Economic Update: Exposing Economic Myths

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[S10 E05]

This week on Economic Update, Professor Wolff discusses how the "unemployment rate" is inadequate measure of the U.S. economy’s well-being along with the decline of the “real” value of the minimum wage in the U.S., the multiple failures and flaws of markets and how corporations as less economically efficient than worker co-ops.

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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: jobs, incomes, debts, our own, those of our children. I’m your host, Richard Wolff.

I wanted to devote today’s program to exposing and criticizing a number of myths, ideas about how the economy here in the United States is working that deserve to be put aside. They are not real. They misrepresent what is going on and therefore they produce decisions, individuals, corporates, governments that are not good for what we need in this country at this time.

I want to start with the employment story, the question of employment. This has talked about a great deal these days, because it’s one of the very few statistics that Mr. Trump and the Republicans can point to that has at least some positivity to it. We have a low unemployment rate—that is the percentage of people looking for work, who don’t find it—is relatively small. I don’t want to take away from that. But to think that you’ve understood how the economy is doing—let alone Mr. Trump’s boast that it’s quote, unquote “great”—to look at one statistic is an act of economic incompetence. It’s as if you went to a doctor and asked for the doctor to assess your health, he took your temperature, told you it was okay, and therefore, you’re healthy. You would know you need to go to another doctor. You look at many things in order to assess the health of an economy. Just like you do with the health of a human being.

For example, one of the reasons unemployment rate is low, is not that we don’t have lots of people looking for work. It’s actually worse. It’s we have a lot of people, who have given up looking for work, because in our statistical system in the United States, the government, the Bureau of Labor Statistics, when it looks at working people, says, “You can either have a job, then you’re employed. You can have no job and be looking, then you’re unemployed. Or you can give up looking, in which case you’re not counted anymore.” What we have today is a much lower than we used to have labor force participation rate. That’s the fancy term that counts what portion of adults of working age are either working, looking for work, or not anymore looking. And that last one is the one that’s gotten quite big and that helps account for the low number of people unemployed, but looking, who are the only ones that count. You need to know that to understand what the numbers mean or don’t mean.

Here’s another example. Yeah, we might have lower unemployment, but suppose, it means at the same time that huge numbers of people went from good jobs, high pay, good benefits job security to, instead, have jobs at low pay, no benefits, and no security. Why do I bring that up? Because that’s exactly what’s happened over the last decade. And that means the implication of our job situation could be better captured in these words. What we have done is said to the American people, “You’re not going to have good jobs anymore. So you got a choice: you can have no job at all or you can take a job with low pay, no benefits, and little security.” And guess what? Millions of Americans have seen the latter option more attractive than even unemployment. But that’s not a sign of economic health and it sure doesn’t mean the economy is great.

Let’s look a little further. I decided to take a look at hourly pay—the average pay per hour that most Americans, who are on a wage system, get. Back in 1973, is when I started—that’s a long time ago, frankly almost half a century—the average wage in this country was $4 dollars and ¢3 cents an hour. Okay. So I did a little calculation that we economists do. And I said, “Let’s take a look at what you could get for $4 dollars and ¢3 cents an hour in 1973 and adjust it to 2018—the last year that we have numbers for.” And I adjusted. how much money would you need per hour in 2018 to be able to buy the same bundle of goods that you could buy for $4 dollars and ¢3 cents in 1973? And I came up with the answer. You’d need today an average—ready?—of $23 dollars and ¢68 cents an hour. That would be the average wage you’d need for a worker to be able to buy, on average, as much today as he or she could in 1973. $23 dollars and ¢68 cents. Well, what is the average wage of the United States in 2018? You needed $23.68 to be at the same place you were 50 years ago. You know what the average is today? $22 dollars and ¢65 cents. That’s right. Average wage in America today in terms of what it can buy is less than what it was 50 years ago. So if you’re feeling pinched, if you’re feeling your economic situation is difficult, if you’ve had to adjust your family, because living on one person’s wage simply will not give you a decent lifestyle, so that your wife or your elderly parents or your children have got to go to work now too. You’re right. You are living what has happened. But it’s even worse, because over the last 50 years that the real wage of what you could buy with your income has gone nowhere. Actually, gone down a bit. Over that time, your productivity—that’s what your labor adds per hour to what your employer produces and sells—that’s gone up somewhere in the neighborhood of 20% somewhere between 25% and 35% percent. So let’s be real clear. Productivity, your output, what your brains and muscles add to your employer’s materials goods and services to sell, that’s gone steadily up. Productivity measures what you, the worker, give to your employer by means of your work. Wages are what the employer gives you for your work. So let’s review. What the employer has been giving you for the last 50 years has gone nowhere. But what you give to the employer has zoomed up by a third. That’s why there’s a gap between rich and poor in the United States. Working people, their incomes have gone nowhere. But the employer class—a small minority in this country—has made out like the bandits that capitalism makes them be.

