European leaders are preparing to unveil their plans for addressing the sovereign debt crisis that’s threatened to tear apart the eurozone. Both France and Germany are expected to push for changes to the eurozone treaty, including centralized oversight of national budgets and tighter reins on debt. In a speech on Thursday, French President Nicolas Sarkozy said radical changes are needed in order to save the euro. Sarkozy’s address came after central banks, including the U.S. Federal Reserve and European Central Bank, took coordinated action to prevent a credit crunch among European banks. For more on the developing crisis in Europe and its implications worldwide, we are joined by economist and professor Richard Wolff. He is the author of several books, including "Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It." "The Fed is recognizing that another bailout is needed," Wolff says. "All the steps taken over the last few years to try to cope with this crisis of our capitalist system haven’t worked, and so we’re now again on the brink of a crisis, and again public money and public institutions are bailing out a private banking system and a private enterprise system that is not working and is not solving its own problems." Wolff continues, "The fundamental question is, you’ve got to deal with an economic system that isn’t working... You’ve got to take big steps that change the way this economic system works, or find a new system... It’s as though we have a dysfunctional economic system coupled to a now dysfunctional political system, and instead of fixing each other, these two systems are making each other in a kind of a spiral downturn." [includes rush transcript]
This is a rush transcript. Copy may not be in its final form.
JUAN GONZALEZ: European leaders are preparing to unveil their plans for addressing the sovereign debt crisis that’s threatened to tear apart the eurozone. Both France and Germany are expected to push for changes to the eurozone treaty, including centralized oversight of national budgets and tighter reins on debt. In a speech Thursday, French President Nicolas Sarkozy said radical changes are needed in order to save the euro.
PRESIDENT NICOLAS SARKOZY: [translated] Let me say it here: Europe must be rethought, refounded. It is urgent. The world won’t wait for Europe. If Europe doesn’t change fast enough, the history of Europe will be written without it. This is France’s conviction, and it is Germany’s conviction. We must discuss our budget policy, not so that they should be the same everywhere when situations are different, but so that they can converge rather than become more distant. Let’s examine our budgets, with punishments that are more automatic, more rapid and more strict for those who do not respect their commitments.
JUAN GONZALEZ: Sarkozy’s address came after central banks, including the U.S. Federal Reserve and the European Central Bank, took coordinated action to prevent a credit crunch among European banks.
Well, for more on the developing crisis in Europe, we’re joined by Richard Wolff, Emeritus Professor of Economics at the University of Massachusetts, Amherst, and visiting professor at New School University. He’s the author of several books, including Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It.
Welcome to Democracy Now!
RICHARD WOLFF: Thank you, Juan.
JUAN GONZALEZ: I want to start with this decision of the Federal Reserve Bank, as well with the European Central Bank, to make more money available to European banks.
RICHARD WOLFF: Well, this is not the first time the Fed has done this. In fact, the Fed is recognizing that another bailout is needed, that all the steps taken over the last few years to try to cope with this crisis of our capitalist system haven’t worked, and so we’re now again on the brink of a crisis, and again public money and public institutions are bailing out a private banking system and a private enterprise system that is not working and is not solving its own problems.
JUAN GONZALEZ: But this is now again the Fed helping out not even U.S.—bailing out not only U.S. banks, we’re talking about European banks, as well, now.
RICHARD WOLFF: Yes, and I think it’s a wonderful illustration for everyone about how interdependent the world economy has become. The United States will suffer if the European situation keeps going in the direction it’s going, just as the reverse has been true: many of Europe’s problems right now come from the crisis that began in the United States in 2007. And I think the Federal Reserve realizes that to observe national boundaries is to put your head in the sand and not deal with what will happen here in the United States if something isn’t done.
JUAN GONZALEZ: The continuing conflict among the European countries, with Germany and France, on the one hand, trying to preach austerity to the rest of the members of the eurozone, could you—what’s your analysis of what is going on there?
