Economic Update: The System is the Problem

[S12 E22] New

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In this week's show, Prof. Wolff talks about insurers defrauding pensions, record highway deaths, inflation and risk, interest rate rises, Massachusetts to vote on millionaires tax, Starbucks CEO as dictator, and Mitt Romney's sudden concern with "fairness" exposed.


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 I'm your host Richard Wolff. In today's program we'll be talking about insurance investing and fraud that goes on there. We'll be talking about the economics of the highway. We'll be talking about the inflation, interest rates, and more.

Let me jump right in by starting with a guilty plea from the Alliance Global Investors Company which is a subdivision of the German giant Alliance or Allianz as they say in German which is a major German insurance company. They were convicted or pled guilty effectively to charges of defrauding investors during the Covid crash of 2020. I won’t go into the kind of morality that makes all that possible. We'll just leave it at that. They had to pay a 6 billion fine to the United States for all of the Americans that were defrauded. And before you think, “Oh that's a lot of money," let's put it in context. The amount of money that is managed by this giant is 2 trillion dollars. Six billion works out to less than one third of one percent of what they manage. This as one of the folks like that has said in the past is for them a bump in the road.

According to Gary Gensler who's the head of the Securities and Exchange Commission that's the government agency charged with supervising finance of this kind. I'm going to quote him now about this fraud that was perpetrated. Quote “The victims of this misconduct include teachers, clergy, bus drivers and engineers whose pensions are invested in institutional funds to support their retirement.” So not only were people defrauded but people's futures their pensions that they depend on were damaged and hurt and reduced. Here’s how this works because it goes on all the time and right now as we're speaking. Pensions are set up for all kinds of working people. Private and public. Money is taken out of their checks set aside invested with the intention and hope that it grows. So when they go to retire the money will be there to pay them a decent way of living in retirement. And of course here come the vultures all of the investment companies on Wall Street. The insurers and others who run these investment companies compete to get the managers of all these pensions to invest the pensioners’ money in whatever it is they're selling. And of course the people who manage pensions are either not all that savvy about these things or they look the other way for who knows what reason and the end result is that all kinds of hustles are perpetrated on the pension managers at the expense of course of the pensioners. This is a horrific way to manage the important issue of being decent to people who have given a lifetime of work and then retire. One of the reasons we have Social Security run by the government is to remove it from this kind of corruption-ridden system.

I want to turn next to highways here in the United States and to give you a statistic and then interpret it. In 2021 the year just behind us 42,915 people died on U.S. highways from car accidents. And that was a ten and a half percent increase from the year 2020 and a 16-year high. Wow. We are really a country of killing highways. And there's clearly a way that this could be drastically reduced with all kinds of other social benefits. And that is if we moved to a proper system of high quality regular public transport. The vast majority of Americans live either in cities or in the suburbs immediately around cities. It would be very easy to connect them with street railways buses. There are even cities like Boston which already have much of this. And there are many examples around the world that would make it quite easy for models to be developed in the United States. If we combined mass transit with shifting to electric rather than fossil fuels as a way to run them we’d get a twofer. We’d get many fewer people dying much less energy used up because it’s much easier and cheaper to move large groups of people in public transport than to have everyone own a private car which sits idle most of the day. Public transportation plus electric is what we need. Here in the United States however we only got half of that. We’re now getting electric but because it’s more profitable for private car companies to produce an electric car than to produce the public transport that would be better for us we’re getting what the profit-making car companies want and not what a rational response to our messed up transportation system would entail. It's really a tragic suffering of the people in order to placate and pander to profit making enterprises. It is really an extraordinary reality. And if you’re worried about the fact that if we had public transport there would be need for many fewer people to produce the cars we don't need except you know the small number of them on the edges of cities for when a citizen needs to make a long trip and wants to do it in a private car that would be fine that's a small fraction of what we have in the way of automobiles in this country today. So it's a case of rational put aside. Profitable trumps rational. And yes I notice I used the word trump. And I'm sorry that Mr. Musk is the richest person in the world for having solved half the problem. We go to electric but we don't go to transport and needless to say he doesn't want to talk about it whatsoever.

