Sunday, March 25, 2012

An Interview With Richard Wolff

An insightful interview with economist Richard Wolff.  His solution (towards the end) suggesting a collectivist cure is problematic, but the value of his thinking to me is that he explains quite well how productivity has soared in this country without real wages rising.  Go ahead and try to argue that a rising tide lifts all boats.


It doesn't and it didn't.  Not in your lifetime, or mine.  Unless you want to ignore the data.  We're talking in the aggregate here.  Not about how you and I have fared, but how "Main Street" has.  Look at what our children have to look forward to.

 It's also hard to argue also that the it was executive "talent" that allowed businesses to prosper for their stockholders (justifying salaries that should not be justified).  Hmmmm.  Who got all the pay raises?

It is probably too late to change anything here short of a revolution against crony capitalism, but taking into account Mr. Steyn's prediction in my recent posting, all will be lost anyway.

I recommend that time be taken to read the entire interview, but I'm sharing what I think is the most helpful to understanding how our decline began:

Barsamian: You write that Americans “had a remarkable 150 years during which workers enjoyed a steadily rising standard of living.” When and why did that stop?
Wolff: What distinguishes the United States from almost every other capitalist experiment is that from 1820 to 1970, as best we can tell from the statistics we have, the amount of money an average worker earned kept rising decade after decade. This is measured in “real wages,” which means the money you earn compared to the prices you have to pay. That’s remarkable. There’s probably no other capitalist system that has delivered to its working class that kind of 150-year history. It produced in the U.S. the expectation that every generation would live better than the one before it, that if you worked hard, you could deliver a higher standard of living to your kids.
Before we talk about why this changed, let’s think for a moment about the trauma the end of this trend represents to the working population. It is the end of the notion that a better future is the reward for hard work. And the trauma is made worse by the fact that there’s no discussion of it, no way to share the experience, because most of the population literally believes that it hasn’t happened.
Barsamian: So why did it end?
Wolff: There are many reasons, but I think four developments in the 1970s were key.
The first was the increasing use of computers, which made it possible for employers to reduce their number of workers, since one computer now did the work of many humans. For example, once upon a time supermarkets needed workers to keep track of how many boxes of cereal and rolls of toilet paper were leaving the shelves. Now a computer scanner at the checkout counter does that. One man or woman sitting at a monitor somewhere can tell exactly how many boxes of cereal have to be ordered at a hundred different super­markets. They don’t need an army of workers to take inventory.
The second thing that happened in the 1970s was that employers moved production to other parts of the world, where wages were lower. Between the computer replacing workers and jobs going overseas, the demand for labor in the U.S. shrank.
The third event was that women joined the paid workforce in large numbers and stayed, largely abandoning the role of full-time mother and housewife. And, finally, we had a new wave of Latin American immigrants who came here looking for jobs and a better life. So while the number of jobs was declining, there was an increase in the number of people looking for work. This combination meant that, for the first time in American history, there was no labor shortage.
With so many people competing for jobs, employers discovered that it was no longer necessary to give raises to attract and keep employees. Since the 1970s American employers have enjoyed record profits. During that same thirty years, according to the Bureau of Labor Statistics in Washington, DC, the wage earned by the majority of American workers hasn’t changed. In real terms, adjusted for inflation, what a worker makes in 2011 is about what the same worker made in 1978.
Barsamian: And employees are working longer hours today, right?
Wolff: That’s right. According to the Organisation for Economic Co-operation and Development (oecd), Americans do more hours of paid labor per year than workers in any other advanced country. That is because, if you don’t earn more per hour, the only way to deliver a better life to your family is by doing more hours of work. So Americans have been pushing themselves, taking second jobs or working full time if they had worked only part time before. We have elderly people coming out of retirement to help their grown children. Teenagers are working on weekends to help pay bills. Americans have committed to an incredible number of work hours per household to try to achieve a rising standard of living. Let’s remember that we are constantly bombarded by advertising telling us that, to be a success, we need a better house, a better car, a better vacation, and a college education for our children. To be financially successful today, most of us have to work crazy hours.
