Economic Update: Virus Triggers Capitalist Crash

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Today’s episode features an analysis (part 1) of how, why capitalism - especially in US - failed to prepare for or cope with a virus thereby enabling it to trigger another crash of capitalism (third this century: dot.com in 2000, sub-prime mortgage in 2008). In part 2, Prof. Wolff provides an analysis of  how to respond to crash better than the US govt by emphasizing re-employment in millions of new jobs rather than unemployment, emphasizing worker-coops, etc.

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This 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—everything that’s shaping our lives at this moment from the economic side of things. I’m your host, Richard Wolff.

Today’s program is devoted to the coronavirus catastrophe and, even more, to the economic collapse that has now happened all around it. I want very much to focus on aspects, dimensions of this crisis that are not being talked about by our leaders across the world and, of course, especially by the one we are suffering under. And I also want to talk about aspects that the mainstream media have tended either to ignore or downplay. In that way, this program can be a real contribution, I hope, to our thinking and our acting to work our way out of this twin dilemma—a virus and an economic system that cannot cope with it.

So let me start. I want to begin by focusing in on how and why there is a colossal failure, particularly in the United States—because it does vary from country to country—but particularly in the United States a failure of U.S. capitalism to prepare for this virus, this viral pandemic. And I want to begin by making it crystal clear to everyone that viruses are part of human nature and nature around us. We have had them. We have been plagued by them for as long as there have been people on this earth. And animals are also affected—number one. Number two, the United States has had viral pandemics before, lots of them. I’m going to tell you a story about one, but I could have told you many. I’m picking one, because its analogies, to what is happening to us in the United States today, are simply too obvious to overlook. This is a story of a pandemic related to the bubonic plague. That’s right. The plague, we usually associate with the Black Death in 14th- and 15th-century Europe. The bubonic plague was a disease carried by the fleas that lived on rats. And so it was associated in the popular mind with rats. Well, it lasted for a long time—centuries. It came and went. It did its worst back in the 14th, 15th century when it killed roughly a third of all the people in Europe at the time. In 1900, it broke out in San Francisco, California. It broke out. But the then Governor of California, Henry Gage, didn’t want to let the world know about it. He denied it. He hid it. It was only when federal medical authorities exposed the virus, isolated it in the laboratory that it was no longer possible for governor Gage to hide. The federal government was afraid. People were dying in large numbers from it in San Francisco. Well, it really did a number on the reputation of governor Gage. And when he ran for re-election in 1902, he was defeated by George Pardee, the new governor of California, who immediately imposed a medical solution, which did get rid, at least for a while, of the virus in San Francisco. It did pop up again two years later—another pandemic. But this time, the resources and the scientific community were able to prevail over the political hustler who risked everyone’s life, because he said it wouldn’t be good for business, which was probably true, and it wouldn’t be good for his reelection. But it turned out he blew that away too. I’ll leave you all to think about what that might imply for our current situation.

Preparing for a pandemic, in other words, is a no-brainer you would think. It’s like building roofs over buildings so the rain doesn’t get you, because it rains. It’s like building a storehouse of food resources and reserves, because, you know, sometimes there’s a drought or sometimes there’s a flood and you can’t grow the food you need. So you keep some on reserve. Everyone gets that. Here, in the United States, we have strategic oil reserves, big tanks buried underground. When oil is cheap, the government buys it and puts it in there. When oil is expensive, the government pulls it out. But it’s a reserve in case we need it, but can’t bring it up or import it. The logic is the same. Any economic system that once our loyalty would have to take care of that problem, but private enterprise didn’t in our country. Private enterprises didn’t produce the masks, the tests, the ventilators, the gowns, the beds, the hospitals—all of it. They didn’t. And you know why? Because it isn’t profitable. Who wants to make a mask and store it in a warehouse for years until we need it? Not a private profit driven company. They know profit is what their game is. That’s how they do well. That’s how they move up. That’s how they get rewarded. So they didn’t make it. They didn’t store it. And the government, which in our case in America, here believes that everything that private profit does or wants is what’s good for all of us—a delusion of enormous size—didn’t compensate for what the private capitalist sector failed to do. So the government didn’t buy the equipment. And the government didn’t buy the supplies. And they didn’t store it either. In other words, capitalism failed as a system to prepare for a pandemic, we know is always somewhere on the horizon. But there’s a second way that capitalism is important to hold to account these days. Capitalism was weakened. Capitalism was in bad shape when this virus hit. I know President Trump keeps telling us or did, until now, of course, how great the economy was. Well, that was just like old governor Gage back in San Francisco in 1900—don’t believe it.

