By Richard D. Wolff, who is Professor of Economics Emeritus, University of Massachusetts, Amherst where he taught economics from 1973 to 2008. He is currently a Visiting Professor in the Graduate Program in International Affairs of the New School University, New York City. He also teaches classes regularly at the Brecht Forum in Manhattan. From The Real News Network.
Comedian Reginald D Hunter (recommended by our own Richard Smith) tells the following one-liner: “A class system is what you use to discriminate against people who look like you.” True! Though Wolff has a more precise definition.* You can hear Wolff on this YouTube:
Here’s a transcript of Wolff’s discussion of the foreclosure crisis:
Foreclosure in the United States today is in fact a classic example. Over the last thirty years, we have faced a phenomenon we never had before in the history of the United States. We have had rising real wages in America, roughly from the beginning of our history, up until the 1970s. If you worked hard, you got more money in your wage envelope at the end of the week. That was true for 150 years, that was really amazing, and no other country did that.
It stopped in the 1970s, because of computers replacing people, because of American companies moving abroad so they could pay lower wages, because of a mass movement of women into the labor force, immigration, and we went from a country with a chronic labor shortage to a country with a chronic labor oversupply. Employers no longer had to raise wages to keep workers working, to keep them happy, and keep them employed.
And as result, the American working people went into a kind of prolonged psyhic shock. Their wages weren’t rising any more. And so what they did was they turned to another source of money to realize the American Dream that they had been culturally developed to hope for, to expect, to promise to their kids.
They borrowed money like crazy. And the business community of the United States saw in the borrowing of the American working class a fantastic market to go after. You know in the 1970s, in the beginning, the only people who had a credit card were wealthy people or folks on business expense accounts. Starting in the 1970s, we gave credit to the mass of Americans. Everybody gets a credit card, and everybody can go to the bank to borrow to buy a home. Mortgage debt, credit card debt explodes.
It was a money-making extravaganza. We saw all the wealthy come together and get involved in this money. Bulding houses, lending workers at huge interest rates the money with which to buy the new and expensively built homes. Wealthy people poured their money in to companies that built these homes, furnished these homes, decorated these homes, and you had a literal explosion of profitability.
But of course. You can’t keep lending to working people if their underlying economic situation isn’t improving. So it was only a matter of time until the extra borrowing reached the limit of the underlying frozen, stagnant wages.
That was hit in 2007. Millions of Americans could no longer afford the houses that they had borrowed to buy. The foreclosure crisis represents the rage and anger of the wealthy class. If the underlying people they lent money to can’t pay for them, they’re going to take those houses back, throw those people out of their homes, and ry to find another way to make money. Here’s a perfect example of the profit motive creating a housing boom that becomes a bust, and that now to recoup the money of the minority wgo invested in it, requires millions of people, the majority, to literally lose their homes, producing in the United States in 2010 and 2011, a society that has millions of empty homes, side by side with millions of homeless people.
Enormous pressure was placed on the United States government by big businesses, businesses that produce homes, that clear land, that produce construction equipment, the businesses that produce the furniture that goes into the homes — All of those companies have put enormous pressure on the government in the last 100 years to subsidize and stimulate everything having to do with the home construction business. They asked the government to subsidize mortgages, which we’ve been doing in America since the 1930s. They wanted the government to help individuals buy homes because their well-being as corporations depended on selling those homes, selling the furniture, selling the equipment that dug the ground for the homes, etc.
So the whole corporate structure of the United States has been geared to making money by developing the private home business. They are the ones who have made the major difference in all of it. Every house, virtually, bought and sold in the United States over the last 25 years, with very few exceptions, was paid for with a mortage loan. That is the buyer of a home goes to typically a bank, and borrows the money with which to buy the house, and has to make a long-term repayment to the bank for having borrowed that money.
As a loan, it has two sides: The borrowwer and the lender. In our kind of capialist economy, it is the rule that a banker has the social responsibility of properly assessing risk. If billions upon billions of dollars were lent to people who couldn’t pay it back, then the culpability is at least as much from the side of the bankers who made those loans as it is on the borrowers who took them out.
Borrowing vast amounts of money to buy homes took off in the 1970s and 80s and 90s. It had not happened before. So if you’re going to blame the victim, you’ll have to explain why the victim undertook these blameworthy activities jus then and not, for example, in the previous 150 years. And now the most important poin which I made earlier: Starting in the 1970s the American working class stopped getting real wage increases.
Readers, what do you think of this narrative? (I notice the lack of accounting control fraud, and that Wolff seems to think that the construction industry carries as much weight with the government as the banks. However, tying the foreclosure crisis to the flattening of real wages in the mid-1970s — a class issue if ever there was one — makes a lot of sense to me.)
NOTE * “Class is this difference between those who do the work, the overwhelming majority, and those who gather the profit into their hands. The way our society splits up the output leaves those who get the profits in the position of deciding and figuring out what to do with them.”