We Need a More Humane Economic System

The partial shutdown of the U.S. federal government is entering its fifth day after a political impasse over President Donald Trump’s contentious demand for border wall funding. Funding for about a quarter of all federal programs expired at midnight on Friday, including the departments of Justice, Agriculture and Homeland Security. On Christmas Day, Trump said the shutdown will last until Democrats agree to fund his $5 billion U.S.-Mexico border wall, despite previously repeatedly claiming Mexico would pay for the wall. The shutdown is occurring as concern grows over the U.S. economy. U.S. stock markets are on pace to suffer their worst December since 1931 during the Great Depression. In response, Treasury Secretary Steven Mnuchin held an emergency meeting with top financial regulators and also convened a separate call with top executives of six major banks. We speak to economist and professor Richard Wolff.

AMY GOODMAN: This is Democracy Now! I’m Amy Goodman, with Juan González.

JUAN GONZÁLEZ: Well, the partial shutdown of the U.S. federal government is entering its fifth day after a political impasse with Congress over President Donald Trump’s contentious demand for border wall funding. Funding for about a quarter of all federal programs expired at midnight on Friday, including the departments of Justice, Agriculture and Homeland Security. On Christmas Day, Trump said the shutdown will last until Democrats agree to fund his $5 billion U.S.-Mexico border wall, despite his previously repeated claims that Mexico would pay for the wall.

The shutdown is occurring as concern grows over the U.S. economy. U.S. stock markets are on pace to suffer their worst December since 1931 during the Great Depression. In response, Treasury Secretary Steven Mnuchin held an emergency meeting with top financial regulators and also convened a separate call with top executives of six major banks.

AMY GOODMAN: This came as President Trump renewed his attack on the Federal Reserve, openly criticized its chairman, Jerome Powell, whom he appointed. On Christmas Eve, Trump tweeted, “The only problem our economy has is the Fed.”

Well, for more, we’re joined now by Richard Wolff, emeritus professor of economics at University of Massachusetts Amherst, visiting professor at The New School, founder of Democracy at Work, hosts a weekly national television and radio program called Economic Update, author of many books, including Capitalism’s Crisis Deepens: Essays on the Global Economic Meltdown.

Richard Wolff, welcome to Democracy Now!


AMY GOODMAN: So, you’ve got, before this, the capital gains tax break, the break for the richest Americans, and President Trump says he’s improving the economy, and now the stock market has plummeted back to the Depression times. Explain.

RICHARD WOLFF: Well, you know, we’ve had an economy that never really escaped the crash of 2008. In a way, the last 10 years have been an economy on life support: vast amounts of money pumped into the economy; record drops in interest rates, inviting everybody—business, individuals, governments—to borrow money—a debt-sustained situation. And after a while, you can’t mount up the debt on the basis of an economy that hasn’t really gotten going. And we’re seeing the eventual break.

You know, the capitalist system has a downturn every four to seven years. It’s had that for centuries. And the last big downturn was 2008 and ’09. So, if you do four and seven, and you add it to nine, we’re due for one. And every major stock market observer, bank and so on predicts that we’re having a downturn. So it’s really only a question of exactly when. And the stock market anticipates this. And so we’re having, in a way, economic chickens coming home to roost. And the notion that it’s just the Fed’s policy that explains this is really the kind of remark that would get a student a very low grade in any economics course.

JUAN GONZÁLEZ: But, Richard, why—if over the last 10 years the Federal Reserve kept interest rates so low and provided so much cheap money, why hasn’t inflation increased dramatically in the U.S. over this period of time?

RICHARD WOLFF: Well, you know, the irony is, it’s one of the bizarre ways an economy works. There was no incentive to take all that money and go in and produce things that might have driven up prices and so on, because the people in America can’t afford to buy it. Our wages have been stagnant. The debts have been so big that people are afraid to borrow the way they once did, even though they still do, but not at the growing scale as before.

So, all that extra money kind of went into the stock market to make itself make quick money by buying shares, hoping that they would go up. And if all the rich people who get it into their hands do that kind of thing, you see the stock market go up, but the underlying economy doesn’t go anywhere. And again, after a while, that’s not a sustainable arrangement.

JUAN GONZÁLEZ: Well, the other thing that happened, though, after the Trump tax cuts, there was all of these companies buying up their own shares, seeking to drive up their prices, right?


JUAN GONZÁLEZ: Now all that money has been lost?

RICHARD WOLFF: Well, basically, yes, because it was funny money to begin with. It was money that was not used to hire people, was not used to raise people’s wages. All of those promises were never delivered on. Instead, it rushed into the stock market or buying back shares, which is another way of playing the market. So the market prices went up. The mainstream media tended to say, “See, the economy is in good shape. It’s strong,” because the market went up.