Here’s a historical example that might give you a way to understand the relationship between capitalism and this virus. Back in the 13th, 14th, 15th century, we had an already weakened feudalism in Europe. The people back then didn’t know how to deal with depleting soil fertility. They put crops in the same place year after year not realizing that the yield per acre, the yield per person would go down. Inequality between rich lords and a mass of poor serfs grew. And by the time the fleas and rats arrived, people were poorly nourished, badly nourished, not in good shape. And that’s why the disease was so terrible. And as historians teach us, when the disease came and wiped out third of the feudal society, mostly serves, many of the lords went belly up. They didn’t have the villagers to produce that extra delivered to them as rent. Here’s the story in a nutshell. A weakened feudalism was vulnerable to a terrifying disease, which further weakened the feudalism. Parallel, a weakened capitalism was affected by this pandemic, by the coronavirus. And the suggestion of history is it will weaken the capitalism that was already weak before. But to make this point I have to show you, which I’m about to do, as best I can, how and why capitalism was weak, when this virus hit us.

Here we go. Number one, corporations, businesses—large, small, medium—have a greater load of debt going into this virus than they had ever had in history. And the reason is because of capitalism. The crash of capitalism right after 2000, the so-called dot-com crash. And then again, the crash in 2008, the so-called subprime mortgage crisis. One of the ways that capitalism dealt with the crashes then was to pump money into the economy and to lower interest rates to virtual zero, as you all know. Therefore, every business did what? Every business that had a problem, a bad investment, a mistaken choice of what to produce, tensions with your workers, a technology that didn’t work. You know how they solved their problem? The cheapest way available, which was borrowing money at no cost. The federal government was pumping the money in, charging no interest. So every business loaded up on debt—reasonable, unreasonable. It didn’t matter. There was no system to weed out those who shouldn’t have borrowed, because they could never pay it back. When the virus hit, corporations were already in trouble. The same is true of individuals debts for obvious reasons. Corporations were sending jobs abroad, you know that, for decades before the virus hit. The jobs that were left, paid less, were less secure, and had fewer benefits. In plain English, it means you didn’t have the health program you once had. You didn’t have the security. So you were full of anxiety. You solved the problem by borrowing money, which only added to your anxiety as you understood what could happen to you if you didn’t pay back—your loan. People were distraught. People were saving. They were compensating for bad jobs, bad benefits, bad security by not eating properly, saving money, buying the processed bag of chips rather than eating fresh vegetable—you know the story. Of course, our society was weakened in the face of the coronavirus, the way feudalism in Europe had been weakened when the bubonic plague hit. Then we had the same other kind of problem. After the crash of 2008, the government through trillions at corporations. They were supposed to hire us all back—they didn’t. They were supposed to recreate the economy that was successful before—they didn’t. You know what they did? They said, “We’re going to take this money and do the only profitable thing with it”, which isn’t surprising, because they’re profit-making companies. So they bought their own stock in the stock market. That boosted the stock market, boosted the salaries of the corporate executives, whose salaries were tied to the value of the stock in the market. They did the things that were good for them, not for the rest of us. So the stock market boomed. We did have an inflation with all the extra money, not in the goods and services you and I buy in the store, but in the stock market, which went wild, which made the top ten percent of Americans very very rich. And so they could afford, and did afford, all the good things in life. And everybody else had to make do with less. But that’s not making do without consequences. The consequences was to undercut our health, undercut our well-being, undercut our reserves. We became a society living from paycheck to paycheck, more and more unable to afford the things that can comfort you in life in a safe way and turning instead to those that comfort you in ways that are not good. For what? For resisting a virus among other things. The notion that our economy was great before this virus hit, is fake. It always was fake. It’s the perspective of those who live off the stock market. And even the stock market’s boom was fake. Because it was all that money, thrown in by the government, that was supposed to rebuild a healthy economy, but didn’t and went instead to the stock market bidding up the prices to atmospheric levels that were not sustainable. And how do we know that the stock market boom was unsustainable? Because when the virus arrived, the stock market dropped like a stone, eradicating trillions in wealth. Little final point. The loss of wealth in the last month is many times more than what it would have cost us to prepare for this pandemic, to produce and store all of the materials we needed. Capitalism made disastrous inefficient choices. We’re living with the results.

