7 Common Capitalist Myths Debunked by Economics Professor Richard Wolff
Interview by Kelly Wilkins
This transcript has been edited for brevity and clarity.
RIFT: Hey everyone, this is Kelly with RIFT Magazine, and today we are joined by Professor Richard D. Wolff. Wolff is a Professor of Economics Emeritus at the University of Massachusetts, Amherst, the host of the weekly radio program Economic Update, and the co-founder of Democracy at Work.
And he also just finished a new book, The Sickness is the System: When Capitalism Fails to Save Us from Pandemics or Itself.
Professor Wolff, thank you so much for speaking with us.
Richard D. Wolff: Thank you Kelly. Glad to be here.
RIFT: So, in your new book there’s a section that addresses some of the capitalist myths we are told about the economy, and I’d love it if we could just go through those myths and a few others, and if you can sort of give us a reeducation, like the Marxist professor we never had — or most of us never had anyway.
RW: Okay, fair enough.
RIFT: So one myth that we commonly hear is that when unemployment is low, that means the economy is doing well. Is that all there is to it?
RW: No and it never was. Looking at one index like unemployment would be a little bit like going to a doctor, asking for the doctor to give you a sense of your overall health, and then watching as the doctor gives you a thermometer, takes your temperature, and says, “Oh, well you have a 98.6, so you're fine. Go home.” You would know that you need a different doctor. The whole purpose of medicine is to subject you to blood tests, and urine tests, and, Lord knows a whole host of tests, in order to see the different aspects that might then together give you a sense. Looking at the economy through a lens of the unemployment number alone is irresponsible and doesn't give you an accurate sense.
A last point to drive it home. It is possible that one of the reasons you don't have large unemployment is that you have lowered wages so far down that employers everywhere see hiring people as virtually costless, or at least very cheap, and so they hire everybody. But the everybody that now has a job is earning so little money that they can't put food on the table, can't keep the roof over their heads, long ago gave up on sending their kids to college, et cetera, and all of those things matter to the quality and quantity of what the economy provides to people.
So the answer is no; there's no reasonable way to infer from the simple number of unemployment whether your economy is in good or bad shape.
RIFT: Conservatives also like to tell us that we shouldn’t increase the minimum wage because it would hurt the economy. Are they telling us the truth?
RW: No. They are trying to prevent wages from going up because conservatives are very close to the business interests of a society. The businesses don't want to pay more wages. It doesn't take rocket science to understand why — they can get more out of the worker if they can pay less to him or her. And that's really all it is.
The answer to that has always been so obvious that you kind of wonder how people get lost in that kind of an argument
The sophisticated version of the same simple argument goes like this: If we raise the minimum wage there will be some businesses, usually small businesses, that are so close to the edge that they won't be able to pay the higher wage that we're giving and so they will choose instead to close shop, close the business down, and then the workers will lose their job. And you have conservatives running around saying, “Look, poor people shouldn't be in favor of raising the wage because it risks making them jobless.” And the not so nice way of saying that is, “Shut up you low-paid worker, low wages is your choice because your alternative is no wages at all.”
The answer to that has always been so obvious that you kind of wonder how people get lost in that kind of an argument. Here's the answer: If you want a society in which working people are paid a decent income, that they can raise a family, that they can put their kids through college, that they can have a vacation from time to time, that they can live a decent life, then you want that for your people, which we do. I think most of us do. And if it’s also true, as it is for me...I want small businesses to thrive. I don't want big mega stores. I want small businesses where I can get to know the proprietor and the people who work there and they can get to know me. I think that's an important part of life. So I want my economy to do both things — provide a way to survive as a small business, and provide a way to survive as a working human being. A rich country like ours can do it.
Let me give you a couple of examples. One: you could have a law (it exists in other countries) that mandates that when the government buys something, it buys at least fifty percent of whatever it buys from small businesses, to give them the boost that would enable them to pay a minimum wage. Here's another one: a tax break. Tax small businesses at a lower rate than you tax big businesses, giving them a break that will allow them to pay higher wages so workers can get the minimum wage. Third thing: give subsidies to small businesses; and make it clear — it's in part to enable you to pay your workers better, which most small businesses would prefer to do.
