Since the mid-20th Century, every major recession in the United States has been preceded by an inversion of the bond “yield curve,” a key indicator of the health of the economy. In August, the curve inverted once again, leading to widespread alarm that a significant economic downturn is imminent.
Some analysts have downplayed the inversion, while others have argued among themselves over the causes of the growing economic uncertainty. These debates have focused primarily on interest rates set by the Federal Reserve and the trade war against China being waged by President Donald Trump.
To the firebrand, renegade economist Richard Wolff, these conversations are important but miss a much larger, more pressing point. Educated at Harvard, Stanford, and Yale, Wolff has dared to do what very few American economists have done: challenge capitalism itself.
Wolff is professor emeritus at the University of Massachusetts Amherst and currently teaches as a visiting professor at the New School in New York. He’s also the co-founder of Democracy at Work and the host of the popular weekly program, the Economic Update, available on Free Speech TV, Youtube, and major podcast platforms.
Drawing from the Marxian tradition, Wolff maintains that if we are to understand why the American and global economies are so prone to crashes, we have to look at the problems that he believes are inherent to the capitalist system.
“We have had to pretend in economics that we don’t have any problems, that we don’t have a fundamentally troubled system, that we don’t have anything to worry about, which means you’re not real good at fixing it when it breaks down,” he said in 2016, lamenting that it remains taboo to question capitalism or to discuss alternative perspectives.
With anxieties running high over the possibility of a major downturn, The Globe Post spoke to Wolff about why the global economic system seems to be so unstable and what can be done to meaningfully address it. The full audio of version of the interview is available below, followed by a lightly condensed transcript.
The Globe Post: There’s been a lot of concern recently about the possibility of an upcoming recession. And there’s been a lot of discussion about the yield curve and interest rates and tariffs, and perhaps we can get into some of those particulars, but mostly what I’d like to discuss with you is the bigger picture.
A few years ago, you gave a lecture at Google that’s been viewed nearly half a million times on Youtube, and you talked about how the debates over how much regulation we should have miss a broader problem. That those conversations aren’t in themselves sufficient to understand why capitalist economies like the United States’ seem to be so unstable and prone to crashes. What is it that you feel is missing from those discussions?
Wolff: I think it’s an old philosophical problem. Every recession, every downturn, depression, crisis – we have a lot of words for this phenomena because it’s such a regular part of our history as capitalist countries for the last 250 years. Every one of them is unique in some way or another. And it’s perfectly reasonable to be interested in and to explore and to discuss and to debate each one’s unique features.
But there’s a mistake if you leave it at that level. It’s the same kind of mistake a doctor might make by thinking that whatever ails you is some symptom of what you ate last week, coupled together with what you ate this week. There have to be questions asked about deeper structural mechanisms. So with capitalism, it’s really crystal clear.
If you date the start of modern capitalism, as most economic historians do, somewhere in the 18th century in what we now call Great Britain, and you trace it as it spreads out of Western Europe and eventually becomes the prevailing system around the world, you get an image that really ought to be the first thing we have a discussion about.
The image is one that economists call periodicity – a regular cycle. There’s a regular cyclical process that afflicts this system. On average, it’s every four to seven years that we have a downturn. They vary. Some of them are short and shallow. Some of them are long and cut very deep. There is something going on at the structural level of how the system works that produces this and that ought to be at the forefront of our conversation.
Long ago, people – particularly at the upper end of the income distribution, the people who run modern capitalist societies – became extremely anxious about these cycles. You can see the anxiety of Adam Smith. You can see it in David Ricardo. And you can see it in lots of leaders and thinkers about capitalism ever since. They recognized that there was a deep risk here, that every time that the economy turned down, it meant that millions of people lost their jobs. Huge numbers of enterprises reduced their production. Many went out of business or bankrupt. This was a socially disruptive experience and they wanted to do something to stop it or at least to moderate it.
And they have tried everything. A new school of economics came out of this named after the British economist who invented it, John Meynard Keynes. Keynesianism is basically an attempt to theorize why these cycles keep happening and what should be done to try to contain them.
Every president, at least going back to Franklin Roosevelt, has seen his presidency experience one of these downturns. And so every president has come up with “policy responses” and made more or less the following statement: “If you do these things which I have proposed to Congress to be done, not only will we get out of the current economic downturn, but we will be able to protect our children and our children’s children from having to face this again.” Every president promised that. No president has been able to deliver on it.
So the basic structural question is, what is it about the way this system is set up that produces not only these recurring crises, but the inability of the system, even when it’s conscious and concerned, to do anything that fundamentally stops this disaster from imposing itself on us every few years?
TGP: What alternatives do we have at our disposal? You’ve been a major proponent of the notion of democratizing workplaces and corporate structures. And it seems intuitive that that would have a major effect on reducing the levels of inequality that we face currently. But do you think that decentralizing corporate power and democratizing it would also help stabilize the economy and prevent crashes?
Wolff: Yes. And the reason there is not complicated to explain. In a capitalist economic system, the bottom line is profit – trying to make sure that you deliver to your shareholders a steady stream of dividends that are growing that you hold on to and increase your market share. All of that requires that you maximize your profits each year. That imperative imposed by the system’s structure on every capitalist leads them into a fundamental dilemma.
If you’re a General Motors or Dupont or IBM or Cisco Systems, it doesn’t matter, you have to make decisions today about investments that will not bear fruit until sometime in the future. It turns out that if all of the capitalists make the same decision, for example, to expand, they kind of help bring it true for all of them. The very fact that this one does it creates the demand for the output of the next one.
