Economic Update: No Matter Who Wins

[S10 E44] New

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On this week’s show, Prof. Wolff presents the following short updates: Inspire Brands buys Dunkin Donuts, as big firms grow while medium and small firms die; private US capitalism is now on "life-support" financial dependence on US gov't; and pre-Covid US eviction tsunami is now getting worse fast. No matter who wins, the capitalist system gets continued support, continued failure to end instability, continued erosion of New Deal, and continued denial of real political choice in the US.

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 — ours and those of our children, coming down the pike. I'm your host, Richard Wolff.

Before jumping into today's economic updates, I want to make clear that this program was produced before the results of the election were completely known. Please do keep that in mind.

Okay, I'm going to begin with a story about the Dunkin’ Donuts company. Well, I should correct myself at the beginning. It's now called the “Dunkin’ ” company. It got rid of the “Donuts” when they decided to produce other things besides those fantastic contributions to modern, uh, food intake. Formerly Dunkin’ Donuts, then, now Dunkin’, is being purchased by the Inspire Brands corporation, for the hefty sum of $11.3 billion. I want to talk to you briefly about this interesting merger, happening right in the middle of an economic crash and the pandemic.

First, Dunkin’ already owns Baskin Robbins ice cream, so that's part of this. Inspire already owns 11,000 Arby's restaurants around the world, also the Buffalo Wild Wings business, Sonic, Jimmy John's, and others. So the first thing about this merger, this purchase, is that it is an example of how large capitalist corporations use a pandemic and a crash to become much larger. Dunkin’ Donuts had a rough time. People were not going out and getting them in the last quarter, so its income was down, its price was down. Great. A big corporation was able to swallow an also-big corporation, but not quite as big.

It's interesting that the way this crash is working, and the way this pandemic is working, you may have 225,000 dead Americans (not to speak of over a million globally), but it is an opportunity not being wasted by the capitalist class in this society. Yeah. Big businesses are getting bigger, and small and medium businesses are being wiped out in record numbers.

Does it have to be this way? Of course not. Government policies stepping in to deal with both the pandemic and the economic crash (we have two crises at once) could have favored small and medium businesses to offset what is happening. The Trump administration — and, to be honest, the Democrats too — didn't take that opportunity. Didn't do it. So we have an economic system that is becoming more tilted in the favor of big business over medium and small business than it needed to. These are some of the long-term damages that this crisis is imposing on the United States that we will be living with — unless they are reversed — for a long time.

My second point wants to drive home something I've mentioned before and a number of you have commented to me about, so I want to get very clear. The United States private capitalist system — often referred to as the private sector, or the dominant part of our economy, which is not the government, but is private capitalist enterprises — that system is now on life support. Think of private capitalism as a three-quarters dead enterprise. It can't live anymore. It's run out of gas. It's run out of energy.

What do I mean? The Federal Reserve, the central bank of the United States, is now sustaining our capitalist system with an endless flood of money creation that they produce electronically, on a bank account. And they make that money that they're creating, literally out of nothing, they make it available at interest rates barely above zero. In short, the Federal Reserve is making free money available because the capitalist system can't work without that anymore. That's what I mean; it's life support.

Let me explain. This year the Federal Reserve began lending directly to corporations. Not going through indirection — they did that in the past — no, right here. Here's some. You need money? You're a corporation in trouble? You made a bad decision about what to produce? You chose a poor technology? You're being out-competed by the Chinese? Whatever your problem, here's the quickest, easiest way to solve it. Come get the free money. It's as childish as that. And so the Federal Reserve produces money and lends it to the corporations. That's called “monetary policy.”

But then let's look at the other way the government is life-supporting capitalism. It's called “fiscal policy.” That's when the government cuts taxes, so people have more to spend, and companies have more to spend. And at the same time the government spends more itself, pumping all of that purchasing power into the economy. When government cuts taxes, as Trump/GOP did, and spends more money, as Trump/GOP did, guess what. It runs deficits.

That's right. In order for the government to spend more while it brings in less in taxes, it's got to borrow the difference. And here's how it works, friends. Here comes High Finance 204. You ready? Good. The federal government borrows money. Trillions, right now. It gives treasury securities, a little printed document, to every bank, to every insurance company, to every corporation, to every rich person that lends to the United States government.

So here's how it works. The government can run a deficit by issuing treasury securities to the public that buys them. And then here's what the public does: Within minutes of buying a treasury security from the US Treasury to fund the deficit, the bank or the insurance company turns around and resells that treasury security — you guessed it — to the Federal Reserve, which uses fresh, new money to buy the treasury security.

