Economic Update: Why the US Constitution is an Obstacle to Change

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In this week’s show, Prof. Wolff presents updates on the US banking crisis, plant closing injustice, growing child labor in the US, Biden's budget's tax "proposals," and a new book that shows US homelessness is an economic problem. In the second half of the show, Wolff interviews Prof. Robert Ovetz on how and why the US Constitution blocks social change.

Timestamps:

  • 00:00 - 01:06 - Intro
  • 01:07 - 05:06 - US banking crisis
  • 05:07 - 08:30 - Plant (Pactiv Evergreen’s PaperMill) suddenly shut in Canton, NC:
  • 08:31 - 09:38 - Illegal child labor employment
  • 09:39 - 12:25 - Biden's budget's tax "proposals"
  • 12:26 - 14:40 - Homelessness
  • 14:41 - 15:43 - Announcements
  • 15:44 - 29:35 - Interview with Robert Ovetz


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 those of our children. I'm your host Richard Wolff. In today's program we're going to be talking about the banking crisis that has enveloped the United States yet again, we're going to talk about plant closings, what they mean, child labor in the United States, the bizarre budget proposal of President Biden and then some new research on homelessness in the United States and with an important book. And then we'll turn to an interview with our guest Robert Ovetz, who will have something to tell us about the U.S Constitution.

Let's jump right in. I don't want to rehash what most of you already know about the collapse of the Silicon Valley Bank and the bank runs and crises that have been proliferating above and beyond the surface of events ever since. I want to stress, however, something you may not have thought about. We now live in an economic system that cannot protect us - not you, not me. We've had two dramatic lessons, even though there are lessons like this every day, we've had two dramatic ones: horrible catastrophe of a derailment in East Palestine, Ohio and now catastrophic collapse of a bank in San Jose, California. It's extraordinary. The system doesn't work, the banks can't do what they're supposed to or are driven by profit to cut safety, to cut care, to cut their responsibility. The railroad companies can't do it, the banks can't seem to do it, the institutions, governmental commissions and so on that are supposedly regulating and supervising, they can't save us and protect us either.

Let me go over the timeline that leads to the banking crisis. We have a pandemic and an economic crash in 2020 that was not prepared for, that was not managed very well. We really took it on the chin. That, in turn, was handled in so bad a way that it was followed by an inflation when we could barely recover from the pandemic and the crash. The inflation led to herky-jerky governmental policies, which included raising the interest rate which hurt the same poor and middle-income people that had already been hurt by the crash and the pandemic and the inflation. And now we're told we're going to have a recession.

Well, with rising interest rates the value of bonds go down. No one seems to have said to themselves in the halls of power 'banks invest a huge amount of their deposits in government bonds, they've been doing that for, let's see, two centuries.' So it's not as though it's a secret. And if the bonds go down in value when interest rates go up, which they do, and which they have been doing for six to eight months now, the logic would say 'uh-oh, if something goes wrong the banks are going to have a lot less wealth in the value of those.' But no one thought it through, no one took the appropriate steps. The banks took bigger and bigger risks, probably hid half of what they were doing from the...

It's the same old story. If you leave private enterprise in place it will undo, it will subvert any regulations put in. After 2008 and 9's catastrophe we had some reforms; the Dodd-Frank Act and others. What did the banks immediately do? Go to work lobbying with their money to reduce those regulations. President Trump went real far in reducing them, just like in a few years before the collapse of 2008 and 9 the repeal of the Glass-Steagall Act - a reform after the Great Depression of the 30s - opened us up for the 2008/9 catastrophe. That this is going on should surprise no one. That the people of this country tolerate a system that works like this, that's the issue.

Let me turn next to a town you may never have heard of: Canton, North Carolina. There they have a big factory that employs a very significant part of the population. It's called the Pactiv Evergreen paper mill, which is important in that area. They recently announced a restructuring aimed to make the company more profitable. And they also announced that they would be firing 1,100 workers in the factory in Canton, North Carolina. Now, I want to stress two things: a tiny board of directors, numbering less than 20 people, made a decision that's profitable for that company and that involved firing 1,100 people. Those people fired had no say at any step in this process. They were told that they will have to get a new job by June of this year. The fact that they may have made a commitment to buy a house for the next 20 years is of no concern to the company. The disorientation of their children, of their families with the anxiety and the loss of income that is looming upon them at a time when the economy as a whole is in not good shape either could count for nothing. This is the opposite of democracy, the people affected by a decision are excluded from participating in it.