The next topic is one we keep returning to because the problem is not going away to say the least. Inflation. Fuel prices, food prices, basically all prices. And there's two things I want to make clear. Number one: a number of our political leaders have said that we are suffering from inflation but so is the rest of the world. Um. That's really not true. I mean I could use harsher language. I'll try not to. There are a couple of places in the world that have inflation as high as we do. Canada for example. But most of the rest of the world has lower inflation. And at the bottom of the list of developed countries that have inflation below two percent while ours is in the eight and a half percent range that is four times faster among the countries I thought you'd be interested to know with below two percent rates of inflation People's Republic of China and Japan. So don't tell me we can't manage it. Or don't even tell me it has to be a socialist country. Japan isn't any of those. It manages it real well. And we ought to wonder what it is about our great leadership both parties that they can't manage it. And our federal bank our Federal Reserve can’t manage it either even though that’s the job of the Federal Reserve. Okay what is this all about? Well we are told by the businesses and remember it's the business that raises the prices. Workers don't have control over prices employers do. Employers who are one percent of the population. If they have the power to raise the prices that the other 99 have to pay without having any role in deciding what they are. There’s nothing democratic about an inflation. The only thing you might call democratic is who suffers the most from it. Because the employers can raise prices to offset the extra prices they face. The workers are never in a comparable position to do that. That's why today the inflation is eight and a half percent and the rate of increase of wages so far 2022 about four percent a year. Not even close. Well what's the explanation our employers give us. Well they tell us there are supply chain disruptions. Things aren’t getting to us on time. Why that entitles them to raise prices I’ll leave to your imagination. That has to do with markets. But I want to focus on the excuse. Here we go. The Covid is another part of it. You see people held back and then they decided to spend and then they're worried about inflation. They're holding back. It is the job of a capitalist to anticipate and manage risk. There are courses in how to manage risk in every business school curriculum. One of the justifications capitalists give for why they deserve the big salaries and the profits the company gets is because they have to manage risk. Well guess what? The inflation if it’s caused by supply chain disruptions and wobbly demand means they're not managing risk. Every capitalist knows that the supplies can be interrupted. Rain can do that. Civil unrest can do that. An accident can do that. You're supposed to have backup plans. You're supposed to have inventory stored so that you can keep delivering even when there's a disruption. It is external. You know you could claim rain is your problem but someone would point out that's why you have a roof over your building so you're not disrupted by the rain. This is whining by people who don't want to square with us. They're raising prices because it enhances their profits. Take a look at their profits. Notice how they're going up with their prices.

Okay. Last before we take our break. The inflation is now going to be attended we are told by raising interest rates. Okay folks let's be blunt. When you raise an interest rate you’re hurting borrowers. And who are borrowers? Well let's see. Everybody who borrows to buy a home. Everybody who borrows to buy a car. Everybody who borrows to use their credit card. Because using your credit card is a loan. And every student who borrows to get an education. Raising interest rates whacks the borrower and that's mostly the mass of our people. CEOs don't worry about rising interest rates because they have enormous salaries that are not affected and they don't lose their jobs. But if masses of people respond to rising interest rates by cutting back like they have during the inflation because rising prices make you cut back on spending that will destroy many, many jobs. The inflation destroys jobs and now raising interest destroys job. This is an economic system that keeps telling us it can only solve its problems in one particular way. And we have to notice that the mass of the people are on the short end of that stick and ought to wonder. You can call it economic policy all you want but you know what it is: it's class warfare. The warfare of the one percent who are dumping their problems on the 99 percent.

We've come to the end of the first part of today's show. For those of you who may not know Economic Update is produced by Democracy at Work a small donor-funded non-profit media organization that is continuing to celebrate 10 years of producing critical system analysis with a vision for a more equitable and democratic world. For instance All Things Co-op is another show we produce that explores everything having to do with worker co-ops. You can find it and other content that we produce on our website democracyatwork.info. And there you can also connect with us on social media, join our mailing list and of course join the growing community of supporters who make this show and everything else we do possible each week. Please stay with us. We'll be right back.

