Income Inequality Isn’t Good for America – Economist Richard Wolff

Income Inequality Isn’t Good for America – Economist Richard Wolff


Announcer: Welcome back to The David Pakman
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of David Pakman’s show. David: I’ve never actually thought about it
that way. But what I have thought about a lot is something I’ve been mentioning, which
is that if you go to www.DavidPakman.com/secret now, you’re not going to find this on our
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bottles? David: It’s softer than 100% cotton, I guarantee
it. All right. Well, let’s get to our interview with my former economics professor Richard
Wolff. Back on the show is Richard Wolff, Professor
Emeritus of Economics at my alma mater, the University of Massachusetts, and currently
a visiting professor at New School University in New York City. You know, hearing from Republicans, I’m hearing
increased income inequality and increased disparity in how much the richest make and
the average people make might not be a bad thing. And a lot of this is coming in response
to the Occupy Wall Street protest, and kind of this main premise that the more the rich
make relative to what the middle and lower classes make, it might actually be good for
the economy. It doesn’t make any sense to me, but I’m not able to very casually explain
why, so I’m hoping you can do that for us. Richard Wolff: Well, it’s a very old argument.
I’m trying to be polite, so I’ll call it an “argument”. It’s an argument designed, of
course, to defend unequal distributions of income and wealth, not an easy task to do
in general, and particularly difficult at a time like now, when the mass of people are
clearly protesting and making it crystal clear that in their view and in their experience,
it’s not a good thing at all. So it’s a tough sell, but conservatives have always risen
to the challenge. Here’s the basic idea: the more unequal the
distribution of income, the more likely it is that those at the top earning and raking
in huge amounts of money will be willing to part with some of it in order to carry out
investments, to start businesses, to expand businesses, and so on. And then, by this tortured
logic, that’s a good thing, because if they choose to take that portion of their wealth
that they can part with and invest it, it will create jobs and put people to work. It’s a nice idea. There would be, perhaps,
some circumstances under which things would work like that, but here’s the basic counter-argument:
first of all, if you give more money to rich people, there is no guarantee and nothing
built in that will make sure that the extra money they get translates into investment. Number two, there is no incentive for rich
people to invest if the mass of people don’t have enough money to buy the products that
those investments would yield. In other words, the deprivation of the middle-income and low-income
people means that they can’t buy goods and services, which operates as a direct disincentive
for rich people to invest their money, since they won’t be able to sell the products of
that investment. David: OK, well, let me… let me stop there
for a second, because that part… that part makes sense to me, which is if we are talking
about some marginal additional income, if you give that money to somebody who is lower
or middle class versus somebody who’s very rich, you’re lower or middle class, it’s much
more likely you need that money for your basic living, so you’re going to go out and you’re
going to spend it, whereas somebody whose needs are already met will save that money,
they’re not going to put it back into the economic system. That I get, but what I mean more specifically
is one of the arguments, for example, that you’ll hear conservatives make is that hey,
if the rich are doing really, really well, that’s going to bring up the average for how
everybody’s doing. So the disparity, the distribution of those incomes, is not totally relevant.
So that’s separate from, for example, a tax cut for the rich. But explain why that distribution
of incomes doesn’t make sense. Wolff: Well, I mean, the best response to
that argument would be just to look at the historical record. We have, over the last
35 years, gone, here in the United States, from being one of the most equal of the advanced
industrial countries, that is, the gap between rich and poor was the smallest in the United
States, say, in the 1970s, when compared with countries like Europe, Japan, Australia, and
so on. Here we are, 35 years later, we have made
the rich become relatively much richer. The mass of people have gone nowhere with their
