To the Economic System and our position in i it than perhaps yu have heard before. And even more important, and what this book is about, an alternative solution for dealing with it different from what you might have heard before. So, first, where are we here in the United States and in the woworld economy . And im not gonna tell you what you already know, which is that this is the worst economic crisis in myy lifetime and therefofore in you, that it began in 2007, which means it is now coming to the end of its fifth year and that there is no end in sight, that the efforts of governments around the world, including the United States, to end it long ago have not proved successful, that the prognosis is not good, that the problem is almost like a disease in the sense that it begins in the United States in 2007, 2008, and 2009. The europeans look at the United States and thank their lucky stars that it isnt so bad only to discover that it has metastasized over there. And the last 2 or 3 years, its a terrible problem in europe, and americans are thanking their lucky stars that it isnt quite so bad here. The chinese arare discoverering that it is sprpreg to them. The russians and the indians have already discovered it, and the United States s is nowow beginning to recognize that our own chances of coming out of it are being undercut by the realities in russia, china, and so on. It keeps going because they havent found a solution. Most of the effort to explain it involves games of blame. Right now, were all aware that the republicans blame the democrats and vice versa in an endless chorus that begins to sound the same after the 14th speech by whoevers looking for a job promotion in whichever party. And then the blame goes beyond that. People on the left like to blame bankers. People on the right like to blame poor people who take out loans. So forth and so on. I want to break from all of that. I want t us to acknowledge that in this Economic System that we havave which has a name; its called capitalismtthere are a set of rules. And that most people, because they really cant avoid it, play by those rules. Bankers make loans in order to make moneney. Corporations dodo whaty do in order to make money, because thats what the people who make decisions in corporations are hired to do, and working people try to have a job thats s decent and try to earn an income. And if they cant do what they think they ought to do as good citizens, as good parents with the jobs and incomes they have, well, then they borrow money, and that works out real well because the banks are real eager to lend it to them, and we have everybody performing pretty much the way they are supposed to. When a society has people who are all playing by the rules and can show you that thats what theyre doing and the end result is the kind of disaster we have, then it isnt any more appropriate to blame this or that actor. Its time to recognize that the system of rules is the problem. Everybodydys playing by y the rules. Everybody hopes that will all work out, butut it doesesn. In my profession of economics, we have a great philosopher with which all economics courses begin. His name is adam smith, and hes famous for ththe following line if everyrybody pursues his or her n selfinterest, itll work out for the best for everybody. Most of you know that thats silly. Its a wonderful rationale to go out there and do what you want for yourself and not care about anybody else, but where that leads is exactly where we are. In a very, very bad crisis. So, lets begin by analyzing this crisis as the crisis of a sysystem. And well go on to talk about this system even when its not in crisis, because thats as big a problem as the crisis itself. But crisis is where we are. 2012 is the fifth year of this crisis. What does that mean . First and foremost, it means that we have in the United States today something on the order of 20 million to 25 Million People who either dont have a job at all, have been without a job long enoughgh that theyve given up looking socalled discouraged workers or folks who have to take a parttime job because thats all they can find, but they would like to have a fullttime job. T the bureauf labor statistics in washington keeps records like this. And so, its roughly 20 million to 25 million of our fellow citizens, something on the order of 15 , 16 of our workforce. Thats staggering. Alongside of these peoplele, theres anotherr statistic. T this one comes from the Federal Reserve. Its a statistic called the Capacity Utilization rate. It measures what proportion of the tools, equipment, machines, office space is being used foror prododuction and what part is sitting idle, what part of our capacity is being utilized. And the Federal Reserve has now pointed out, for some years its roughly hovering around 20 is not being utilized. D. 20 of our tools, equipment, machines, vehicle fleets you name itsits idle. Ok, you dont need an advanced degree in economics i have one, but you dont need itto understand that if there are 20 million to 25 Million People who want to work and dont have a chance, and we have 20 of the tools, equipment, Raw Materials for those people to work with, that a system that cannot put these two together to produce a quantity of wealth that would solve most of our social problems quickly is a system that doesnt work very well. Thats a fundamental problem of our Economic Systemthat it produces a crisis of this sort. I wont take the time to tell you the details of what happens to people who are unemployed, particularly for long periods of time, and the current unemployment is very long for people who are without work. They suffer selfesteem problems. They suffer mental and physical health problems. Their families are more likelely to break up. They losehehe skillss that they once had whwhen theye out of work k for long p periodf time. Their children have more difficulty in school. The costs of these