To the Economic System and our position in it than perhaps you 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 ththe World Economy . And im not gonna tell you what you already know, which is that this is the worst economic crisis in my lifetime and therefore in yours, that it began in 2007, which means it is now comiming 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 sso bad here. The chinesese are didiscovering that it isis sprei to them. Thehe russnsns and the indians have alreadydy didiscovered it, and the Uniteded States is now 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 democratats and vice versa in an endleless 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 i want us to acknowledge that in this Economic System that we have which has a name; its called capitalalismthere 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 mone c corporationons do what ty do in order to make money, because thats what the people who make decisions in corporations are hired to dodo, and working people try to have a a job thahats decent and t 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 a 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. Evererybodys p playing b by the rules. Everybodody hopes that wl all work k out, but it doesnt. In my profession of economics, we have a great philosopher with whwhich all economics cours begin. His name is adam smith, and hes famous for the followowing linene if everybody pursues his or her own selfinteresest, itll w work ot 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 system. And well go on to talk about this system even when its not in cririsis, because thats as big a problem as the crisis itselelf. 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 enough 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 fulltime job. The bureau of 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 workfkforce. Thats staggering. Alongside of these people, theres another statistic. This one comes from the Federal Reserve. Itits a statistic called the Capacity Utilization rate. It measures what proportion of the toolols, equipment, machines, offffice space e is being useedr production 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. 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 toto work and dont have a 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 d 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 likely to breakak up. They lose thehe skis that they once e had when theye out of work for long pereriods f time. Theieir children have more difficulty in school. Ththe coss of these kinds of crisisis last for generations. The amount of human damage, the amount of waste of resources is beyond calculation. A ssystem t 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 nunumbers of unenemployed peopl, unutilized resources, and lost output that could meet social needs. But its worse. Its not just that were in a crisis now of horrific pproportions for 5 years. Its that this is the second major breakdodown of t this capitalist system i in the last 75 years. The last one was the 1930s. Begins in 192929 and isnt realy ovover until 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 moe downturns in which millions of americansand im not even talking about other countries lost their jobs, capacity unutilized, output foregonene, 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 years of capitalalism. 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 r example, 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 t one point, hehere 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 l make sure we never have a crisis like this again. Every president promised it. No president has delivered on the promise yet. That tells yoyou something. 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 t 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 the otherer, is pretty cutthroa. 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 numumber of adus looking for work as a percentage of o our laboror force. If you k at the comparable number in the depths of the depression, it was 3 times s that25 . Really 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 never 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 tough, w working against government, working against a corporation, w working a agait the police. Alongside the unions, the c. I. O. That did the organizing, were 2 other institutions that were important then, and that may surpririse you. Socialalist parties here in t the United States and the communist party of the united s states were powerf. They had a lot of people, and they worked together with the c. I. O. And together, they went to the government at that time, and they saidid 2 things we represent the mass of working people, and we dont wwant to sufferr the way weere suffering in this breakdown n of capitali. You gotta do something. And they addressed themselves to a kind of middleoftheroad dedemocratic politician who o hd 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 people, 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. M. 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 statates, they were verery powerful, and that they y could mount a serios proboblem for this counntry. So, roosevelt went to his friends. You know, he came from a very wellestatablished,d, very wealy family. And he went to his wealthy friends, many of whom were businessmen, and he e said, look, i thihink i gotta do something here, because if i dont, were gonna have a lot of trouble. And, dear genentleme, you who are very wealthy and you who run n the big corporations, not only do i think we neeeed to do this, but youre gonnnna have to pay r it. T the government has no m m. 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 i if u dont, coming down the road are those sococialists and communis, and theyeyre gonna cut you u at less a 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 convinceded by mr. Roosevelt. But half of them were. And roosevelt was a good politician. With half of the businesses in his pockeet,e knew he could count on the c. I. O. O. , the socialists, and the communists to kind of work something out, and here was the deal. Im gonna get the money from the C Corporations and d the rich. Im gonna help u on a scale youve never seen before. And in return, youre gonna stop talking about getting rid of capitalismsm. 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 b 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 comingng in; its really hard; e cant do anythingthe president goes on the radio and announces that every american over 65 years of age whos had a lifetime of worork is now g ga get money fromom the govovernmet for the rest of h his or her li. Thank you very much. What . Where would all the money cocome from . But yoyou know. Ie 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 nevver had that before in the United States. In the midst of a depression, when tens of millions of people are out t of work, t the presidt announces, i want to tell you all that everybody who is out of work is now gonna get a government check every weeeek for a year or two to make this easier. And whos gonna pay for that . Mmhmm. The corporationsns and the rich. But now comes the third progrgram. 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 soviet union or some fafanty or some impossible dream. Im just describing americacan history, and d not so 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 itit would work. Above a certain leveland thehe level in those years was s 25,000 a year the income tax rate that would have to o be paiaid ispresids proposal100 . Thats right. 25,000 a year would bececome a maximum income. You know how we havave a minimum wag . . 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 hencnceforth havave 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 s severe wr threat weve everad, world war ii. The country has toto l together to overcome and rebuild from these two great sequential crises, and from each must be taken their cacapacity to contribute. So were takaking from the rich h their 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 n individual, it got from corporations 1. 50. Corporations as a whole paid taxes on their profits 50 moroe than individuals as a whole. Whats the relationship today . For every dollar that is taken from indidividuals, corporations today 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 bring them down to where i just told yoyou they were,e, to undo the tax on wealth