income. So we now stand as number one in the degree of inequality of wealth and income.
If that was supposed to have good consequences, no one can see them. We have record-high unemployment,
we have record-high home foreclosures, we have people having to accept jobs way below
what they have been trained for. The economic good results supposedly to come from greater
inequality are the exact opposite of what the historical record shows us. David: All else being equal, would the current
level of income inequality be much less detrimental to the economy if we had a more progressive
tax bracket? Wolff: I don’t think so, because I think unless
you’re talking about an unprecedentedly progressive tax bracket, what we would likely see is a
less government indebtedness problem. In other words, if we jacked up the rates
on income tax to, say, the level they had in the 1950s and 60s, when, for example, the
top bracket on the income… personal income tax was 91%, compared to the 35% that it is
today, that would bring in revenue to the government of the United States from the wealthiest
Americans, and that would relieve the government from having to borrow the money and run the
deficit and build up the debt that we now see. But in terms of dealing with the more fundamental
problems of the American economy, I’m afraid they go beyond the distribution of wealth
and income; they have to do with how we organize enterprises, they have to do with the relationship
between the United States and the rest of the world, and a whole bunch of other dimensions
of our economic system that would have to be addresssed if we’re going to solve this
problem. Indeed, our difficulty at this point has been
we keep looking for an easy fix; if only the government will do this, if only this adjustment
will happen over here, if only we lower the value of the dollar relative to other currencies.
But these particular changes don’t get the results we hope for, because they don’t deal
with the basic more structural problems of this economy, which is what brought this crisis
on in the first place. David: Do you think that the idea of the American
Dream as it’s romanticized by many is actually a problem when it comes to taxes and income
inequality in this sense: that because many people have been programmed that they, too,
one day may be in the top 1%, they may actually, or do, support tax policy and economic policy
that would benefit them only if they are one day part of that 1%, and just statistically
speaking, they’re probably never going to be in that top 1%? In that sense, are people
acting out of their own… against their own best interests? Wolff: Well, I think there’s a point here.
I think there were a good number of Americans who bought into the idea that they would one
day be wealthy and therefore did not want to see taxes be high in the event they realized
that American Dream. But I think here’s the most important piece
of information for those people and for all the rest of us watching: never before in American
history have we had a period of 30-plus years during which real wages no longer went up.
From the beginning of our history as a nation, the late 1800s, up to 1970, real wages rose
every decade in American history over the decade before. That meant you built up a sustainable, believable
notion, maybe not that you’d be rich, but that you were going to be better off next
year than this year, and maybe you could extend that through fantasy to the notion you’d be
rich. And so people might have the idea, let’s not have a tax on rich people that we might
one day become. But after 30 years of stagnant wages, after
a crisis now in its fifth year and no end in sight, after young people informing their
parents that their job prospects are really grim, what you’re having now is a growing
number of Americans realizing that whoever gets the American Dream is not going to be
them, that their chances are not there. And with that comes the willingness, I think,
to tax the few who still are enjoying that American Dream, because they’ve been frozen
out of it, and I think that’s a growing perception in America, and it means that those few who
imagined they might one day be rich are becoming very few indeed. David: All right, Professor Emeritus of Economics
at the University of Massachusetts, Richard Wolff, really great to talk to you again.
Thanks for joining us. Wolff: Thank you, David. I hope to talk to
you again in the future. Transcript provided by Subscriptorium Multimedia
Linguistic Services. For transcripts, translations, captions, and subtitles, or for more information,
visit www.Subscriptorium.com, or write us at [email protected]