We’ve come to the end of the first half of today’s program. Please remember to subscribe to our YouTube channel. Follow us on Facebook, Twitter, and Instagram. Be sure to visit democracyatwork.info to learn more about other Democracy at Work shows, our union co-op store, and our two published books: “Understanding Marxism” and “Understanding Socialism”. And lastly, of course, special thanks to our Patreon community, whose invaluable support we treasure and make this show possible. Stay with us. We’ll be right back.

Welcome back, friends, to the second half of this program devoted entirely and specially to the coronavirus catastrophe and the economic collapse that has happened together with it. And again, I want to do things and talk about things that are not discussed by our leaders nor by mainstream media. And in particular, I want to devote this half, the second half of today’s program, to what should be done now—question many of you have directed to me. What is it that we ought to do that is not being discussed and certainly not being done?

Let’s start. This is a true national social emergency. It affects all of us. It threatens all of us. And if ever there were justification for a democratic response in which all of us, who are affected by this crisis, can share and participate—one person, one vote—to decide how best to cope. That’s how it should be done. Because that’s the honorable ethical moral democratic way to cope. We’re not doing that. First of all, with the economic crisis, which is what I’m concentrating on today, what the government has done so far is to throw an enormous amount of money mostly at the business community. Whether it’s the Federal Reserve making money available, cheap loans on a scale we’ve never seen before, counted in the trillions, or it’s the Congress, the executive, and the congressional legislative branch passing a stimulus law that, again, sends trillions into the economy, it’s mostly going into the hands of businesses. What does that mean? It means that in a typical corporation, the people at the top, the board of directors, a typical group of 12 to 15 people is making the decision of what to apply for from the government and what to do with whatever the government gives you, Federal Reserve, U.S. Treasury—whatever it is. That’s not a democratic mechanism. That’s allowing a tiny group of people who, moreover, are committed to profit as the bottom line to make the decisions. That’s a terrible mistake. How do we know that? Because we know what happened the last time the American capitalist system crashed in 2008. Again, trillions were thrown at the business community, again, by the Fed and by the U.S. Treasury. And once again, the people at the top took the money. And what did they do? Rebuild the economy the way it was before? Not at all. Put billions of people back to work in the jobs they once had? Not at all. Here’s what they did with huge portions of the money thrown at them. They raised the salaries of top executives. They bought back their own stock in the stock market to drive up the prices of those stocks which were owned by the shareholders of the company. That’s right. Corporate executives and shareholders did with that money what was good for them. And in case you need a little provocation to be outraged, some of the money the government threw at these corporations was used by them to lobby the same government so it wouldn’t impose regulations on them because of the crash. Whoa. Is that the appropriate way to respond to a crisis that affects everybody? The answer is “no”. Here’s what should happen in every business. A new council—call whatever you want: the Virus Council, the Pandemic Council, the Economic Crash Council—composed of everybody who works there, board of directors too—we won’t exclude them, not that they don’t deserve it—one person, one vote—from the sweeper of the floor to the CEO. Because we’re all in this together, aren’t we? And we should all be involved. Guess what would happen if we did this? And here are some of the things that should happen. They’re not going to happen, because the people who are using the money for profit have the control. And the people, who need what I’m about to list with you, don’t have the control, which is why it isn’t being done. Every business should be reconfigured to be safe. Every line of business should be socially distanced: how the counters in the store are laid out, how the machines in the assembly line is laid out, how the school is organized. Come on, you can understand. We need to do that. Number two, all the people currently unemployed, why aren’t they being hired to do the testing that this country needs? And not just the testing, in other countries they do something called tracing. We need millions of people to become tracers. You know what that means? If someone gets sick, you trace all the people that that sick person had contact with in the previous two weeks to get them tested, because they’re in danger, even if they don’t know it. That’s an enormous job that ought to be done. Every workplace has to now be cleaned, disinfected. It has to be dealt with like we’re serious about what it is we’re doing. We need monitors to make sure that the masks are there and adequate, that the gloves are being worn every day, that the dirty ones are discarded, and the clean ones replaced. Companies haven’t been doing that. And there’s no way to rely on them. They’ve just shown us. They do what’s profitable and spending all the money on cleaners, and disinfectors, and social distance managers isn’t their idea of making money. So they don’t do it. Here’s what we mean and are not getting: a program to transform our economy—enterprise by enterprise—so it meets our social needs, not primarily the private profits of what is a tiny minority of corporate executives and major shareholders. If we don’t do that, we’re going to get again what we got after 2008. You know what that is? The same capitalism that existed before, that waltzed us into the crisis of 2008, was established and waltzed us into this one. Are we really going to learn nothing? Are we really going to let it happen again that a tiny core of profiters sitting at the top of this system are going to continue? Here’s a warning from history. If you react to this plague in the way that the feudal lords reacted to the plague of the bubonic sort back in the Middle Ages, then capitalism will be disappearing just like feudalism did. Because in the end, it’s not sustainable. Just as millions and millions of workers in the United States, as we speak, are confronting an employer class that wants them to go back to work, take the risks that that close proximity to co-workers means, even though the same employers and the same Trump that they control, didn’t spend the money, neither the private money of the corporations, nor the money of the government to transform those workplaces so they might claim to be safe. It is outrageous. And that lesson is not lost on the American working class. If you think it does, you’re making what will be for you—the same fatal mistake.

