Economic Update: History's Lessons on Capitalism's Failures: Germany and US

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On this week's show, Prof. Wolff evaluates capitalism by how it deals with Covid-19 and talks about Boeing's latest fatal crash. The second half of the show is dedicated to a major discussion of the causes of Hitler in Germany as offering clues to the rise of Trump and the assault on the Capitol.

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, debts, incomes, those of our families, including those coming down the pike to face our children. And I'm your host, Richard Wolff.

I want to begin today by underscoring a basic point. When you're thinking about, or evaluating, the strength and weaknesses of any economic system, you have to look not only at how it performs in what we might call ‘normal’ times, but you also have to look at how it performs when confronted with unexpected, unusual, irregularly occurring challenges. Covid-19 is a perfect example of a challenge and looking at American capitalism at this time is a part of a proper evaluation. So, let's do that.

Partly, it's easy to do, in the sense that we've already had monumental systemic failures. We weren't prepared for this virus. We didn't have warehouses properly located in population centers equipped with tests, and masks, and ventilators, and hospital beds, and ICU units, and trained personnel. We didn't have it. We didn't prepare for it. 

Private enterprises that could have produced those things, didn't. Private enterprises that could have warehoused those things and stockpiled them, didn't. The government didn't step in to compensate for what private capitalists didn't do. Not a good showing. Weakness. Failure of the system. But we're now seeing this accumulating. I'm going to give you three examples. You know them already, but they're signs that a system isn't up to the job of dealing with a crisis. 

Over the last few months, we have evidence, food prices around the world are rising, roughly seven to ten percent across the pandemic. That also means rising hunger, and the statistics for that are there as well. The system ought to be prepared to handle the kind of crisis that covid-19 represents by taking steps to avoid rising food prices. That's a systemic failure. 

Likewise, the eviction craziness. We are evicting people. Other countries are evicting people, although we are going further in the United States. One of the worst things you can do in response to a pandemic, where the infection is spread from one person to another, is to throw people out of their homes. That's where we, after all, tell ourselves you should shelter. That's where you can wash your hands all the time. That's where you can be safe. Throwing people out of their homes makes all of that activity, sheltering, hand washing, etc., more difficult. That is craziness. That's a dysfunction of a system. There should be no question we cannot have evictions, which we are already having, and more are coming down. 

And here's the third one. Five percent of private schools in this country, elementary, junior high, high school, five percent of the private schools are having distance learning, internet learning. Five percent. Ninety-five percent are still having classes. Now, they've taken the steps needed. Instead of one teacher with ten or twenty students, it's one teacher with three, or four, or five. If there isn't enough room in the school, they rent tents outside, heated tents, so that the teacher can meet with a small number of students with proper social distancing.

Why is this important? Because education has to continue. The future depends on it. Private schools are doing it. Public schools, it's not five percent. What percentage of public schools are not meeting the students in person? Sixty-two percent. Notice the difference. Five percent of private, sixty-two percent of public schools. Our teachers are not meeting most of our students because let's remember, we have roughly five million students in private schools at the primary and secondary level, and fifty million in public. Ten to one. So, we are not training who? The people who go to public school. And who are they in general? The less wealthy, the less rich. 

So, yes, we are responding to this pandemic by greater inequality than we had before. That's not an effective systemic response. That's a failure, and it's very serious. A system that isn't prepared, and then compounds the failure by not containing the virus, not managing the vaccine process appropriately, and creating greater social divisions: homeless, not homeless; people who can afford rising food prices, those who can't; and those whose kids are getting an education, and those whose kids are getting an inferior one, or none at all. This is systemic failure. It doesn't help to say, “Well, it works okay when we don't have a crisis.” That's only half the story. The other half is what it does in the face of a crisis, and there the results are unambiguous. Let me finish with a detail. 

The data are in for December of 2020. It was the first month in which there was a net loss of jobs. We had a tremendous drop in jobs in March and April, when the virus hit. Then, slowly, things were coming back. Then the comeback slowed down. And in December, the last month of 2020, we not only didn't have rising job return, we had a further loss of jobs. 

