Economic Update: Economics for a New Year

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In this week's show, Prof. Wolff discusses US spending for war in Ukraine paid for by higher interest rates and inflation hurting middle and small businesses ; a rational transport system is NOT electric cars; an appreciation of the "degrowth" impulse with a critique of the degrowth movement's focus on individuals' consumerism and excess consumption.

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 called Economics for a New Year. It's my hope that we can talk about some of the urgent issues of our time in the hopes we can do better in 2023 than we were able to do in 2022. So we're going to talk a little bit about the connections between the Ukraine war, inflation and interest rates, that coordinated set of urgent topics, with some alternatives [to] what we are seeing now. I'm going to talk about a transportation system that is different from the one we have and based on different principles. I want to talk about a very important movement around the world called degrowth, this movement that takes account of the environmental crisis we face and talks about slowing or reversing growth as a way to respond and what that means.

So let's jump right in. I'm going to start with the Ukraine war, inflation and rising interest rates. So let's begin very simply, because the issues here are simple. The United States government is throwing a hundred billion dollars into the war in Ukraine, spending wild amounts of money, at least by comparison with every other kind of spending we have done in recent history, even on warfare. This kind of explosion of extra spending, all in this last 12 months, is inflationary. It means lots more money looking to buy things and that typically pushes up prices. Now, of course if this were paid for by taxes, if we taxed the American businesses, the American people then they would have less money to spend, because we're taxing them. And then that money would be used for the war. So the extra spending on Ukraine war would be offset by less spending by Americans. This, of course, would make the war very painful for Americans. And no political leader wants to do that for fear that it would undercut support for the war. So typically what happens is that money is printed to pay for the war. In other words you use inflation to save yourself the political costs of taxation. But the problem is we already have a bad inflation. And the spending on Ukraine would make the bad inflation worse.

So we have the Federal Reserve, another part of our government, raising interest rates. And that works like a tax, but it's a tax on middle and low-income people who can't afford to pay higher interest rates. And it's attacks on middle and small businesses who likewise can't pay higher interest for borrowing money. So they're going to spend less. People are going to say "oh my goodness, look at what my credit card is costing me, oh my goodness look at what it cost me to borrow at the bank for my little business." So they won't borrow, they'll hold back and then they won't have that money that they don't borrow to spend.

So what's the bottom line? We are, in fact, limiting spending, above all by middle and low-income people, because they can't afford to pay the inflated prices of goods and services and by low and middle-income businesses and individuals who can't borrow at higher interest rates. So what are we doing? We are financing the war Ukraine, 100 billion worth of government money, having less of an impact on inflation than it might otherwise by cutting back the spending of middle and low-income people for goods and services and for borrowed money.

You know, people used to say all wars raised the question: guns or butter? You're going to use your resources to kill people or you're going to use your resources to sustain people. Kill foreigners [or] sustain your own people? We haven't escaped from that. We are, in fact, spending on guns and cutting back on the butter. Does that have to be? Absolutely not. I'm going to give you two alternatives that show how it could be done differently. Suppose the government had decided to do what Richard Nixon did in 1971: solve the inflation problem by imposing a wage/price freeze - no business allowed to raise price, no workers allowed to raise wages. Wow! You know what you could have done then? You could have had a wage/price freeze, taxed the richest amongst us - the biggest corporations - and used that money for the war in Ukraine, if that's what you wanted to do. That way those who could afford it the most - the richest, the biggest - would pay for the war. It wouldn't be taken out of the hides of middle and low-income people. And the richest in America have been growing their wealth faster than anybody else for the last 40 years. So it would make sense on the grounds of fairness as well. You could have done that, you might have done that and we ought to think about doing that rather than pretending that that option, that alternative doesn't exist.

Here's another one: you want to stop the inflation that hurts the mass of people? Because, you know, middle and poor, that's the overwhelming majority of our people. You could have had - ready? - rationing. You could have said that, for example, the basics of people's lives: the food you get in the grocery store, the gasoline for your car, you know, the basics, they could have been rationed. We could have distributed them according to people's needs - you got to get a little ration card, says you're entitled to buy five quarts of milk a week because you have children. And if you're an elderly couple you don't, because you don't need the milk. You know, rationing. We did that in the United States in the early 1940s. We know exactly how to do it, we did it very successfully back then. And it prevented an inflation then. And it could have prevented one now. You could then finance Ukraine, if that's what you want to do, without whacking the mass of people with an inflation, with rising interest rates and all the rest. We ought to be discussing these alternatives, we ought to be facing them, we ought to be giving the democratic decision-making we supposedly have a chance to choose among them. We're doing none of those things. And we ought to face what that says about so-called democracy in the United States.

