led to lower wages in the US, but we didn’t get to the whole issue of unions. If I understand it correctly, it’s somewhere just like 7.2 percent of workers in the private sector are in unions, and if you throw in all the public sector workers, you just might make it to 11.

WOLFF: That’s about right.

JAY: Which compares—in Canada, I think it’s more like 23 and 30. In Europe, the number is somewhat similar to that. What happened here?

WOLFF: Well, you have a union movement that focused itself and was quite successful in the first half of the 20th century in helping the rising wages, and it committed itself to winning better contracts for workers and better wages. But when a union that is successful in that area and that prides itself on that confronted what we just talked about in the 1970s, the unions suddenly—.

JAY: Well, just quickly, for anyone that might not have seen the first segment, what we talked about is—

WOLFF: The end of rise in wages.

JAY: —the various factors that de-linked wages from rising productivity.

WOLFF: Exactly. So what workers quickly experienced, already starting in the ’60s and into the ’70s and ’80s, was a situation in which wages were no longer going up, work was becoming harder. And the unions were unable to change that, because the circumstances that we discussed were so massive and so global. And so there was a disconnect between the actual experience of people and what their unions could do for them. And with the hostility, particularly, of certain government regimes we’ve had in America towards the unions, the decline of what they could do and the hostility of the political structure put together decimated the unions, and they’re now very weak.

JAY: Was there also partly a factor, when the money was rolling in—and for awhile it was rolling in for the unions—that there’s a lot of corruption? A lot of union leaders were living pretty high on the hog and maybe lost interest in the class struggle.

WOLFF: Well, there are certainly many people who feel that way, that some of the union leaders got caught up in the notion that America was a magical place that could never have the kind of crisis that we have now. I think they’re very sorry at this point that the unions are not stronger than they are, because the chance, therefore, to shape what is going to be done about this crisis, which hits working people terribly, the chance of unions to shape that is very low because of their relative weakness, politically and economically. So, yes, I think there was some corruption, although I don’t find it any greater than everywhere else in our society. But because of the—.

JAY: But if it’s anywhere near what it is in the rest [inaudible]

WOLFF: Of society, that’s bad enough.

JAY: —then it’s pretty bad.

WOLFF: That’s right.

JAY: So, in analyzing the crisis today—and there’s a lot of conversation about the financial crisis and the banks and the banking system and bad loans and Ponzi schemes and all the rest of it, and then they talk about the real economy as if they’re two separate planets. What’s your take on what is the nature of the crisis [inaudible]?

WOLFF: Well, I think the nature of the crisis is we have an economic system that has tried to keep building without taking into account the end of the rising wages. Most of our economy depends on the mass of people consuming things. [inaudible]

JAY: Real purchasing power.

WOLFF: That’s right. And if you take a step, as we did in the ’70s, in which the employers stop raising the wages, you’re plunging the population into a dilemma. It would have been possible, abstractly, for the American people, with the end of rising wages, to simply say, “Okay, we won’t consume anymore.” But after 150 years of rising, in a country that prides itself on its standard of living, the country that invented advertising as a way to get people to do even more of that, it’s silly to have thought, retrospectively, that ending rising wages would make people give up the hope to consume more. So, basically, what Americans did with the aid of the business community was to substitute borrowing for wages in order to keep the consumption going. And for 20 years we took on a level of debt that no working class in any country at any time in the history of this planet ever did before, and the result is you build up an economy on a house of credit cards, in the sense that it could last for awhile, as everyone knows who started borrowing and gotten himself or herself into trouble. At first, it all works out, it all makes it possible.

JAY: So they’ve been yelling at Madoff for creating a Ponzi scheme. What you’re saying is that the entire economy was a Ponzi scheme.

WOLFF: That’s right. That’s right. He just got caught doing an even more egregious example of this sort of thing. And there will be many more—maybe not as big as Mr. Madoff (he certainly played large), but there will be plenty of others, as there have been some. When a downturn like this comes, all the people that are hustlers get caught out. That’s basically what happened here, and it will happen more as this continues. But the more fundamental issue is we’ve run out of ways to keep this going. The wages are not going up as they have been for 30 years, and the credit is tapped out. You can’t lend any more to these folks, most of us, because we can’t pay what we already owe. Give you just one statistic: when the Great Depression started in the early ’30s, the average level of debt of an American family was about 20 percent of their annual income; the average level of debt of an American family today is 130 percent of its annual income. That very fact tells you not only the credit bubble that was created, but also the impossibility of now having some quick fix, including these big stimulus plans, because they’re not adequate to a 30-year-built-up level of impossibility that we have integrated into our economic system.

JAY: Well, in the next segment of our interview, let’s talk about what you think should be done. 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.

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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.