But here's a statistic about the job loss in December that didn't get the attention it deserved.  First, I'm going to look at the gender division. We had 140,000 fewer jobs in December than the month before. But, and here's the big thing: men had 16,000 more jobs in December than before. But that was overwhelmed by the number of women who lost their jobs. 156,000 women lost their job. 16,000 men gained jobs, so a net loss was the 140,000. The gap between men and women, [was] severely exaggerated by this system's response. 

White people gained jobs in December. Non-white people lost them. And among them, the big loser, Latino Americans. The Latinx community lost the overwhelming bulk of jobs. That’s a split between white and non-white. And here, in a way, is the most tragic. Forty percent of the jobs that were gained by white people, and by male people, were temporary jobs in the hospitality industry, which is the worst possible place to have a job these days, for obvious reasons. This system is not working well. 

The critique of capitalism now has gotten to the point where the bizarre question is, why are there people not understanding this still? And for that, we have to look at the media, and that's for another day. 

The next update is one I have to bring to your attention because of the sheer outrage of it all. The U.S. Justice Department, a couple of weeks ago, reached a settlement with the Boeing aircraft corporation about the two plane crashes. You remember, the 737 Max planes that crashed, killing 346 people in 2019. 

So, it took over a year to reach a settlement, and in the settlement, the Boeing corporation paid the government a penalty of $2.5 billion. And part of the settlement was the agreement of Boeing to the following: that Boeing lied to the United States government and put profit before candor. This is a very nice way of saying that they are paying a penalty because they lied to try to cover over. This is a criminal case that was settled. There are still civil cases in which the families of the dead are going to be able to sue Boeing to recover the costs. Now 2.5 billion for the corporation isn't all that much given the size of that corporation. The civil penalties will add. 

But here comes the real killer, if I may be allowed the tasteless metaphor. A few days ago, another Boeing 737 crashed, this time in Indonesia. It wasn't a 737 Max, but it was another one of those airplanes in that series. And we're hearing from Boeing, once again, “Oh, it was this, it…” 

This is the company that paid 2.5 billion dollars for lying systematically about its other crashes. Are we really supposed to believe them now? You don't allow a person's testimony to mean much in a trial if they've admitted to lying in the past. Many lawyers wouldn't even put a person like that on the stand. Because they've admitted to lying, they're not reliable. What are we doing here, allowing this company to continue to produce most of the airlines all of us use, to visit our families, to do our business? There is no excuse for this. 

And there is a systemic dimension here. Boeing puts profits first. That's what they're there for. That's what their executives are paid to do. Yes, of course, in their public relations, ‘safety is our most important concern.’ But you and I both know profit is what determines their career. If the profit goes up, so does their career. And if the profit doesn't, they can kiss their career goodbye, and their income, and their privileges, and their perks, and all the rest. It is insane to say that people’s safety comes after the profits.

The company is owned, basically, by a relatively small number of shareholders. They're the ones who get the profit. Millions of people use those airplanes. What's more important, the safety of those millions or the profits of the relatively few? Just to remind you, ten percent of Americans own eighty-five percent of all shares, so we're not talking about you and me. We're talking about a very small minority.

You know what you ought to do in this situation? Sometimes people [who] write to me say, “Well, you make good criticisms, but what do you propose?” Okay, let me propose.

Aircraft, public transportation, is too important, for too many people, to be sacrificed, held hostage, by a group of people who have a different priority, namely profit. These should be public enterprises, and they should be run as cooperatives, so that all the workers involved have real power and can speak up when the airplane isn't being made properly, can voice their criticisms making sure that lots of eyes are working to make sure that the number one priority is given the number one attention, namely safety. The private, profit-driven system of public [transportation] doesn't work any more than allowing private enterprise to determine the food we eat, or the other basics of safe, healthy life. We've given private capitalism its chance, it doesn't work, over and over again.

We've come to the end of the first part of today's show. Before we go to the second half, I want to remind you that our new book, The Sickness is the System: When Capitalism Fails to Save us from Pandemics or Itself, is now out and available. You can find it at www.democracyatwork.info/books.