I want to turn next to transportation, and particularly ground transportation. We have a problem in the United States, that using the private automobile uses up more fuel than any other means of moving people around. You use more fuel for the automobile in this country than we use for airlines, for trains, for buses, for vans, for any kind of - here we go - mass transportation or collective transportation, having each family or each person have their own car. Which is, by the way, sitting doing nothing most of the time in a garage, on the street, wherever. That is a waste of resources and a waste of fuel. Which means it pumps pollution into the air that hurts us, hurts our health. More people are injured and die from automobile accidents than almost anything else in our culture, it's extraordinary. We could have a first-rate public transportation system - planes, trains, buses, vans all the time, 24/7, clean, well-appointed, frequent. For those who still need a car, particularly in rural areas, we know how to do that. Because the rent-a-car business has taught us that. Places on the edges of cities and towns where cars are maintained by skilled mechanics and are available if and when you need a private car you can go get one, it's there. The savings on injury, death, medical care, pollution fuel, fossil fuel... I mean we could be way ahead. The solution to our crazy, wasteful private car system isn't to go from fossil fuels to electric cars. We only are doing that because it allows the car companies to continue to have a profitable business - an electric car instead of a fossil fuel car. What we need is a change in the transportation system.

And here's the solution: guarantee everybody a job in our culture. We've long been able to do it. Do it, everybody gets a job, everybody gets an income. Workers don't have to worry if we produce fewer cars. There's lots [of] other things we need done in this society. A job at an income [which] is guaranteed, that would be a way to move forward in transportation. We're not doing that, we ought to.

And then I want to get to this big issue. Many of you have written to me and asked me to talk about it. It's about degrowth. And let me explain what I mean. There is a tendency around the world, it's been going on for quite a while, to be critical of capitalism but also of socialism, to put them both in the same bag and say "they're all about increasing production, giving people jobs," like I just spoke about. And then the argument is made: well, if you keep giving everybody your job you're producing more and more that's choking the Earth, that's causing the using up of our resources. It's threatening our life on the planet. And going with that argument is another one very closely associated. That is the notion we are all to blame, we are all buying too much stuff, collecting too much stuff in the garage, having our closets over-full of clothing. You know the argument, we are all part of the problem, we are consuming too much, we are buying too much, we are fetishizing the accumulation of goods. And it's choking us, literally in terms of the air we breathe, the water we depend on, the land itself. And so, the argument goes, don't worry about this or that system. Let's appeal to people to cut back on consumption, to live more simply, to live with less, to focus on consuming less than we have. It's a kind of appeal to us all, we can all do our part.

I want to respond to that. And I want to respond on two levels. I'll tell you what they are. And then I'm going to use the second half of today's program to make the argument in detail. First there is, of course, some truth to this argument. We are, I would like to say, complicit. We have come to be complicit with this system that focuses so much on consumption, that trains us from the time we're children to think about the wonders of them all and of all that you can buy in the mall. And that measures one another's success in life by what we can buy and consume. Yeah, we are complicit, we have some responsibility. But I think it is a terrible misunderstanding and mistake not to ask 'well, what is it we're complicit with, why are we behaving in this way?'

I've come to the end of the first part of today's show, but please stay with us. When we come back I'm going to try to explain why we behave that way, why we are complicit in a system of over-consumption. Before we get to the second half I want to remind everyone Economic Update is produced by Democracy at Work, a small donor-funded non-profit media organization celebrating 10 years of producing critical system analysis and visions of a more equitable and democratic world through a variety of media. For example, Cities After is a show about the future of cities, grounded in our daily urban struggles and designed to spark civic imagination into action, beginning it's third season in all new video format. You can find this show and others we produce on our YouTube channel as well as our website democracyatwork.info. There you can also learn more about the work we produce, sign up for our mailing list, follow us on social media and join our growing community of supporters. Please stay with us, we will be right back.

Welcome back friends to the second half of today's Economic Update. When we left off I promised you that I would talk about the system we're complicit with. In other words to explain some of the forces that make us complicit in a system that over-consumes and it is now threatening to literally destroy us as a civilization. And you won't be surprised to learn that there's a name for the system we're complicit with, for the system that produces our consumptive behavior that we want to change. And I think this is a way of understanding the degrowth movement that has a future. I'm going to begin by telling you the name of the system: it's capitalism. That there are things about capitalism that have built into them this fetishization of consumption, of over-consumption, of consumerism, if you like.

