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Richard Wolff

February 06, 2023

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In this week's show, Prof. Wolff identifies and examines the larger economic dimensions and trends of three key aspects of today's global economy: Russia/Ukraine war, Europe's quandary, and the decline of the US empire. Attention focuses on the immense direct and indirect costs of the war in Ukraine; on Europe's desperate position and choices caught between the US and China blocs in the world economy; and on how the US empire is responding to its decline in the world economy. Our approach is to stress what so many others deny or minimize. The risk of war and lessons of the past decline of empires figure prominently in the analysis.

Timestamps:

• 00:00 - 01:10: Intro
• 01:11 - 02:42 - Inflation as class struggle
• 02:43 - 04:50 - Non-profit vs. tax-exempt
• 04:51 - 06:57 - Russia/Ukraine war
• 06:58 - 09:19 - Direct costs of war: defense industry profits
• 09:20 - 12:11 - Indirect costs of war: fossil fuel production
• 12:12 - 14:41 - Eisenhower and the Military industrial complex
• 14:42 - 15:48 - Announcements
• 15:46 - 21:45 - Implications of war in Europe
• 21:46 - 24:23 - Declining empires throughout history
• 24:24 - 29:49 - Decline of US empire
• 29:50 - 30:21 - NYC nurses strike

Transcript has been edited for clarity

Welcome friends to another edition of Economic Update, a weekly program devoted to the economic dimensions of our lives and those of our children. I'm your host Richard Wolff. Today's program is going to start by talking about very little things and then explode into talking about some of the biggest things happening early in this new year. I'm going to be talking about the war, that's right, the peculiar position of Europe these days. And then what it means to talk about a declining U.S empire. But before we get into those big topics I want to set the tone for talking straight and honestly about them by talking a bit straighter and more honestly than usual about two little topics.

The first one is inflation. Everybody's talking about inflation, prices go up. But let's be honest, the inflation, the one we're living through in the United States, Europe and beyond is also, and ought to be honestly acknowledged as, a class struggle. And here's what I mean very simply: prices are going up. In the United States, for example, between seven and nine percent per year. Let's remember what prices are. It's what you and I, the vast majority of people, pay to the tiny minority who are employers in our society - the ones who set the prices, who raise them. Because that's what an inflation is - when employers raise prices. So prices are the money we - the employees - give to them. Wages are what they give to us as employees. Prices have been going up by seven to nine percent. Wages in this country have been going up roughly half of that. In other words we're giving much more to our employers than they are giving to us. It's going up in both cases but they're getting the lion's share. That's a shift of wealth from the employees - the vast majority - to the employers - the tiny minority. That ought to be understood when we talk about abstractions like inflation.

Here's another one: entities, businesses that call themselves non-profits or not-for-profit. Don't believe it. I'll give you an example in a minute. They are for profit. They always have been for profit, most of them. Here's what they really are: tax-exempt. That's what the law gives them - the ability to do their business without paying taxes like your average business is required to do. It's just by calling them tax-exempt, their real honest name, we remind everyone that they get a special privilege. And so they long ago decided to market themselves with a new name: not-for-profit. That sounds like they're doing us a favor, they're not for profit. But, of course, that's not the truth.

And here's the best example I know: Yale University, where I was a student, where I graduated and where I taught for a while. I know the institution real well. It is tax-exempt. It doesn't pay tax to the Federal Government, it doesn't pay tax to the state of Connecticut and it doesn't pay tax to the city of New Haven, Connecticut where it is mostly located. It's tax-exempt but it calls itself non-profit. I have looked at the statistics for Yale for many years. For the vast majority, almost every one of those years, they were profitable as a university. What do I mean? They earned more money than their costs. Revenues were larger than costs; the difference, they made a profit. But they took the profit and put it into their savings account, their endowment it's called. And they call that a cost. And then they announced to the public "we're not for profit." Don't be fooled. Not-for-profit is usually profitable. And the irony: the profit they get is in large part due to the taxes they don't pay.