I want to look now at the minimum wage. You know that sad situation in which a capitalist system pays people at the bottom so little that after generations of struggle we passed, in the depths of the depression, a law mandating a minimum wage at the federal level. It’s a law that says, “You can’t pay people less than a certain amount.” It’s just indecent. It’s like forbidding capitalists to employ children or forbidding capitalists to impose themselves sexually on their workers etc. The minimum wage. Well, let’s look at it. It’s a kind of measure of decency in a system. The current minimum wage is $7 dollars and ¢25 cents an hour. That’s what it’s been since 2009. It hasn’t been raised. Again, in over a decade it hasn’t been raised. Over that time, prices went up every year: 1%, 2%, 3%—not a terrible inflation. But you added up over 10 years a lot. The prices have gone up, but the minimum wage hasn’t gone up with them, which means in terms of what the minimum wage can buy, the last 10 years have seen a steady year-by-year decline in what the minimum wage will do for the people—the millions, who depend on it. What kind of a society does that? The society during which the rich got richer, and the minimum wage was allowed to go down. You know, when the minimum wage was the highest in terms of what it could afford a person earning it? 1968. I did a calculation. Using today’s prices, what would the minimum wage have been, after I have been in 1968, if it could buy what $7 dollars and ¢25 cents can buy today, because that’s what the minimum wage is? It would have had to be $12 an hour, which it wasn’t. Wow. We have really shafted the people at the bottom. And that’s an achievement of the capitalist system, even with a minimum wage when you can see how the establishment—having been forced by struggle to create a minimum wage—undermines, eviscerates it in the years afterwards, taking back what they once had been forced to give. It’s so bad that a number of states, almost half the states in the Union, have higher minimum wages in their states than the federal, because the people in those states have at least understood what an abomination it is to treat people that way. In Washington state, on the West Coast, the minimum wage at the state level is now—ready?—$14 dollars an hour, nearly double the federal minimum. In Washington, D.C., in California it’s $13 dollars or more. Yeah, the states have done what the federal government hasn’t done. And let’s be clear, the Republicans have been working to keep that minimum wage down and the Democrats—well, the best you can say for them is—they haven’t been strong enough to do anything other than watch the process unfold.

Okay. Let me turn next to the market. This wonderful institution, we are told, our leaders keep saying, “Let the market decide. The market will get to the official or the efficient outcome.” Really? Let’s take a look at what the markets have done. The market economy we live in today has a number of ways of measuring its extraordinary product. I’m going to give you two. The 2,000 odd billionaires in the world today together have more wealth than the bottom half of the population of this planet—three and a half billion people. That’s right. 2,000 of the richest have more together than the bottom three and a half billion. That’s a level of inequality that any system should be deeply ashamed of. Here, in the United States, we even have a better statistic. The three richest people have more wealth than the bottom half of the American people. Oh my goodness! If you think inequality is a problem—and that probably takes in most of you that are awake. Well, then it’s that capitalist market that we’re supposed to celebrate that produce that.

I’m going to come back in the second half of today’s show with more about the market. But we’ve come to the end of the first half. And I want to remind you, please, of a number of things that we here, at Democracy at Work and at Economic Update, take seriously as something to talk to you about. We recently published a new book “Understanding Socialism”. You can get a copy at lulu.com. And we urge you to take a look at it as a way of getting answers to many of the questions that many of you sent to us. If you haven’t checked out our gift shop, it’s all union-made goods. We ship internationally. It’s easy to see what’s on offer. Just go to democracyatwork.info and then click on “Store”. Again we want to thank our Patreon community for its support. You can visit us at patreon.com/economicupdate. And finally, subscribe to our YouTube channel. It is an enormously important help to us and requires just a click. Stay with us. We’ll be right back

Welcome back, friends, to the second half of today’s Economic Update. In the first half, we were just concluding with a criticism and an exposure of markets—of what markets do and don’t do—that make you want to understand, I hope, with me, that this is a very flawed institution; does not deserve the nearly religious kind of endorsement of it that our leaders are eager to provide over and over again. It’s time to have a balanced look at the market to evaluate it like every other institution rather than bow down before it as if we weren’t aware of its flaws. So let me continue.