kinds of crisis last for generations. The amount of human damage, the amount of waste of resources is beyond calculation. A system that does this, let alone a system that does it repeatedly, cannot talk about efficiency because whatever the efficiency is of a particular factory or a particular production process is completely overwhelmed by the inefficiency of massive numbers of unemployed people, unutilized resources, and lost output that could meet sociaial needs. But its worse. Its not just that were in a crisis now of horrific proportions for 5 years. Its that this is the second major breakdown of t this capitalist system in the last 75 years. The last one was the 1930s. Begins in 1929 and d isnt realy over until 1 1940, 41. A terrible crisis. And between the end of that one in the 1930s and the beginning of this one in 2007, the National Bureau of economic research, which is the official agency that counts crises, counts 11 more11 more downturns in which millions of americansand im not even talking about other countries lost their jobs, capacity unutilized, output foregone, again and again. Crisis is not an occasional interruption. Crisis is part of how this system works, and it always has as far back as the last 200 yeyears of capitalism. It has a crisis every few years. And its important to stress this, because politicians tend to like, for obvious reasons, to characterize each crisis as if it were a special occurrence. So, for examplple, every presidt in the United States since Franklin Roosevelt has, during his tenure as president , had at least one economic downturn. Every one. And every president said at one point, here are the policies i am proposing, and they have 2 great qualities. Number 1they will get us out of this crisis. And number 2 they will make sure we never have a crisis like this again. Every president promised it. No president has delivered on the promise yet. That tells you somemething. The system is crisisprone, and that is a very serious defect to say the least. But i dont want to limit myself to crises. I want to also talk about the system when its working well, when the unemployment is relatively low. What happens then . First, capitalism has a tendency everywhere to polarize income and wealth. Its a kind of driven system in which the competition, as you all know, of Enterprises One with tthe other, is p pretty cutthro. And most of the time, the company that wins the competition literally eats the one that has been defeated buys its equipment, hires away its workers, and so we get the everlarger winners. Thats why most Big Industries have 2 or 3 left. Theyve consumed all the others. They become very big and powerful. These days, they become so big and powerful, theyre all household names. And when they begin to have trouble, they make us all pay for their problems by telling us theyre too big to fail. Thats how big theyve come. So, we polarize in a capitalist system. We produce poles of great wealth at one end and poles of real poverty at the other. Sometimes, sometimes when the system really breaks down, masses of people get so angry that they begin to push back. Very interesting. In america, that happened in the 1930s when we had a terrible depression, when the unemployment rate, which today is about 8. 5 officiallythe number of adults looking for work as a percentage of our labor forcece. If you lok at the comparable number in the depths s of the depressi, itit was 3 times that25 . Rereally very bad. And interestingly in the 1930s, the American People pushed back. They were not passive. They were active. Let me tell you what they did, because its a part of our history that americans tend not to learn too well in school for reasons i will leave to your speculation. We had the biggest Labor Movement organization that the country ever had. Something called the congress of industrial organizations organized millions of workers in the 1930s in the depths of the depression. Workers who had neverer been in a union before. Wed never seen that in the United States. We had never seen it before, and weve never seen it since. In the midst of that misery of a depression, of that poverty, American Workers decided that a labor union could maybe save them, and they were ready to join. And joining was often tougugh, workingng against government, working against a corporation, working against the police. Alongside the unions, the c. I. O. That did the organizing, were 2 other institutions that were important then, and that may susurprise youou. Socialist partrties here in the United States and the communist party of the United States were powerful. They had a lot of people,e,nd they worked together with the c. I. O. And together, they went to the government at that time, andnd they said 2 things we represent the mass of working people, anand we dont want toto suffer the way were suffering in this breakdown of capitalism. You gotta do something. And they addressed themselves to a kind of middleoftheroad democratatic politiciawhwho had just gotten elected president on a program of a balanced budget Franklin Roosevelt. And they said to him, youve gotta do something for the people. And the socialists and communists said, you gotta do something for the peoeople, but they added a little barb, because we think that theres a better system, an alternative system, to capitalism. And if you keep performing as badly as youre doing in the depths of the depression, were gonna try to establish that alternative. And they pointed across the ocean to the soviet union, said, see . Like them. That scared folks. And mr. Roosevelt was a good politician, smart. He listened, and he responded because he knew politically that these 3 forcesc. I. O. , socialists, and communists had enormous support in the United States, they were very powerful, and that thehey could mount a serios problem for this country. S so, roosevelt went to his friends. You know, he came from a very