Now let's use that kind of honesty and directness on bigger topics. One is the war. Let's not pretend we're not involved in an enormous war in Europe, in the Ukraine, as we all know. I want to remind you all of the economics of war. Because it applies to this one. We used to call wars like this wars of the great powers: World War One, World War II were clashes of great powers. This one is too. But we're not willing to call it that. You know, like not-for-profit rather than tax-exempt. But I want to talk about what war is economically. First, wars have to be paid for. The United States has given over a hundred billion dollars to the war in Ukraine on the side of the Ukrainians. Okay, let's be clear, resources are used to produce guns and planes and uniforms and everything else being given to Ukraine. Those resources, human beings working, raw materials, machinery, transportation could have been used for other purposes. The cost of the war is resources not used to produce all kinds of things here in the United States for the people of the United States - workers doing work that could have benefited the United States. Other kinds of production are curtailed because we use the resources to produce for a war. Even if you believe (wrongly, but if you believe,) that unemployed resources and unemployed people were brought into production to produce for the war that's just a reminder that those unemployed people and unemployed resources could have been used to do all kinds of other things to deal with the problems of the United States.

Okay, next: wars produce extraordinary profits for the defense industries, the war machinery in this country; the planes, the rockets, the missiles, the tanks, the whatever. Enormous profits are made as energy prices have gone up, particularly in Europe. Huge extra profits were earned by energy companies. The Europeans did something typical, they taxed those energy companies. They said "your profits are windfall profits, you're profiting off a war, that's kind of obscene. So we're going to tax you to help pay some of the costs to us of this war." The United States could have done that. But, with the courageous leadership of Mr Biden, it did nothing of the sort. Defense industries are doing well, energy companies are doing well. Yeah, war is profitable for some, even if it's an immense cost for others.

Then there is the indirect costs of the war. I want to talk a little bit about those because those don't seem to be on the agenda at all as we, gung-ho, do our patriotic best. Inflation, you know what helps cause inflation? Big boosts in government spending. Guess what the war in Ukraine means? A big boost in government spending. The spending on the war in Ukraine is inflationary. And if we had honest leaders they'd talk about that. Because the inflation is something we say "we're fighting, we're raising interest rates, which hurts large numbers of people in order to slow down the economy." But the same government that raises interest rates through the Fed is stimulating the very inflation they're supposed to be fighting by massive spending - over a hundred billion dollars on the war in Ukraine. Wow! What about that! What does that mean?

Then there are other indirect costs. All over the world, because of rising prices of oil and gas, investors, big oil companies are spending money again investing in more fossil fuel production. There are struggles inside Germany as they reopen old coal mines to bring coal up, lignite. Some of the worst pollutants we have in the world are being revived to cope with the energy price increases that flow from the war in Ukraine. Yeah, the cost. Who will pay all the emphysema that comes from this pollution, all of the global warming that comes from it? The costs of this war are staggering. Then there are millions of refugees in countries that are not involved in the war. They are going to be there, in some cases for the rest of their lives. They're costing those societies enormous amounts of money. Other countries, fearful that the war might spread, are increasing their defense spending. Which means resources in those countries get diverted from socially useful projects to preparing for war. The costs of this war are huge and enormous. And I want to drive home an implication of this for all of you. And it's very, very important. These kinds of expenditures far exceed, when you add them all up, the immediate costs of war. And I'm not talking, of course, of the horrible destruction of the people and the economy of Ukraine itself. We might have avoided most of that had we come to a realization of the costs of war that I've just described. Because those costs are much larger than the billions of dollars we could have offered to the people of Ukraine. Instead of a war, here is an amount of money that allows those of you that would like to move from one part of Ukraine to another, out of the Ukraine to Russia, if that's your desire. We could have rearranged things. That would have advantaged millions of Ukrainians, besides not taking their lives and their economy from them, helping them. We would have saved a lot of money. As well as lots of lives. We should have thought about that.

When big powers clash the destruction is enormous. Like it was in World War One and like it was in World War II. We need to deal with these economic realities. And we haven't done so. And here's a last, far from least, but the last cost of war. Wars drive home a relationship that we should never forget. It's what Dwight D Eisenhower - President Eisenhower here - warned us of in this famous speech he gave when he finished his Presidency. He warned us against the following: if you have a huge military establishment, either because you fought a war like we did in World War II led by then General Eisenhower, you run a risk he said. And that risk is real here in the United States, he said. And the risk goes like this: companies whose profit depends directly or indirectly on producing for war are going to give money to politicians who vote for expending money on those companies. They use their profits to put into office the politicians who could vote for the military expenditures that make them the profits. The profiteers fund the politicians who fund the profits who fund the politicians. Very cozy. Leads to what Eisenhower called the military-industrial complex. It's alive and well. And much bigger now than it was when President Eisenhower warned us about it. This should never have been allowed.