Well, how might we go about transforming things? Let me begin this by telling you how Europe is handling this crisis different from the United States. In Europe, they are not letting employers fire people. They’re having the same problems: the restaurants are closed, the cafes are closed, the factories are shut. Those problems they have too for the same reason—the same virus. But they’re not handling it the same way. There is no major increase in unemployment the way we have in this country. They haven’t had 17 million people lose their jobs in three weeks from the middle of March to the early April. No. You know why? Because they have a different system—you stay on your job. The government helps pay your wages. That’s how the thing is handled. They don’t want you to lose your job. They don’t want you to have anxiety that you’ll never get that job back. They don’t want the company to go out of business, because that hasn’t got workers and it’ll be too costly and too longer time to find workers to replace those who left when they were on. They don’t want any of that. So they’ve kept their people working. Well, not working—idle. But they keep getting their wages. Well, that’s better than what we do in the United States for all the reasons I just mentioned. But it’s not good enough and it isn’t the solution. Why are there any people either unemployed or idle? There’s lots of work to be done. Only capitalism holding on to the enterprise that’s privately profitable for the investor, only that kind of system solves problems by laying off people or paying them when they’re not doing anything, because that’s inefficient on a human scale, on any rational scale.

So here’s what we ought to do and this is just a partial list. Number one, we have millions of people who are schoolteachers in America, who are not going to school, because schools have been shut down. Every one of those teachers and in addition retired teachers ought to have been hired immediately, not laid off, not unemployed, not paid with a wage even though they’re not doing anything—pay them, by all means. But here’s what we do—one-on-one tutoring, a very good way of learning. All the teachers become tutors. They meet with a student one-on-one through social media—one, two, three hours a day. And a bureaucracy is set up to manage that, which can be done electronically. Every skilled worker in America who loses his or her job can teach other people the skills they have. Let’s do it—one-on-one tutorial. Let’s give people an incentive. Let’s give them more help financially through the crisis if they take a course and learn something. It’s good for our society. It’s good to hire the people who will be the teachers. It’s good to subsidize the effort of people to learn. So they come out of this crisis with more skills than they went in. Come on, we can do these things. There are other things we can do that I’ve mentioned already, but I mention again—an army of testers. So we finally test our population. And that has to be done on an ongoing basis, not just once. Because if you’re clean once, you may not be in two weeks, or six weeks, or a month. And your coworkers need to rely on you. We need testers. We need tracers. We need it all. And then there’s the greening of America. And then there’s all of the work to reconfigure our transportation systems and so on. So that can be safe—lots of work to make this economy safe. And here’s a big one that I’m particularly interested in. I want to adopt the Marcora Law from Italy. Italy passed a law in 1985, still on the books. Here’s how it works. If you become unemployed, the Italians don’t want you to sit around there anxiety-ridden, losing your self-esteem, having psychological problems, drinking too much, you know. And so here’s what they did. They said to the unemployed, “If you get together, any unemployed person, with at least nine other unemployed people that you can find, and together you start a worker co-op. We, the government, will give you your entire unemployment package—year, year-and-a-half coverage of weekly payments—we’ll give it to you as a lump sum right now with which you can start your co-op business.” What about that? What about giving Americans a big chunk of the stimulus money to start worker co-ops to get together, to find those ten people