But the underlying reality of most people, which is reflected in our politics, is one of bitterness and anger and resentment that they are not participating in this so-called recovery. And now the rich are also facing the falling apart of this house of cards as the market tumbles down. And poor Mr. Trump, having staked his reputation on a rising market, is now confronted with a declining one and is looking for a scapegoat, which Mr. Powell, his own appointee, is providing to him.

AMY GOODMAN: Who I always thought wrote that op-ed piece for the Times. But I do want to ask about this Treasury Secretary Mnuchin’s secret meeting—emergency meeting, I should say—with top U.S. financial regulators, after hosting a call with executives from six major banks on Sunday. You have him meeting with JPMorgan Chase CEO Jamie Dimon, Bank of America’s Brian Moynihan, Goldman Sachs’ David Solomon, Morgan Stanley’s James Gorman, Tim Sloan of Wells Fargo, Michael Corbat of Citigroup. What message did he convey to them? And what about the meeting with the regulators?

RICHARD WOLFF: Well, I think the basic plan here, no one knows the details, but most of us think this was not a leak. This was a letting us know that the government is busy fixing all of this. The hope is that by promising everybody’s on board to fix it, that the market will somehow come back. It’s the easiest, simplest first step.

But the irony is, it didn’t play out very well, because the mass of people saw it for what it was: a ploy, an effort to verbally shore things up—which makes you wonder about how bad it really is, having pretended there was no problem, having pretended we have a strong economy. We don’t have one, so now you have to kind of talk it up.

My guess is, it won’t make a big difference. We have a long-term instability built into this economic system, and we look to be on the verge of doing just that kind of downturn that history suggests we ought to expect.

AMY GOODMAN: Why is Trump so angry at Mnuchin right now?

RICHARD WOLFF: Basically, he’s looking for scapegoats. I think if he can’t use Mr. Powell—there’s some evidence he tried to figure out whether he can fire him. He was told, apparently, he cannot. OK, he can fire Mr. Mnuchin. That’s for sure. So maybe he has to shift his focus of who’s the bad guy here, against—so he isn’t the bad guy, so the system is never questioned. He’ll find somebody who he can fire to do the theater that he seems to like to do to solve problems by pointing to a scapegoat.

JUAN GONZÁLEZ: And to what degree does Trump’s continuing trade war battles with China have an impact on the U.S. economy and where people think it’s heading, not where it is right now?

RICHARD WOLFF: Mostly, at this point, it’s terribly uncertain. Companies around the world cannot make plans, cannot make investments, cannot make assumptions about what’s going to happen, because we don’t know what he’s going to do, we don’t know what the Chinese are going to do.

But, you know, there’s a more deep historical problem here. And it’s really American history. When we became an independent nation, it was partly because we were held back—tea party, remember?—by the British. They had a rule: They wanted the colony to be subordinate. We didn’t want to do that as Americans, and we ended up pushing back against the control, the effort to hold back American development. We went to two wars: the Revolutionary War and, again, the War of 1812.

The history records are not good about trying to squelch an upcoming economic power. China is today’s upcoming economic power. The effort to squelch and stop it is both likely to fail and extremely dangerous, because these trade wars have a nasty habit of becoming military.

AMY GOODMAN: Now, what about this government shutdown and who it hurts? I couldn’t help thinking about the fact that so many hundreds of thousands of workers will not be paid. Of course, it’s particularly painful through the holidays. Many other hundreds of thousands are being furloughed. You have those in the private sector who rely on the government jobs for their jobs. They will lose their jobs or not be paid. I mean, President Trump, before he was president, of course, we know that he didn’t pay many of his own workers. But this idea of who is hurt during a government shutdown and who continues to get paid?

RICHARD WOLFF: Well, for me, this is—as Senator Corker said, this is theater. This is Mr. Trump producing a big news event. He is in charge. He is acting. And for him, the cost of these hundreds of thousands without income—and, by the way, all the people they can’t spend on, who are losing an income indirectly, when you multiply this out, as we do in economics, the impact is very severe. And I’m not even talking about the services they can’t perform and the long-run effects of the services not being performed by the government. The IRS is cutting back at a time when we are desperately in trouble with our revenues anyway. So, yeah, it’s a crass, self-serving, political ploy, the costs of which, like in the tit-for-tat war with China, are huge but are not being counted, because they don’t calculate in to the self-promotion of our leadership.

JUAN GONZÁLEZ: But this is all coming, supposedly, in a time when we have the lowest unemployment record in decades, supposedly—unemployment rate. Yet, of course, many of those who are employed are severely underemployed. But I’m wondering what your sense is of the actual economy itself?