I'm going to start with some simple examples and then get a bit more complicated. The simple example used to have a name that people talked about, was called planned obsolescence. Here's how it works: a company makes something (a capitalist enterprise,) let's say refrigerators, why not? And it makes a refrigerator, which is fundamentally a fairly simple machine; a motor, a condenser, a unit that cools and then the space in which you keep your food at a cool temperature. It is possible and it has been for many, many years to produce a refrigerator that lasts a lifetime and, even if it doesn't, that is easily replaceable with parts if and when they wear out. But long ago companies quickly understood that in capitalism the way you succeed as a business, the way you compete successfully against others [is] if you sell more than they do, more units. The more you sell, the more profits you have, the more profits you have the more you can invest in technology that saves you on labor or develop new gimmicks to put in the refrigerator to sell even more. In other words the struggle of capitalism is a system that pits each producer against the other puts a pressure on them to sell more. So guess what they did? There was a researcher 40/50 years ago named Vance Packard who wrote books about all this. And they were very popular for a while. But then people stopped paying attention. But not because the argument wasn't valid and not because it doesn't continue. It was and it does. Here's a simple story: you make the machine to wear out much sooner than it needs to. So it has to be replaced sooner than it needs to.

That may be a waste of resources, but it's profitable. The company that can get you to buy more because what it sold you didn't last as long as it might have is the successful profiteering company. Pretty soon other companies who might have tried to produce the longer lasting machine discover that they can't compete. The company with planned obsolescence also has a little something new each time. Instead of a white refrigerator, how about one that's an avocado color? Or a stainless steel one? Or one that has a built-in radio? You get the picture? You produce in order to sell. That's the capitalist way. You don't produce so it lasts forever. That is not the way the system works. That's why we have fashion. That's why everything imaginable that's made - find the company making them, advertising the new and better version of it, maybe better, maybe new. The point is sell more.

If there's going to be selling more then there has to be - ready? - the next quality of capitalism: advertising. We've never seen advertising in slavery or in feudalism on the scale we see in capitalism. Advertising assaults you from every corner. Every radio program, every television program, every billboard, everything you look at in the course of the day or listen to is full of advertisements. And advertising is a highly developed operation, utilizing the latest research in psychology and in mental health and mental processes. Long ago capitalists learned to associate in your mind through the images and pictures they present the notion that the needs you have, some of your deepest needs for love, for admiration, for appreciation, for good relationships with other people can be met by buying this or buying that. The whole idea that you should buy your way to personal growth, you should buy your way to happiness, this is all a part of capitalism. That didn't drop out of the sky under some other economic system.

Capitalism needs to keep selling. Every capitalist's nightmare is to produce stuff in the factory and then be unable to sell it. And you hire advertisers to go out there and make sure that all you've been able to produce will be purchased by someone because otherwise you die. Which means that the people that we speak to are people who have been and are being bombarded all day, every day [with] buy this, buy that. You're not popular? Buy this, you will be. You're not loved? Buy this, you will be. You're not happy? Buy this, you will be. Endlessly, over and over. Yeah, you can blame people for being complicit, you can blame them for going out and filling their medicine chest with creams that are supposed to transform their sex life. But blaming the people is a little bit of blaming the victim. Now let me take that back, it's a lot of blaming the victim.

Why are we putting people under such pressure? Why isn't the system one that produces goods that last a long time? Yeah, they may not be the latest, they may not have all the bells and whistles. But if people were not wasting their time and energy and their money on accumulating more goods than they know what to do with, which is the situation for millions of us, we might be a lot happier [a] society. We've been a society producing like you never saw, but unhappy, lonely and now worried that we're destroying the planet we depend on. Aren't these enough reasons to begin to say 'let's change a system that makes people complicit with over-consumption.' They didn't, they weren't born that way.

Now here's another one: capitalism is a system that produces inequality. You know that for the last 40 years every statistic, whether collected by a left-winger or a right-winger or someone in the center demonstrates that the gap between rich and poor has gotten much worse. We now have people: the Jeffrey Bezos-es, the Elon Musks, who count their wealth in hundreds of billions of dollars. You have to go back to ancient Egypt Pharaohs to get levels of wealth like this. And, of course, they show you their wealth in their 500 foot yachts and their private airplanes and their... You know what that does? That creates in the minds of millions of other people envy. It's a standard. It becomes a measure of how hard you work, how well you work, how successful you have been, how sharp and smart you might be. And all of those get shown by the level of consumption; you have the biggest mansions, you have more of them, the biggest boats, the biggest you-name-it. And, of course, for the mass of other people this becomes a standard of emulation: I want that too, or at least to get closer to it.

You know, the psychologists teach us that Americans are very lonely people. What they really need and want are relationships. They need the time to relate to their families more, to their friends more. They need relief from the consumption for the other things in life that matter more. Many of our religious leaders - they grasp that also and talk about it. But, you know, telling people to be more focused on their family is not going to cut it. It hasn't and telling people not to be complicit with consumerism - it's not going to work real well either and it hasn't. You know why? It's not that it's wrong. We are complicit. We're complicit with the capitalism into which we were born, in which we rose up and developed our ways of thinking. You can appeal to us to change but it's a bit cruel to appeal to us to change when you haven't changed the system that makes us the way we are. That's not fair and it doesn't work. That's why folks like us focus on capitalism. Change the system. Let's not have a system based on profit. Let's have a system that directly says what people need are basically supports, a sufficient standard of life, the freedom to develop their relationships, their love relationships, their creativity, their leisure, their artistic capabilities. Then let's create a system that they can become complicit with doing what they need rather than a system that demands of them complicity with consumption.

