O U N D A T I O N
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Ca pit alism Hits the F a n A lecture by Richard Wolff (Unabridged Version)
Tr a n scri pt
I t a k e it a s m y t a s k t h is e ve n i n g t o t r y t o p r e se n t a se n se o f w h a t is g o i n g o n i n t he American ec o n om y – a n d a r o u n d t he w o r l d – s i nce t he U n ite d St ates p l a y s s uc h a n en o r m o u s r o l e i n t he w o r l d ec o n o m y; t o g i v e y o u a s e n se o f h o w w e g ot i nt o t h i s sit u ati o n; a n d g i v e y o u s o me h el p, I h o p e, i n n a vi g at i n g w he re we g o f r om h e re. And i f th at s u g ge st s t o y o u t h at y o u y o u r s el f a re g o i n g t o h a v e t o p l a y s o me s o r t o f r o l e, the n I h a ve g o tten m y t h o u g ht acr o s s – si nce t he pe o p le w h o a r e i n c h ar g e a re c om p letel y wit h o u t a n y i d e a o f w h a t t o d o, w h ich i f y o u p a y atte nti o n, y o u w i ll n o tice.
3 THINGS THE EC ON OMIC CRISIS IS NOT
Th is i s t h e m o st s e vere ec o n o mic cri si s o f c a pit al i sm i n m y li f etime, w h ich me a n s, a s I l o o k
a r o u n d t h e r o o m, i n y o u r s a s w el l. And it h a s t o b e u n d er st o o d a n d a p p r o ac he d i n t h at f r amew o r k i f i t’s g o i n g t o b e t a k e n se ri o u s l y a n d i f p e o p le a re g o i n g t o h a v e a r e a s o n a b l e s h o t at c om i n g o ut o n t h e o t he r e n d o f t h i s p r oce s s i n s o met hi n g l es s t h a n a d e v a state d pe r s o n a l, s oc i al s it u ati o n.
S o let me st a rt b y s u g g e sti n g t o y o u s ome t hi n g s t h at t h i s ec o n o m ic cri si s i s n ot It’s n o t a f i n a nci al cr i si s – n o t wit h st a n d i n g t h at t h at n a me is u s e d a l l t he t ime. T o c al l it a f i n a nci a l crisi s l imits it i n w a y s t h at m a k e n o s e n se. As y o u w il l see, t hi s cri s i s c ome s o u t o f t he enti re ec o n om ic s y stem we h a v e h ere i n t he U n ited State s It d i d n’t sta rt wit h b a n k i n g It d i d n’t st a y i n t he r e alm o f b a n k i n g, a n d it wi ll n o t be l imite d at a n y time a n d i n a n y si g n i f ica nt w a y t o t h e cre dit m a r k ets o r t o b a n k i n g o r i n s u r a nce c om p a n ie s.
The sec o n d t h i n g it is n’t is temp o r a r y, o r f leeti n g, o r s h o r t. T h at’s a w is h f u l t h i n k i n g, a little b it l i k e ima g i n i n g t he cr i si s i s lim ited t o f i n a nce i s wi s h f u l t hi n k i n g. Let me i ll u str ate t h at wit h tw o h i st o r ica l p a r a lle l s t o k ee p i n mi n d. Fi r st, we h a d a n o t he r g re at cri s i s b ac k i n t h e 1930s. Let’s remembe r w h at t h at w as l i k e, si nce the cu r re nt o n e i s r i g ht f u l l y be i n g com p are d t o t h at o n e. T h at o n e b le w, o r e x p l o de d, i n 1929. F o r t he n e x t 10 ye ar s, f r o m 1929 t o 1939, tw o p re s i de nts, H o o v e r a n d R o o s evelt, tr ie d a v a r iet y o f m o n eta r y a n d f i sca l p o l icies – m a n y l o o k i n g e x actl y li k e w h at y o u s ee t o d a y i n W a s hi n gt o n. An d t he y d i d n’t w o r k. An d f o r 10 ye ar s, we c o u l d n o t g et o u t o f t h at d e pre s s i o n. And w h at f i n a l l y li f te d u s
o u t w a s n ot s ome cle ve r p o l icy It w as a m a j o r c h a n ge i n t he s oc iety c al le d W o r l d W ar I I
And i n c a se y o u t hi n k t he se k i n d s o f l o n g l a st i n g reces si o n s a n d d e p re s si o n s t h at a re
immu ne t o p o l icy o n l y h a p p e n e d l o n g a g o, let me g i ve y o u a n o t he r e x a m p le. I n 1989,
Jap a n, t he sec o n d m o st im p o rt a nt i n d u st ri a l c o u nt r y i n t he w o r l d, t he n a n d n o w, it
enc o u nte re d a d o w n t ur n. Se ve re. And h e re we a re 18 ye ar s l ater, a n d t he Ja p a ne se h a v e
stil l n ot emer ge d f r om t h at d e p re ss i o n, e ve n t h o u g h t he y t rie d e ve r y m o n et ar y a n d f i sc al
p o l icy i n t h ei r re pe rt o i re, w h ich i nclu d es e ve r yth i n g t h at M r. Paul s o n o r M r. B er n a n k e h a ve
s o f a r t rie d. S o t h e n o t i o n t h at t h i s is g o i n g t o be a q u ic k ie, a s h o rt - l i ve d o n e, a V - s h a p e d o r a U - s h a p e d t u r n, t h at’s a ll w i s h f u l t h i n k i n g.
The t h i r d t h i n g it is n’t is q u ic k l y a n d e a s il y f i x a b le. We’ve al re a d y s ee n t h at. Sta rti n g w it h
the B e a r Stea r n s e ve nt s l a st s ummer, we h a v e s een t he U n i te d St ates g o v e r nme nt tr y o n e
p o l icy a f te r a n o t he r – l o we ri n g i nte re st r ates, p um pi n g m o r e m o n e y i nt o t h e ec o n o m y.
You remem be r l ast s umme r m a n y o f y o u m a y h a ve g o tten t hree o r s i x h u n d re d d o l l a r t a x
re b ates f r o m t he B u s h g o v e r nme nt t o s tim ul at e t he ec o n o m y. E ver y o n e o f t h o s e p o l icies
f a i le d. E ver y o n e w a s i ntr o d uce d wit h g r e at f a n f a re a s t he s o l u ti o n f o r t hi s t r o u b l i n g
p r o b l em Each s uccessi ve ste p w a s l a r ge r t h a n t he o n e b e f o r e, si g n a l i n g t he f a i l u re o f t he
o n e b e f o re. S o we s ee t h at a q u ic k f i x o r r e d ucin g i nte re st r ate s o r p u m pi n g i n t he m o n e y
o r t he n ew st im ul u s t h at M r. Ob am a’s g o v e r nment i s c o n s i der i n g n o w, a ll o f t he se l o o k t o h a ve b ee n, a n d h a v e bee n, a n d p r o mi se t o b e k i n d s o f t o o l ittle a n d t o o l ate S omet h i n g much b i g ge r, s omet h i n g m uch m o re f a r re ach i n g, is g o i n g t o h a v e t o b e d o n e.
HO W WE G O T HE R E : AME RIC AN EXCEPTION A LISM
S o let me b e gi n b y te ll i n g y o u w h a t I u n d er st a n d t o b e t h e h i st o r ical f r ame w o r k o ut o f w hich t h i s cri s is c o mes. An d I t h i n k y o u n ee d t o see it h i st o r ical l y t o g et a se n se o f h o w b i g it i s, h o w p r o f o u n d it i s, h o w s e ri o u s t hi s i s.
T o d o t h i s, let’s g o b ac k b r ie f l y t o t he pe r i o d f r o m 1820 t o 1970. A h u n d re d a n d f i f t y ye a r s th at a re a st o n i s h i n g i n t he w o r l d a n d i n o u r c o u nt r y. Here’s h o w a n d w h y i t’s a st o n i s h i n g.
Over t h at p er i o d, e ve r y deca de, f r om 1820 t o 1970, ever y d eca de, t he American w o r k i n g pe o p l e e n j o y e d a r i s i n g le ve l o f w a ge s. It’s a st o n is h i n g. E ve r y d eca de, eve n t he g re at de p re s si o n o f t he 30s, th is w a s t r ue. B eca u se i n th o s e d a y s, w hi le w a ge s we nt d o w n, p rices we nt d o w n f u rt h er. It’s p r o b a b l y t he o n l y s ocie ty i n t he h i st o r y o f t he w o r l d t h at ca n s a y th at. It m a de t he U n ite d St ates rem a r k a b le. It d r ew pe o p l e t o t h i s c o u nt r y i n s uccess i ve immig r ati o n w a v es t h at a re a ls o a s t o n i s h i n g, st a rti n g p a rt icul a rl y a f te r t he Ci v il W a r, b ut eve n e ar lie r.