The end of this game, this kind of Three-Card Monte? Well, the federal government can spend more than it takes in in taxes, supporting a dead economy, and the Federal Reserve is sitting on a mountain of treasury securities it has bought. So in the end, the Federal Reserve is sustaining US capitalism — directly by loaning to corporations, and indirectly by loaning to the federal government — to run a huge deficit, excess of trillion dollars.

Here's what the meaning of all this is. First of all, our private capitalist system is defunct. It can't work. It's busted. You know what the hottest new term in high-tech economics is? Here we go — the “zombie corporation.” I've talked about this before. That's a company whose profits are not enough to cover the interest it owes on its debts. So the only way the company can survive, since the profits are not enough to cover the debts, is to borrow more, so it can pay off the debts of its earlier borrowings and thereby becomes more zombified than it was before. Am I describing a fantasy? No, I'm describing the reality of US capitalism.

And nobody says a word. All of those libertarians — this must be their worst nightmare. The federal government is not an intrusion; the federal government is the only thing that keeps private capitalism from a complete bust. And that's the reality, folks. And the Republicans go along with it, and the Democrats go along with it, because nobody wants to say that the emperor has no clothes, that the system is busted, that it doesn't work.

And here's another dimension of all of this I don't want anyone to miss: The only way that the Federal Reserve can do all of this is if the government says it's okay. The only way that the government can keep going is if it taxes large numbers of people, as well as borrows money in the end from the Federal Reserve. So everybody's in on this game.

And what do we know about this way that the Federal Reserve is keeping capitalism going? It's funding the most extreme inequality in a century of American history. The 50 richest billionaires in America have made out like bandits over the last six or seven months. Covid is good news for them. The crash of our economy is a source of immense wealth for them. You may be having difficulty, and I may be, but the inequality is growing like a mushroom after the rain. And we, with our taxes, are funding the government that is making all that possible. So I want you to take a moment to feel good that the taxes you pay — when you buy a beer, when you fill your car with gas, when you pay your income tax — that money is helping to sustain monetary and fiscal policies that make the United States even more unequal than it was before these twin crises hit.

Unequal: big business versus small and medium. Unequal: rich and poor. Whatever else is going on — this capitalism may be on life support, but the rich are making money all the same. Never let a good crisis, or a good pandemic, go to waste. That's the real slogan of US private capitalism.

My last update that we'll have time for has to do with the eviction tsunami that's coming. Before I even talk about it, I want to recommend a book. There's an extraordinary fellow; his name is Matthew Desmond. He's a professor at Princeton of social sciences. And in 2016 he wrote a book that is more important now than it was four years ago when he wrote it. It's called Evicted: Poverty and Profit in the American City. It won a Pulitzer Prize, and rightly so. If you're interested in any of the things I'm about to tell you, get Mr. Desmond's book. Matthew Desmond, Evicted: Poverty and Profit in the American City.

The Centers for Disease Control set a moratorium in March, and they renewed it again last summer. It says that folks don't have to pay their rent, and can still not be evicted, until the last day of this year. So we're talking less than two months from now. Many millions of Americans have accumulated rent, because the moratorium delays the rent you have to pay, in effect, but it doesn't erase it. You owe your landlord that money. It is being very inconsistently enforced across the United States, so for some of you this may be news, because you may be haunted by the lawyers for your landlord who is trying to get around this. Landlords have ways of evading it. They can evict you for some other reason, other than not paying rent, if they can make a case. The rents accumulate, so that millions of families are going to be owing many months of rent on the 31st of December, and there's no prospect that they will earn the money enabling them to pay.

This is the worst crisis of the renter — millions in America — since the 1940s. That's almost a century ago. And during the Great Depression of the ‘30s and ‘40s, there were also moratoria, but there were also direct actions by renters who did not pay, and who had fights — sometimes violent — with landlords around this issue. More can be done today by simply doing what was done back then. There have been 3.7 million evictions in an average year in recent years — many times more than in any European country. Seven evictions every minute of the last few years. Poor people pay more than 50 percent of their income in rent. It is a catastrophe. An economic system that doesn't pay people enough to buy their own housing is a system that isn't working.

We've come to the end of today's show, the first part. And before we move on, I want to remind you that we've now published a third book of mine with Democracy at Work. It's called The Sickness Is the System: When Capitalism Fails to Save Us From Pandemics or Itself. It's a compilation of essays that aims to explain how and why capitalism, not covid, is the sickness we have most to worry about. Get your copy today at democracyatwork.info/books. I want also to thank our Patreon community for their ongoing and invaluable support. Please continue, if you like this show, to go to patreon.com/economicupdate to sign up and get access to all kinds of extras that we provide. Stay with us; we'll be right back.