Periodically, a war is necessary. If you're going to tell people, between the wars, how important it is to keep up military spending etc. etc., just like we do, you could have a windfall profits tax on the defense industry, couldn't you? Just like in Europe, they're doing to the energy industry. If you're making a ton of profit off of the death and destruction of war - these days in Ukraine - then we, the government, are going to tax your special profits. We're not going to allow you to profit off death and war and therefore keep it going. We're going to tax you and use it to help pay the costs, the small portion that I've just listed for you.

We've come to the end of the first half of today's program. Please stay with us, we will be right back. Before we move on I want to remind everyone that Economic Update is produced by Democracy at Work, a small, donor-funded media organization celebrating 10 years of producing critical system analysis and visions of a more equitable and democratic world through a variety of media. Like the series Ask Prof Wolff, which is a collection of my responses to questions from Democracy at Work supporters. If you have a question you'd like me to answer go to patreon.com/democracyatwork or visit our website democracyatwork.info and sign up there to support the work we do and to submit your question. I try to get to as many as I can. And I thank you for getting involved. Please stay with us, we will be right back.

Welcome back friends to the second half of today's Economic Update. In the first half we've talked straight, or I tried to, about great power conflicts. In this case those between the collective West on the one hand, Russia, China and so forth on the other being fought out on the tragic soil of the Ukraine. Okay, I want to go on now and talk more about the global implications of all of this, trying again to focus on the realities I see and not on the verbiage used to make believe other things are going on. I want to talk, therefore, about two things. Number one: Europe. And number two: the United States and what's happening in the broader global perspective.

Europe is in a terrible, terrible situation. It is caught between the two emerging blocks of the world economy: the United States and its Western European allies (sort of) on the one hand and China/Russia/BRICS and all of that on the other. The two blocks are both much richer than Europe; the United States, on the one hand, the richest country, China, the only competitively big and powerful economy in the world competitive to the United States and Europe - here we go - caught in between. Yes, I know, Europe is currently allied with - although you could more honestly say subordinated to - the United States. But that's not as fixed and permanent a situation as all kinds of people might like to imagine it being. For example the Europeans are disunited in a way that the states of the United States or the allies of China are not. They haven't been able to get together on many issues, even over the decades that they've been an EU, a unified Europe, number one. Number two, they are paying the price of the war in Ukraine much more than anything going on for the United States, on the one hand, or for China on the other. Their energy prices are off the chart. And it means that they can't compete in the world economy. Because unlike enterprises in the United States and China they have to pay for energy three/four times the amount. And energy is a crucial component to every kind of manufacturing and indeed to many productions of services as well.

So they are being disadvantaged. And I'm not even talking about the disadvantage to their people who are facing a cold Winter, who are facing budget-crushing costs for the basics of energy. Europe's inflation is greater than that of the United States. Which in turn is much greater than that of China. These are realities that have deep and long-lasting effects. Growing voices in Europe are wondering "have we made the wrong link? Should we be going with China?" Because it turns out many European countries depend on their exports to China. They don't want to get crushed in the struggle between the two big blocks - U.S and China. And they face the risk that the U.S and China might soften their conflict with one another at the expense of Europe. They certainly will be tempted to do that. And that's been done in the past more than a few times.

Then there are voices in Europe that say "no, maybe our best plan is to play them off against each other, get a benefit from the United States, use it to get one out of China and vice versa." But that's a very dangerous game. Because you can thereby provoke the two people you're playing off against each other to combine against you. And Europe would be a rich plum to divide between the two competing powers.

And then there's the fact that the people of Europe are used to social democracy, to a big fat dose of socialism, state intervention. They don't want to give up the privileges. There's all kinds of struggles inside Europe between the capitalist-owner elite on the one hand and the mass of people. And the mass of people have organized political expression; much stronger labor movement than either U.S or China has etc. etc.

So the conditions inside Europe are for struggle over what to do in their difficult in-between situation. And it's not clear who's going to win that internal struggle either. Europe may become the weakest link in the capitalist chain. Let me remind you, if you're not familiar with it, that Lenin was asked to explain why the Revolution happened in Russia in 1917 and not in more developed parts of the capitalist world like the United States or Western Europe. And his answer was Russia was the weak link, the weakest link in the international capitalist chain. And that's what made it vulnerable and that's why we could make a revolution there. Europe may become the weakest link in the capitalist chain. And it's something they are already thinking about.