I want to thank, as always, our Patreon community for their invaluable support. And if you haven't already, go to www.patreon.com/economicupdate where you can learn about how you can get involved and all the variety of services available through our Patreon website. Finally, please, stay with us. We're going to be right back with an important historical analysis of the situation we now face.

Welcome back, friends, to the second half of today's Economic Update. 

I want to use this second half to do a little history with you all, because history is a great teacher. It's often the best teacher we have to understand where we are, and what our options are going into the future. 

Most Americans, I think, and people around the world, are wondering whether the United States isn't at some kind of crossroads in view of what happened at the capitol, the second impeachment of the president, and all the rest that's happening in the United States. So, both for our international audience, and for our American audience, I want to take a look at a similar period of history in another country.

Now, of course, the word ‘similar’ is crucial here. I'm going to be looking at Germany in the 1920s and 30s, and into the 1940s. Of course, Germany then, and the United States now, are different. No one is saying that they are the same. When you learn from history you have to make the adjustment for the differences between the ‘then’ and the ‘now,’ and we will do that.  But there is instruction when there is similarity. So, I want to look at Germany, and I want to show that what Germany experienced has lots of obvious analogies, parallels, to what has happened in the United States, right up to the present moment. So let me begin by looking briefly at Germany. 

Germany in the period of the second half of the 19th century, roughly 1850 to roughly 1914, was an economy exploding onto the world scene. At that time, the great leader of global capitalism was Great Britain, the British Empire. But it was being challenged by two up-and-coming capitalist societies. One was the United States, the ex-colony of the British Empire, and the other one was Germany. And Germany's growth was as remarkable as that of the United States. And so, as we go towards World War I, Germany has experienced an extraordinary industrialization, rapid increase in wages, rapid increase in income, rapid importance of Berlin, and Germany, on the world scene. 

Now, the gain in wealth wasn't evenly shared. The business community took the bulk of it, and the workers were angry, and so they formed a kind of left-wing. German workers joined the socialist party, which quickly became the number two political party in Germany already at the turn of the century. But there was no revolution because wages were shared, that is, wages went up, and the government had a very expansive social welfare program. You may not know it, but the social security of the United States that was instituted in the 1930s, was more or less a copy of what the Germans had done in 1870 and 80 under the leadership of Bismarck. The Germans were the leaders in all of this. 

So, it was a comfortable working class. It had accumulated its savings. It felt like it was experiencing something they could have called the German dream. And the Germany of that time had an empire, with colonies in Africa, Asia, and elsewhere. It was a very thriving society, all under the leadership of a kaiser, sort of like a czar, and something that the Germans were very proud of culturally and so forth.

And then all this came smashing down. Between 1914 and 1929, which is a mere fifteen years, not very long, the Germans suffered three crushing destructions of their economy, and above all, of their middle classes and their working classes. Number one, they lost World War I. They had not expected to do that. They were defeated, and badly damaged. Number two, in 1921, and 22, and 23, they experienced an inflation. Not the kind of inflation most of you are familiar with, but a kind of inflation that goes into the history books. Let me give you a rough idea. In late 1919, one dollar got you 48 deutsche mark[s], that was the name of their currency. Late 1919. By late 1922, three years later, one dollar got you 7,400 deutsche mark[s]. And by one year later, late 1923, one dollar got you, ready, 4 trillion, 210 billion deutsche marks. 

People would get paid at lunchtime each day, run home to their spouse, hand off the money like a relay runner, so that the spouse could run to the store and spend the money, because if you didn't, it wouldn't be worth anything by late that afternoon, because prices were doubling every half hour in the stores. That's an inflation. And what it meant was, that over the previous seventy years, as German families, very frugal, had accumulated savings, those savings were not worth a quarter pound of butter. And that all happened in a few months. [The] decimation of that.

It was in the autumn of [1923], at the apogee of that inflation, that a right-wing, military veteran named Adolf Hitler, tried to march on the city center in Munich, Bavaria, in what came to be called the Beer Hall Putsch. He had planned to take over the city of Munich, in the south of Germany, and march up and take over the whole society. He and a kind of rough and ready bunch of mostly young, white men. If it sounds familiar, that's the point. 