RICHARD WOLFF: Well, the reality is that we are—we have a lot of employment, but the quality of the jobs has collapsed over the last 10 years. The people who work now used to be people who had a job with good income, good benefits and good security. The jobs, overwhelmingly, created have none of those things: low wages—that’s why our wages have gone nowhere; bad benefits—those are shrinking, pensions and so on; and the security is virtually gone. One of our biggest problems in America is people don’t know one week to the next what hours they’re working, what income they’ll get. You can’t have a life like this.

So, what we’ve done is we’ve ratcheted down the quality of jobs. We’ve made people use up their savings since the great crash of 2008, so they’re in a bind. They have really no choice but to offer themselves at lower wages or at less benefit or at less security than before, which is why there’s the anger, which is why there was the vote for Mr. Trump in the first place, because this talk of recovery really is about that stock market with the funny money that the Fed Reserve pumped in, but is not about the real lives of people, which are in serious trouble, hence the numbers, like a average American family can’t get a $400 emergency cost because it doesn’t have that kind of money in the background. So, you’ve undone the underlying economy, you have this frothy stock market for the 1 percent, and this is an impossible tension tearing the country apart.

AMY GOODMAN: So, the Democrats will be taking office—will be taking over the House next week. And it’s not only the Democrats, but you have this whole new generation of progressives that are moving in. What do you want to see happen? What can they do?

RICHARD WOLFF: Well, the first thing is, they have to get strong enough, which may take a while, to have the numbers able to fundamentally change policy. That’s what I want. I want them to recognize that our economic system is a problem, that there ought to be a national debate, which they’re in the best position to start, that we stop looking for this scapegoat or that one—not just Mr. Trump with Powell or with Mnuchin, but the whole mass media effort to see a problem everywhere but in the basic economic system. We have to get over that. For half a century, we’ve been afraid to debate those questions, because of the Cold War and everything having to do with it. Let’s do that.

Let’s ask, for example, whether the best way to organize our enterprises is to have a tiny group of people—board of directors, major shareholders—make all the decisions, so that the rest of us have to live with the results, but we have no input. You know, a country that promises it is committed to democracy has never faced the fact that in the enterprise we don’t have democracy. We have a tiny group of people making all the decisions. And that’s not a good idea. And maybe now we can face that the decisions they’ve made, individually and collectively, have plunged us into a situation where we cannot afford the luxury of not facing basic questions about how our economy is organized. We should have done it for the last 50 years. Maybe this new generation of young people coming into the Congress will begin that conversation and, hopefully, bring us along into a national debate on these subjects, which is long overdue.

JUAN GONZÁLEZ: Well, but beyond the debate, what kind of legislation do you think that the House should be seeking to pass?

RICHARD WOLFF: Well, you know, easiest way to summarize it: We have been following—and, unfortunately, Democrats, too—something called trickle-down economics. We do economic policy where we help the folks at the top—we bail out the big banks, we give a tariff benefit—and we hope it trickles down, which it rarely does.

First thing they can do, reverse it. Let’s do trickle-up economics. You help the people at the bottom, in all the different ways that we know how to do because the FDR regime back in the ’30s did a lot of that. So we know how to do it.


RICHARD WOLFF: Do it—well, put people to work. Put people to work doing socially useful things at a decent income, not working in a fast-food restaurant under unbearable personal situations. Here’s another one: this greening of America. There’s a project that could help millions of people in a direct way. Let’s kind of do that.

AMY GOODMAN: Put forward by a Democratic Socialist, a Socialist like yourself.

RICHARD WOLFF: Absolutely. And that’s where we’d expect it to come from, because we haven’t been willing, outside of the mainstream, to have the debates, so—excuse me, in the mainstream we haven’t had it. So we need the folks coming in, that are new and different, to talk about all of those things.

We did them before. The minimum wage should be raised, and dramatically. We should be helping all the kinds of people who have been denied help. We should be making sure that jobs are secure, that jobs have proper benefits, that we’re enhancing the benefits—all the things that could help the folks at the bottom have the money to spend, that will trickle up into the profits and revenues of business. That’s a more humane system.

And, you know, even if it doesn’t work as much as we want it to, at least we will have helped the majority of people. What we have now is trickle-down, that helps those of the top, and then, when it doesn’t trickle down, what have we got? We’ve helped those at the top—again. The focus on trickle-up would be an alternation in our policy that’s long overdue.

AMY GOODMAN: Are we in the midst of a recession, or is it just about to hit us?