The f act o f t he m atter w as t hi s i s a v e r y rich c o u nt r y. Rich i n it s s o i l, rich i n it s clim ate, a n d a s s uccessi ve w a ve s o f w o r k i n g p e o p le c ame h ere, the y d i sc o ve re d, t hr o u g h h a v i n g
rem o ve d t he i n d i ge n o u s p o p u l a ti o n, t h at t he re w a s a l o t o f l a n d o f re a ll y g o o d q u a l it y F o r m a n y re a s o n s t h e n, we h a d t h i s rema r k a b l e h u n d r e d a n d f i f t y ye a r s d u r i n g w h ich
w o r k e r s e n j o y e d a s te a di l y r is i n g st a n d a r d o f l i vi n g It’s a l s o a time i n w h ich w o r k e r s
became m o r e p r o d ucti ve M o r e m achi n es we re p r o v i d e d f o r e ach w o r k e r Tr a i ni n g w a s
p r o v i d e d. S pee d w a s dem a n de d. W o r k e rs b eca me m o r e p r o d ucti ve, b ut t h e y g o t
s o meth i n g f o r t h ei r e x t r a h a r d w o r k a n d t he ir g re ater p r o d ucti vit y. T he y g o t a r i si n g
sta n d a r d o f l i v i n g. An d y o u k n o w, it ch a n g e d a n d s h a p e d t he U n i te d St ates, a n d it’s
imp o r t a nt t o s ee h o w b eca u se it’ll e x p l a i n t he c ri si s we’re i n n o w.
N ot s u r p r is i n g l y, a p o p u l ati o n l i k e o u r s, t h at e n j o y s a r i s i n g st a n d a r d o f l i v i n g, be g i n s t o de f i ne l i f e – s uccess i n l i fe – i n te rms o f s o met h i n g t h at i s actu al l y wit h i n re ach. American s, a s a p e o p l e, be g a n t o i nte r n a lize t h i s rema r k a b l e h i st o r ical e x p e rie nce. T he rei n l ie t he r o o ts o f t he n o ti o n s o metimes c al le d American E xcepti o n a l i sm – t h at t here i s s omet h i n g u n i q ue a b o u t America.
The n o ti o n b e g a n t o b e n o r m al ize d t h at m y ch i l dre n w il l li ve b etter t h a n I d o, a n d m y g r a n dch il d re n st il l better – t h at t he re’s s o met hi n g b u i lt i nt o t he U n ite d St ates a b o u t a
ri si n g s t a n d a r d o f l i vi n g. An d s o it b ec omes re a s o n a b l e t o me a s u re y o u r o w n w o rt h a s a pe r s o n, y o u r o w n s uccess, i n term s o f t he cl o t h i n g y o u ca n b u y, a n d t he h o u s e y o u c a n
li ve i n, a n d t h e ca r y o u c a n d r i ve. T he me a s u re o f y o u r se l f b ec omes t hi s ac hie v a b le
rema r k a b l e q u a lit y o f America n li f e.
You m i g ht u n d e rst a n d t he b a s i s o f o u r c o n s u m eri sm i n a ll o f t hi s – t h at we became a s ociet y t h at cele b r ates w h at we ca n ac hie ve h e r e, w h ich i s a r i si n g s t a n d a r d o f g o o d s a n d
ser v ices we ca n b u y a n d w e ca n c o n s u me. T h at’s w h y t h i s is t he c o u nt r y i n w h ich
a d ve rti si n g i s b o r n a n d b ec omes s omet h i n g w e ca n g i v e t he re st o f t he w o r l d – p e r h a p s a d u b i o u s g i f t. B ut we’re t he s oc iety o f c o n s u m pt i o n. Par e xcel le nce, the m o d el f o r t h e re st
o f t he w o r l d t o t h i s d a y.
HISTO R Y INTE R R UPTED: W A G ES ST OP RISING
Ok a y, let me t ur n t he n t o t he t r a uma t h at a f f l icts a p o p u l a ti o n t h at h a s i nter n a l ize d – a n d
h a s c ome t o e x p ect – a h u n d re d a n d f i ft y y e a rs o f r i si n g s t a n d a r d o f l i vi n g, i n w h ich
w o r k e r s e ve r y d eca de c o u l d e n j o y m o re b eca u s e t he ir w a g es r o s e, a n d t he ir w a ge s al l o w e d t hem t o b u y m o r e. And t h e y u n d er st a n d w o r k, m o re a n d m o re, a s t h at w h ich al l o w e d y o u t he n t o g o o u t a n d b u y.
I n t he 1970s, th at h i st o r y o f t he U n ite d State s st o p p e d. Real w a ge s st o p p e d r i s i n g i n t he 1970s, a n d t he y h a v e n e ver re s ume d s i nce. T h is i s a f u n d a me nta l ch a n g e i n t he U n ite d States, w h ich t he m aj o r it y o f o u r p e o p le p r o b a b l y h a ve n o t yet c ome t o term s wit h. W o u l d the y g i ve u p t he c ult u re o f r i s i n g c o n s u m pti o n ? W o u l d t he y b e a b le t o s a y, ‘I’m g o n n a meas u re m y o w n w e alt h a n d m y o w n w o rt h a s a p e r s o n n o l o n g e r i n m y r i si n g s t a n d a r d o f l i v i n g b u t s o me o t he r w a y ’ An d i f n o t hi n g i n t h i s s oc iety we re t o h el p y o u t o d o t h at, a tas k t h at w o u l d b e d i f f icu lt u n de r t he b e st circum sta nces, b ut i f t he re’s n o h e l p, t he
cha nces a re, a n d i n dee d t h at’s o u r h i st o r y, th at the p o p u l at i o n w o u l d n’t accept gi v i n g u p
a r is i n g st a n d a r d o f c o n s u m pti o n T he y w o u l d n’t h a ve t he w a ge s t o d o it, s o t he y h a v e t o
f i n d a n o t he r w a y, w h ich we a s a n a ti o n d i d. B u t be f o r e I g o t h r o u g h t h at w it h y o u, let me
a n swe r t he q u e sti o n I h o p e is i n y o u r m i n d: W h y d i d t h e w a ge s st o p g o i n g u p ? B a s ica ll y,
there a r e f o u r r e a s o n s.
Fi r st, we h a d a st u n n i n g tech nica l ch a n g e i n t h e U n ite d State s – o n e t h at a l l o we d
b u s i ne sse s t o r e pl ace w o r k e r s at a n e x tr a o r d i n a ri l y r a pi d p ace. It’s cal le d t he c om p ute r.
Acro ss o u r c u lt ure, be g i n n i n g p a rt icul a rl y i n t h e 1970s, h u g e n um be r s o f p e o p l e l o st t h ei r
j o b s b eca u se c om p ute r s c o u l d n o w d o w it h o n e o r t w o o p e r at o r s w h at u se d t o t a k e
h u n d re d s o f p e o p le. S o t he re w as s u d d e n l y a r a p i d u se o f t he c om p ute r t o t h r o w l a r g e n um be r s o f p e o p le o u t o f w o r k, a n d t o m a k e t he re f o re a n e xce s s s u p p l y o f p e o p le re l ati ve t o t he d ema n d f o r t hem.
Seco n d, at t he s ame t ime, American b u s i n es se s o f t he 1970s d isc o ve re d t h at a v e r y p le as a nt p e ri o d f o r t hem h a d c ome t o a n e n d. Th at p le a s a nt pe ri o d w a s t he t h irt y y e ar s f r o m 1945 t o ’75 – t he pe ri o d a f ter W o r l d W a r II W he n a l l t he c om p etit o r s o f t he U n ite d States h a d b ee n de st r o y e d i n t he w a r, a n d t h e U n ite d St ates w a s t h e o n l y c o u nt r y i n t h e w o r l d t h at d i d n’t h a ve a w a r o n it s o w n s o i l, a n d t h at w a s a b le t o p r o d uce f o r t he r est o f the w o r l d, a n d we d i d And America n b u s i ne s se s h a d t he f i el d t o t hemse l ve s N o re a l com petit o r s.