RICHARD WOLFF: I think what you have in Europe is a failure to understand that if you have very unequal members of your society, there’s going to be tension that has to be dealt with. The Germans are the most powerful economy. Most of that has nothing to do with Germany, per se, it has to do with the fact of history, that a few years ago, just as the European Union was coming together, the collapse of eastern Germany brought into the western German economy a highly skilled, highly disciplined, and low-paid industrial workforce that gave Germany an advantage, because of the collapse of Eastern Europe, that the other societies in Western Europe did not have. And so, Germany got a jumpstart on this thing, is doing really pretty well for a whole bunch of reasons, and wants everybody else to take all the suffering from this economic crisis. The rest of the Europeans are not willing to do it. The Greeks are fighting back—the Portuguese, the Irish, the Spanish, the Italians. And we’re only at the beginning of that process.
Fundamentally, this is a struggle to take a crisis, caused by the business community and the governments they support, and make the mass of people pay for it. That’s what austerity means. And the test here is whether the mass of people will absorb it and accept it. And I think what’s happening is that they didn’t accept it in Greece, they’re not accepting it in Italy, and so they’re trying to make it a continental austerity program, led by the powerful countries. And I don’t think that’s going to work any better than what has been done in the individual countries.
JUAN GONZALEZ: Well, there was another 24-hour general strike in Greece to protest these austerity measures yesterday. And you’re seeing a situation where, as you say, the individual national governments are not being able to overcome the resistance of their own populations to these measures. So, is, in a sense, this push by Germany and France for greater integration a means of creating a new power over these national governments?
RICHARD WOLFF: It’s the attempt to do that. But, you know, if you internationalize the pressure to produce austerity, you’re going to provoke and organize the counter, the revolution from below, that says, "We are not going to pay for a crisis we didn’t cause" and for a crisis that has been resolved by trickle-down economics, in which all the governments, like here in the United States, helped the banks, helped the big corporations, boost the stock market, leaving the mass of people to look at a recovery program that doesn’t include them. And then now to be asked to pay for the crisis—the recovery program that was never for them? It’s too much. And it’s provoking, whether it’s Occupy Wall Street here or the anti-austerity general strikes in Europe, a kind of movement from below, the likes of which we have not seen for half a century.
JUAN GONZALEZ: And, of course, the movement is not just within the eurozone itself. Britain just went for a major general strike, as well—
RICHARD WOLFF: Right.
JUAN GONZALEZ: —against the attempts at austerity there.
RICHARD WOLFF: In England, this strike was as big as the last one that everyone remembers back in the 1920s. You saw unions and students and others coming together in huge numbers, challenging Britain’s government, which is a conservative government now. But the same thing is happening in other societies where you have left governments. Anyone that’s going along with this austerity is in political trouble and will be in deeper political trouble as this crisis deepens. And I also think, as an American, that we ought to be very careful before we call this a European crisis. What we’re seeing in Europe is highly likely to be a foretaste of what will come here.
JUAN GONZALEZ: The direct involvement of some of the major financial institutions of the United States in this crisis, obviously, because many of these governments took out loans, or huge loans, but often the governments insure those loans through various kinds of swaps, of credit swaps. And those credit swaps usually, because they’re not charted very well and there’s no exchange for them, no one really knows who holds them, for the most part. So the exposure of the U.S. banks to the crisis in Europe?
RICHARD WOLFF: I think it’s very profound. I think American banks have a closer relationship with their European counterparts than perhaps at any time before. I think that’s why the Federal Reserve is so deeply involved with banks abroad, as it was in 2008 and '09 and now again, that we know enough to know that major economic downturn in Europe will impact the United States immediately in our credit situation. The banks, many American banks, which are already treading on thin ice—you just have to look at their stock prices to see how nervous everyone is about them—they have very little slack. And you have a problem in Europe, that's going to take American banks over the edge, which means they will have to go back to the United States government for yet another bailout, when the American people are still angry about the first one. You’re getting politically impossible problems arising because of this interdependence. And again, it’s an illustration that the private enterprise business community that kept telling us for the last 30 years that it was the way to go, the way to prosperity, the way to well-being, it’s not working out that way. They keep demanding more and more from the government, and the problems get worse, not better.
JUAN GONZALEZ: And the crisis—if you listen to President Nicolas Sarkozy of France, the crisis is not something that will await resolution. There’s a summit meeting next week of the European leaders, and Sarkozy is saying that if the right decisions aren’t made, Europe could be swept away.
