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'Capitalism Hits the Fan'
WASHINGTON - March 9 -
Professor of economics at the University of Massachusetts at Amherst, Wolff is featured in a new film produced by the Media Education Foundation, "Capitalism Hits the Fan."
He said today: "We need to see this crisis historically to get a sense of how serious this is. In every decade from 1820 to 1970, workers in the United States enjoyed a rising level of wages. Even during the Great Depression this was true. But since the 1970s, that history of the U.S. stopped. Real wages stopped rising in the 1970s and they have never resumed.
"Meanwhile, there has been a huge increase in productivity across the last hundred years. Most of it in the last 30 years -- the very period when wage increases stopped. What the workers get in those years stays flat. What they produce for their employers grows. This led to spectacular profits for U.S. corporations. After the 1970s, unprecedented corporate profits fueled an unprecedented stock market boom. The results were a fast-growing inequality of wealth and income dividing Americans, a bubble that burst first in the stock market and then in the real-estate market, and now the worst downturn since the Great Depression.
"What did the corporations do with that money? They paid salaries to executives no one had ever heard of before. They went on a binge of buying up other companies -- mergers and acquisitions -- bringing huge profits also to the financial sector that handled all the proliferating profits, bonds connected to mergers, initial stock offerings of new companies, and so on.
"And most importantly, banks and large companies discovered a very profitable way to use their new, huge profits: They would lend the money to the employees. The way the employees could raise their consumption when their wages didn't go up anymore was to borrow back from their employers a portion of the extra profits that their frozen wages made possible. Personal debt has zoomed up. So you have an economy built on a house of credit cards.
"To understand the American economy in the last 30 years amounts to this: Employers no longer raised the wages of their workers. Instead, they lent them the money. 'Instead of raising the wages of my workers, I lend them the money, which they have to pay me back -- with interest! Isn't that better than paying them more wages?' In this way, the rich got much richer while the majority fell ever further behind, building toward today's economic crash.
"What the Obama administration as well as most of the Democrats and Republicans in Congress fear to admit is that this isn't just a crisis of Wall Street. We've run out of ways to keep this going, the wages are not going up and the credit is now tapped out. It's not a 'financial crisis' -- finance is just the symptom -- it's a crisis of the fundamental structure of the economy."
Excerpts of the "Capitalism Hits the Fan" film, which features a number of revealing graphs, and a full transcript of the DVD, are available here.