36 thoughts on “Income Inequality Isn’t Good for America – Economist Richard Wolff

  1. Wolf, the man who touts a utopian vision of worker-owned firms, where every employee comes to work in shorts and with enough marijuana to get him through the week (a close paraphrase)–a week which, by the way, is only 4 days. Doesn't say what will happen if another firm works 4+1/2 days to make the same product (still a nice place to work), 5 days . . . etc. A sleazy pandering-to-the-puppies populist.

  2. @clockworkscott I like "booklicker." But perhaps you should consider "enemy of the people," coined by Robespierre, of whom you seem to be a protege.

  3. Couple of vids for you guys. The first shows that (contrary to all the debates held on the subject) it NOT only money that a society runs on. And just about EVERY SINGLE SOCIAL INDICATOR get WORSE with income inequality:
    'Talk – Richard Wilkinson & Kate Pickett – Why Greater Equality Makes Societies Stronger' on you tube
    Oh and the number of DELUDED Americans on income its just JAWDROPPING:
    'Papantonio: What "Shared Sacrifice" Means To A Republican' on youtube

  4. @eswyatt your close paraphrase isn't close at all. First of all, this so called utopian firms already exists. The marijuana thing is actually a joke he makes to exemplify some technology firms founded by people that got out of silicon valley and are doing very well. I'll make the other point in another commentary so I don't run out of characters, sorry.

  5. @eswyatt Second, when you say that a company that runs 4 days a week will loose in competition against another that runs more time thant that you are assuming we keep the same market structure that exists at the present, where producing more goods presumably makes more money, and by the way, when you look at the reality again this is not true at all. But there is nothing that says that the only system of distributing goods for the society is the market system.

  6. @caiogbarros Yes I was assuming the same market structure. But I didn't hear Wolff suggest a different one (Admittedly this was more of a "teaser" lecture.). If the government designated a firm to produce a certain good or service (ie prevented others from doing it), then the amount of compensation would be limited only by the degree to which consumers valued that good or service. (Unless, of course, you also compel people to buy a certain amount of the good or service.)

  7. @eswyatt Thats one alternative, but there are others also. In your example at least is possible to avoid the cicles of over- and underproduction. The basis of the argument at the end is that the economic system should be decided by de society that lives in it, and not by just a (powerful, wealthy) minority. The system of distribution is part of that economic system also, and be it a market, a planning system as your example, or some kind of mixture the decision must be ours.

  8. @caiogbarros You mean like when the government hands out dairy and farm subsidies so we have unwanted and overpriced dairy products? Or maybe you mean when the government both supplies and requires us to purchase a war on drugs. These "successes" are good compared to what? The seamless and consumer demand-matched supply of goods provided by a competitive enterprise; where the pricing system clears the market no matter what, and firms that provide what we want are rewarded by continued existence.

  9. @eswyatt Of course I don't mean any of those. In american history there was a time during the great depression when to buy something you needed money and a ticket. With just one of those you could buy nothing. It was non free market mechanism during a period of depression. On the other hand the free market itself never exists in the way you describe. It always ends up evolving into some kind o monopoly and the most competitive firm now makes the rules. The idea of free market is the real utopia.

  10. @caiogbarros Yes, the pure free market doesn't exist. But that's because firms bribe government officials into making regulations that effectively make new entry difficult. When you say "the most competitive firm . . . makes the rules" I think you mean the first firm to achieve economies of scale makes new entry impossible. That is, you get a "natural monopoly". But since I don't want to put words in your mouth, I'll let you clarify.

  11. @eswyatt Not just that but it (or they if it is a cartel) regulate prices and production. Basically ceasing competition. This situation doesn't arrive because the interference of the government itself but, on the contrary, the interference of the government is a consequence of a characteristic inherent to the market system which is its transformation into a monopoly system. The free market before WW I turned into regulated market, then unregulated and now is regulated again. its a cycle.

  12. @caiogbarros I'm afraid you're misinformed my friend. The tendency is for cartels to break down because of the increase in profit that can be made by cheating. Econometric studies bear this out time and time again. It is the attempt to prevent competition, rather than the tendency to compete, that is inherently unstable.

  13. @eswyatt That can be true, but what you are saying is that a cartel tends to transform into plain simple monopoly and we are back to the same arguments.

  14. @caiogbarros No. I said cartels tend to break down. A cartel is successful when a number of firms behave as a single firm–an effective monopoly. The failure of the cartel is when the firms compete. A natural monopoly (what I think you meant by "simple monopoly") gets its market power from economies of scale. Anyway, I think Wolff's argument is different–that consumerism is the evil, not no competition. But I don't want to put words in his mouth either.