B u t b y 1970, th o s e E u r o p e a n c o u n t rie s, a n d Ja p a n a s we ll, h a d r e b u ilt f r om t he w ar, a n d the y h a d r e b u ilt i n a v e r y p a rticu l ar w a y. L o o k i n g at t he U n ite d State s a s t he d o mi n a nt co u nt r y i n t he w o r l d, t he E u r o p e a n s a n d t he Ja p a ne se u n d e r st o o d t h at i f y o u’re g o n n a
re b ui l d a f act o r y, m a k i n g a n y t hi n g i n t h at p a rt o f t he w o r l d, y o u h a d t o d e al w ith t he
U n ite d St ates a s t he c om pet it o r t o b e b e at. Yo u h a d t o p r o d uce it better o r c he a pe r o r b o t h o r el se y o u’ d h a ve n o c h a nce. T he America n s we re d o m i n a nt. And s o e ve r y o n e we nt
t o w o r k t o o ut - p r o d uce t h e U n ite d St ate s – w h i ch t he y d i d. T h at’s w h y w e d o n’t p r o d uce a n y m o r e te le vi s i o n s h e re o r h a r d l y a n y m o r e a ut o m o b i le s, etc. The re st o f t he w o r l d
f i g u re d o u t, a n d t he America n e nte r p ri se s d i sc o ve re d b y t he 1970s, t h at we we re b ei n g o u t -c om pete d b y t he E u r o p e a n s a n d t he Ja p a n ese. And o n e c o ncl u si o n o f America n b u s i ne ss, a n d t h at’s t he im p o rt a nt t h i n g, w a s i f y o u c a n n o t be at t hem, j o i n t h em An d there b e g i n s t h is m as s i ve e x p o r t o f j o b s. American s cl o s i n g p r o d ucti o n f aci litie s h ere a n d m o vi n g t hem a b r o a d. It d o e s n’t nee d a n a d v a n ced ec o n om ics tr a i n i n g t o u n d e r sta n d i f the c om p ute r is m a k i n g u s n ee d f ewe r j o b s, f e w pe o p l e, beca u se we h a ve t he m achi n es
And at t he s ame t ime, p r o d ucti o n i s b e i n g m o v ed o u t o f t he U n ite d St ates, j o b s f o r p e o p le
o u t si de n o t h ere, t he c o n d iti o n – t h e b a r g a i ni n g st re n gt h – o f w o r k i n g p e o p l e o f t h e U n ite d St ates s h r i n k s. B u t t he re a re t w o m o r e p he n o me n a t h at g et g o i n g. T he re i s a r a p i d cha n ge i n t he p o s iti o n o f w o me n i n t he America n ec o n o m y. Particu l ar l y st a rti n g i n t h e
1960s a n d 70s, American w o me n w h o a re i n t he h ome t a k e j o b s o ut o f t he h o u s e – p a rt
time j o b s o r f u l l time j o b s. I f t he y h a d a p a r t ti me j o b, it b ec omes a f u l l t ime j o b. We h a v e the m a s si ve m o v eme nt o f w o me n l o o k i n g f o r j o b s i n t h e w o r k f o rce.
And t he f o u r t h re a s o n w h y w a ge s g o d o w n i s t he w a ve o f immi g r ati o n t h at be g i n s t he re M a s s i ve immi gr at i o n, p a rticul a rl y f r o m Ce ntr a l a n d L at i n America, b ut g l o b a l l y. T he
w ome n, t he immi g r a nts, m o r e pe o p le l o o k i n g f o r j o b. T he c om p ute r a n d m o v i n g a b r o a d, les s j o b s f o r t h em t o l o o k f o r. Perfect recipe e ve r y time f o r w a g e s t h at d o n’t g o u p a n y m ore. F o r e ver y b o d y.
COPING WITH T R AUM A : THE PEOPLE ’S R E SPONSE
S o t he 1970s, o u r w a g e s st o p p e d r i si n g, a n d n o w s o meth i n g a s b a s ic a s t h at – t h at h a d
n o t h a p p e ne d f o r 150 ye a r s – p l u n g e s e ve r y b o d y i nt o c o p i n g w it h it. S o I’m g o n n a l o o k at it n o w b y te ll i n g a s t o r y i n tw o p a rt s. I’m g o n n a f i r st l o o k at h o w w o r k i n g p e o p l e c o pe d wit h t he e n d o f r i si n g w a g e s, a n d t he n I’m g o n n a l o o k a t h o w t he b u s i n es s c omm u n it y co pe d w it h it. Beca u se i n t h ei r tw o r e s p o n s e s, the i n g re d ie nts f o r t he cri s is we’re n o w i n wil l b e l ai d b a r e.
S o let’s st a rt w it h t he p e o p le. W h at d i d t he America n w o r k i n g c l as s o f p e o p le d o n o w t h at thei r w a ge s st o p p e d r i s i n g ? F ir st, t he American w o r k i n g p e o p l e d i d m o r e w o r k. I f t he
wa g es y o u g et pe r h o u r a r e f i x e d, d o n’t g o u p a n ym o r e, o n e s o l u ti o n i s m o re h o u r s. H a ve m ore p e o p l e i n t he h o u s e g o i n g o ut f o r m o re h o u r s – w h ich i s w h at t he America n w o r k i n g cl a s s d i d.
B etwee n t he 1970s a n d t o d a y, t he a v er a ge n u mber o f h o u r s w o r k e d p e r ye a r b y a n
American r o s e b y a b o ut 20 p ercent. T h at’s a l o t. We w o r k e d 20 pe rcent m o r e h o u r s o n t he
j o b t h a n we d i d t hi rt y ye a r s a g o B y c o m p a ri s o n, f o r e x a m ple, i f y o u l o o k a t F r a nce,
Ge rm a n y, a n d It al y, o v e r t he s ame p er i o d o f ti me, the a v er a g e n um be r o f h o u r s w o r k e d b y th o s e f o l k s d r o p p e d b y 20%.
American s w h o a re f o r t u n ate e n o u g h t o g o t o Eu r o p e o n s u mmer v ac ati o n s o f te n c ome b ac k scr atchi n g t h ei r he a d s a b o u t t he w o n d e r f u l w a y t h o s e p e o p le h a v e o f l i vi n g a t a m ore h u m a ne p ace. T here’s n o t h i n g m y ster i o u s a b o ut it. American s a re w o r k i n g t hei r re a r en d s o f f, a n d t h e re st o f t he w o r l d – t he i n d u st ri a l w o r l d – is n’t. T he y h a ve t ime f o r t h o s e la n g u o r o u s me a ls. We i n ve nte d f a s t f o o d. T he h o p e o f t he America n f am il y w a s, b y se n d i n g e ve r y b o d y o u t m a n y h o u r s, it w o u l d a ll o w r i s i n g c o n s um pt i o n. T he h o p e p r o v e d u n f o u n d e d. Wh y ? It t u r n s o ut t h at i f y o u’re w o r k i n g a l o t o f h o u r s, y o u h a v e t o f i n d ot h er wa y s t o s o l v e t he p r o b lem s t h at u se d t o b e s o l ve d w he n y o u we re n’t. I f t he w om a n g o e s o u t o f t h e h o u se t o t a k e a j o b, s h e nee d s a s et o f c l ot h es, s he n ee d s h er o w n c a r, es pecia ll y f o r a c o u nt r y t h at d o e s n’t d o w el l wit h m a s s t r a n s p o rt at i o n. It t u r n s o ut t h at d o i n g m o r e w o r k, m o re h o u r s, h a s c o sts a ttach ed t o it t h at u n d e rcut t he w h o l e p o i n t o f it, w hich w a s t o b r i n g i n m o r e m o n e y It t u r n s o u t t he re a re m o r e c o st s
S o i f it d i d n’t s o l v e t he p r o b lem, w h at w a s t he s eco n d t h i n g t h at t he American w o r k i n g
clas s d i d t o c o p e w it h t he e n d o f t he r i si n g w a ge s ? S o t h at t he y c o u l d c o nt i n ue t o co n s ume. Well, y o u a l l k n o w t h e a n s wer. T he a n swe r i s t h at t he America n w o r k i n g cl a s s
p r ocee de d, sta rti n g i n t he 1970s, t o g o o n a b o r r o w i n g b i n g e t h at n o o t he r w o r k i n g cl a s s i n a n y c o u n tr y a t a n y t ime i n t he h i st o r y o f t h i s r ace – t he h um a n r ace – e ve r d i d b e f o r e.
American s st arte d b o r r o w i n g.
At fi r st, o f c o u r se, t he y b o r r o w e d i n t h e w a y t h at t he le n de r p re f e rs. T he y o f f e re d c o l l ater a l.