RICHARD WOLFF: The problem with Mr. Sarkozy, who is widely known in his own country under the French term, le cloun, which in English translates like it sounds, "the clown," he keeps telling everybody that he’s going to act in the next week, that he has a meeting, usually with Mrs. Merkel from Germany, and then big statements are made, much drama—the French like that anyway—and nothing happens. You see this over and over and over again, because the fundamental question is, you’ve got to deal with an economic system that isn’t working. You can’t dick around a little bit, dicker here, there, to make little adjustments, because that’s not the nature of the problem. It’s a little bit like like putting a Band-Aid on when you’ve got a cancer. You’ve got to take big steps that change the way this economic system works, or find a new system. These are not the politicians that can even think like that, let alone do it. So you watch them failing and the business community worrying and taking its own steps, making it harder for the political system. It’s as though we have a dysfunctional economic system coupled to a now dysfunctional political system, and instead of fixing each other, these two systems are making each other in a kind of a spiral downturn, and the rest of the world watches. And the working mass of people are losing confidence in this system at a pace that I have not seen in my lifetime.
JUAN GONZALEZ: The United States, the Obama administration now is attempting to ride the backs of the 99 percent movement by increasingly talking about its policies as defending the working man and the middle class versus the 1 percent. Your sense of how that is working out in reality, in terms of the actual policies versus the rhetoric that the Obama administration is putting forth?
RICHARD WOLFF: Well, your question answers itself. This is all rhetorical game playing. None of what is being proposed, nothing that is being done, again, deals with the fundamental problem. The real wages of the American working people, which is the foundation of our economy, have been stagnant for the last 35 years. Nothing is happening now to deal with that situation. In fact, the high unemployment, which everyone in the government admits, is now here with us for years into the future, makes sure there will be no increase in real wages that workers actually get. Meanwhile, their pensions are being reduced, their benefits are being reduced. I noticed this last week, that everything from the American Airlines to the Philadelphia Symphony Orchestra are going into bankruptcy in order to be able to reduce the pensions that workers have paid for. I mean, everywhere, we see austerity shrinking the American economy, not solving the problem.
And a little adjustment on the edges, again, as in Europe, is not an adequate response to this situation, let alone facing that the system isn’t working, which is the deep insight of the Occupy Wall Street movement. And nothing—when you clear them out of a camp, it doesn’t change the appropriateness and the on-target understanding that that movement demonstrates.
JUAN GONZALEZ: The headline in today’s New York Times, the Obama administration is trying use the reduction of the payroll tax to create a wedge against the Republicans, showing that they don’t want to lower taxes because this is an attempt to lower taxes for 160 million Americans, by reducing the Social Security payroll tax. But there is a—as we were discussing before the show, there’s a problem with that, that it was already reduced temporarily last year. If you reduce it further, sooner or later you’re going to have to reinstitute it. And then the issue becomes, is this going to become a way for some people in the Democratic Party, as well as Republicans, to institute their reform of Social Security, creating private savings accounts in place of a guaranteed retirement income?
RICHARD WOLFF: Yes, I think that you’re seeing a temporary palliative. The Obama administration has been unable or unwilling to intervene in the economy in the kind massive way that we need, and so it does these little things, including this program of extending the cut in the Social Security. But the law that provides for that also requires that the United States Treasury make up to the Social Security system, dollar for dollar, whatever it isn’t getting by lowering. So it’s a little bit of a card shuffle here. We’re having to take money that the government might have spent on other important things and give it to Social Security to make up for what Social Security isn’t getting from the mass of people. This is taking out of one pocket and putting into the other. It is in no way adequate to solve the problem.
So you have then this rhetoric, this political playing. It’s like saying we want to tax really rich people, and then when you look at the specifics, they want to raise it from 35 percent to 39 percent. That’s the big increase of taxes on the rich? If we go back to the '50s and ’60s, the highest income tax bracket in this country was 91 percent, not 35 or 39. The massive tax cut on the rich is something that can't be discussed, neither by Republicans or Democrats, yet that would be the best possible way to raise the money, without raising the deficit, to pay for a stimulation of this economy, which it so desperately needs. That is so far off the table that we never discuss it. We act like it’s not an option, just as in Europe, because the rich and the corporations have to be kept free of any criticism, of any going after their wealth to solve a problem—doubly ironic, since they’re the ones who caused this crisis, and they’re the ones who have benefited so far by the recovery bailouts that the governments have done. For them not to make a commitment now is an extraordinary act of political arrogance, which I suspect they will come to regret.