  15. Unfortunately the lower/middle class is too dumb to spend it properly and don't have proper work ethic. Grow up North America (and all you internet kids who think America is retarded/throwing it's weight around).

  16. i wont even go into your "statistical" fact, but provided this is true for some range of inequality, do u honestly believe, this is a curve with a constant monotony ? if 1 person earns all, while the rest earns nothing, the average will work most hard and productive ? As a physicist i assure u that there always can be a turning point in a mathematical relationship, that may change or reverse direction. And in case of income-inequality this isnt just reasonable. Let live or get the riot

  17. i did.it is in no way reasonable,that if 1 person earns all,while the rest earns nothing,that average people are capable of being the most efficient,productive and hard-working workforces. This is a non-neglegtable fact, since within our current system u cant sustain ur biological system without a reservation wage! If thats not formal enough argument to u, we could still go more scientifically into ur social studies, that allegedly underpin the 'more-inequality->more productiveness' hypothesis!

  18. well, it´s not. ur straw man argument-accusation is in fact a straw man argument, since u wrote that income inequality per se encourages people to work hard instead of living an unproductive life. U wrote that people in countries with more income inequality work longer! that was not a sole reference to income inequality in the US or countries alike, but a generalization of ur thesis. And to that i was referring to, and conclusively made my point by exaggerating to an extreme case !

  19. i dont need to believe… just quote ur initial statement. and that was in fact a generalization. More extreme cases of inequality DO indeed belong to the empirical research of it. If u wanted to exclude them from the data-basement of ur argument, you should have mentioned that somehow within ur initial statement. And that one just doesnt hold true for all possible or even existing income distributions. period. focus on that instead of stumbling against the usage of the word "thesis" !

  20. btw…
    statistical data – especially within social sciences – always needs to be interpreted…
    I saw economists drawing a straight line through statistical data, which did not even suggest any type of specific curves, but the economists still call them "Phillips-curve"… so… first of all… show mir ur data and let me think about its actual conclusiveness before talking smack to me for the simple reason that i used the word "thesis"…

  21. well…. shall i be a pedant ?
    if 1 persons earns all and the rest nothing, the average earnings is the same, as if all would earn that "all" divided by the number of people!
    but u still miss the point… of course, such a scenario does not exist. I already said, i exaggerated. That is sometimes necessary while talking to people, who dont want to comprehend, that this relationship, if any, holds true only for specific circumstances. our Reality is far more complex than ur point!

  22. a physicist with no idea of statistics, yeah…
    if i had drawn a straight line through this kind of data during my basic practical course first year,i just would have done my job and would have had to explain why my measured data didnt correspond with the expected outcome.but actual scientific research has to explain,why a certain model is used to fit the data.Using a linear regression and "proving" theoretical wishes does not constitute statistical data analysis. it wasnt just an illustration

  23. "a correlation is either qualitatively positive or negative"
    no, it isnt…. bullocks…
    a simple gaussian, used i.e. to fit peaks for measured radiation energies, is neither strictly positive nor negative.

    "Youtube don't have the space to explain all this."
    yeah, at least one thing the two of us could agree on… the rest doesnt seem like we could hit it off someday 🙂

  24. dude…. average individual earn is all earnings aggregated divided by the number of people… the 1 person still contributes to the average individual earnings…
    1. i`m tired (for the moment) of talking like that…
    and secondly… most importantly my evening plans are interfering with our conversation, lets postpone it 😉

  25. This video solved nothing, you were just discussing bad things that had happened, and you didn't create any possible solutions to the "problems" which were very hard to actually understand with the questions he was asking.

  26. Several famous economists have said every economy is blooming when rich ppl get richer. The rest feed of the success and wealth of few.

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