S o t he b a s ic w a y t h e American s s o l v e d t he p r o b lem w a s t o b o r r o w a g a i n st t he h o u s e – t o
b o r r o w a l o t a g a i n st t he h o u s e. K ee p i n m i n d t h at t he cr is i s e x p l o d e d a r o u n d s omet h i n g
calle d a m o rt g a ge – t he s u b p r ime m o rt g a ge. B ut t he America n w o r k i n g cl a s s c o u l d n e ver
h a ve i ncre a se d its c o n s u m pti o n s im pl y b y b o r r o w i n g a g a i n st t h e h o u se. T he y b a s ica ll y
d i d n’t h a ve e n o u g h w e alt h t o b o r r o w e n o u g h. S omet hi n g h a d t o b e i n ve nte d, a w a y t o
le n d t o t he America n p e o p le m as s i ve am o u n t s o f m o n e y w it h n o c o l l ater a l at a ll. An d t h at
wa y w a s f o u n d. It’s i n y o u r w a l let. It’s ca lle d a c r ed it car d. It i s a mech a n ism t o a l l o w b a n k s t o le n d t o t he w o r k i n g cl a s s wit h n o c o l l ater al at a ll. It’s u n secu re d de bt i n ec o n o mic term s, y o u r c re d it car d B ut o f c o u r s e, n o l e n de r wi ll le n d t o y o u w it h o u t c o ll ate r al u n le s s t he re i s s o meth i n g i n it f o r t hem t o d o t h at r i s k y t h i n g. And t he a n s wer i s t h e r ate o f i n tere st. Wh at is t h e a ve r a ge r ate o f i nte rest o n a cre d it ca r d t o d a y ?
Rea d y, 18% pe r ye a r. T h at’s w h y t he re a re cre dit ca r d s S o t he America n w o r k i n g cl a s s wa s g i ve n l o a n s, h u n d re d s o f b i ll i o n s o f d o l l a r s i n u n s ecure d cre d it, i n o r d er t o a l l o w t h e r ise i n c o n s u m pti o n. An d t he America n w o r k i n g cl a s s d i d it. T he y we nt f o r it.
And t he re a s o n I t o l d y o u t he h i st o r y i s t h at t h at’s t he b e st w a y I k n o w h o w t o u n d e r sta n d w h y t h at k i n d o f a b o r r o w i n g acti vit y w a s p o s s i ble i n t h i s s oc iety. It s o l ve d a p r o b lem dee p l y em be d de d i n t he h i st o r y o f t he U n ite d States. B u t it d i d p r o d uce, b y t he e a r l y ye a r s
o f t he 21st Ce nt u r y, n o w, a w o r k i n g c l a ss e x h a u ste d b y t h e am o u n t o f w o r k it d o es, wit h a col l a p si n g p e r s o n a l l i f e, beca u se o f t he st r a i n s a n d st re s ses o f w h a t it mea nt t o s e n d eve r y b o d y o u t t o d o a l l t h i s w o r k, a n d n o w t o t h at we a d d t he a n x iet y t h at n o w a f f l icts a p o p u l ati o n w h o s e a ve r a ge le ve l o f d e bt e xcee d s its a n n u a l i nc o me. Stre s se d, e x h a u ste d, thi s i s a p o p u l ati o n t h at h a s re ache d t he limit s. It ca n n o t ca rr y m o re d e bt a n d it c a n’t d o m ore w o r k. T h at’s w h y t h i s i s n ot a tem p o r a r y p r o b l em. Th i s is n o t a b l i p a l o n g t he w a y.
We h a ve re ache d t he lim its o f t he k i n d s o f c a pi tal ism t h i s s oc iety h a s b ec ome
THE ME ANING O F THE “T R A UM A” F O R BU SINESS
Let me t u r n n o w t o t he b u s i ne s s c omm u n ity. W ell, f o r t h e b u s i ne s s c omm u nit y, t he l ast thi rt y ye a r s h a ve b ee n s p ectacul ar. E ve r yt hi n g I’ve t o l d y o u a b o ut t he w o r k i n g cl a s s, n o w
we’re g o n n a g o t o g o o d n ew s. Wit h t he i nt r o d ucti o n o f c o m p ute rs, American w o r k e r s became m o r e a n d m o re p r o d ucti ve We h a d a t h irt y - y e ar p e ri o d o f r i s i n g l a b o r
p r o d ucti v ity B ut n o w s t a y wit h me E ach ye a r t he w o r k e r p r o d uce s m o r e, a n d w h at d o y o u p a y t he w o r k e r e ach y e ar ? T he s ame. T h at’s w h at n o m o r e ri s i n g w a ge s me a n s. T he
w o r k e r s get p a i d t he s ame T he y p r o d uce m o re a n d m o r e a n d m o r e, b ut t he y get t he s ame Th at i s, t he g a p b etwee n w h at t h e w o r k e rs p r o d uce f o r t he i r em pl o y er, w hich t h e empl o y e r se ll s a n d w h at t he y h a v e t o p a y t he w o r k e r t o d o it, the g a p i s g etti n g b i g ge r. Wh at t he w o r k er s g et i s f l a t. Wh at t he y p r o d uc e i s m o r e. T h at b i g ge r, f rie n d s, i s cal le d p r o f it s. S o t he l a st t hi rt y ye a r s o f f l at w a ge s a n d r i si n g p r o d ucti v ity a r e t he g re ate st p r o f it
b o o m i n t h e h i st o r y o f America n ca p it al ism a n d q u ite p o s s i b l y a n y c a pit a li sm.
Th is i s n o t a cr i si s o f W a ll Street. T hi s i s n o t W al l St reet d o i n g s omet h i n g t h at M a i n St reet i s le ft o ut o f. N o t at a ll. T h i s is a c ri s i s o f a s y stem th at i s a s b u s y o n W a ll Street a s it i s o n
M a i n Street. E ver y em pl o y e r o n M a i n Street p a r ticip ated i n t hi s d r e am. Th i s is a n
empl o y e r’s f a nt a s y c ome t r ue. I p a i d m y w o r k e r s t he s ame, a n d t h e y w o r k m o re a n d m o re f o r me. T he y p r o d uce m o re a n d m o r e f o r me, a n d I d o n’t h a ve t o g i ve t hem m o re a t a ll.
Th is c a n’t be re al. Pinch m y sel f. It w a s. And it p r o d uce d i n t he b u s i ne s s c omm u n ity a k i n d
o f w i l d e u p h o r i a. N o b o d y c o u l d q u ite u n d e r st a n d it. As t he 70s became t he 80s, a n d t he
80s became t he 90s, the p r o f i ts we re u n b e lie v a b le. And we k n o w w h at t he y d i d. We al l d o.
Fi r st t hi n g t he y d i d, u n d er st a n d a b l y. T he y b e g a n p a y i n g t hemse l ve s le vel s o f w a g es a n d
b o n u se s n o b o d y e ve r he a r d o f b e f o r e L ar ge c o r p o r at i o n s p a i d t hei r p e o p le te n s, h u n d re d s o f mi ll i o n s o f d o l l a r s, i n a n n u a l s a l a r i es. Whe re d i d t h at m o n e y c ome f r o m ? I j u st
t ol d y o u.
Wh at el se d i d t he y d o ? T he y b e g a n t o g o t hr o u g h a n o r g y o f s o met hi n g t h at’s ca lle d
merge r s a n d ac q u i siti o n s. T h e y b o u g h t e ach ot he r. C o m p a nie s h a d h u g e am o u nt s o f m o ne y a n d b o u g h t o t he r c om p a n ie s. Are y o u a n n o y e d b y a c o m petit o r ? B u y t hem. Are y o u t r o u b le d b y a f o re i g ne r w h o i s ste a li n g y o u r m a r k et? B u y t hem. And y o u h a d t he m o ne y t o d o it.
Wh at el se d i d t he y d o ? I nte re sti n g. T he y p u t t h eir m o n e y i n t he b a n k. And t h e b a n k s s u d de n l y d i sc o ve re d wi l d am o u nt s o f m o n e y co mi n g i n f r om c o r p o r at i o n s. De p o s it it i n the b a n k. T h at’s w h at y o u d o w it h y o u r p r o f it s w hi le y o u’re f i g u r i n g o ut w h at el se t o d o wit h t hem. Yo u p ut t hem i n t he b a n k. And t he b a n k s b ecame re p o s it o r ie s o f e n o rm o u s am o u n t s o f m o n e y. An d t he n t h e c o r p o r at i o n s a n d t h e b a n k s, a b o ut t h e s ame time, d isc o ve re d a r em ar k a b l e t h i n g t h at t he y c o u l d d o w it h t he se p r o f it s.