Welcome back, friends, to the second half of today's Economic Update.The second half today is devoted to a single theme. And the theme is, no matter who wins — Mr. Trump or Mr. Biden — some things are not going to change. And those are as important, if not more so, than whatever the outcome of this election turns out finally to be. So let me begin.

No matter who wins, what will not change is the capitalist organization of the US economy. The overwhelming majority of businesses will continue to be run by a very small group of people at the top — the owner, the board of directors, the major shareholders — who make all the key decisions that the vast majority of us employees have to live with. We have no control over those decisions. Those are the people who decide what gets produced, how it gets produced, where it gets produced, and what is done with the profits that come from the work we all contribute in each enterprise where we work — in each factory, office, or store.

That's not going to change. You know why? Because both of those parties, and both of those candidates, are committed to that way of organizing business. They never say a word about being interested in an alternative, let alone giving the American people some real choice about the alternative, which means that we're going to allow that small group at the top to take the bulk of the money for themselves, which they've always done, and to use part of it to control the political system, that we live with, so that their power is not only economic, but also political.

You get the picture? No matter who wins. You see, the fight in the politics is only about who is in charge. We both know, they both know, that what they do in the way of supporting capitalism is indistinguishable between the two of them. That's their top priority. They disagree on the ways, but not on the goal. One way to see that was the remarkable theater around the nomination of Amy Coney Barrett to the Supreme Court. There we had it: a person whose last judicial decision was a key ruling blocking many gig workers from suing in court when tech companies cheat them out of overtime pay. That's from an editorial by Len Goodman, a Chicago attorney, in the Chicago Reader newspaper of October 27th.

Attorney Goodman makes a wonderful point, that the opposition of the Democrats was pro-forma. They didn't expend any political capital to try to block it, because in the end, Amy Coney Barrett is just another justice for whom capitalism is the beginning and the end — can't see beyond it, can't see outside of it, stuck in that point of view. But that's what both parties want. So the Republicans push them, and the Democrats go through some pro-forma opposition. The Democrats will in turn pick another person. It's the same game, the same people, the same establishment that is being reinforced. But maybe they understand that capitalism is heading into tough times and they need to shore up those who can't see beyond it on the highest levels of American political life.

No matter who wins, the private sector and the government will continue their shared failure to overcome capitalism's socially destructive instability. What do I mean? Wherever capitalism has existed over the 350 years that it's become the dominant system in the world — starting in the 17th century in England and spreading to become the global economic system it is today — in all that time, and in every country where capitalism settles, it has a crash every four to seven years. That's the average. Every four to seven years, millions of people lose their job. Tens of thousands of businesses go belly-up. Cities and towns and governments are desperate because they're not getting the tax revenue they were used to because all those people are unemployed. So just when we need more public services, we can't afford to provide them.

The chaos of all of this you know, if you follow the economic history of capitalism. We knew we were due for one because the last one was in 2008. And if you add the four-to-seven to 2008, we were already overdue this year for a crash. If it hadn't been the COVID-19 it would have been something else. We have 20 years of this new century we're living in, the 21st. Twenty years. We've had one crisis in the spring of 2000, the so-called “dot-com crisis.” We had another one in 2008, the so-called “subprime crisis.” And now we have one called the “COVID-19 crisis.” Twenty years, three crises, right on time, four-to-seven-year average.

Any serious politics would have to have a political party that took responsibility for failing to prepare us. We weren't just unprepared for a virus. We were unprepared for a business downturn we knew was coming because we've had it every four to seven years for three centuries-plus. There's no excuse, but both parties act like whoa, what a surprise, an economic downturn. We have so many words: “recession,” “depression,” “boom-bust,” “collapse,” “crash.” Why? Because it's an ever-present reality. It's a failure of the two parties not to have prepared us. It's a failure to not be prepared for a virus, which we also know has been coming, from time immemorial.

But we don't have any real fight about it, do we? Nobody points a finger, because we all are pro-capitalist in this country, and so we have to pretend that the unspeakable instability of capitalism is not an issue we should ever bring up. And so neither candidate did, and doesn't. Let me say to you again, as I have in the past: If you lived with a roommate as unstable as capitalism, you would have moved out long ago.

No matter who wins, here's something that will continue: the undoing of the New Deal. You know, back in the 1930s we had another depression — surprise, surprise. It lasted from 1929 to 1941. Twenty-five percent unemployment, staggering blow to the American economy, lasting over a decade. Wow. But the people in America rose up, in a way they didn't this time. And they formed labor unions on a scale we've never seen before. And they joined socialist and communist parties. And the socialists and the communists and the unions worked together.

