Educational Media Reviews Online

This is a lecture presented by Dr. Richard Wolff, Professor of Economics at the University of Massachusetts Amherst. He provides a historical background to the current economic situation, looking not just at the financial aspects but the societal implications of the events that led to the current financial debacle, and proposes some significant changes to the American business model as a solution to the underlying problems that created the current crisis.

He starts out by stating three things that that the current crisis is not:

1. this financial crisis is not just a financial crisis but is a crisis of the entire economic system in the U.S;
2. it will be not temporary or short lived, and
3. it is not easily or quickly fixable.

Dr. Wolff moves smoothly through his lecture, pointing out that from 1820-1970, Americans had a steadily rising standard of living and this belief that each succeeding generation would live better than the previous one became internalized or normalized as part of the American way of life. In the 1970s though, there were some significant changes that occurred to disrupt the rising standard of living. In real terms, wages have remained flat since the ‘70s while the middle class consumption patterns continued. Wolff ties the flat wages to four things that started occurring in the ‘70s. First, workers are displaced by computers. Second, Europe and Japan recovered from WWII devastation and started to successfully compete against American business by either lower prices or creating higher quality products or both. Third, American businesses started to move manufacturing outside the U.S. to cut costs and remain competitive against Japan and Europe. His fourth and final point is that women and a large wave of immigrants start entering the jobs market.

While the last 30 years have not been good for the workers, it has been a very profitable time for businesses. During the last 30 years, CEOs paid themselves more, engaged in an orgy of mergers and acquisitions (remember the movie Barbarians at the Gate?), and discovered that they could lend money back to workers via unsecured credit (think Visa and MasterCard) to make lots of profit. With all this credit available, the middle class entered a period that Alan Greenspan described as “irrational exuberance,” followed by not one but two bubbles.

Wolff then proceeds to detail what he believes won’t work (re-regulation) and what will work (democracy in business, business’ responsibility to workers and new entrepreneurial enterprise). He finishes with stating that both the Keynesian and the unregulated models of economics have made a fundamental mistake in not factoring in the underlying structure of the stressed middle class.

This lecture is useful in outlining the background to the current (and unfortunately, ongoing) economic crisis. Wolff’s opinions are well laid out and will provide opportunities for research, discussion and debate both for the serious student of economics and finance as well as someone whose eyes glazed over at the mention of economics but who is now paying attention.