Then he turned next to the empire decline story. I want to remind everyone to keep that story in your mind as you try to think through the period of of global turbulence that we are living in. Every old Empire of which we have record declined: Greek, Roman, Dutch, Spanish, Ottoman, Egyptian, Chinese, Persian. They all decline. Why would one imagine that the American empire - the U.S empire, the one that's been pretty much the dominant economic force in the world, at least since the Second World War, if not for some decades before that, too. Why would we imagine it didn't or wouldn't decline? Usually in declining Empires those Empires are led by people who cannot see, who must deny the internal reasons their empire is declining: too great a gap between rich and poor, too great a gap between those who run the society and those who are governed within it. They don't want to face their difficulties internal. So they externalize them. They constantly think their danger is external. You know, the Romans kept talking about the Barbarians beyond their borders. Wow! They even called Christians an external threat until they decided to adopt Christianity; bring the external inside, in the hopes to control it better. Did it work? No, the Empire, the Roman Empire disappeared anyway.

And we remember the British Empire too. It also declined. It desperately tried to externalize the problem. For example, it denounced the United States - we weren't the U.S then. It tried to stop the United States from becoming independent, went to war twice - 1775, again 1812. Wow! And they tried to blame every other country it could think of, other Empires - the French, the Dutch, the Russian. That's what World Wars One and Two were about; the British Empire against upstarts. They felt threatened, they always thought it was the external. It wasn't, it was the internal. Or at the very least the interaction between them.

And now we come to the U.S empire. It doesn't want to face the fact that in the decline of other empires wars were like punctuation points along the road of decline, because you kept saying it was external. So now we are threatened - we in the Americas, in the United States - by foreigners. We always were. We always, as a nation, saw the danger outside, like all those Empires did. I remember my first visit in Western Massachusetts to the town of Old Deerfield, where they have reconstituted the old colonial houses that existed before the United States was an independent country. And they had little plaques in front of the houses. And I read them and they're full of stories about how the heroic early settlers battled the savages that were the indigenous people. That's what they were called. Here were the Europeans, coming thousands of miles to take the land of people. And they made them the problem. They were the external people threatening us. And then it was the British who threatened us. Even though it was their Empire, we were their colony. No, no, they threatened us. And then it was the Mexicans, wasn't it? And then it was the old Europeans. And in World War One it was the Germans. And in World War II it was the Germans again. And then it was the Communists in Russia. And then it was the terrorists. And now it is again Russia - no longer communists, committed to capitalism. But we need we need a foreign enemy that threatens us. So we have Mr Putin and we equate him to Stalin - keep the idea going. We have Xi Jinping and we equate him to Mao - keep it all going: evil, evil, dangerous, threatening savages go way back in our history.

We ought to understand the war in Ukraine is part of the punctuation of a system with growing troubles. China is a real economic competitor. We haven't had that for this empire since this empire came into being. The Soviet Union was a small economic unit, tiny compared to the United States. It was never a real competitor. Now we face one. And it is growing. And it is growing faster than we can. And that's been true for 30 years now. We are in a problem position.

A unipolar world - U.S on top - is becoming a multi-polar world, contesting empires. And not just the US and China. Europe, as I tried to suggest, trying to find some way to survive in this multi-polar world. But that means that the U.S empire is in decline. We can dance and pretend all we want around it, try to keep up the denial. But if you remember that denial didn't work well for all those other Empires you might at least open the possibility that it's not working well for us either. And in an era of nuclear weapons do we really want to reproduce the history of the other Empires that shrank, that had to face rising other empires in that long list I began with? Or maybe we can learn something, a lesson.

It took the British two wars to stop trying to reverse the growth of the United States. After the second loss in 1812 the British gave up and they worked out a peaceful coexistence. So that [for] the rest of the 19th Century and even into parts of the 20th the United States could grow quickly and the British could hold on at least to much of the wealth their Empire had accumulated. [In] World War II they lost it. But they kept it a long time by not having war with the new emerging empire. The lesson they took the British two wars to learn; maybe the United States can learn it without the wars.

Ukraine makes me worry. Maybe the lesson hasn't been learned. Maybe the same denial and self-blindness that afflicted all those other Empires is afflicting the one we have now. But if we think a little bit about the great power struggles in a capitalist world, if we recognize that inside the United States the effort of those at the top to shift the burden of a declining empire onto the rest of us by cutting our wages and cutting our standards of living... I'm sitting here in New York City, speaking to you, having just heard about all the nurses that went on strike to close the health system and hospitals of this great city in this country. And it's not because of the details of the nurses and the hospitals. It's a system that can't function at home but can't face that reality, pretending its problems are abroad. And therefore causing its end to come sooner than it otherwise might.

I hope these perspectives are of interest to you, help you navigate the world we live in. And, as always, I look forward to speaking with you again next week.

Transcript by Brendan Tait

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