or more that you start with, to develop a business plan, to begin to go into business in whatever ways are safe at this point. You know what that would do? Not only give important creative opportunity to people who are otherwise sitting around feeling terrible, it will also do something more. It would give America a worker co-op sector. You know, like Emilia-Romagna that district in Italy already has, a place in Italy, a region where 40% of the businesses already are worker co-ops and doing great—work, by the way. Why don’t we do that? Give Americans a worker co-op sector, make something positive happen out of this crisis. And then we would all have freedom of choice. We would be able to see what a job is like if you work in a worker co-op that’s democratic versus a top–down capitalist enterprise. What quality of work do they do? How do they contribute to society? We’d actually have freedom of choices about that. We don’t have it now. This is a crisis from which we could learn what’s wrong with the system we’ve had and what an always needed changing, but now stares us in the face with this choice. Either change this system, or now the costs of not doing it are becoming fatal.

This is Richard Wolff. Thank you for your attention. And I look forward to speaking with you again next week.

Transcript by Aleh Haiko

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Showing 6 comments

  • Maria mania
    commented 2020-04-23 16:02:16 -0400
    Thank you for the clarification Caterina! We will be sure to notify Prof. Wolff.
    Stay safe!
  • Caterina Strambio De Castillia
    commented 2020-04-22 12:55:16 -0400
    Just a small clarification that does not alter in any way the substance of Prof. Wolff’s argument. I just thought I might mention it as a matter of record: the Bubonic Plague is not caused by a virus but by a bacteria called Yersinia pestis. This does make it quite different because in general, we know more about how to treat bacteria better than we know about how to threat viruses.
  • Jp Thomas
    commented 2020-04-22 08:54:15 -0400
    I am still waiting for analysis of the accuracy of the covid19 tests and death certificates. Why is alternative media accepting the main stream statistics when they and their sources are highly connected to the billionaires through their funding of the WHO, control of the CDC etc. Vaccine development and production is not subject to standard testing rules used for other pharmaceutical development and developers have zero liability when people get sick. The US government and tax payers have paid 4 billion dollars for lawsuits due to harm from vaccines. What is going on with businesses being encouraged not to accept cash. A digitized economy will be disastrous for democracy and individual freedom. What do you do when your digitized card or what ever they decide to use, maybe a chip in your hand, is declined like a credit card is. You cannot make a purchase. Total control over you by the bankers.
  • Benjamin Schroeder
    commented 2020-04-20 22:53:12 -0400
    It is time we roll-up our sleeves and get to work in changing our present capitalism system. We must change one company or business at a time to a democratic system of one vote per person.

    This will be an up-hill battle because the owners of big business do not want to give up control. Why? Money and control! Why should a person at the bottom have a vote equal to that of a CEO? Why distribute money to the likes of a person at the bottom!

    As this failure of capitalism gets worse now is the time to act. Look down the road perhaps 6 months to one or two years. Can you see a complete breakdown of society as we remember it! Marshal law can happen as people are forced to find food, clothing and shelter.

    I am sure that many Americans can get together and secure business loans to start/buy business to get a worker co-op up and running.
  • Henrik Wahren
    commented 2020-04-20 19:43:11 -0400
    Excellent as usual, but note that the plague was and is a bacterial disease and not viral (correct this at 3:51). The difference is important.
  • Alexandru Gurgu
    commented 2020-04-20 12:24:11 -0400
    We are still capitalist because we are lazy. We are lazy to think a new system, a socialist system.
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