Many of you aware of a problem—and that’s what it is—called gentrification. It’s what happens city after city, neighborhood after neighborhood as people with money decide they want to live somewhere. And so they move into that area, buying up homes, paying high rentals so that it becomes impossible for the people who used to live there, who have less money to stay there. No matter that they grew up there. No matter that their children are going to schools there. No matter that their churches, their friends, and their neighborhoods—none of it matters. Why? Because the market is the institution that determines the neighborhood. And if the rich want it, they get it. And the middle and the poor get thrown out. It is something you can see across this country in city after city. It is a sign that we produce not diverse neighborhoods—but the opposite; not shared different kinds of people and lives to enrich one another—but the opposite. Over and over again, interesting neighborhoods that wealthy people want to live in, they all come in, they drive out the little businesses, they drive out many of the interesting people, and they end up wondering why they paid so much for a neighborhood that is so dead and so anemic. It’s the market that gentrifies. If we didn’t allocate housing according to how much money you have, we wouldn’t have the problem of gentrification. It is one of those things markets do that ought to make us very critical. And the market is a basic institution that’s good for rich people. You know what the market does when there isn’t enough to go around? Let’s for example imagine a park, a bunch of parents with their children and the local ice cream vendor runs out of ice cream, doesn’t have enough. There’s 25 children, but there’s only six ice creams left. You know what begins to happen in a market economy? The parents who have some money go to the vendor and say, “You know, I know the ice cream cost $3 dollars. I’ll give you a $5.” Other parents not wanting to be outdone offer $7. Then some other parents offer $9. As this goes on, the parents, who can’t afford $9 dollars for an ice-cream, drop out. And when the process is done—because that’s how markets work—whatever is scarce in an economy goes to the people with the most money. And I ask you, whatever your religion, your spirituality, “Is it ethical? Is it moral? Do you really want to live in a system that takes whatever is scarce and gives it to the people with the most money?” Rural America is dying. You know why? Because there’s enough money there, the market says, “It’s not worth it for a bank to locate a branch in a rural area. It’s not worth it for a supermarket to go into an area that isn’t rich enough.” So they can’t get their banking done. They can’t get supermarket prices. They have to pay more at the quote, unquote “convenience store” etc., etc. Markets work that way. Rural America is a victim of a market economy. And then let’s talk about the things that we want that markets don’t produce.

Let me start with the simplest one. Did the market produce the United States? No. A government did that. A government called Britain, which came here—there were other governments too, but the British are the ones, who won—and they killed large numbers of Native Americans. And they took their land. And they did all this other thing long before there was any market here. So don’t think of United States as a product of the market as some, who defend markets, would like you to believe. It’s precisely not. And, you know, the middle class that Americans used to be proud of—a vast part of the working class earning enough money to live in a home, to have a car, to go on vacation, to send their kids to school, you know, the good old days—was that created by the market? No. That middle class was created in the depths of the Depression, when a revolt from below—the CIO, the socialist, and communist parties—created the mass movement that pressured Franklin Roosevelt to do the things that created a middle class, to give people federal jobs—millions of them—to create Social Security, to pass the first minimum wage, and to create unemployment insurance. These things created the middle class. The market economy resisted it. Capitalists resisted it. It was overwhelming them that got us this. The market was the problem, not the solution.

And then let me give you some other examples. You know why American businesses closed in the United States and moved to China in huge numbers? That’s the market, friends. Nobody forced them. Nobody held a gun to their heads. No. American corporations wanted to make more profits, which is what they do in a market economy. And they could make more profits by going to China, because the workers were lower wages there, and because that’s a growing economy and they wanted to sell their goods there. General Motors sells more cars in China than it does here. That’s why it’s there. The jobs disappeared here, that’s the product of a market economy. Think about it. And you know what the Chinese did? They said, “Look. We’ll give you access to our lower wage workers. We’ll give you access to our growing market, but in exchange we want to share the technology that you have. We have something you want. You have something we want.”