And i f I ca n g et t h i s acr o s s, I t h i n k y o u w i ll see a n d b e a b le t o h o l d i n y o u r mi n d t he t o uch st o n e o f t he n e w American ec o n o m y, w h i ch i s n o w c o l l a p si n g. B a n k s a n d l a r ge com p a nie s d i sc o ve re d a v e r y p r o f it a b le w a y t o u se t he ir n e w, h u ge p r o f it s T he y w o u l d le n d t hem t o t he em pl o y ee s. T h at i s t he w a y t h e em p l o y ee s c o u l d r a i se t hei r c o n s um pt i o n w he n t he ir w a ge s d i d n’t g o u p a n y m o r e w as t o b o r r o w t he m o n e y t h at t hei r f r o ze n w a ge s ma de p o s s i ble t o t he ir em pl o y e r s.
T o u n d e r sta n d t he American ec o n o m y i n t he l a st t hi rt y ye a r s, the n, am o u n t s t o t h i s.
Empl o y e r s n o l o n g e r r a ise d t he w a ge s o f t h ei r w o r k e r s. I n ste a d, t he y le a nt t hem t he m o ne y. T h at’s w h y it’s a n em pl o y e r’s f a nt a s y c o me tr u e. I n ste a d o f r a i si n g m y w o r k e r’s
wa g es, I le n d h im t he m o n e y, w h ich he h a s t o p a y me b ac k w it h i nte rest I s n’t t h at better th a n p a y i n g t hem w a g es ? T hi s i s n i r v a n a, o r a s clo se a s b u s i n e s s get s t o n i r v a n a S o t he
American b u s i ne s s c omm u n ity b ecame e xcite d th at t he m o n e y t h e y g o t f r o m t he w a ge s
the y d i d n’t h a ve t o p a y c o u l d n o w b e d o u b l e d. We n o t o n l y g ot m o re o u t p ut f r o m t he w o r k e r wit h o ut p a y i n g h i m, b ut we c o u l d l e n d h im at h i g h i ntere st o n t o p o f it. An d we h a d a w o r k i n g cl a s s d es p er ate t o b o r r o w. Perfe ct. We’ve g o t t he m o n e y t o l e n d. T he y’re
de s pe r ate t o b o r r o w. A m ar r i a ge m a de i n h e a v en.
And s o i t w as. T he America n b u s i ne s s c omm u n i ty, di rectly o r t h r o u g h t he b a n k s, g o t i nt o
the b u s i ne s s o f le n d i n g. Yo u a l l k n o w t h at c o r p o r at i o n, o r s o me o f y o u c a n remembe r it,
Ge ne r a l M o t o r s, f am o u s f o r p r o d uc i n g a ut om o b ile s. Ove r t he l a st t hi rt y ye a r s, Ge ne r al
M ot o r s b ecame a ve r y d i f f e re nt e nt ity. It create d a s u b s i d i a r y ca lle d G MAC, Ge n er a l M o t o r s
Accepta nce C o r p o r a ti o n. It is a b a n k. It le n d s m o n e y. It be g a n b y l e n d i n g m o n e y t o p e o p le
t o b u y c a rs, beca u se t h ei r w a ge s c o u l d n’t p a y f o r t hem. T he n it d i sc o vere d y o u c o u l d m a k e
m ore m o n e y o f f t he i nte re st o f t he l o a n t h e n y o u c o u l d m a k e p r o f it f r o m t he ca r. And s o
Ge ne r a l M o t o r s b ecame a b a n k, became m uch m ore i nte re ste d i n be i n g a b a n k t h a n b ei n g
a ca r S o meth i n g we n o w n o t ice t he re s ult s o f The y d o n’t ma k e c ar s v er y we ll B u t t he y’re
a g re at b a n k. T hei r o n l y m i sta k e w a s, a b o ut 10 ye a rs a g o, t he y b r a nche d o u t, t he y were
ma k i n g s o m uch m o n e y, a n d i n ste a d o f j u st le n d i n g t o p e o p l e t o b u y ca r s, t he y became a
ge ne r al le n d er a n d we nt i nt o t he m o rt g a ge b u si ne s s Wr o n g d eci si o n, wr o n g t ime B ut
Ge ne r a l M o t o r s h a s s p eci al ize d i n wr o n g d ecisi o n s at t h e wr o n g time f o r t h i rty y e ar s.
B a n k s g o t i nt o it, le n di n g t o e ver y b o d y. We al l became u se d t o t he f o l l o w i n g p h e n o me n a.
I d o n’t k n o w a b o ut y o u, b ut I m u st g et tw o t o t h ree s o l icitati o n s f o r c re dit ca r d s a wee k i n
the m ai l – n o n e o f w h ich I r e q ue st. It’s s o p r o f it a b le t o p u s h d e bt o n t he America n p e o p le
th at e ve r y b o d y d o e s it. It i s a s oc iety o u t o f c o n tr o l. It i s a p r o f i t b o n a n z a l o o k i n g f o r m o r e
wa y s t o m a k e m o n e y. An d t he f i n a nci a l sect or o n W a ll Street re s p o n d e d t o t h i s s itu at i o n. It
d i d n’t create it. It g o t its h a n d s o n t he m o n e y a n d f o u n d n ew w a y s t o le n d n e w p e o p le
ne w l o a n s a t h i g h i nte re st r ates.
“I R R A TI ON A L EXU B E R A NCE” O R BU ST AN D NO B O OM IN SIGHT
Th is i s a c r azi ne s s. T hi s i s a w i l d o ut o f c o n t r o l, b ut we s h o u l d n’t be s u r p r i se d. I f w e cre ate
a a n om a l o u s s it u ati o n o f e x p l o d i n g p r o f it a b l y o n t h e o n e s i de, a n d a d e s per ate
e x h a u ste d p o p u l at i o n w a nti n g a n d n ee d i n g a n d me a s u r i n g its o w n s e l f i n term s o f r i si n g
co n s um pti o n, we h a ve a l et h al c om b i n ati o n. An d s o, o f c o u r s e, i n t he e nt h u si a sm o f
b u s i ne ss a n d t h e b a n k s t o l e n d t he m o n e y a n d m a k e m o r e m o n e y i n a t ime o f s o m uch
m o ne y, a n d h u n d r e d b i ll i o n d o l l a rs h e re a n d a h u n d re d mi ll i o n d o l l ar e x ecuti ve p ac k a g e
o v e r t he re, we’re s u r p r ise d t h at t he y e n d e d u p l en d i n g t o p e o p l e w h o c o u l d n’t p a y it
b ac k ? O h, c ome o n T he h i st o r y o f c a p it al ism i s p u nctu ate d b y b o o m s a n d b u st s W here d o
y o u t h i n k t h at w o r d c ome s f r o m ? B o o m a n d b u st is b u i lt i nt o t h i s s y stem
The o n l y d i f f e re nce n o w i s it c o mes a t t he e n d o f t h is l o n g, hi st o r ica l pe ri o d w h e n it h a s re ache d its o u ter l imit s S o o f c o u r se, i n t he r ise o f a l l t h is p r o f it, we h a d w h a t ? I’ll q u o te M r. G ree n s p a n: “We h a d i r r ati o n a l e x u b er a nce.” Ok a y, t h at’s a p o l ite w a y o f s a y i n g w h at my h a n d s a r e ge st u ri n g a t. T h at’s w h at we h a d. An d f i r st it e x p r e sse d it se l f i n o n e k i n d o f
l u n acy, a n d t he n a n o t he r. T hi s i s t he l u n acy o f t he b u s i ne s s c omm u n ity.
L u n acy #1: I n t he 1990s, as t he se p r o f it s were b u il d i n g u p, s u d de n l y o u r b u s i n es s
commu n it y deci de d t h at t he n e w i nter net i s g o i n g t o re v o l u ti o n ize t he u n i v er se. It re a ll y is n’t j u st a n e x p a n d e d ye ll o w p a g e s. It’s re a ll y a r a d ical l y ne w t h i n g. And s o t he y i n ve ste d i n c om p a n ies – f u n n y c o m p a n ies w it h little n a mes – u s u a l l y tw o o r t h ree i nit i al s.
C om p a n ie s t h at h a d b ee n a r o u n d t h ree o r f o u r ye a r s, h a d n e ver m a de a n y p r o f it, a n d w h o s ai d i n t hei r a n n u a l s t atement s, we d o n’t e x p ect t o m a k e a n y p r o f it f o r te n y e a rs. W h o cares ? T hei r st oc k s w ere b i d u p t o $500 a s h a re. An d y o u a l l k n o w w h at t h at w a s. T h at w a s the b o om o f t he l ate 1990s, a n d i n M a rch a n d Ap ri l o f t he y e a r 2000, the st oc k m a r k et cras he d. We’d h a d o u r f i r st b u b b le o f t h is l ate st p r o f it b o o m p er i o d. A w il d e xces s.