But even worse, let me explain to you as an economist: let's suppose a decision by the company is correct and they make 50 million more dollars of profit over the next few years than they would have if they hadn't done that, let's give them that. By the way, there's no certainty that that's true, but let's let's assume it. But then we would have to ask what are the losses to the 1,100 people who have no job anymore for the next few years, the households of that many people. We're talking five thousand people. They're not going to have wherewithal, many of them are unable/going to be unable to make their mortgage payments. They're going to have to try to sell their house at a time when no one is moving in because their jobs are being cut. The local town, the state of North Carolina will have less revenue because 1,100 people aren't going to be able to pay taxes because they don't have a job. I could show you quickly if we add up all the costs, direct and indirect, from this decision it could easily be 500 million dollars, in other words, to a society as a whole, to all of us.

This is a stupid decision because the costs are much greater than the gains. But we have a system that allows a tiny number of people to go after those gains, even when and if the social losses dwarf those gains. That's not only undemocratic, that is irrational. That's a system that is making bad decisions because of the way it's organized. And we do that every day.

There's a new report out by the Department of Labor, Health and Human Services. It's a new report - 2023. Here's the statistic I want you to think about. Since 2018 there's been a 69% increase in illegal child labor employment in the United States. The U.S Department of Labor reports it has 600 investigations of employers now underway where they have a legitimate complaint of child employment. You thought we had that problem beat. You thought we had outlawed child employment in this country. Well, yes we did. But the corporate profit-drive will and always has gotten around the laws, the regulations when there's money in it. And there is, because you can get away with paying children, especially the children of immigrants, very little money.

I turn next to the budget proposed by President Biden. It's very hard to maintain politeness when you're talking about such fakery. Before I tell you about the budget let me tell you that this is pretty similar to what he proposed before when the Democratic party controlled both Houses of Congress and they didn't get it then. Therefore to propose it now when the Republicans control one House it's more certain than ever that they're not going to get this. So proposing these things is a bit of public fakery. It's theater, it's political theater - 'this is what we want.' Because everybody who counts knows it's not going to happen.

But here we go. Number one: increase the income tax for people earning over four hundred thousand dollars to 39 percent. Gee, now it was 37%. What a dramatic change that isn't. Number two: increase the capital gains tax on shareholders, so you pay on the difference between what you bought the stock for and what you sell it for - the capital gain. And they're raising it, he proposes, from 21 percent to 28 percent. That's pretty boring, too. It'll hurt the people who have that money but won't hurt them very much, will it? And finally a minimum tax on billionaires. Well, in this country we have 320 million people and we have less than five or six thousand billionaires. So that's not going to affect very many people either.

So there it is: bold, brazen and absolutely pointless, just for theater. And guess what? The Republicans will give us their theater. They will trot out the dead old arguments against this dead-on-arrival proposal, as if it mattered. And we'll hear things like 'gee, you're stifling innovation or investment, you're taking money away from people.' Oh goodness, I just told you about that poor town in North Carolina, look what's being done to those people, shaking their lives to the foundation. But we're supposed to empathize with the billionaires who'll have a little less in the way of a billion than they might otherwise have had if this had a chance, which it doesn't. What a weird country to live in, with the problems we have. And political theater is what our leaders give us.

Final update that we have time for today: there's a new book, and when a book comes out like this it makes an important point. I want to begin to mention it to you. The authors are Gregg Colburn and Clayton Aldern and the title of the book is Homelessness is a Housing Problem; was published in 2022, so it's a new book by the University of California Press, a very prestigious university press. Here's what their book shows us in great detail: that the problem of the homeless in America, and we have now huge numbers that are growing every day... The problem of homelessness in one of the richest countries in the world (the U.S) is not mostly about drugs, poverty, crime and all the rest of the things that have been said - mental health, you name it. Here's what the answer is: it's a problem of a shortage of housing and high rents.

Whoa! It's an economic problem, mostly. In other words, our economy produces too few homes, even while the rental to live in them is too high. In order for our system to be adequate to house the people who live in it you have to either give them the income needed to pay the rents or bring the rents down to what the income is they can afford to spend on them. We don't do that in this country and that's why we mostly have homelessness. The stuff about the drugs and so forth is meant simply to focus attention away from the economy that doesn't provide homes to people and to put it on the people themselves. In other words, blame the victim.

We've come to the end of the first half of today's show. Please stay with us, we will be right back. Before we move on I want to remind everyone that Economic Update is produced by Democracy at Work, a small donor-funded non-profit media organization celebrating 10 years of producing critical system analysis and visions of a more equitable and democratic world through a variety of media. Like the long-form lecture series I host called Global Capitalism, designed to help others understand current economic events and trends so they can explain the impact and effects capitalism creates across the globe to others. Global Capitalism is available on our website democracyatwork.info. There you can also learn more about everything we produce, sign up for our mailing list, follow us on social media and support the work we do. Please stay with us, we will be right back.