And of course the other thing the American working class has done since the 1970s to keep their consumption rising is take on debt. When your wages don’t go up, and adding a few hours a week isn’t enough, you buy on credit.
In the 1970s we had to develop new mechanisms for providing credit to the masses. Before then the only people who carried credit cards were traveling businessmen with expense accounts, and the only company offering such a card was American Express. But then MasterCard, Visa, and others came along to make credit available to the rest of us, because there was such a hunger on the part of our working class for a better standard of living. American workers started to borrow money on a scale that had never been seen before in any country.
Barsamian: So wages were flattening out, workers’ hours and productivity were soaring, and Americans were accumulating huge individual debts.
Wolff: The amazing thing about the last thirty years is the collective self-delusion in the U.S. You cannot keep borrowing money if your ability to pay it back — i.e., your real wage — isn’t going up. You don’t need a PhD in economics to understand this.
So the current crisis really began in the 1970s, when the wages stopped rising, but its effects were postponed for a generation by debt. By 2007, however, the American working class had accumulated a level of debt that was unsustainable. People could not make the payments. They were exhausted: exhausted financially, exhausted physically by all that work, and exhausted psychologically because the family had been torn apart by everyone working.
Stay-at-home parents hold families together. When you move everyone into the workplace, tensions in the family become unmanageable. You can see evidence of this in popular culture. The sitcoms of the 1960s showed happy middle-class families, but many sitcoms today show struggling families. Americans are 5 percent of the world’s population, but we consume 65 percent of the world’s psychotropic drugs, tranquilizers, and mood enhancers. We are a people under unbelievable stress.
Barsamian: There have been other busts and recessions and depressions throughout U.S. history. How is this one different?
Wolff: This isn’t a typical business cycle. This is the culmination of a thirty-year postponement of what happens when 150 years of steady real-wage increases comes to an end.
Capitalism is an inherently unstable system. I like to tell my students that if they lived with a roommate as unstable as this economic system, they would have moved out long ago. Capitalism is notorious for its ups and downs. We have a whole vocabulary to refer to them: booms andbustsrecessions and depressionsupturns and downturns. When people have a lot of words for something, it’s because it’s a frequent phenomenon in their lives.
You would expect that we would know this about capitalism’s history and therefore not believe that we could somehow manage to escape instability. But over the last thirty to forty years we, as a society, have been unwilling to think critically about capitalism. And it shows. We thought we weren’t going to have another crisis like the one we had in the 1930s, or like the one the Japanese have had since 1990. We imagined that these problems were no longer relevant to modern life. So we were unprepared for the mess we’re in. Nothing shows our unpreparedness better than the inability of either President Bush or President Obama to deal with this problem.
So another reason this crisis is so different is that it’s coming at the end of a long period of denial. Let me give you an example: When I began my work as a PhD student in economics, the typical curriculum had a course about the business cycle, to introduce students to the history of economic ups and downs in their own country and others. In 2007 the vast majority of graduate programs in economics had no course on the business cycle at all. We thought we had overcome it, outgrown it. We had come to believe that we were in a new economic system, a mature capitalism, and that we had all the mechanisms to control it.
HT:  Ambiance - About this interview Annie said:  " His prescriptions are predictable, but his diagnosis is startling."


Kurt Harden said...

We know the system is flawed; it is simply the least flawed. Walk through the solution and its practical application. He certainly describes the problem (except the debt accumulation part which he almost takes as a matter of necessity - there is your bullshit - instead of people living waaaaayyy beyond their means and then looking around and asking "how did I get saddled with all this debt?").

All systems are unstable - even totalitarian ones.

Interesting read but the medicine is poison. Thanks for posting.

Eclecticity said...

I see your point Kurt. Taking on household debt to sustain the illusion of perpetual increase in standard of living was foolish. Most didn't follow in their parent's footsteps on this account.

But after all of this won't you agree that promulgating that a rising tide lifts all boats is its own illusory notion, although it sounds so wonderfully promising?

I think the Invisible Hand is gearing up for some smackdown.

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