The i n de x o f t he N a s d a q, t he m o s t imp o rt a nt st oc k m a r k et f o r t he se k i n d s o f f i rm s, re ache d $5000 i n M a rch -Ap ri l o f 2000. T o d a y, it is le s s t h a n h a l f t h at. It ne ve r rec o vere d.
Th at’s a d r o p o f t he p r o p o r ti o n s o f t he g r e at d ep re ss i o n. O ur st oc k m a r k et h a s n’t rec o vere d S o ter ri f y i n g w a s t he c o l l a p se o f t he st oc k m ar k et i n e ar l y 2000 t h at o u r
g o v e r nme nt re acted i n ter r o r b y s a y i n g, o h m y g o d, t he ec o n o m y is g o i n g t o f a l l a p a rt. We
h a ve t o s a v e it b y g etti n g p e o p le t o s p e n d, s o we’re g o n n a l o we r i ntere st r ate s. We k n o w
w h at w il l h a p p e n i f y o u l o we r a ll t h e i ntere st r a tes, pe o p le w il l b o r r o w l i k e cr az y. And t h e y
d i d. And w h at t he y s p e nt t hei r m o n e y o n w a s h o u s i n g. S o a f te r t he c o ll a p se a n d t h e
b u b b le o f st oc k m ar k et, we h a d a n o t her b u b b l e o f re a l e st ate. It we nt craz y. E ve r y b o d y b u y i n g h o u s i n g, b ui l d i n g h o u s i n g, e ve r y w here. C he a p m o n e y t o b o r r o w, b u i l d, b u y, b u il d, b u y, a n d n o w w e h a ve t he c o ll a p se o f t he re a l estate b u b b l e. And t he re’s n o t hi n g l e ft t o b u b b le. W h at a re we g o i n g t o d o ? T he re is n’t a n yt hi n g. T he st oc k m a r k et’s f i n i s he d. Real estate i s f i n i s he d.
The re were p e o p l e w h o t h o u g h t we m i g ht h a v e a n e w b u b b le c al le d e x p o r t s. C o l l a p se t he v al u e o f t he d o l l a r, ma k e o u r g o o d s r e al c he a p, a n d t he re st o f t he w o r l d wi ll b u y t h em. U n f o r t u n atel y, t he re st o f t he w o r l d r e f u se s t o p l a y W o n’t d o it S o w e d o n’t h a v e it We’ve r u n o ut. An d s o we s it a c o l l a p se d b u b b l e, the wea lt h y h a v i n g p r o d uce d a n a r m a d a o f ne w i n str ume nts t h at a re n o w n ot w o rt h v er y much. S o t h at o u r b u s i n es s c omm u n it y is a g h a st wit h st a g ge r i n g l o s s e s a n d s o, i n it s o w n p ecul i ar w a y, h a s c ome t o r e p licate t he e x h a u sti o n a n d a n x i ety o f t he w o r k i n g cl a s s. F o r d i f f e re nt re a s o n s, he a ve n k n o w s. B u t we h a ve a n ec o n om ic l a n d sca pe t h at i s littere d w ith c o r p se s.
WH A T W ON’T W O R K : R E R E GU L A TION
Ok a y. I d o n’t t hi n k, f o r t he re a s o n s t h at I h o p e h a ve b ec ome clea r, t h at we’re g o n n a g et ve r y f a r, a n d w e’re certa i nl y n o t g o n n a s o l ve o u r p r o b l em b y h a v i n g s o me m o n et a r y a n d f i scal p o l icy a l o n g t he li ne s we’ve j u st see n. T he y’ve bee n f a i l i n g. M y g u e s s i s t he y w il l co nti n u e t o.
S o t he q u e sti o n w e ca n p o s e i s: Wh at m i g ht be d o n e o t he r t h a n t he se attem pts t o stim ul ate t h at d o n’t s ucceed, the se attempt s t o b a il o u t t h at d o n’t seem t o s ucceed, a n d n o w e ve n t he se ste p s o f g o v er nme nt b u y i n g s h a re s i n AIG a n d t he b a n k s t h at d o e s n’t seem t o s ucceed ?
I d o n’t f i n d it s u r p r is i n g, a n d I h o p e y o u d o n’t, g i ve n t he h i st o r y a n d t he w h o l e c o nte x t, w h y t he se sm al l, he sit a nt, h alti n g s te p s d o n o t a d d u p t o a s o l u ti o n. An d I’m n ot t he o n l y o n e w h o s ee s it. M a n y i n W a s h i n gt o n d o a s we ll. And t h e y h a ve b e g u n t o p ut t h ei r f a it h i n s o meth i n g el se, a n d it’s a n i ntere sti n g s t o r y, a n d I w a nt t o c o ncl u d e b y t r y i n g t o e x p l a i n w h y it w o n’t w o r k eit he r.
Th is i s t h e n o t i o n o f re g u l ati o n. And t h i s n ot i o n w o r k s a s f o l l o w s. T he a r g ume nt i s m a de th at i n t he f i r st t h irt y ye a r s a f ter W o r l d W a r II, w e li ve d i n a re g u l ate d ec o n o m y. C om i n g o u t o f t h e g re at de p re s si o n, t he re g ime o f R o o s evelt h a d a f ter a l l i ntr o d uce d a ll k i n d s o f re g ul at i o n s, a n d t h at’s tr ue. Regu l ati o n s g o v e r n i n g w h at b a n k s c o u l d d o, re g u l ati o n g o v e r n i n g w h at b o a r d s o f d i rect o r s o f c o r p o r a t i o n s c o u l d d o, s h o u l d d o, mi g ht d o. W h o l e ne w i n stit uti o n s, s oci a l secu rit y, u nem pl o y me n t i n s ur a nce, we ne ve r h a d t h at b e f o r e. S o there we re l o t s o f re g u l ati o n s t h at came o u t o f the de s pe r ati o n o f t he g r e at de p re ss i o n.
And t h o s e re g u l ati o n s we re e n f o rce d f r o m t he 30s t o t he mi d -70s S o t h at w a s a p er i o d o f a re g u l ate d American c a pit al i sm. An d s o t h e a r g ume nt g o es, t h at w a s a g o o d t ime. And w h at ter ri b le t h i n g h a p p e ne d w a s, at t he e n d o f t he 70s, be g i n n i n g w ith Rea g a n, w as a n er a o f d ere g u l ati o n.
S o t he a r g u me nt g o e s, o k a y, o u r p r o b lem i s j u s t t h at we de re g u l ate d u n d er Rea g a n, B u s h, Cli nt o n, a n d B u s h, a n d s o n o w m a y b e wit h M r. Obam a, t he e r a o f d e re g ul at i o n w i ll b e p u t be h i n d u s, a n d w e wi ll ret u r n t o t he re - re g u l ate d g o o d o l d d a y s b r o u g h t b ac k.
The i de a h e re is t h at t he de re g u l ati o n o f t he l a st 30 ye a r s n ee d s n o w t o b e u n d o n e. We nee d t o h a v e a n e w c o llecti o n o f re g u l ati o n s, t elli n g t he b o a r d s o f d i recto r s o f co r p o r at i o n s w h a t t he y s h o u l d a n d s h o u l d n’t d o, g i vi n g t he g o v er nme nt a ll k i n d s o f n ew p o w er s, t o c o nt r o l, t o re g u l ate, t o o b s e r ve, t o m o n it o r. An d i f we o n l y d o t h at, we wi ll u n d o a l l t he d a m a ge a n d a l l t h e ter r i ble s it u ati o n we n o w f ace a s a n a ti o n. A p a rt o f t h i s is u n de r st a n d a b le. We di d r e g ul ate o u t o f t he l a st g re at d e pre s s i o n. B u t a n ot he r p a rt o f it i s b li n d Let’s see w h y
Th o s e re g u l ati o n s t h at we re p u t i nt o a f f ect b y Ro o se ve lt, a n d e ve n s ome l ate r, eve n b y
Tr uma n, e ve n b y K e n ne d y, e ve n b y J o h n s o n, t h o s e re g u l ati o n s d i d i n d ee d l imit, co n st r ai n w h at b o a r d s o f d i rect or s o f c a pit a li st c o r p o r at i o n s c o u l d d o. T he y d i d. B ut h e re’s w h at
the y a l s o d i d. T he y g a v e c o r p o r a te b o a r d s o f d i recto r s a n imme n se a n d i n st a nt a ne o u s i ncenti ve t o d e fe at t h o se r e g ul at i o n s, t o e v a de them e ve r y ch a nce the y h a d, t o w e a k e n them e ve r y ch a nce the y h a v e. And w h e n t he p o l itica l c o n d iti o n s we re p o s s i b le, t o g et ri d o f t hem. And t h o se b o a r d s o f d i rect or s we nt t o w o r k – h a v i n g t rie d t o p r e ve nt t h o s e re g ul at i o n s i n t he f i r st p l ace – t he y we nt t o w o r k t o e v a d e, we a k e n, a n d d e str o y t h em.