But being independent capitalists – being stuck in a competitive situation with one another – they cannot and typically do not trust each other enough to coordinate or to do – and let me use the dangerous word – “planning” that would be necessary to coordinate their various decisions. The end result is always the same. Some of them make the decision to expand, crossing their fingers that it all works out. And other ones make the decision not to expand because they fear that others might not and therefore their expansion will lead them to have unsaleable product, which will hurt them on the bottom line.
When you have this, the way the system forces that the coordination that is not undertaken in advance is by means of a crisis. In other words, crisis is not introduced into this system from the outside. It’s the way the system itself self-corrects for the mistakes built into how the system makes decisions about investment. The only way to deal with that is to come up with a way that coordinates what each investor does. Capitalists resist giving this power to the only conceivable agency that could do it, which is the state.
The reason for that is likewise simple. Capitalism came into the world around the same time as the concept of universal suffrage. If you give all of the people, more or less, the right to vote and you have a capitalist economic system that delivers a disproportionate amount of wealth to a small percentage of the people, you are setting up a conflict. The mass of people dispossessed by how capitalism works are going to turn to the thing they have – the vote – and offset the inequality that capitalism as an economic system produces by means of the government. The government will redistribute the wealth. The government will tax in a progressive way.
Capitalists are mortally opposed to all of that. So they block the government from having that power, which blocks the government from doing the coordination, without which they have the periodic cycle.
TGP: Just how severe and far-reaching do you think the social costs of this state of turmoil and instability are? When there’s a crash, of course, millions of people lose their jobs and are devastated. But what are the larger consequences of this sort of constant state of instability and insecurity, both for individual workers and for society writ large?
Wolff: They’re multiple. They’re very profound. In most capitalist societies – certainly this on – there is an unspoken and perhaps an unconscious shying away from looking very closely at this. If suddenly you throw a lot of people out of work, if suddenly large numbers of businesses cut back or go out of business, it means that the tax revenues that those workers and those businesses would normally have poured into the cities, states and federal government tax coffers aren’t coming there.
So there immediately arises a crisis of the state, whose revenues are whacked by all of this. And the double irony is that the same crisis that diminishes their tax revenues increases the need for government services, in part to offset or compensate for the rising unemployment and all the social problems that flow from it.
There’s lots of evidence that divorce, violence inside the household, alienation of parents from children – that these are all consequences of a pinched economic situation because one or another of parents is out of work. The psychic costs, the long term scars left on children, there is a literature there and an enormous amount of work that has established all of that.
But let me take it another step. Imagine a capitalist society in which a crisis was a purely economic event. That would mean that every worker in such a society is confronted by a horrible game of odds. If you’re a member of the working class at age 20 and you leave the working class at age 70, then that’s 50 years during which you’re going to have many of these downturns. Even if one or two of them misses you, the chances that either you or your spouse or someone near to you is going to be hit with unemployment is unbearable.
So you’re talking about a level of uncertainty, of anxiety, and actual suffering that I believe – and this just a personal judgment – would have made most capitalisms intolerable for the people subjected to them. Most capitalist societies figured that out. Whether they could say it explicitly or not, they figured it out. And the solution became to concentrate the people fired and hurt when the economy turns down into one segment of the population.
While you make life much harder for that segment, it is very important for the stability of capitalism because you can say to the others, “okay, yes this is a crazy cycle. Yes, it’s an irrational waste of resources. This is an absurdity in which everybody loses. But it’s not going to affect you.” You can tell them then whatever story you want, but it doesn’t matter, because their job and their mortgage payments are not affected.
In the United States, we have two parts of our population that have been singled out culturally and economically to play that role – African Americans, and women. They are the last hired, the first fired, the fall guy elected culturally and politically to absorb this system’s cyclical irrationalities over and over again.
At which point, of course, you lose your “work ethic” or any other pathology you want to ascribe. And if you have racism in your culture, you can try to convince the white people that the reason they’re keeping their job has something to do with some entrenched, intrinsic productivity that goes with whiteness. You can see what the possibilities are as you try to come up with an explanation for all of these things that neatly avoids looking at the internal mechanisms of capitalism that have constantly reproduced this.
TGP: Now that we’ve addressed some of these broader themes, I’m curious what some of the biggest issues you see right now are with the global economy and with the US economy, particularly in this moment.
Wolff: It’s such a long list. I don’t know where to start. A few days ago, there was a meeting in France of the G7. If you look at the G7 and ask the following question, what portion of the nation’s wealth in each of those countries is owned by the bottom half of the population? Japan comes in at the best slot, 10 percent. The country that comes in at the worst end is the United States, where the bottom 50 percent share one percent of the wealth.
If you go the other way, again the United States is the worst. The top 10 percent owns 76 percent of the nation’s wealth. The other countries are horrendously unequal, but not as horrendous as the U.S. This problem of extreme inequality is having horrific effects humanly on the people at the bottom, but also on the social conflict in this society – the politically aberrant phenomena that range from [Matteo] Salvini in Italy to Boris Johnson in England to Donald Trump here, and so on.
Here is a product of modern capitalism displayed in arguably the seven major countries in the West. And it sits there like a screaming baby demanding attention from parents who are on their fourth martini and don’t even hear the noise. I think the social problems coming from such a story are stupefying. And you can see that there is a kind of unspoken taboo about facing these realities, which does not bode well for the ability of the United States to navigate the period ahead.