A very concise explanation of why our economy is where it’s at these days, and how long ago the problems started, by economist Richard Wolff.
Wolff: “It was in the 1970s that U.S. corporations began to pay their CEOs out-of-whack sums of money, plus multimillion-dollar bonuses at the end of each year and huge stock options. Nothing like that happened in Europe or Japan, because other capitalist nations weren’t experiencing the same economy we were. Now Americans are angry when they read about Goldman Sachs executives getting big bonuses. I’m glad the American people have woken up, but they’re about thirty years late.
“The last three decades created another problem in our economic system: a widening disparity between rich and poor. If the mass of workers have wages that are flat while all the profits go to the top, then shareholders and top executives and managers of the companies are the only ones getting rich. You’re giving 5 or 10 percent of the people an enormous boost in income while everybody else gets nothing. Thirty years ago the U.S. was one of the most egalitarian societies in terms of wealth. Now we have the greatest disparity between rich and poor of all the advanced industrial nations.
“That is the root of this crisis: we have put the American people in an impossible situation, so they are not spending money. Those who are unemployed obviously cannot, and everybody else is so frightened by the prospect of unemployment or reduced benefits or loss of value in their home that they’re holding back. They’re paying off their debts if they can; they’re saving a little money if they can. But they’re not buying more. American corporations are reacting by selling to the rest of the world, because the American market is exhausted.
Wolff: “We like to believe that we don’t have separate classes in the U.S. I point out to my students that the U.S. and the Soviet Union, the two adversaries in the Cold War, had one thing in common: each side told its people that they belonged to a classless society. It wasn’t true in the Soviet Union, and it wasn’t true here either. Class in the U.S. is an explosive issue, like sex or religion: you’re not supposed to talk about it, even though you’re probably thinking about how you’re doing in relation to your neighbors and others.
Barsamian: There is one class that’s often discussed: the magical, mystical middle class.
Wolff: Right. Almost everybody in the U.S. — from the wealthy to the poor — says he or she is middle-class. We can’t afford to live any longer in the make-believe world where we’re all in the middle. The middle has disappeared. Stores in this country that served the middle class, like Sears, are threatened. Americans shop at discount stores like Marshall’s or T.J.Maxx or Target or Walmart. Or, at the other end, Americans shop in boutique shops and pay five times what everybody else pays for more-or-less similar items. It’s an economy that’s splitting into the haves and the have-nots, with a shrinking number of think-they-haves in the middle.
“Warren Buffett is the first well-known member of the wealthy class to face reality. He did a survey of the twenty-odd people who work in his office — secretaries, clerks, and assistants — and found that he pays a lower tax rate than any of them, even though he’s the richest person there. The hidden message in his statement is that the have-nots are going to get angry about this one day, and his fellow members of the rich class would be smart to take steps to deal with it rather than wait for that anger to grow and overtake them.
“It’s not just wealthy individuals. Corporations also pay taxes at very low rates. If you go back to the end of World War II, for every dollar that Washington got from American taxpayers, it got $1.50 from corporations. In other words, taxes on corporate profits brought 50 percent more money to Washington than taxes on individuals. In 2011, for every dollar that the federal government gets in revenue from individuals, it gets twenty-five cents from corporations. Corporations have lobbied successfully to shift the tax burden from themselves to wage earners. That’s class warfare.
Wolff: “When a system has everybody playing more or less by the rules and achieves the level of dysfunction we have now, it’s time to stop looking for scapegoats and understand that the problem is the system itself. It’s driving everyone in it — corporations, individuals, banks, businesses on Main Street, whomever — to act in ways that are bad for the economy as a whole. It’s like when your refrigerator is on the fritz, and the repair person says, “Look, I can fix it, but it’s going to cost you fifty dollars for this, and forty-seven dollars for that, and fifty dollars for that. You can pump money into it, but you’ve gotten twenty years out of this fridge. I think it’s time to move on and get a new one.”
“We’re at that stage with capitalism as a system. We need to decide whether it can be fixed or whether we need a new refrigerator.
Barsamian: Do you think we can reform the system but keep it intact?
Wolff: Reform is what was accomplished the last time the economy collapsed, in the 1930s. Reforms are never secure. The banking reforms of the Depression were later repealed. The taxes on corporations and the rich were later sharply reduced. The federal employment programs were ended. Social Security benefits are now being cut. When reforms are not accompanied by a reorganization of enterprises, they leave power in the hands of people who have the incentive and the resources to undo those reforms. Major shareholders and their boards of directors use profits to buy the political power needed to undo the reforms that mass movements manage to win. Thinking people are already saying no to reform proposals. Systemic change must now be on the agenda, just as the Occupy Wall Street movement suggests.”