The fact that Mr. Trump now wants to call that “intellectual property theft” is a game that’s like paying a bill and then having paid a bill for something you got, claiming that the money was stolen from you. It deserves the same amount of credence and respect. And here’s the double irony. What is Mr. Trump doing, now that the market has moved production and jobs to China. He’s imposing a non-market event. He’s imposing government taxes and tariffs to try to offset the effects of the market. In his obtuse way, he recognizes that the market is bad news. You know, that’s happened before in American history. In the war, World War II, it was decided in Washington, we can’t let the market allocate the goods that are now scarce, because we were producing to win the war. Railway cars, gasoline, you name it, was being used to support the war effort, which meant much less of that could go to produce consumer goods: our milk, our sugar, our meat, our gasoline. There wasn’t enough, because it was being used for the war. So we couldn’t let a market to handle that. But you know what would have happened if we had? The rich people in America would have bought all those things, because they could bid up the price.

So he would have had a war, in which poor people died on the front and rich people are the only ones who can keep up their consumption at home. And the government of the United States recognized, that would destroy the unity you need for war. So they got rid of the market and they substituted a ration system. Every American got a little ticket from the government. And to buy milk, or sugar, or gasoline, or meat you needed a ration ticket. Having money wouldn’t get it for you. And you know how the government gave out the ration tickets? According to people’s needs. If you had a big family, you got a lot of tickets for milk. A rich person couldn’t buy the milk for the cat at the expense of milk for children. Gee. A market would have taken care of the cat. But a non-market intervention was necessary for the human beings. Don’t venerate markets. They don’t deserve it. And for a really good book, if you’re interested in pursuing this, on what’s wrong with markets, the best one I know of is by Harvey Cox. It’s called “The Market as God” published by Harvard University Press in 2016.

The last myth to explode is the one about the corporation. The corporation is this institution of efficiency that has made the country great. Not at all. There is a professor, over in England, French by origin, a woman, she teaches at the Leeds University School of Business. Her name is Virginie, that’s Virginia in French, Pérotin. I’ll spell it for you—P-É-R-O-T-I-N—Virginie Pérotin. She’s one of the few people who’ve spent much of her adult life comparing and studying capitalist corporations—you know, the ones with the board of directors, twelve or fifteen people at the top will make all the decisions what to produce, what technology to use, where to carry out production, and what to do with the profits—versus worker co-ops, democratically run by the workers—one worker, one vote—making those decisions. She’s compared them. And guess what her research shows? You’ll have to guess, because you probably don’t know, because this kind of research—even when it comes out of an established, well-reputed business school—has a peculiar way of not showing up on the radar. Her research shows that worker co-ops are more efficient, grow faster, and are more successful as businesses than corporations. We don’t have corporations because they’re efficient, we have corporations because they’ve used their profit to make sure we don’t know the kinds of research that professor Pérotin has produced and that we don’t act accordingly. A rational society would long ago have created a sector of the economy that is worker co-ops, so that all of us as citizens would be able to see how they work, would be able to look for and have jobs in a democratically run business, so we could decide where we would prefer to work, where we would prefer to buy the goods and services we need. And on that basis, we could then have a debate and a decision what kind of economy we want. Do we want a 50/50 mix of corporations and worker co-ops? A 90/10 mix, one way or the other? We would then have a rational way to discuss it and to debate it. I had intended, if time allowed, to read you the list of American corporations that have moved production over to China, one way or another. But the list is too long. It numbers in the—ready?—thousands of American corporations. They decided, following the principles of the market driven by profit, to move. They didn’t care about the disaster for American homes, cities, towns, jobs. They were doing what a market capitalism has them do—maximizing profits. And that was what was good for the corporation, not good for this country, not good for most people, not as good a way of organizing work as democratic worker co-ops could be and would be. You know in Emilia-Romagna part of Italy, they have an economy that’s 40% worker co-ops. It’s been like that for decades and they fight to keep it. Guess why? Yeah, there are all over the world examples of successful worker co-ops. That’s what professor Pérotin studied when she came up with why they are preferable to corporations. Corporations are with us, because they want to be, because they make money. And it’s at our expense.

I hope you found this interesting, a discussion of economic myths that need to be exploded. And I look forward to speaking with you again next week.


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