Here's a final way to put it: in economics, the field that I'm a Professor of, I remember early on in my career noticing something bizarre. That in all the textbooks I was taught with and the textbooks I used to teach labor, the activity of work is considered to be negative. In the language of economics it's a disutility. Labor is something you don't want to do. Well, then why does labor happen? Why do people work? Answer: so they can consume. Notice the story: you endure labor, a bad thing, to get the good thing, consumption. That we teach people. But, of course, that's not necessarily true. If the workplace were made a place of beauty, a place where you have lots of time to interact with your fellow workers, where relationships are built and nurtured and celebrated you'd love to go to work. There's no reason that your joys, your needs are not met at work. What a crazy idea to say work is awful, don't expect anything from it. You know what the compensation is for work? It's what we teach in economics: consumption. You get to go after work to the mall. And there you're supposed to fill yourself up with goods and services to compensate you for the unpleasantness of work. That's how we teach people. And, you know, that's a reflection of what work often is: drudgery, doing what other people tell you, no time for yourself, for your thought, barely enough to go to the bathroom. We make work awful in order to persuade the people that consumption is how you offset the burden of work.

What a way to organize a society. Far better: forget the consumption, minimize it to what we need. Let's make the work, which is where we spend most of the hours of five out of seven days a week... Let's make that a joy, let's make that a satisfaction. That would be a changed system. And we could then be complicit no longer with excess consumption.

Thank you for your attention. I hope you found this work interesting. And I look forward, as always, to speaking with you again next week.

Transcript by Brendan Tait

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Showing 3 comments

  • frittata necktie
    commented 2023-03-13 05:15:16 -0400
    Yeah, I understand what you mean. Professor Wolff is right to call for a public discussion on this issue; it is essential. Public funding of elections, term limits, and a truly progressive form of individual income taxation, in which all income up to the national median is exempt, all other deductions and exemptions are eliminated, and the rate of taxation increases on higher ranges of income, could go a long way toward creating a better democracy (in order to raise sufficient revenue to balance the national budget). https://run3freegame.com
  • Pasqual DiGesu
    commented 2023-01-31 23:11:14 -0500

    “States are as the men (and woman) are; they grow out of human characters.” —From Plato’s Republic

    “As early as 1928, U.S. President Hoover had declared to a group of public relations experts; “You have taken over the job of creating desire and have transformed people into constantly moving happiness machines, machines which have become key to [our] economic progress”.
    “Consumerism as a state religion was complimented by a new magic phrase in politics “economic growth”. The permanent expansion of the economic growth or growth of the “monetary economy” has been a systemic necessity since the paradigm of endless capital accumulation emerged in the early modern era. It was not until the mid-20th century that this growth was measured as national GDP, and after the war officially elevated to the pinnacle of national priorities”. At this time investiture in growth as a central political goal was attacked by many economists and politicians (to include the many renaissance thinkers of the early 20th century who could not combine their efforts under one movement)

    And, considering what we have been molded into psychologically by Madison Ave style marketing, it is doubtful that we can fix our problems simply by a mere operation of a mechanical process such as universal suffrage.

    Control of capitalism is not a preference of choice, …it is a necessity
  • Edward Dodson
    commented 2023-01-25 12:33:39 -0500
    The statistics presented here by Professor Wolff are a strong indicator that the U.S. economy is on the edge of yet another crisis. A detailed history of these crises comes to us in the book by Thomas P. Vartanian — “2000 Years of American Financial Panics.” Politics has always dictated economic outcomes, and our politics has always been highly corrupt in the interest of privileged elites.

    The public debate Professor Wolff calls for is desperately needed. Three reforms could go a long way to creating a better democracy: (1) public funding of elections; (2) term limits; and (3) a truly progressive form of individual income taxation, one that exempts all individual income up to the national median, eliminates all other deductions and exemptions, then applies an increasing rate of taxation on higher ranges of income (in order to raise sufficient revenue to balance the national budget).

    As I have written on numerous occasions, a fundamental source of inflation is the rising price of land. Increasing land prices make their way through the entire economy. The instability in on our economic system can be significantly removed if we tame our land markets. And, the only means of taming our land markets is by the public capture of rents. Impose an annual tax on the potential annual rental value of locations and other natural assets and the price of these assets will fall and theoretically could fall close to zero. The main inflation trigger is then eliminated.

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