And in case anyone is thinking, “Oh, gee, this is unfair…” Let me drive this home with an example of how we already favor big business in this country — with orders from the government (which they get disproportionately), with tax breaks (which they get disproportionately), and with subsidies — and I'll give the example of a subsidy. Twenty-six of the major sports teams in this country…baseball, basketball, football…are owned by billionaires. There are only 600 or so billionaires in the United States, so these are the richest people we have. They own a wild number of our professional sports teams. Those teams pay workers above the minimum wage, and one of the reasons they do — here comes the punchline — is that they get subsidies from city and state governments. Here's how it works: the stadiums that many of you listening have attended or will attend in your life, to watch a football game, or a baseball game, et cetera, those stadiums are typically built with a sizable subsidy of public money. That money is money that we the taxpayers provide to the government, which turns it over to these billionaires who are big businesses owning these sports franchises. One of the reasons they can pay better than minimum wage is because we subsidize that. Okay! If we want to have a thriving small business sector let's subsidize them, with the understanding that that enables them to pay a higher minimum wage. We get a small business that's thriving, and we get workers that are paid decently. There is no reason why the United States can't do it and it is the greed of the big businesses who don't want to have to pay any taxes for subsidies to anyone other than themselves that hold us back.
RIFT: Similarly, we’re told we cannot tax big businesses because they’ll lower wages or move to other states or overseas. What are your thoughts on this?
RW: Right, yes. I love that. Let’s deal with each of those. “If you tax big businesses, they will lower wages”. There's very little evidence that that has ever happened. The history of the United States is, if anything, the opposite. Wages have risen — not recently, very much, but in most of the history of the United States, wages rose. And taxing big businesses is usually not much connected to the wages they have to pay; that's more governed by supply and demand, what workers are available, how many of them do they need, and what do they have to pay for them.
First of all, there are plenty of examples in history where we have raised taxes on business, at least for a while, and the big threatened exodus never happened
But let's turn to the more frequent point you made. ”If we dare to tax big businesses, they will run away to another country that taxes them less.” Let me explain why we can easily prevent this. First of all, there are plenty of examples in history where we have raised taxes on business, at least for a while, and the big threatened exodus never happened. And there's good reason for that. Number one, it is expensive to run away. That's not some cheap thing. You don't haul up your huge factories, your mammoth office buildings, your big stores, and move them to another country. Or, if you try, you're going to pay a lot of money. You better think about whether it's worth it to take the risks of moving over there, and the expense of moving over there may end up being as much or more than the extra tax you might have paid. And here's something that makes it even more risky: you don't know once you've spent a fortune to move to another country that that other country won't impose the same tax that you just ran away from. So that's another reason that businesses don’t do it.
But let's assume the worst scenario — that we raise a tax on a business or an industry and it gives us its middle finger and moves to somewhere else in the world. We are not powerless in that situation. People should never accept that kind of an argument as if that's the end of the story. It isn't. If I were the president…and Mr. Biden could do this, Mr. Trump could do it, doesn't really matter…suppose a company left to evade the taxes we felt as a nation were reasonable to apply. We are not powerless. We could say to them, “Okay, if you're gonna leave because we raised the taxes, we have a bit of news for you. Your products are not going to come back here. When you leave here you don't just lose the tax you had to pay, you lose the market that made you profitable. We're not gonna let you come here (either officially we won't, or I’ll make statements as President and there will be in effect a boycott). We are not going to allow you, who have benefited for decades in our country from all the public services (education, fire, police, you name it) we've paid for, that your taxes have to help pay for, that we raise because you haven't been paying, if you return the favor in the way you're proposing, by evading in the future what we let you get away with in the past. We will react in ways you might want to think about before you get up and leave.”
RIFT: How about the notion that a worker’s wage or salary is a reflection of the amount of output the worker can produce?
RW: Well, other than a few professors in schools that I had to attend, nobody believes that. No worker I know believes it, and very few employers do. They know that what they have to pay their workers depends on how many workers are out there looking for how many jobs. If the jobs are scarce and the workers are many, you can pay very little. If it's the reverse, you have to pay a lot. Or, to use the language of economics, the wages are determined by the supply and the demand of the labor market, of the relationship between people looking.