The l a st 30 ye ar s we re t he s uccess. T he y we re f i n a ll y p o l itical l y p o we r f u l e n o u g h t h at t he y co u l d get r i d o f m o st o f t hem. I n ot he r w o r d s, to p a s s r e g ul at i o n s w h i le le a vi n g i n p l ace the b o a r d s o f d i rect o r s o f p r i v ate c o r p o r at i o n s is a b i z ar re p o l icy t h at g u a r a ntee s t h at y o u’ ve le ft i n p l ace the a b s o l ute s w o r n e nem y o f t he re g u l ati o n s. B ut y o u h a v e n ot j u st le ft i n p l ace p e o p le w h o w a n t t o u n d o t he r e g u l ati o n. Let’s remembe r w h at a b o a r d o f
d irect o rs i s. T he b o a r d o f d i rect or s o f a c o r p o r a ti o n a r e t he g r o u p o f p e o p l e – u s u a l l y n um be ri n g b etwee n f i f tee n a n d twe nt y - f i v e p e rs o n s – i nt o w h o s e h a n d s f l o w t he p r o f it s o f e nte r p ri se S o t o re g u l ate o u r k i n d o f ec o n o mic s y stem i s t o im p o se l imit s a n d r u le s o n
a g r o u p o f p e o p l e wit h e ve r y i ncenti ve t o u n d o t hem a n d a l l t he re s o u rces n ee de d t o re al ize t hei r i ncenti ve s. S o o f c o u r s e t he re g u l at i o n s b ec ome a d e a d letter.
It’s a s i f y o u h a d m o u nte d a m il ita r y cam p a i g n, b ut y o u d eci de d n o t t o d e fe at t he e nem y b ut t o e sta b li s h a n a w f u l l ot o f r u le s w h ile a l l o wi n g t h e e nem y t o h a v e f r ee s u p p l y l i ne s f r o m e ver y w he re nee de d t o u n d o y o u. A ge ner al w h o d i d t h at w o u l d b e se nt t o a n i n s a n e a s yl um. B u t i n o u r c o u n t r y, we w a nt t o b el ie ve th at a re g u l ati o n s y stem t h at we h a v e j u st g o n e t hr o u g h 50 ye a r s o f o b s er v i n g it s c om ple te e v iscer ati o n, we’re g o i n g t o d o t h at again? I d o n’t t hi n k s o.
The America n w o r k i n g cl a s s s u p p o rte d R o o s e v elt i n re g u l ati o n. T he y h a d g r e at h o p es. B ut t o re - re g u l ate n o w w il l get f r o m t he American w o r k i n g cl a s s, a n d I t h i n k r i g ht l y, t he n a st y rema r k, “N o, t h a n k y o u. We’ve bee n t h ere a n d we’ve d o n e t h at a n d w e’re n o t g o i n g t o d o th at a g a i n.” I f we’re g o i n g t o d e a l wit h t h i s p r o b lem, we h a ve f i n a l l y t o f ace, a n d h e re’s my co ncl us i o n, t h at i f we le a ve t h e str uctu re o f e nter pr i se i n o u r s ociet y u nc h a n ge d, we wi ll n o t b e a d d re s si n g w h at’s at t he b a s e o f t h i s w h o l e st o r y, t he c o n f l ictu a l rel ati o n s h i p betwee n t he pe o p le w h o r u n t he p r o d ucti o n e nter p r i ses o f o u r s ociet y a n d t he p e o p le w h o w o r k i n t hem. T h at’s w h y t he w a ge s d i d n’t g o u p a n y m o r e w he n it w a s p o s s i b le n o t t o d o t h at T h at’s w h y d e bt w a s s u b st itute d f o r ri si n g w a g e s T h at’s w h y j o b s w e re m o v e d a n d d e str o y e d. An d t h at’s w h y re g u l ati o n s a r e sim p l y o b j ects t o b e u n d o n e.
S O WH A T MIGHT W O R K ?
S o w h at i s a p o s s i b le s o l u ti o n ? Im a g i ne t he d i f f ere nce i f a n e w s y stem o f r e g u l ati o n s, s a y p a s se d b y M r. O b ama, were t o c o n f r o n t a d i f f er ent o r g a n i z ati o n o f p r o d ucti o n, o n e i n
w hich n o t a b o a r d o f d i rect or s re s p o n s i b le t o s h a re h o l d er s r a n t he b u s i ne s s, b ut i n stea d the pe o p le w h o w o r k e d i n e ve r y b u s i ne s s r a n t he b u s i ne s s ? B eca use t he y a ll h a v e t o l i ve wit h t he c o n s e q ue nces, the n y o u’ d h a v e pe o p l e o n t he i n s i de o f e ver y b u s i n es s
p a rt ner i n g w ith t he g o v er nme nt t o m a k e s u r e t h at t he p o i nt o f t he re g u l ati o n s w a s re al ize d, r at he r t h a n a g r o u p o f p e o p le w h o w o u l d f u ncti o n t o u n d o a n d t h w art t he
w h o le p o i nt a n d p u r p o s e o f t h e re g u l ati o n s.
Wh y d o n’t we a s k t h at q u e sti o n ? An d I s u g g e st we a s k it b eca use e ve n t h o u g h I’m aw a re
it’s a d a r i n g q u e sti o n, we a r e i n d a r i n g t imes. W e f ace s o me re a ll y h e a v y p r o b lem s i n o u r
s ociet y. We d o n’t h a ve m a n y c h o ices. W h at e lse m i g ht be s a i d f o r re o r g a n izi n g o u r
p r o d ucti o n s y stem s o t h at t he p e o p le w h o w o r k a t a n e nte r p ri se b ec ome t hei r o w n b o a r d o f d i r ecto r s ? Let me s u g g e st t o y o u t hree t hi n g s t o t h i n k a b o u t. Fi r st, t o t he e xte nt t h at we a re se ri o u s w he n w e t al k a b o u t d em ocr acy, th a t is t he pe o p le w h o h a v e t o l i ve w ith t he decis i o n s h o u l d b e a b le t o p a r tici p ate i n m a k i n g it. Wh y h a v e we a l w a ys l imite d t h at t o
the p o l itical s p h ere a n d e xcl u de d it f r o m t he eco n o m ic s p he re ? After a l l, the p l ace we s pe n d m o st o f o u r c re ati ve l i ves, 9 t o 5 M o n d a y t o F r i d a y, i s t h e p l ace w here we w o r k. An d i f we’re n o t g o i n g t o h a v e d em ocr acy t he re, t he n h o w m uch o f it ca n we h a v e a n y w he re else ? S o t he b u s i ne s s o u g h t t o b e d em ocr atical ly r es p o n s i b le t o t h e pe o p le w h o w o r k there, at le a st o n a f u n d a me nt al p r o p o s it i o n.
