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Richard Wolff: Detroit a “Spectacular Failure” of System that Redistributes Pay from Bottom to Top

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Kicking off a series of speeches about the economy, President Obama told a crowd in Illinois on Wednesday that reversing growing inequality and rejuvenating the middle class “has to be Washington’s highest priority.” During his remarks, Obama failed to mention the bankruptcy filing by Detroit, where thousands of public workers are now fighting to protect their pensions and medical benefits as the city threatens massive cuts to overcome an estimated $18 billion in debt. Detroit’s bankruptcy “is an example of a failed economic system,” says economist Richard Wolff, professor emeritus of economics at University of Massachusetts. “There are so many other cities in Detroit’s situation, that if the courts decide that it is legal to take away the pension that has been promised to and paid for by these workers, you have [legalized] theft. It is class war, redistributing income from the bottom to the top.”

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StoryOct 18, 2012Greg Palast: “Mitt Romney’s Bailout Bonanza: How He Made Millions from the Rescue of Detroit”
This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: This week President Obama kicked off a series of heavily promoted speeches about the economy and his plan to rejuvenate the American middle class. He heads to Florida today after delivering a major speech Wednesday at Knox College in his home state of Illinois. Obama defended his administration’s record managing the economy through the recession, but admitted much work remains to be done.

PRESIDENT BARACK OBAMA: Even though our businesses are creating new jobs and have broken record profits, nearly all the income gains of the past 10 years have continued to flow to the top 1 percent. The average CEO has gotten a raise of nearly 40 percent since 2009. The average American earns less than he or she did in 1999. … It undermines the very essence of America — that idea that if you work hard, you can make it here. And that’s why reversing these trends has to be Washington’s highest priority.

AMY GOODMAN: President Obama previously spoke at Knox College in 2005 when he was first elected as a senator, a time when the surrounding area was struggling with factory closures.

During Wednesday’s speech, Obama promised to provide further details in coming weeks on how he plans to bring back manufacturing jobs that have gone overseas, and vowed to create jobs by investing in the country’s infrastructure—bridges, roads and ports.

During the hour-long speech, one of the longest of his presidency, President Obama did not mention Detroit. The city became the largest-ever U.S. municipality to file for bankruptcy last week, setting off what could be a prolonged legal battle with thousands of current and former city employees entitled to pensions and medical benefits. Facing an estimated $18 billion in debt, Detroit’s emergency manager, Kevyn Orr, has told public unions to brace for “significant cuts.” Detroit’s unions have mounted a series of legal challenges in a bid to protect their pensions and benefits. On Wednesday, the judge overseeing Detroit’s bankruptcy effort froze all legal challenges while the city seeks protection from its creditors.

For more, we’re joined by Richard Wolff, professor emeritus of economics at the University of Massachusetts, Amherst, and visiting professor at New School University here in New York City. He is author of a number of books, including, most recently, Democracy at Work: A Cure for Capitalism.

It’s great to have you back on Democracy Now! What about Detroit?

RICHARD WOLFF: Well, Detroit is a spectacular failure of our economic system. It’s been in decline for 30 to 40 years. Everybody knows it. I mean, to give you just the most human dimension, in 1950 the population of Detroit was 1.8 million, today it’s 700,000. Basically, a decline of decades in which nothing was fundamentally done to reverse the situation and the mass of people of Detroit were told, “Get out.” And they did. They went to other places hoping to save themselves from the catastrophe of that city, many of them going to other cities that have followed Detroit down the same path, producing, you know, millions of people’s lives destroyed. So this is an example of a failed economic system. You have to judge an economic system, like ours, not only by the good things that it can produce—which it does—but also by the disasters, which it sees, which it worsens, and which it does nothing to reverse. And I’m afraid President Obama bears as much responsibility as the administrations before him—federal, state and local—that have been unable to work.

The other big point about it, I think, is that we see here the problem of democracy. Basically, Detroit is “Auto City,” and has been known to be “Auto City.” It went up with the rise of the automobile industry. But it always left the decisions about what happens to a handful of people—the major shareholders, the boards of directors they select, of the Big Three: General Motors, Ford, Chrysler. They made the decisions. They want the praise when the economy is going up, when the auto industry is booming. OK, let’s give them some. But then they also have to have the blame when they make the bad decisions, when they didn’t figure out how to compete with the Japanese and the European car makers, when they didn’t figure out how to have fuel-efficient engines in a world of ecological deterioration, and when they followed up those mistakes by the worst one: deciding that the way to recoup from their earlier mistakes was to move production out of Detroit, to find cheaper workers elsewhere—elsewhere in the United States, then in Mexico and Canada, and finally in China and the rest of the world—decimating the city of Detroit, depriving them of the fundamental industry that made that city great. And yet, everyone depends on the results. All the people of Detroit and the environment have to live with the results of decisions they had no participation in. It’s extraordinary that we even permit such a thing to happen.

And the saddest of all, nothing is learned. Cleveland; Camden, New Jersey; Youngstown, Ohio, where I was born—these are all similar catastrophes being unfolded in front of our eyes now and the same inadequate response of a system that can’t deal with this problem.

AMY GOODMAN: The federal government bails out banks, bails out corporations. What about Detroit?