Welcome back friends to the second half of today's Economic Update. My first update for the second half has to do with an interesting election coming up in the state of Massachusetts. There's a question that voters will be deciding this coming November. And it's called the Fair Share Amendment or in the more popular language the millionaires tax. Here's how it would work. There would be a four percent surtax on all individuals who earn over a million dollars. In other words whatever their regular state tax would be when they earn over a million dollars whatever that tax would be an extra four percent of that would be added. So we did a little research and here we go. Massachusetts has 6.9 million residents. About 21,000 of them earn over one million dollars a year. That's four tenths of one percent. Here’s what that means. 99.5 percent of Massachusetts residents would not be affected by this amendment if it passes. In other words it's a way of raising a significant amount of money that would enable the state to develop and to properly fund all kinds of social programs affecting millions of its citizens by adding a tax of four percent to 21,000 out of 6.9 million people. But of course those 21,000 in their solidarity with their fellow citizens don't want to pay more in taxes. And being rich folks they can make sure their point of view gets around. One of the biggest arguments they make is what I want to talk about. If you do that they say, and by the way this is simply a straight out threat isn't it, rich people will leave Massachusetts. You see they'll move to some other state that hasn't or at least hasn't yet passed a similar millionaires tax. That's the argument.

Well I'm an economist and I looked at the research. There's very very little evidence that where taxes like this have been levied rich people have moved. Does it happen? Yeah. But nowhere near in enough numbers to make a difference nor should anyone be surprised. There are many reasons you live in Massachusetts or for that matter in any state. They have to do with your job. They have to do with your family. They have to do with your institutional affiliations and all the rest of it. A four percent surcharge is hardly likely to be a major player in all of this. It's a lousy argument and it shows that the rich people are confident that they can buy the votes and they don't have to really come up with much of an argument. I think we ought to be very clear though what's at stake here. We are coming off of 50 years now. 50 count them. From the 70s right to the present. 1970s to the present. During which any inequality of income and inequality of wealth have gotten much, much worse. We’re long overdue for the pendulum to swing a little bit in the other way. And this very modest Fair Share Amendment is an attempt to get the pendulum at least a little bit to go back.

But I'm going to make the same criticism, having shown you clearly what's at stake, that I make with all of these efforts to redistribute unequally distributed income. And this argument is simple but clear. We spend a lot of time fighting amongst each other in this country over efforts to redistribute income and we do that because the income is so unequal in the first place. So let me tell you the same parable I have in the past. Imagine yourself with two children. You're in the park. The ice cream truck comes by and you go over and you order two ice cream cones. And you hand them to one of your two children whereupon the other one lets up a howl. Obviously you realize you've made a terrible mistake and you pressure the child to whom you gave the two ice cream cones to part with one of them for his or her sibling. But you've done a lot of damage by this redistribution of the ice cream cones. And you understand because you're a decent parent and a decent person. That to learn from your mistake means don't distribute unequally in the first place. And then you won't have the bitter divisive fights to redistribute as the lame aftereffect of the mistake you made. What you need in Massachusetts and everywhere else is a fairer more equal distribution in the first place so we don't have to waste time energy and bitter divisions fighting about redistribution afterwards.

My next update has to do with the Starbucks Corporation. No I'm not going to be telling you about all the efforts around the country to organize Starbucks. They now number according to the Guardian in Britain which keeps tracks of it, 35 states including 250 Starbucks stores. are seeing efforts to unionize. And Starbucks again according to the Guardian has fired 20 union organizers which they're not supposed to do under labor law. But I'm more interested in what the statements have been from the CEO of Starbucks Mr. Howard Schultz. I love what he said because it gives me an opportunity to respond. Here's what he said. We don't want unions. Which will come as a surprise to absolutely no one. But here's the reason. Quote “We don't want outsiders trying to dictate who we are and what we do.” You see he's against dictatorship he wants us to believe. Well let me give him a little lesson in how unions work. In order for a union to be established at his stores or in general in most cases workers have to vote in favor of a union. In other words the very existence of a union is largely dependent on voting. However the union gets in the leadership has to stand for election of the union by the workers year in and year out. By comparison no one working at Starbucks elected Mr. Schultz. Why? Because the workers don't have any democratic power over Mr. Schultz. You know what a CEO is? He's a dictator inside the company. I like to joke that we may have gotten rid of the kings that run our countries but they fooled us and they changed their name to CEO and climbed inside companies where the king still reigns. He's not subject to the vote of the workers over whom he reigns, is he? You know what the truth is? Calling union dictators is what psychologists call projection. It's the dictator who imagines that the union will run like him, be a dictator. And who doesn't either know or wants everyone not to remember that unions are governed by law as voter-based member-based institutions in which democracy is made mandatory. Something that isn't true for enterprises where there is no union. You know like Howard Schultz's Starbucks before the current union drive got underway. Shame on you Mr. Schultz. What are you doing?