Here’s a n o t her a r g u me nt. M a n y America n w o r k ers – m o r e t h a n y o u m i g ht t h i n k – h a v e al re a d y d o n e w h at I’m de scri bi n g. Let me i nt r o d uce y o u t o t h em, i f y o u’re n o t a lre a d y f am il i ar w it h t hem. Ove r t he l a st 30 ye a r s, e ver y ye a r, h u n d re d s a n d i n s ome y e a rs th o u s a n d s o f e n g i nee rs i n t h at little st ri p o f l a n d b etwee n S a n F r a ncisc o a n d S a n J o se calle d S il ic o n V a l le y, h a ve d o n e t he f o l l o w i n g i ntere sti n g t h i n g. T he y q u it t he ir j o b s w o r k i n g f o r b i g c o m p a nie s l i k e C i sc o o r I B M o r a n y o f t h o s e, a n d t o g et he r wit h a f ew f r ie n d s, h a vi n g w a l k e d a w a y f r o m t h o se j o b s, t he y set u p a l ittle e nte r p ri se am o n g st themse l ve s, w o r k i n g o u t o f o n e o f t hei r g a r a g e s. And t he y c o me t o w o r k e ach d a y, n o t wea r i n g a s u it a n d t ie, the w a y t h e y u se d t o w h en w o r k i n g a t I B M, n o t t a k i n g t hei r o r d er s a s t o w h at t o d o a s s o ft w are e n g i nee rs f r o m a s u pe r vi s o r, w h om t h e y d i d n’t l i k e. I n ste a d the y came t o w o r k, w it h t hei r l a pt o p s i n t o w, at t he g a r a g e o f t he i r f r ie n d, we ar i n g Ha w ai i a n s h i rts, g r a s pi n g a F r i s bee, ma y be w it h a d o g, m a y be w ith a t o d d le r, a n d h a v i n g a w o n d e r f u l t ime i n a n ew l ittle e nter p r i se And h ere’s h o w t he y r a n t he ir e nter p r ise, “We’re al l e q u a l h e re. N o o n e’s a s u p e r vi s o r. N o o n e’s telli n g w h a t e lse t o d o. We’re g o i n g t o d o thi s a l l a s a g r o u p. An d f r om M o n d a y t o T h u r s d a y, we’re g o i n g t o m a k e s o ft w are
p r o g r am s t h e w a y we a lw a y s d i d, b ut o n F r i d a y we’re g o i n g t o c o me t o w o r k, a n d we’re
n o t g o i n g t o o p e n t he l a pt o p s. We’re n ot g o i n g t o m a k e s o ft w a re. On F r i d a y, we s it
a r o u n d a l l d a y a n d h a v e meeti n g s b eca u se we’re o u r o w n b o a r d o f d i rect o rs. We d ecide w h at t o d o w it h t he p r o f it s we’ve e a r ne d, we d ecide w h at t o d o w h ethe r t o c h a n ge o u r
tech n o l o g y o r t o h a v e m o r e p e o p l e w o r k i n g h ere o r t o m o v e t o a n ot h er p a rt o f S a n
M ate o c o mmu n it y, o r w h ate ve r. We a re o u r o w n b o a r d o f d i rect or s.” T hi s h a s b ee n g o i n g
o n f o r y e ar s. T he se p e o p l e v o te d w ith t hei r f eet a n d t he ir l i ve s t o l e a ve o n e k i n d o f
o r g a n iz at i o n o f p r o d ucti o n a n d e sta b li s h a n o t he r.
And it’s pecul i a r w he n y o u t h i n k a b o ut it, beca u se i n o n e f r ame, o n e w a y o f t h i n k i n g, th i s co u l d be c al le d M a r x’s i de a o f a c o mm u n ist e nter pr i se. T h at’s p retty m uc h w h at he me a nt.
B u t i n a n o t her w a y o f s p e a k i n g, we c o u l d d e scr i be t he s ame t h i n g, a n d I’m n o w g o i n g t o
q u o te t o y o u f r o m a n u m be r o f m a g az i ne s p r o d uced i n t h at a re a. Here we g o, “Thi s i s a
rema r k a b l y s uccess f u l e nt re p re ne u ri a l i niti at i ve . ” We’re de scri bi n g t he s ame t h i n g. It’s a n
entre p re ne u r i al i n iti ati ve b eca u se t he p e o p l e w riti n g t he se a rticles a re Rep u b lica n s. An d
the y w a nt t o s ee it t h at w a y. I a p p r eciate t h at. T he y’ve ne ve r re a d K a r l M a r x, s o t he y a re
n o t t r o u b l e d b y w h at t hi s m i g ht l o o k l i k e t o s o meb o d y el se. And t h e y’ve b ee n ve r y s uccess f u l. S o s uccess f u l t he se little b u s i n es se s th at a M a r x i st, i f t he re were s uc h a t hi n g, mig ht s a y, “Gee, a ll t h o se b a s ic b re a kt h r o u g h s i n c om p ute r tech n o l o g y t h at a re t y pica ll y b o a s te d o f a s t he ach ie veme nts o f m o d e r n ca p ita li sm a re n’t. The y’re t he ac hie veme nt s o f commu n i st e nte r pr i se s, o p er ate d b y Re p u bl ica n s i n B erm u d a s h o rt s i n C a li f o r n i a.”
S o it t u r n s o ut t h at t h i s n ew w a y o f o r g a n iz i n g enter p r i se is n’t s o n ew, a n d i s n’t s o te rr i b l y d a ri n g, a n d o f f er s u s a b etter ch a nce t o d e a l wi th t he le ve l o f s e ve rit y o u r c u rre nt s it u ati o n p re se nts u s w it h, t h a n a n yt h i n g el se o f w h ich I am a w are, s o t h at I le a ve y o u w it h a b i t o f a ch a lle n g e. I f w e d o n’t t a k e b a s ic ste p s o f t h i s s o rt t o d e a l wit h a c ri si s t h at h a s b u i lt o v e r thi s le n gt h o f time i n t he d e pt h s a n d b r e at h s o f o u r ec o n o m y, i f w e k ee p t i n k e ri n g a t t he ed ge s w ith o u r m o n et a r y s y stem, beca u se we n eed t o c al l t h is a f i n a nci a l cri s is, r at her t h a n a cri s i s o f c a p it al ism, w h ich i s w h at it i s, we wi ll al l b e ve r y s o r r y.
B E Y O ND F R E E M A R K E TS AND R EGU L A TI O N
M y v e r y l a st w o r d I’m a p r o f e s si o n a l ec o n o mi st I’m a p r o f e s s o r o f ec o n om ics It’s w h at I d o. An d I’m the re f o r e a p r o d uct o f t h e ec o n o m i cs p r o f e ss i o n i n o u r s oc iety. T h at p r o f es s i o n f o r t he l a st 50 ye a rs h a s o sc il l ate d b etween t h o s e w h o b el ie ve t h at a n u n re g u l ate d ec o n o m y, w it h f r ee m ar k et s a n d p ri v ate e nte r p ri se i s a m a g ic r o a d t o p r o s p e rit y a n d g r o wt h. Particu l ar l y i n t he l a st 30 ye a r s, t h at h a s bec ome a m a ntr a. It’s t he M o r n i n g Pr a yer w it h w hich e ver y ec o n o mics d e p a rtment b e gi n s. T h at’s sm a s he d b e y o n d w o r d s n o w.
On t he o t he r s i de h a v e bee n t h o s e t h at h a ve s a i d, “You h a v e b ee n w r o n g, a n d t h ere n ee d s t o be g o v e r nme nt i nter ve nti o n a n d c o n t r o l.” T he y t y p ical l y g o b y t h e n ame K e y ne si a n eco n o mi st s, i n h o n o r o f t h at B r iti s h ec o n o mi st i n t he 1930s, i n re s p o n s e t o t he G re at Dep re s si o n, w h o c ame u p w ith r ecipe s f o r w h a t t he g o v e r nme nt s h o u l d d o, m o n eta r y a n d f i scal p o l icy t o st im ul ate t he ec o n o m y. And m y p r o f es s i o n h a s d e b ate d b etwee n t h o s e w h o b e lie ve i n u n r e g u l ate d, w h o a r e n o w f ee li n g v er y b a d l y, a n d t h o s e w h o b e lie ve i n re g ul ate d, w h o n o w s ee a n o p p o r t u n ity t o r et u r n.
Wh at I w a nt y o u t o t hi n k a b o u t i s, t he y b o t h m a y h a v e m a de a ter ri b le m i sta k e, b y n o t a s k i n g a b o ut t h e u n d er l yi n g s tr uctu re o f o u r e co n o m y t h at re n de r s b ot h o f t hem
i n a de q u ate t o d e al i n g w ith w h at actu a ll y h a p p en s i n a c a p ita li sm t h at r u n s t he w a y o u r s
d o e s a n d b r i n g s u s t o t h is p o s it i o n o f a b a n k r u pt b u s i ne s s c omm u nit y o n t he o t her s i de
o f t he b a r r ica des f r o m a n e x h a u ste d a n d a n x ie ty - ri d d e n w o r k i n g cl a s s, w h ich i s a r ecipe
f o r s oci a l d i s a ster. And i f w e d o n’t d e al it i n a s e ri o u s w a y, we’re g o i n g t o h a v e t o l i ve
thr o u g h s ome o f t he h a r de st t imes t h at t h i s n a ti o n h a s e ve r h a d t o g o t h r o u g h. And at a
time w he n t he r est o f t he w o r l d w il l be s o n ee d i n g t o d e al w it h its o w n v e rs i o n s o f t hi s
p r o b l em, th at we ca n e x p ect ver y l ittle he l p, ve r y little h el p f r om a n y o n e el se. S o it
de pe n d s o n u s, w het he r we wi ll h a v e t he st re n gt h – a n d t h e d a ri n g – t o l o o k a t t he se
p r o b l ems i n n ew w a y s a n d f ace t he p o s s i b i lit y o f m a k i n g r a d ica l ch a n g e s.
Th a n k y o u v er y m uc h f o r y o u r atte nti o n.
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