'Capitalism Hits the Fan'

RICHARD WOLFF
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.