JUAN GONZALEZ: Another proposal that’s been floating around but not gotten much attention at all is the financial transaction tax, which would basically not only begin to tax these constant trades that are occurring on Wall Street, but also, in one sense, might dampen some of the constant speculation in stocks, where people are buying and selling stocks on a daily basis, not really investing in these companies, but just speculating in them.
RICHARD WOLFF: Well, it’s a very popular idea, particularly in Europe, where it’s caught on more than here, even though it’s often attributed to an American economics professor, who was my professor, as it happens, James Tobin, a Nobel Prize winner. The idea is to tax transactions, to basically hit with a sales tax on transactions, the way the rest of us pay sales tax for the things we buy in the local store. Of course it’s a good idea in the sense that it taxes something that has escaped taxes and should be paying its fair share. I think the mistake about it comes in seeing it as some kind of magic bullet. In order for it to make it really raise huge amounts of money, it would have to be substantial. And all the forces that have prevented us from dealing with our economic problem are arrayed to make sure it doesn’t happen. And they play these little games in which the British say, "We can’t do it, because then everybody will go to America, where they don’t have to pay it," and the Americans say, "We can’t do it, because everybody will go to Europe." And so the different groups in power use their different situations to escape it. But it is one of a package of taxes which, under a different plan, if you were to take this problem seriously and see where the money is to solve our problems, sure, this would be part of it.
JUAN GONZALEZ: I want to ask you—2012 was declared recently by the United Nations to be the year of co-operatives. Can you speak to alternative democratic models that might be brought into play and might have some impact on where the economies of the U.S. and Europe are heading?
RICHARD WOLFF: Yeah. I think that we’re going to see a lot of interest, because of the U.N., but for many other reasons. This is a system that isn’t working, the traditional enterprise that we have in the United States. Shareholders, usually a few that own the bulk of the shares, select a board of directors, 15 to 20 people who make all the decisions. They’ve made those decisions—where to invest, how to invest, what to do with the profits. And here we are with the results: high unemployment, economies in collapse, bailouts needed almost on a regular basis. I think more and more people are beginning to recognize we need fundamental change.
And one of the models of an alternative would be a different way to organize a store, an office, a factory. And instead of a top-down, conventional, shareholder-driven entity, why not bring, as we say—and in your program, in particular, it would be appropriate—why not bring some democracy to the enterprise? Why not try to let the people in each enterprise make these decisions democratically and collectively, both within their enterprise and with the communities that are interdependent with these enterprises? Let’s start from that.
And, you know, think a minute with me. If the workers themselves made the decision, would they move the factory out of the country as quickly as we see capitalist enterprises do? I don’t think so. Would they use dangerous technologies that are toxic? Not likely, because they live with it, and so do their children, right there. The decision isn’t made by a board of directors thousands of miles away. And would they use the profits in a more socially useful way that benefits everybody? Well, they are everybody. That’s what democracy means. And I think we would see a lot less speculation, a lot less of the problems that have gotten us to the impasse now, if we were open enough as a society to look at alternative ways of organizing our business and make our commitment to democracy mean something, not just in the communities where we live, but in the workplaces where we spend most of our adult lives.
JUAN GONZALEZ: And in the about 30 seconds that we have left, the impact of the Occupy Wall Street movement on the national debate on these issues?
RICHARD WOLFF: It is long overdue. I am deeply moved by it. They have put this question of economics, how we live, how we’ve divided our society between rich, as a tiny number, and poor, they’ve put that on the national agenda. For that, we will be grateful to them for years to come. The taboo about looking at capitalism the way we’ve looked at our other institutions is overcome, and they’re the ones that deserve the credit.
JUAN GONZALEZ: Alright, well, I want to thank you very much, Richard Wolff, Emeritus Professor of Economics at the University of Massachusetts, Amherst, and visiting professor at New School University. He hosts a weekly program on WBAI 99.5 called The Economic Update every Saturday at noon. And he’s also the author of Capitalism Hits the Fan.