With teach-ins planned everywhere on June 10th and people trying to educate each other on exactly what just happened to trillions of our children's dollars, you could do a lot worse than to gather some friends together, read or listen to, and discuss, this interview, and then take appropriate actions.
Here's the audio in an mp3. It's a little under an hour.
David Swanson interviewing Les Leopold:
Les, great to have you.
LL: Well, thank you very much, David. I'm very glad to be here.
DS: Thanks for being here. It is a wonderful book. It's not too long. I greatly enjoyed it, and it explained some crazy-sounding things to me from Wall Street that I had no idea what they could possibly be. Things liked "cubed, collateralized debt obligations," and so forth. I don't know if we have time on this, in this interview, for you to explain all the terms to everyone. They can get it from reading The Looting of America, but use your judgment and explain what we need.
But maybe if I could I'd like to start here: There is sort of a basic rule of economics that you say you and others have been taught. That is that when productivity goes up, the workers pay goes up. Not just that it should, but that it does, as some sort of a rule. And yet that hasn't been true for quite some time. Can you discuss what has happened?
LL: Basically from World War II to the mid-70's if you look at the productivity index, and we should define productivity – it's the amount of output per worker hour. And the wealth of nations is basically determined by the value of output per worker hour. The more valuable that worker hour, the greater the prosperity of the nation. So it's what is beneath pumping up the line of gross domestic product and other things like that. And our standard of living.
The productivity index and the average hourly wage of the non-supervisory production worker (which is something that is tracked in the statistics books, the government statistics books), those two numbers went up virtually in tandem from World War II to the middle of the 1970's, and the thinking was that as productivity goes up, corporations make more money, they then hire more workers, which drives up the price of labor, and, the real price of labor after you take into account inflation, and as the two go up together, prosperity within your country goes up. And this was one of the reasons American capitalism was such a shining example around the world. The standard of living in the post-World War II period was phenomenal for the average working person, virtually throughout the country. There were exceptions – farm workers, African-American farm workers in the south, etc., - but overall there was a wonderful increase in the standard of living.
Something very strange started to happen in the mid 1970's that, the two got de-coupled. It was no longer, what we thought was automatic turned out not to be automatic. In fact, there were other factors involved, and productivity continued to rise and, but the average worker's wage after inflation went flat and started to go down. And this created an enormous change in the American economy, because the gap between those two lines first was hundreds of billions of dollars and now trillions of dollars, and that money had to go somewhere. It was no longer going to the average working person. In fact, it went to the very, very top of the income ladder. And that's the source of our current crisis. A huge amount of money going to a very few people at the top.
DS: Now that seems relevant and interesting and disturbing and maybe even offensive, but I'm not sure it's going to be clear to everybody right away how that 30-year trend could have caused the recent financial disaster. What's the connection?
LL: It wasn't clear to me either. And your listener or reader should be skeptical. So what. The money goes to the top, and the theory was when the money goes to the elite - and this was sort of the theory of the deregulatory, Reaganomics era – it started actually with Jimmy Carter, deregulation started then and some other trends we'll talk about in a minute – but the theory was that the investor class, the elite, would be the investor class, and they would take that money and they would plough it back into new industries and this would lead to, you know, even more growth and productivity, even more jobs, even higher standard of living. And up to a point, that's true. But there was so much money that floated to the top that there actually, the amount of investments that could be found that were moderate, you know, that were relatively good, solid investments began to get used up.
And the "Wall Street Journal" refers to a "wall of money" that existed out there that was looking for investments. And that wall of money, you could only buy, look, you could only invest so much, you could only spend so much on yourself. I mean, how many homes, how many cars, etc. The rest of it was still seeking investment opportunities. And Wall Street is not stupid. They became very aware that there were literally trillions of dollars out there seeking a home. And they came up with it.
They invented financial instruments to meet that demand. And the instruments they created are so amazing it would take, it took a book to kind of unwind it all, but they are so phenomenally detached from reality, they literally became a series of bets. And those chickens finally came home to roost on a lot of those bets. That's the third piece of it.
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