RICHARD WOLFF: Well, Detroit is the most extreme example. A few years ago, in the depths of this current crisis—2008, '09, ’10—the United States government bailed out General Motors and Chrysler. It bailed out the two big companies in Detroit. But it never bailed out Detroit. I mean, you could not have a starker arrangement. The worst of it? One example: Part of the deal that brought together the federal government bailout, the state and the city, was to get the agreement of the United Auto Workers, the union, for what's called a two-tier wage system. The old workers that were already in position kept getting their old wage. But all new workers to be hired would be hired at half the old wage. Instead of about $28 or $29 an hour, roughly $14 to $16 an hour, which meant that if the car companies could come back, Detroit couldn’t, because the return of workers to the automobile industries would be workers paid $14 or $15 an hour, and that puts you below the poverty wage in the United States. So this is an abomination in which the top, the industry, the big corporations, are bailed out, and the very cities that depend on them are told to fend for themselves.

AMY GOODMAN: What’s the alternative to gutting the pensions of workers?

RICHARD WOLFF: Well, what we have now is a classic struggle. On the one hand, the creditors—by the way, the same big banks that were bailed out before—they want all their money back. The only way the city could pay off the creditors, even partially, would be by not doing what? Either spending for current services or taking the money out of the pensioners, the people who worked a lifetime for the city and now depend on medical care and, for their livelihood, on these pensions. And that is being fought out.

And the rest of the United States is looking at this, because there are so many other cities in Detroit’s situation, that if the courts decide that it is legal to take away the pension that has been promised to and paid for by these workers, if it’s legal to take it away, you have theft. Call it whatever you want, you’re taking away the wealth. It is class war. It is redistributing income from the bottom to the top: Take care of the banks with the loans and screw the mass of workers who paid for it. It is, in a way, the parallel economically to what your previous guest before me today was talking about in terms of decency, journalism, freedom of speech and all the rest. It is taking the United States to another level of economic inequality. And all the fancy speech making of President Obama doesn’t cover over this catastrophe.

AMY GOODMAN: You know, there was this famous New York Daily News headline in 1975, after President Ford said he would not be bailing out New York, that said something like: “Ford to New York City—Ford to City: Drop Dead.”

RICHARD WOLFF: “Drop Dead,” that’s right.

AMY GOODMAN: Is this Obama’s “drop dead” moment for Detroit?

RICHARD WOLFF: I think so. I think it’s an abandonment. He made a remark a couple days ago, when this was first breaking, that he would leave the solution to the local problem to the local people. Well, he didn’t do that when General Motors wanted to be bailed out. He didn’t do that when Chrysler needed to be bailed out. He didn’t tell the banks, “Oh, go solve your problem by yourself.” He was there, carrying forward what Bush began: the bailout of the big corporations. But when it comes to the mass of the people—and let’s remember, the majority of the population of Detroit has left Detroit. We’re talking about a minority that’s left that is being told, “Sorry, there’s nothing we can do for you, except take away the pensions you worked and paid for, that we are now going to consider property that isn’t private, isn’t protected, the property we can take away from you because we failed as a society to deal with a major city’s economic change.”

AMY GOODMAN: I want to ask you about the “Raise the Wage” protest in New York City. Fast-food workers voted to authorize their third citywide strike for a living wage and the right to unionize without intimidation. This is one of the McDonald’s workers, Kareem Starks.

KAREEM STARKS: I have two kids, six and 12. Both of my boys graduated kindergarten and fifth grade at the same time this year. My general manager told me that he was going to give me some extra opportunities to make some money—extra days. He calls me in on my day off, and three days after that, every day, a different manager sends me home. At the end of the week, I only get a paycheck with 28 hours. I didn’t have enough to do anything for my son, more or less just buy balloons or take him out to a pizza shop. I couldn’t really celebrate his graduation, because I didn’t have any money.

AMY GOODMAN: A new poll released Wednesday by the National Employment Law Project Action Fund shows 80 percent of Americans support raising the minimum wage to $10.10 an hour and adjusting it to costs—for costs of living. Seventy-five percent listed a minimum wage hike as a top congressional priority over the next year. In fact, President Obama talked about raising the minimum wage in a speech yesterday.

RICHARD WOLFF: Yeah, it’s, for me, an amazing thing as a professional economist to even imagine a society that has a minimum wage at the level that we do, that condemns millions of workers—and not just those who get the minimum wage, but, you know, the minimum is a kind of standard that allows other employers to say, “OK, I pay more than the minimum wage. I’ll give you 50 cents-an-hour more or a dollar more,” which means that that wage ends up being much lower, because the minimum, that’s the standard, is much lower. So it’s an extraordinary thing. And when you see huge corporations like McDonald’s and Wal-Mart generating record profits, producing unspeakable wealth for the small number of people who own the bulk of the shares, the argument that there isn’t the money to pay these people a decent amount is—it’s absurd. And it’s economically counterintuitive and irrational, because all you’re doing in the United States by paying large numbers of people so little in these jobs is making sure they haven’t the purchasing power to buy anything, which means other people don’t get a job because they can’t afford to buy it.

So, in a sense, you’re helping the United States become what it always thought it wasn’t going to be. That is, we always prided ourselves as a nation: We’re a big middle-class society. The middle class is being destroyed. It is being pushed down, in mass, by a whole host of things, not least of which is a minimum wage that low and the determination of extraordinarily wealthy global corporations to keep it that way. And I think as long as you let that continue, as long as you let those institutions make those kinds of decisions, we’ll never get out of this dilemma.

AMY GOODMAN: Richard Wolff, I want to thank you for being with us, professor emeritus of economics University of Massachusetts, Amherst, visiting professor at New School here in New York City, author of a number of books, also hosts a weekly program called Economic Update that broadcasts on a number of stations around the country, including WBAI here in New York, and it is syndicated. You can check our website; we’ll link to his at democracynow.org.

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Greg Palast: “Mitt Romney’s Bailout Bonanza: How He Made Millions from the Rescue of Detroit”

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