RW: Welcome back friends to the second half of today's Economic Update. I am very pleased to bring an old friend of mine to the microphones and the screens - someone who's done the kind of work that I try to do on this show as well. His name is Robert Ovetz, he teaches at San Jose State University in California and also at the University of California at Berkeley. His published work in books and articles focuses on labor history and class struggles. His most recent book is called We the Elites: Why the U.S Constitution Serves the Few, a class analysis of the U.S Constitution. So first of all, welcome Robert Ovetz and thank you for your time.

RO: Thanks for having me.

RW: I want to jump right in. And, as I'm sure most of our listeners and watchers well know, whether you're looking at the Supreme Court conservative majority or countless conservatives in various parts of our federal, state and local government, they like very much to support, to justify, to rationalize what they do and what they say by stating that they are with the founders of our country, with the people who wrote the Constitution and with the Constitution itself. And that therefore their interpretation is legitimate and everybody who doesn't behave the way they wish is therefore illegitimate. Well, I thought it would be particularly interesting to our audience here if someone who has studied the Constitution, written about the Constitution could come before us and weigh in and tell us what you think. Starting this way: what you think about the way the Constitution has been used to support, basically, the right-wing in American politics for quite a while.

RO: Well, Rick, as any of your listeners have heard you talk about numerous times is that it seems that our system of government fails the economic majority, or another term that I use for the working class over and over again. And while it seems like there's the possibility of reforms around the environment or workers rights or a woman's right to choose her own reproductive methods, we lose over and over again. And what motivated me to write this book was to try to get out what is going on with our system of government. Why is it that our system seems to block what the majority wants over and over again?

And what I found in my several years of research of reading who I called the framers - their letters and pamphlets and the transcripts from the debates of the Constitutional Convention and the state ratifying conventions - is that this is not an accident, this is not a symptom of partisanship or big money. This is caused by the design of the Constitution itself. In order for us to understand why the economic majority cannot get what it wants we have to understand how the Constitution was designed by the economic elites of the late 18th Century to do what I call constrained political democracy and prevent economic democracy. And, as your listeners have heard you talk about for many years, is that we need economic democracy in order to transform the way we govern ourselves.

But unfortunately our constitutional system was designed with numerous what I call minority checks in order to provide the opportunity for the economic elite, the ruling class, to be able to block any change that it opposes. So to get back to your question, when Republicans and conservatives talk about their interpretation of the Constitution essentially they're saying 'well, the Constitution was designed to protect the capitalist economic minority. And those changes that you want, sorry, but it's opposed by those who fund us and those who back us and so you can't have it.'

RW: And so your argument, and correct me if I've misunderstood your argument, is that they're basically right in the sense that the Constitution they keep pointing to is a useful document for them. In other words it rationalizes and justifies an undemocratic way of organizing your economic system. Okay, take us through it. In other words, give me the core of your argument, if I've gotten it right. Give us, if you would, either an overview or some examples of how the Constitution does what you just described.

RO: Yes, absolutely. So we learned from the earliest age, as early as elementary school if you grew up in the United States, that our system was designed to set up a democracy to extend rights to people and to allow the majority to rule. And these are what I call the three founding myths. Our system does the complete opposite. In fact it was designed and still operates essentially virtually unchanged - only 27 amendments in over 230 years - to do the opposite. It opposes the majority's will by allowing those who are opposed to change to be able to block that change anywhere in the system. And as an effect it allows the economic minority to actually rule.

So this is how it works. One of the key principles in understanding the Constitution is that famous saying of 'checks and balances.' And essentially what that means is that each of the branches have a certain number of enumerated and implied powers in the Constitution. And one branch can activate and act on its own without one or the other branches also acting. And the similar kind of checks and balance exists between the Federal Government and the states. And ultimately that the Federal Government has the final say under article 6, the supremacy clause.

So essentially the way that it works is that anywhere through the system exists what I call minority checks. In order for the majority to be able to get what it wants at the end of the line of the political process it essentially has to overcome the possibilities that its bill, for example, will be blocked anywhere in Congress. A bill has to pass both Houses of Congress and it has to pass each committee that it's assigned to in addition to being signed by the President. Or if the President vetoes the bill the Congress has to override that veto with the super-majority of two-thirds vote without changing the bill.

These are just some of the best known kinds of checks in the system that essentially give the upper hand to those who are opposed. Because if you block the bill anywhere in a committee, for example, even if the bill passes the other house with 100 percent of the members voting yes, that bill is dead. It can't go to the President, it can't become law. Now there are numerous other checks as well. For example, even if the President signs the bill the new law can be gutted in the regulatory process. And you've talked about numerous examples of this happening. It can also be challenged in the courts and thrown out as unconstitutional.