wellestablishehed, very y wealy family. And he went to his wealthy friends, many of whom were businessmen, and he saidid look, i think i gotta do something here, because if i dont, wewere gonna have a lof trouble. E. And, dear gentlemene, you who are very wealthy and you who run the big cocorporations, not only d do i think we need to do this, but youre gonna have to pay for it. The government has no money. Were in the depression. Nobodys paying any taxes. Nobody has jobs. So youre gonna have to paythe rich and the corporations. And heres what youre gonna pay for. Im gonna take care of the people. Im gonna help poor people, unemployed people, an American Population thats in trouble. Im gonna help them bigtime, and youre gonna pay for it. And you know why . Because if you dont, coming down the road are thohose socialists and communis, and theyre gonna cut you a lott less attractive deal. And, you know, Something Interesting happened. The Business Community and the rich were split. Half of them did not buy that argument. They were not convinced by mr. Roosevelt. But half of them were. And roosevelt was a good polittician. With h half ofof the businesses in his pocket, he knew he could count on the c. I. O. , the socialalists, and t the communists to kind of work something out, and here was the deal. Im gonna get the money from the corporations and the rich. Im gonna help you on a scale youve never seen before. And in return, youre gonna stop talking about getting rid of capitalism. Youre gonna mute that part of your message. Youre gonna celebrate me as the guy who gives the mass of people something they never got before. So, what did roosevelt do . Three interesting things that ill mention. Onehe created the Social Security system. We never had that before. In the midst of a depression worse than today, when theres no money in the hands of the governmentnone is coming in; its rereally hard; e cant do anythingthe president goes on the radio and announces that every american over 65 years of age whos had a lififetime of work k is now ga get money from the g government for the rest of his or her life. Thank you very much. What . Where would all the money come from . But you knknow. Ive already told you. From taxing the corporations and the rich. And no sooner did he do that than he announced another new program unemployment compensation. We never had that before in the United States. In the midst of a depression, when tens of millions of people are out of work, the presisident anannounces, i want to tell you all that everybody who is out of work is now gonna get a government check every week for a year or two to make this easier. And whos gonna pay for that . Mmhmm. The corporations and the rich. But now comes the third program. President roosevelt says, if the private enterprise system of the United States cannot provide work to tens of millions of american citizens who want to work, well, then, ill do it. And between 1934 and 1941, roosevelt created and filled 12. 5 million jobs. Well, youre hired by the federal government. And who paid for all of that . Mmhmm. The corporations and the rich. Wow. Im not describing the sovoviet union or some fanty or some impossible dream. Im just describing american histstory, and not soso long ago, either. Wow. Just to drive it home, roosevelthow did he actually do this . He was very courageous and clever. In the midst of world war ii, to make this point really strong, he proposed a novel income tax. Heres how it would work. Above a certain leveland the level in those years was 25,000 a year the income tax rate that would have to be paid ispresidens proposal100 . Thats right. 25,0,000 a year would become a maximum income. You know how we h have a mminimum wage . This would be the maximum income, the other end. The republicans, predictably, went crazy. And they fought and they yelled, and they reached a compromise. And the compromise was that above the top, the highest rate, the richest americans would henceforth have to pay 94 . The law signed by the president. If you were rich in the 1940s, every dollar over the top limit, the highest bracket that you earned, you got to keep 6 cents. And the other 94 cents went to the president and to the government. And, by the way, in the 1950s and 60s, it continued. 91 was the top bracket. Republicans endorsed it. Democrats endorsed it. Republican and democratic president s maintained it. And, by the way, why . The answer was easy, and everybody understood it. It went like this. We have just come through the greatest depression of our economic life, the 1930s, followed by the most severe e wr threat wewve evever had, world war ii. The country has to pull together to overcome and rebuild from these two great sequential crises, and from each must be taken their capacity to contribute. So weere taking from the rich theirr capacity. Heres some statistics for you. Beside theincome tax on individuals, in 1945 i did a little calculation for every dollar that the federal government got in income taxes on indivividual, it got from corporations 1. 50. Corporations as a whole paid taxes on their profits 50 more than individuals as a whole. Whats the relationship today . For every dollar that is taken from individualals, corporations totoday contribute 25 cents. And whats the highest tax bracket . Is it the 91 of the fifties and sixties . No. Its 35 . Whats the lesson here . In the 1930s, the gap between rich and poor was reduced because the government took from the rich to take care of the mass of people who had been suffering in unemployment and poverty through no fault of their own. Through the breakdown of the system. No sooner was the war over than the Business Community and the rich went to work to undo what had happened in the 1930s. To undo the high taxes on corporations and brbrig them down to where i just told you they were, to undo the tax on wealthy people to bring them down to where they are today. And t