My last update that we will have time for today deals with yet another millionaire. A multi-millionaire whose name perhaps is better known than Mr. Schultz’s. Mitt Romney who once ran for president, didn't do it very well, for the republicans of course. He is very proudly sitting at the top. One of the richest senators in the United States Senate which has an awful lot of rich people in it. But he became well known even more over recent weeks when he filed a bill in the Senate. Now get this. To prevent the United States government from relieving students of student debt. That's right. What an interesting contrast with Alexandria. Alexandria Ocasio-Cortez who gave an impassioned speech on the floor of the House where she's a representative explaining to those who would pay attention what it means when a 17-year-old person eager to get into college agrees to sign up for a loan whose implications and consequences they couldn't possibly understand partly because no one has ever explained it to them.

But you know rich people denying the power of the government to relieve their debts, that's kind of how the wealthy and the poor treat each other. That is the poor have few weapons so they can't treat the rich anywhere near as badly as the rich treat them. What were the arguments? Well he's concerned about fairness to students. I'm not going to laugh. I'm just going to remind you that there is very little in the history of Mr. Romney to indicate that care for poor students has ever been a major concern. And that's as far as I'll take it. But let's see what unfairnesses he doesn't care about. Back in 2017 we had one of the biggest tax cuts rammed through by the then Republican-controlled White House and Congress. The tax cuts were enormous and they went mostly to corporations and the rich. Now Mr. Romney would have known for sure being a person in the finance business that giving everybody a tax cut doesn’t discriminate here we go between the rich and the poor those who need a tax cut and those who don’t. He never said a word to that effect. He didn't care about the fairness. He just wanted the tax cut. The IRS allows if you can't pay your taxes something called the Fresh Start Program or the Offers in Compromise where they relieve some of your back taxes because you really can’t pay for them. If you listen to Mr. Romney he doesn't want to relieve the debts of students because that wouldn't be fair to the students who've already paid. Oh really? That’s what you're concerned about, the fairness? The IRS doesn't relieve the people who paid their taxes because it helps out those who can’t, does it? And you've never said a word about that. If the Supreme Court decision about Roe versus Wade becomes law there will be all kinds of poor people who can't afford to go to a state where it's legal compared to people who have money and will. You didn't worry about that fairness either or at least you kept mum. No, no you don't care about fairness. You know what you care about? You're worried that letting students off their debts will let everybody else begin to think about getting off their debt and then rich people will have to make up the difference of all that money that goes back and isn't collected from the poor. And that's all you've ever been in favor of. That's why you're a republican. That’s why you make these kinds of comments. You’re worried. You want to pit some students against others. You want to weaken the movement to relieve the students. So you come up with a fairness doctrine. Very convenient. Very selective. Shame on you.

We've come to the end of today's program. I hope you found these Economic Updates interesting. I certainly learned a lot from preparing them. And as always I look forward to speaking with you again next week.

Transcript by Alyssa Bonilla

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Showing 1 comment

  • Edward Dodson
    commented 2022-06-08 12:17:00 -0400
    On the subject of inflation, I find myself constantly repeating myself. The starting point for most of inflation is the societal failure to capture the rent of land and other natural assets. Both Marx and Smith told us that if rent was fully captured to pay for public goods and services, there would be no rental income stream to be capitalized into a selling price for land (or other natural assets, such as frequencies on the broadcast spectrum). This savings in the cost of land would then be passed on throughout the economy. Housing prices would fall to the actual value of the housing unit (i.e., its replacement cost, less depreciation). Many other costs would fall significantly, without reducing the wages or legitimate returns to those who invest in goods production.
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