So throughout the system [there] exists numerous checks that essentially give the advantage to those who don't want change and put those who want change in the position of having to make concessions and compromises that ultimately water down and destroy the original intention of the legislation.

RW: Why have generations of American majorities accepted a system that works the way you just described it? Give us your insights, because you've studied it. Why do we, as a people, accept and perpetuate this arrangement?

RO: That's an excellent question Rick. And I have to say as somebody who's been involved in numerous movements, in labor organizing for almost three decades we are constantly dealing with hope and disappointment; our hope that ultimately the system will respond to the overwhelming demands of the majority and that it can be changed and over and over again we're disappointed. And our system is designed in such a way that it builds up a new sense of hope every two, four and six years when elections occur. People get excited, they back candidates who they believe will make change and, lo and behold, they either don't get elected or they get elected and then suddenly they disappoint. And we become disenchanted and alienated from the process and we turn away for a while until things get bad and even worse. And then we look back at the system and the process starts all over again.

And so I think part of the reason why we can't get the change that we need, except every few generations when there's an immense uprising and outpouring - a mass movement that can't be ignored - is that we get locked into the political cycle and we forget about the history of every other attempt at bringing about change and how it ends up getting swallowed up and compromised as a result of these numerous minority checks.

Now there have been periods in American history where immense changes come about. And you've talked about numerous examples of that. For example, reconstruction after the Civil War. But it takes massive disruption. It takes civil wars and economic depressions and mass strikes and mass protests to force those inside the halls of government to respond to those demands. But even then we get small incremental changes and reforms that ultimately over the years become rewritten and killed by what I call death by a thousand cuts.

And so that's an excellent question and it's something that anyone who's involved in political change has to confront, that our system was designed to constrain political democracy and prevent economic democracy. And until we confront that problem in our system of governance we're not going to be able to make the big changes we need to solve the huge global crises that we face right now.

RW: Okay, in the time we have left you have a very provocative sentence in your book that caught my eye in which you, I think, position yourself as an advocate that we as the people of the United States "go beyond the Constitution." Tell us in the remaining time we have what do you mean?

RO: Well, I conclude the book in the last few chapters looking at what we can do about this problem. What do we do about a system that was designed by 55 white wealthy men who didn't believe in democracy? Who actually looked down on the common people having their hands on political power because they thought it would threaten property? And I think we have three options.

First we can pursue necessary constitutional amendments. That seems like a dead end because the framers were prepared for that. And they wrote into Article 5 a process for amending the Constitution that creates super-majorities that are incredibly difficult to overcome. While we do have 27 Amendments - this is 27 out of over 10,000 that have been officially introduced. And that's a tiny, tiny success rate of a quarter of one percent. So that seems almost impossible.

Another possibility is to call a constitutional convention. Again we have to go through the amendment process that is set up in Article 5, also incredibly difficult. And also right now there's a process being funded by the remaining surviving Koch brother to call a constitutional convention. And that could be a complete disaster for those of us on the left if that was to succeed. We're just not prepared for that.

So those two options don't seem to be very promising. What I argue in the book is that we need to go a different direction. We need to follow the strategy of the framers, actually, who were not allowed to create a new constitution but amend the Articles of Confederation. And during the next mass uprising to be able to recreate a direct democratic governance system from below by taking over and running the economic system democratically.

RW: Thank you very much Robert. You're a good teacher and you're a good disciplinarian of yourself, which many of our guests can't quite manage. So thank you very, very much, you've done it in record time. I think people have a lot to think about. And to my audience I hope you found this as useful as I did. And as always I look forward to speaking with you again next week.

Transcript by Brendan Tait

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About our guest: Robert Ovetz, Ph.D. is a Senior Lecturer in Political Science and teaches labor relations and non-profit management in the Master of Public Administration program at San José State University. He is also a lecturer in Sociology at UC Berkeley. Robert worked in the Texas state legislature and on international ocean conservation policy in the NGO sector for many years. His research focuses on the global labor movement and is the focus of his books and other writings and organizing.

Robert is the author of the new book We the Elites: Why the US Constitution Serves the Few, a class analysis of the US Constitution, (Pluto Press, 2022), editor of Workers' Inquiry and Global Class Struggle: Strategies, Tactics, Objectives (Pluto Press, 2020), and author of When Workers Shot Back: Class Conflict from 1877 to 1921 (Brill 2018/Haymarket Press 2019). He is also an Associate Editor and contributor to The Routledge Handbook of the Gig Economy, edited by Immanuel Ness (Routledge, 2022).
Robert is also the Book Review Editor for the Journal of Labor and Society and a labor writer for the magazines Dollars & Sense and The Chief. 

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