So, for example, wages are now falling in the United States. Why? Is it because workers are less productive than they used to be? On the contrary. They’re more productive. The reason wages are falling in the United States is that we have 25 million people that are unemployed and have used up their savings, wondering how much longer their unemployment will be there, and desperate to find work. Under those circumstances, wages are going down. It has nothing to do with how productive you are.
If an employer has two equivalent workers and he has to pay them both whatever the going wage is, sure, he'll try to determine which of these two, Mary or John, is a bit more productive, or a bit more active, or a bit more of a nice person, and employ them, if they only can hire one. That's when it might make a little bit of a difference. But the basic wage in our society is shaped by the overall macroeconomic condition — what is the relationship between the demand for labor from employers, and the supply of labor from the employee.
RIFT: We’re also told that having for-profit industries leads to competition and innovation, resulting in better quality goods and services for consumers. Our last discussion about the United States’ handling of COVID-19 comes to mind. What do you say to this argument?
RW: Yes. I think it's one of those arguments that is so one-sided that it kind of takes your breath away. Let me give the people who make these arguments their due. Is it true that competition sometimes has positive outcomes — as in the lovely textbook story where Capitalist #1 figures out a way to make a product more cheaply than another one, just as good but less costly, and so we all shift our purchases to the one who figured out how to make it less costly, so we get the same product and it was less outlay of our money? Is that a kind of competition that happens? The answer is yes. Is that a positive outcome of competition? The answer again is yes. But that's only part of the story.
Let me give you the other part which the devotees of competition have a nasty habit of forgetting. I'm going to use concrete examples. There is a lot of competition among automobile companies — Ford and General Motors, Toyota and VW. By that I simply mean they try to produce the best cars, they try to price them at a point where we will buy them, and when we decide to buy a car we compare as buyers the VW and the Toyota, the GM and the Ford, and so on. What did they do over the last ten years, which they got caught doing? They competed all right. Here's how they competed: they said, “Buy our car, because even though we are a good company abiding by the air pollution controls imposed by our government, our cars can get from zero to sixty miles an hour in only 5.8 seconds, or whatever the numbers were.” Toyota claimed it, VW claimed it, Ford, they all claimed it. We then discovered through the activity of some scientists that what they had done in their ‘competition’ was to cheat, to install in their cars (and they all did it) ‘a defeat device’. Basically what this device did is gave you a different number for the pollution coming out of the exhaust of the automobile when you were tested by the government. And it was a different number than the actual emissions of your pollution when you were driving the car on the road. So the government got the note that you're good, you're not polluting. But in fact you were polluting. The outcome of this was there were millions, let me stress that, millions of automobiles on the roads in Europe and North America and elsewhere in the world, that people thought were safe but they weren't. They were polluting the air, which hurt the lungs of millions of people. It killed an unknown number of people because we can't trace the exact cause of which car polluted on what occasion to give you the cancer that eventually killed you. But the competition is what led to the criminal behavior, which causes sickness and death. That’s a consequence also of competition.
Here's another one. We have something called the Food and Drug Administration. You know why? Because food companies and drug companies, in their competition to get us to buy their product as opposed to their competitors’ products, often took shortcuts. Instead of the ingredient that would be healthy, they put in a cheaper ingredient that they could get away with because we wouldn't recognize it. It hurt our health, it hurt our medical conditions, and it made money for those companies because we bought what we otherwise wouldn't. So we've had to establish government oversight because of the criminal and dangerous behavior that competition incentivizes. So if you want to discuss competition as a way to organize things, then the minimal decent honesty required makes you look at, yes, the positive outcomes, but equal attention has to go to the negative. And let me assure you, as an economist, for every positive I can show you a negative.
RIFT: Capitalists love to tell us that everyone is free in a capitalist system. Can you talk about this?
RW: Yes. I'm going to compare the freedom of Elon Musk, the freedom of Jeffrey Bezos, with my freedom. Elon Musk and Jeffrey Bezos, if I understand the media correctly, are busily, in one case, building a rocket ship to the moon, and the other one...I forget what his pet project is...I am not free to do that. He is free to do that. Capitalism has given me the income I get, and capitalism has given Musk and Jeffrey Bezos the incomes they get. But to say that capitalism makes me free and him free has to abstract, ignore, and not look at the reality that capitalism distributes the freedom you get from having financial resources in an extremely unequal way.
