by Redwhitenblack, TC|TW Editor
Hopefully this is installment #1 in a four part audio/video series on Sundays.
“Capitalism Hits the Fan” is an economic lecture by Dr. Richard Wolff and turned into a documentary film due to his compelling narrative of the forces that brought about the economic crash of 2008 and what will forever be termed the “Great Recession” afterward (ye gods of historiography please, oh please find a better name for it than that). He’s taught previously at Yale University and the University of Massachusetts – Amherst.
I would urge anyone encountering Dr. Wolff’s ideas for the first time not to agree with him or disagree with him on first viewing, but to hear the entire story before going back again to make judgements. While the runtime is an hour and 44 minutes, the lecture is only 37 minutes. Then Dr. Wolff speaks about his experiences since the documentary.
For you, dear reader with Bulls games and Oscars to watch (go Django!) if Dr. Wolff’s message can be encapsulated in a small portion, if there is only one portion of this lecture that you should get it is this part that begins at 17minutes 30seconds:
“As the 70s became the 80s, and the 80s became the 90s the profits were unbelievable. They began paying themselves levels of wages and bonuses nobody ever heard of before. Large corporations paid their people [executives] tens, hundreds of millions of dollars in annual salaries. Where’d that money come from? I just told you [profits reaped from keeping wages stagnant while productivity increased]. What else did they do?
They began to go through an orgy of what’s called mergers and acquisitions, they bought each other. Companies had huge amounts of money and bought other companies. Are you annoyed by a competitor? Buy ‘em! Are you troubled by a foreigner who’s stealing your market? Buy ‘em! And you had the money to do it. What else did they do?
Interesting. They put their money in the bank. And the banks suddenly discovered wild amounts of money coming in from corporations deposited in the banks. That’s what you do with your profits while you figure out what else to do with them; you put them in the bank. And the banks became repositories of enormous amounts of money. And then the corporations and the banks (about the same time) discovered a remarkable thing that they could do with these profits.
They would lend them to the employees! That is, the way that the employees could raise their consumption [as they expected to due to 120 years of rising wages in America before the late '70s] when their wages didn’t go up anymore was to borrow the money that their frozen wages made possible to their employers.
To understand the American economy in the last 30 years then, amounts to this: Employers no longer raised the wages of their workers. Instead, they lent them the money.
That’s why it’s an employer’s fantasy come true. “Instead of raising my workers’ wages, I lend them the money – which he has to pay me back with interest! Isn’t that better than paying them wages?”
”This is nirvana…or as close as business gets to nirvana.”
I’m actually posting this partially in response to a long conversation I’ve been having with a friend about how to address America’s current economic difficulties. It was a very long conversation. You know, “nerds of a feather…” and so-on. We talked it out for as long as we could until finally it became impossible for him to understand where I was coming from without encountering this lecture. So, here it is!
There are a exactly 3 other explanations of the economy I would love to post for discussion. And hopefully the discussion would turn into an understanding on how to move forward. And the understanding of how to move forward could very well turn into a movement.
So, let me know what you think in the comments and if I hear good things, I’ll do part 2 next Sunday – or some other day when there are no Oscars or Bulls games with which to contend. Because, idealist that I am, Django will run the table, and Nate-Rob’s going for 40 against OKC tonight. I can feel it.
I have a few points that I wanted to get out (despite your request) before I forgot them.
1. I’m skeptical of his claim about wages remaining stagnant since the 70′s. I couldn’t find anything in a couple minutes of internet searching to sway me one way or another on this.
2. He says that businesses have gained capital to start swallowing each other up. If that’s true, you would then expect to see CEO pay to dramatically increase. That’s becase with smaller companies being combined you would expect to see the org chart becoming more complex. As you move up the org chart you’d expect to see the compensation going up. An analogy would be the chief of a tribe. As that tribe conquered it’s neighbors, it would become a kingdom and the chief becomes a king. As that kingdom gobbles up other kingdoms it becomes an empire requiring an emperor. The speaker does’t take this into account at all.
3. Even if my point in 2 falls short of the explanation of CEO pay, the speaker makes a false point that infuriates me. In a large corporation, if you fired the top executives and dispersed that pay to the workers evenly, how much of an increase would you really see? Take Emerson as an example. They have about 135,000 employees. For a CEO making 100 million that’s about $750 a year if you broke his salary up amongst everyone. I don’t think all of that profit is going to the CEO’s, and the speaker addresses this by saying it goes to the board. What he should say is that it goes to the shareholders. Even the working class can take part by investing in publicly traded companies, but we don’t. We prefer to invest our resources in other things. We buy more TV’s than we really need. We buy expensive cars (more than one mind you). We buy the newest gadgets.
I need to digest his points, and he makes some very interesting points. My first impression is that this is another person that puts blame on the wrong things.
Randy
Randy,
At this point I won’t directly rebut the points you’re making since you seem interested in investigating Prof. Wolff’s claims. If you do that and follow the thread through you’ll come to your own conclusions. I will take a moment to clear up where you got Prof. Wolff’s points wrong though so you can at least go digging in the right direction.
1. The term you should search is “real wages” that’s wages adjusted for inflation.
2. He didn’t say companies hoarded capital in order to start swallowing each other. He said that companies made so much money they didn’t know what to do with it so that’s one of the things they wound up doing with it.
3. He’s not claiming that the profits went entirely (or even mostly) to executive pay. And this is the central point to the whole argument so please don’t miss it. He’s claiming that for the last 30 years Americans have been borrowing what should have been our paychecks. So if the type of redistribution you suggest were to take place it would not be “total executive bonuses” = “total withheld wages”. It would be “total increase in productive economy from 1970 to present” = “total withheld wages”. It didn’t all go to exec pay, not even most of it. It went to exec pay, corporate buyouts, bank holdings, and most importantly the total unsecured credit market. In other words, if you look at the total amount of household debt in the US today, the principle represents withheld wages and the interest represents usurious profit on loans and credit that should have been paid as wages.
Hope that clarifies the points some as you go poking about. Happy hunting.
I don’t think I clearly expressed my points. I’ll try again.
1. Thanks. I’ll try looking that up instead.
2. As companies grow, their org charts will expand. Due to this expansion, we can expect CEO pay to increase. This may explain (at least partially) why CEO pay increased while worker pay did not. A worker is a worker but a manager of 200 can expect to be paid more than a manager of 100.
3. Some of the company profits go to CEOs, but that doesn’t impact worker wages to any great extent. The rest must go to the shareholders. The beauty of this is that anyone can take part. I can ride the success of any publicly traded company if I wasn’t so distracted by consumable goods. If I dumped my data plan, cable TV, or car loan and invested it instead, I would be doing much better than I am. This is the curse of the working class. We are so enamored with the things the rich can afford that we don’t pay attention to how they get there.
Randy
Thank you for the search “real wage” suggestion. I was able to find more information, but I wasn’t able to find more than general information. I’m curious if there are other factors driving this. I’d like to see data on a specific job. How has engineer or nurse pay over the years?