He was arrested. He was jailed. He went to jail, let out after nine or ten months. Europeans don't put people in jail for long periods of time the way we do. He went on to organize when he realized that this kind of assault on a big building doesn't work real well, gets you in trouble, gets you arrested, gets you jailed, that you have to do this in a different way. You have to mobilize large numbers of people, so you have a mass movement.

He got out in 1924, and then the third of the crushers hit Germany, the Great Depression of 1929. It was too much. The German working class was wiped out. Half of them went to the left and became very radical, left-wing socialists, and the new communist party got them. And the other half went to the right. They called themselves socialists because to appeal to a German worker you had to be one or another kind of socialist, but they call themselves ‘national socialists.’ The German word [pronounced] ‘national,’ that's where nazi comes from, [spelled] n-a-z-i, and they became the fascist basis for Hitler.

Capitalism was destroyed, too. The working class, the vast majority, split into two. The capitalists suddenly confronted that they were a small minority, they had no mass base. They had to ally with one or the other of the two mass organizations of the people. They were scared of the communists and socialists, so they invited Hitler in to run the government, and the rest is the horror of nazism in power which destroyed the socialist and communist parties, killing large numbers, etc.

Why do I tell you this story? Here in the United States, we have a similar story. We had a period of extraordinary economic growth going, again, from after the civil war, about the same time as the German’s took off. We were not crushed in World War I because we were on the winning side. And we didn't have a terrible inflation in the middle of the 1920s.

What we did have was the crash of 1929, and that did to the American working class something very similar to what those three crises did to the German working class: crush them, wipe them out. Read John Steinbeck's Grapes of Wrath and you’ll get the picture. And it shocked the American working class, and they did something that the Germans had done, they went to the left. They went to socialists, and unions, and [the] communist party, all of that, and they got something remarkable. They got in the 1930s what the Germans had gotten earlier: a social welfare system, social security, unemployment compensation, federal jobs, a minimum wage, all of that. 

And then, World War II, the United States allied with the Soviet Union. It was a chance to respond, as the working class in America did, to the crushing of the Great Depression, by demanding social welfare, demanding that the system give them job security, or at least unemployment compensation, etc., etc. And when the war was over, the business community was horrified, because it was taxes on corporations and the rich that paid for social security, unemployment compensation, and federal jobs. And they destroyed that left. The McCarthy period, the post-cold war destruction, the demonization of everything on the left. And so, you had a period when you could destroy the left, roughly 1945 to roughly five or ten years ago, destroyed the left, had a bit of a boom recovering from the war, but capitalism did it again. It crashed. 

It crashed in 2008, the Great Recession, the subprime mortgage crash. And now it crashed again, even worse because we have a viral pandemic on top of it. And in a short amount of time, the working class of the United States, whose situation started to decline already in the 1970s and 80s, really took a turn down, shocking large numbers of people. Their standard of living was disappearing. The prospects for their kids were disappearing. The quality of their lives was coming down. The distance between them and the rich was getting further and further away. And since the rich bought the politicians, their sense was that the politicians weren't helping them either. And they were getting angrier and angrier.

They might have gone to the left, the way they did in the 1930s, after the Great Depression hit, but the left had been destroyed. The left had been literally demonized. There was no socialist party to speak of, there was no communist party to speak of, and the unions had been shrinking for fifty years, and had no strength and little money left.

So where did the angry people [turn], horrified by having been told that theirs was the American dream and then it was disappearing? Theirs was the chance to give their kids what they hadn't had, but they couldn't do it anymore. And no one was helping them. And the politicians were deaf and not listening. By politicians, I mean the establishments of the republican and democratic parties, because in our society, where we don't allow monopoly in any business area, we allow it in politics. Two parties monopolize the whole political scene, and nobody yells that ‘this isn't competitive’ the way they do about every industry we have. Remarkable. 

But people felt very alienated. So, when along comes a right-wing politician, who smells, aha, here's a way for me to shortcut my way to the presidency. Hello, I'm Donald Trump. I'm going to say how angry I am, too. I'm going to be Mr. Angry, and ask everyone [to] vote for me, because you know that if you vote for those conventional types, you'll get what they've been giving you, which is a decline of everything you had been led to expect. 