So to tell me I'm free in capitalism, the way Mr. Bezos is, is again, so abstracting from the realities we live in as to become nonsense.
To call us all free, to use the same word, is to obliterate the differences which are all about freedom. Freedom isn't just being free from the government, or from somebody bothering you; it's also freedom to be able to do something, to function. For example, Jeffrey Bezos has roughly $150 billion worth of shares in a variety of companies, including his own Amazon. His income from those shares amounts to millions of dollars every day, seven days a week, all year long. He never has to go to work. He doesn't earn any income from labor because he doesn't need to. He cannot spend the money he gets in the way of dividends and capital gains from his shares. So he is free to enjoy life to the fullest, whether or not he works. I have no such freedom, nor do the overwhelming majority of Americans. If they don't go to work, they’re in trouble. They're not going to earn money. They may have to go on welfare or unemployment, at which standard of living will be poor to say the least. So to tell me I'm free in capitalism, the way Mr. Bezos is, is again, so abstracting from the realities we live in as to become nonsense.
RIFT: I’ve heard this one from defenders of capitalism countless times…Capitalism has created unrivaled prosperity throughout the world.
RW: This is easy. Sixty-eight…There are numbers collected by Oxfam in Great Britain, one of the oldest and best anti-poverty agencies in the world. They do a great deal of research and they issue reports all the time about global inequality. So let me respond to those words about prosperity. Sixty-eight people, the richest 68 persons — I can list them, their names, and addresses — together own as much wealth as the bottom half of the population of the earth, which is now currently at 7 billion, so half of that would be 3.5 billion. So the economic system of capitalism has created prosperity, but it has distributed it in a way that is so unfair, so unequal, that we literally, after thousands of years, find ourselves back in a condition like that of ancient Egypt, with pharaohs, with tens of thousands of people building those pyramids, that were the tombs, the graves, of those great pharaohs. One pharaoh in a tomb that it took 10,000 workers fifty years to build. I mean it is unspeakable what this system has done. What good is the prosperity if it has been withheld from the vast majority of people? Those 3.5 billion have to share the same amount of wealth that the 68 individuals between them share. This makes a mockery of prosperity.
One of the ways you ought to judge capitalism or any other system (one of the ways but not the only way) is to compare what it could do for the people who live in it, versus what it is doing. If you want to argue that capitalism has developed an extraordinary ability to meet human needs, I would agree with you. It has. But on the other side, it has denied the fruits of that prosperity to the overwhelming majority of its people, and that is a fatal flaw and failure. We would be better off — most of us — with a system that might be a little less capable of producing ‘prosperity’ but would distribute it a lot differently from what our capitalism does.
If you democratized our enterprises, I think you would generate far more economic well-being than capitalism ever achieved.
But I wouldn't even go to that point. I would insist that if capitalism has been prosperous, by whatever you mean, imagine what we could have if the decisions of everybody's business, every factory, every office, every store, if every workplace could harness the energy and the creativity of all the people in it rather than being run by a tiny minority, the board of directors, the owner at the top. If it were democratically organized (which isn't capitalism, capitalism gives the power in the economic realm to a tiny minority of our people), if you democratized our enterprises, I think you would generate far more economic well-being than capitalism ever achieved.
RIFT: Well this was great. Professor Wolff, it’s always a pleasure to hear from you. Thank you so much for sharing your thoughts on these capitalist sentiments. Maybe next time we can discuss some of the myths they tell us about socialism. But before we go, is there anything else you’d like to add? Perhaps about your new book?
RW: Yeah. I wrote a book called The Sickness is the System because I wanted people to understand that the pandemic is a terrible thing, of course it is, and we have to fight it, and we are, but it will go as all previous viruses eventually went. That's not an argument not to work like the devil to beat it, but it's to recognize that there's another sickness we have to face that isn't going away unless we change it, and that's capitalism, with its every four to seven year crash, with the inequality which we've been discussing. This is a system to which the answer of the human race, which is being given now, is this: we can do better than capitalism. And just as the people before us broke out of the slavery that they had for centuries, and the feudalism that they had for centuries, it is past due for us in this capitalist system to realize that human creativity can produce a better economy than this one, and that history has not stopped.
RIFT: Great. Thank you. Class is dismissed.
RW: (Laughs)