And they got stuff in the 1930s, didn't they? Social Security — we never had that before. Everybody who's over 65 gets a check every month for the rest of their lives so they're not a burden on their family. Transformed life in this country. Unemployment insurance — for a year or two you get a check if you lose your job through no fault of your own. We never had that before. A minimum wage, so the employer can't really screw you while you're working 40 hours a week. We never had that before either. And then a public jobs program that hired 15 million Americans, who didn't have to lose their homes and who didn't have to lose their self-esteem. We really did things.

And when the war was over in 1945, and the leader of the time, Mr. Roosevelt, was dead, they went to work — the business community and the rich — to destroy and to undo the New Deal. You know why? Were they against Social Security? No, it wasn't really that they were against them; they just didn't want to pay for them. And they had been made to pay a big part of it. Taxes had been raised on the rich and on corporations, and they had had to lend money to the government to help pay for all of this. That's what they hated, as they always do, so they went to work to undo the New Deal. We don't have a public jobs program. Here we have unemployment as bad as it was in the Great Depression, and neither of the two candidates has said a word about a public jobs program of the sort we did successfully in the 1930s. Wow. That's cooperation of our two parties — not even to think or talk about what was done in the past to help people. And all they can think of is cutting Social Security. Well, uh, it’s not affordable. And they haven't raised the minimum wage even to keep pace with the rate of inflation.

I mean, it's disgusting what these two parties will do. Yeah, the Republicans do it more, and they do it more quickly, and it's harsher. And the Democrats say, we won't do it; we're not Republicans. That's right; you're Republicans Light. You're Diet Republicans. But that's all. You don't question any of it. You just roll back the New Deal more slowly. And pretty soon there'll be no New Deal left to roll back any further.

And finally, no matter who wins, there will continue to be no real political choice in the United States. I really want to drive this point home. Americans used to — maybe many of you still do — refer to something as quintessentially American when it involves freedom of choice. We're supposed to have freedom of choice. But what it really means in practice is the desire to be able to go into your neighborhood drug store and choose freely among 27 different kinds of toothpaste, or 36 kinds of dish detergent, or 27 kinds of automobile branding. That's the choice you seem to care about. Because when it comes to politics, two is the magic number in our society. Only two. You don't need three? or six? or nine? Every European country has three or six or nine. We don't. We don't want choice, apparently — not in the unimportant thing like politics.

So what have we got? We’ve got two parties that are very hard to tell apart — particularly when it comes to capitalism, when it's impossible to tell them apart. Republicans and Democrats — the establishments that run those parties — they are cheerleaders for capitalism. They don't question it. They don't challenge it. They don't advocate for anything else. You want to have the political choice to go somewhere else? You don't have it. Those parties are persecuted. Their ability to run is made extraordinarily difficult. The system is monopolized by those two parties. We don't allow two companies to monopolize an industry without raising a question, but we allow the two parties to manipulate and monopolize from here to tomorrow. You don't have any choice. And these two political parties work very well together to keep it that way. And that's not going to change — not with Mr. Trump and not with Mr. Biden. Or maybe I should amend that. With Mr. Trump, perhaps he's interested in getting it down from two to one. But that's not the direction I would guess most of you support.

So, yeah, big election coming up. But no matter who wins, the New Deal gets eviscerated, the instability of our economy continues to function without any opposition at all to a system that is so unstable, or a system that produces such inequality, or a system that just failed to be prepared for the next crash, or to be prepared for the virus. It's extraordinary. The most profound reality for me as a critic of capitalism, for me as a professor of economics, the most extraordinary reality of the American political system and the current political season is that the system we have — which is performing so badly for such a vast majority of the people — gets a hundred percent pass. There's no critique of capitalism in the airing of the political-party debates, no question, no challenge, no rejection — nothing. That's called denial, folks, and it is something you really want to worry about the next time you talk to a therapist.

This is Richard Wolff for Democracy at Work, thanking you for your attention, and I will speak with you again next week.

Transcript by Marilou Baughman
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Showing 1 comment

  • Stephanie Carrow
    commented 2020-11-16 20:17:05 -0500
    Thank you, Prof Wolff, as always but also in particular for this episode about the duopoly parties and the curious willingness of Americans to forego choice re political candidates. I would like to add that the two major parties are also identical, these days, in their support of a bloated military budget, and almost identical in their support of war, coups, and economic warfare against other countries. Which I believe is an outgrowth of capitalism — no? One other thought: the mainstream media will not challenge the duopoly in debates, etc., because they, too, are a part of the capitalist system.

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