So, they go to the right, and they end up storming a building. Of course, they do. And then they will be arrested. They are. And then they will be punished. They will be. But what will be learned from that is by all those people watching that, realizing they have to find a different way. But it's a different way to the same objective, some kind of fundamental change that will ‘Make America Great Again.’

You know what Hitler's slogan was? Return to the German Reich. The German word ‘reich’ is ‘the great society.’ It's making Germany great again. It's exactly the same slogan. It's the same story. Yes, it has its differences. But if there aren't fundamental changes made, we're going to find that the German story is going to try to be repeated here, too. It will not go away because the basic conditions that created Mr. Trump haven't gone away. So, he may go, but the next one is just waiting in the wings. And unless the Biden government takes big, major changes, which they have indicated no intention of doing, they're going to keep the lid on a system that's going to reproduce what the German history teaches us. 

I hope you have found this excursion into history interesting. It's a way of looking at the situation from which we can draw valuable lessons. 

This is Richard Wolff, and I look forward to speaking with you again next week.


Transcript by Scott McCampbell
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Showing 5 comments

  • Sara Jampen
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  • Arzhang Kalbali
    commented 2021-03-15 21:05:33 -0400
    Please share the source for the information of 5% of private schools doing distance learning (not going to school) vs. 62% of public schools.

    I am raising this question to my daughter’s school and the school district and they are interested to know about the source of the information.
  • Pasqual DiGesu
    commented 2021-02-25 10:15:10 -0500
    As for business managed by the workers or cooperative’s, which I support and believe would produce a better product simply by pride of ownership, I am afraid that their product would still require an objective review from a detached 3rd party for security. Any vested interest in the success of a business can prioritize profit and survival over quality assurance and contract conformance. In this respect many coop workers would share the same interests as the present corporate leaders. Agencies like the FAA, DCMA, FDA, etc. would still be required. Unfortunately in the last 4 decades they have been weakened and pilfered by many sources and motives not in our best interest.
  • Pasqual DiGesu
    commented 2021-02-25 09:18:56 -0500
    Boeing was only 1 of the industries to profit from emergency money for a total sum closer to a trillion probably to all. Not only did they use this money to pay a fine that would have included other graver penalties in other countries but they also bought back their stock at a low price after the mass “cash in” sell out, drop in share prices helped enable them to threaten bankruptcy and claim the relief. Now that the stock is back up to par we can assume the share profit was doubled? compliments of the tax payer whose “Care/s (act) Package” does not just go to third world countries anymore, and in much greater sums of “charity”. Interestingly this was also enabling by not shutting down the wall street trade as in 2008 despite it being even less life essential than bars and resteraunts. As for Germany it is true that social security was instituted by Bismarck in the 1800’s, but it was the overall forced system of socialism in Italy starting in the 20’s which more likely mirrored the new deal and was also copied step by step by what some books refer to as “the imitator in Berlin”. (There is enough surviving international literature and sources of this time for reference) As with most other history in this region, Civilization also migrated from southern Europe to northern Europe.
  • Sonny Wiehe
    commented 2021-02-12 11:13:27 -0500
    The professor left out a key component of this corporate outrage news. He failed to mention that Boeing received $17 Billion dollars in Cares Act tax relief (see Washington Post article titled “Senate aid package quietly carves out billions intended for Boeing, officials say” dated March 25, 2020 reported by Aaron Gregg, Jeff Stein, and Josh Dawsey) in first half of the year during the 2020 pandemic when most flights were put on ice. My understanding is that this economic relief came with no strings attachment and did not have to be (and indeed was not) paid back. Now, less than a year later, Boeing is settling for $2.5 Billion with the same authority that handed them them with more than enough money to do so—- while simultaneously eliminating legal prosecution for any criminal wrongdoing related to fatalities associated with crashes of their own aircraft and operations?? I find this the most incredible aspect of the story. Boeing, in essence, had the U.S. taxpayer pay for their crimes ..and looks to have profited handsomely while doing so. This is not a example of the systemic failure of capitalism, this is an example of a failed government colluding with capitalist corruption on a level never known before.

    Sonny Wiehe

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