RICHARD WOLFF: It’s just about to hit us. Goldman Sachs is literally predicting it. JPMorgan Chase—you mentioned these institutions before—they’re all saying in their newsletters—if you read the financial press, it’s not a question of whether, it’s just a question of when. And it’s sort of within the next six to 18 months. So, yes, it’s possible those will be wrong, but, you know, it’s been that way for a couple of centuries. It’s a good bet. And so, yes, we’re going to have one.

And Mr. Trump is in the very dangerous position of having two years to go before he has to run for re-election, at a time when the one thing he can point to, which is economic something, is going to disintegrate, as it has in the last several weeks.

AMY GOODMAN: Richard Wolff, we want to thank you for being with us, professor emeritus of economics at the University of Massachusetts Amherst, visiting professor here in New York at The New School, founder of Democracy at Work, hosts a weekly national TV and radio program called Economic Update, author of a number of books, including Capitalism’s Crisis Deepens: Essays on the Global Economic Meltdown.


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1 comment

  1. Joseph Val December 27, 2018 4:42 pm 

    vast amounts of money were not put into the economy.
    they were put into the banks–not the same thing.
    most bank credit is extended to purchase existing assets, which creates asset price bubbles, which burst when banks are over-leveraged and cut back on credit…bank loans do not go toward investment in creating new means of production or providing needed human services, which means bank credit does not add meaningfully to the real economy of goods and services, which is where job creation really lies…
    again: the federal govt does not need to collect revenues in order to spend…
    all dollars are created by the federal govt when it spends it into the economy….$$$ are created out of nothing, invented, only by the feds…they don’t need to collect $$$ to spend, they create it when they spend…the federal reserve bank credits deposits of whomever the govt buys stuff from…that’s it…no gold coins or dollar bills floating around because the US govt is the monopoly creator of the US dollar….which means, most importantly, that the govt can spend as much as it wants, whenever it wants, on whatever it wants…there is no monetary constraint at all…there is a political constraint because we are continually told by the pres, and congress that we can’t afford to pay for health care, or housing, or education, or social security, a federal jobs program, etc, because we are out of money or have to borrow it from china, which is absurd, since only our govt can legally create $$$…so when anyone says we can’t afford it, tell them, ‘sure we can, the govt’s job is to create our currency, and it does so by buying stuff, or paying people to do things we want to have done.”
    the govt doesn’t have $$$, or need ie not have, $$$: the govt creates all $$$…it’s bookkeeping, nothing more…
    when someone asks, ‘ where is the money gonna come from?’ tell them, the federal reserve credits someone’s bank account…that’s it…it’s keyboard strokes on computers at the fed…
    so when any congressperson says we can’t do this or that, or pay for this or that, they are wrong—or lying—call them out on that and see if they comprehend how our monetary system works…we are no longer on the gold standard, and the only real limit to govt spending is the actual goods and services that are available to be paid for with US $$$…
    there is so much more the govt can be doing for working families, to alleviate some of our financial hardship…
    we can have medicare for all, by any name, because all the govt has to do is tell the fed to credit someones bank acct…we can have free education, because all that’s needed is someone at the fed to use their keyboard to credit someones acct…
    we can have a federal job guarantee because the federal govt can credit their bank accts…
    as far as the federal debt is concerned: the federal debt is all the money the govt has spent since 1789 and has not yet collected back in taxes…that’s it…which means that paying down the debt would mean the our savings would disappear; our pensions would disappear, since all the money every single one of us has, has come from the govt creating it as it spends it into the economy, without collecting it back as taxes…no debt=no $$$$, anywhere…we’re all broke at that point…which means the system is broken at that point…which means the federal govt is not functioning properly, for the sole purpose of the govt is to provide ourselves with the things we want to have, period….and the primary function of govt is to supply us with the money necessary to bring into being the things we want…and that is exactly the system we have now, in theory and in law, as the federal govt is, once again, the sole legal monopoly supplier of the US $$…if your congressperson/s do not understand this, then either tell them or fire them, because there are no monetary constraints on what we can provide ourselves with…none whatsoever
    got it?
    now get out there and start refuting the entirely false narrative that we can’f afford to do whatever we decide to do. money is a human invention whose sole purpose is to facilitate the focusing of human energies into bringing into existence those things we wish to provide ourselves with.
    how are we going to pay for it????
    keystrokes on computers at the fed.
    social security is broken!!!
    keystrokes at the fed.
    we’re broke!!!
    relax. keystrokes at the fed.
    hyperinflation!!! weimar!!! zimbabwe!!!
    there are no long term forecasts for inflation in the foreseeable future; if inflation happens, we can easily deal with by easing demand or increasing supply…but there is no forecast for inflation in the foreseeable future. the burden of proof is on them…
    sorry for any typos.

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