 Good day, this is Professor Resnick again. This will be the last and summary lecture of Economics 305. So let me thank right at the start Dan Madsen for these recordings and the job that he's done, as well as the other Dan and Manisha for the work that they've done in preparing this course. And we hope the three of us, four of us, that you all get something out of it and enjoy it. Let me then go back to where I left off in the previous lecture. What I'm trying to do to remind you is tell a story about the United States using the class concepts that we have developed in this course. So it's not only a story about the US, but it's a review of what we have done. And just to pick up where I left off, recall I started with the entry point of Marxism. That is, in the late 1970s, early 1980s, that the surplus, so this is the class exploitation in the United States, was not sufficient for all the demands on that surplus. So the right-hand side, greater than the left-hand side. Because of three key demands. The payment to workers, the payment to the state, and this payment to OPEC. So this was, again, the unequal exchange brought about by unions, their price of labor power was greater than the unit value, high federal taxes on surplus value, and this new oil shock to the US economy, in which OPEC formed a cartel which allowed it to charge a price of energy higher than the unit value. And that meant that the capitalists, other distributions, and in particular that, the capital accumulation would be undermined. That was an important condition of the left-hand side of the equation, because the left-hand side of the equation, while these are being bumped, the left-hand side of the equation is being diminished. Because American corporations were losing their, losing super-profit, they were losing surplus value to more efficient foreign competitors. So that's the example that I presented to you on that tableau that we presented in these lectures, on the competition amongst the different firms within the same industry. So in the automobile industry, the TV industry, and so forth, there was a loss of surplus value, a redistribution of surplus value from the less efficient American to the more efficient foreign competitors, in particular the Japanese competitors. So you can see the left-hand side is being diminished while the right-hand side is being increased. And then as I explained, along Kim's a new president and a new economics called Reaganomics to help solve this problem. And so the breakup of the unions that diminished the price of labor power, the reduction in corporate taxes, and to go along with it, the reduction in personal taxes, which I'll come to in a moment, reduce this, and the deregulation of energy and oil prices in the United States allowed market prices to rise in the United States, which increased the supply of energy in the US, which helped to diminish the power of OPEC to set this monopoly price. The diminished distributions to these three elements on the right-hand side enabled capital accumulation over here to expand. Plus, let me add to it another one, R&D, research and development, allowed capital accumulation to expand and new distributions to invent new products and so forth. And what that meant was that American corporations were able to compete more effectively because this yielded a higher composition of capital. Remember our lectures now, which in turn raised the productivity of labor, which in turn tended to reduce the average cost of production in the United States, which allowed in a variety of different industries in the automobile industry is one of the more interesting examples of this, allow the average cost of producing these commodities, these automobiles, steel and so forth, to diminish. Remember the average cost now, C plus V over UV. So the increase in the productivity of labor diminished this average cost. And I'm gonna give you an argument in a moment that the value of labor power also fell. So there was a dramatic change in the United States, which is both denominator increase, numerator fell. United States was able then to mount an offensive against these foreign competitors. So it was rather a striking set of proposals under President Reagan at the time. So let me pick it up now. I gave you a little bit last time a flavor of the bad news and the good news. That is, if you recall, the bad news for the good news is the federal taxes are reduced. That's good news for the capitalist. The bad news is that the state is gonna start running a deficit, which is with us until today. The good news of destroying the unions or eroding their power is that this is reduced, but the bad news for the capitalists is that the workers have less income to purchase the commodities that the capitalists are producing. So let me start with this one and then let me pick up the rest. If you're gonna diminish wages, then if nothing else changes, that's gonna constrain consumption, that's gonna constrain the effective demand for wage goods produced by the capitalist, and that's gonna make it perhaps not necessarily difficult for the capitalists to realize the value of their goods because demand is being diminished. There's no necessity for that because demands from other subsumed classes are rising in the economy and there's exports, but nonetheless, there's a tension here. So here's an argument of why this tension did not arise, why consumption did not fall. In fact, it increased. So let me write this down here. We have consumption is equal to the income of the workers, so this is consumption of the workers, income of the workers, and this is their value per labor hour times the labor hours times the H, so that's the, this is the V, the total V, once again reviewing what we've done, the value wage per labor hour times the number of labor hours times H, plus debt because workers can consume more if they go into debt, minus taxes. This is the taxes that workers pay to the federal government, okay? Well, let me put one more in because it is important here. Plus the subsumed class revenue that the workers received, okay, that is just too messy, so let me get rid of this. Plus the subsumed class revenue that the workers received from their unions plus the debt minus the taxes. Okay, so here's the argument. I'm gonna add this back in so we can tell our story. This became diminished over time because of the attack upon unions starting with this air controller strike in 1981. So in effect, this fell to zero. That is, the price of labor power was diminished. I should come back to that in a moment, but just let me make this argument here, okay? I'm gonna give you an argument in a moment why the wage per labor hour fell. So you can see if there's nothing else changing, this is pushing consumption down. If wages are falling and if the extra price of labor power that those workers are getting is falling, we have a falling consumption. However, employment rose, even if there was no change in the length of the work day, employment rose, debt increased and taxes fell. So part of this new strategy was to starve the federal government of taxes, first with the reduction on corporate taxes, but then the reduction in personal taxes which affects this equation. So this is the personal taxes that the workers pay. That was cut, not to get the tax bill through Congress if you're gonna cut corporate taxes for the wealthiest segments of the population, the corporations, you're gonna have to cut personal taxes along with that. This was cut, debt took off, as you all know, and employment took off. That's the expansion and capital accumulation in our language, K star plus lambda rose. And that was in part because of this redistribution of the demands on the surplus away from OPEC, the federal government and the unions to raise K star, raise lambda, research and development, capital accumulation, and hence employment grew. So consumption did not fall and this is one might have expected because of the cut in wages, both on the side of unionized workers and then the fall and little V which I'll come to in a moment, but consumption rose over this time, financed by reduction in taxes, increase in debt and a growth in employment. So let me now come to this, which I keep mentioning to you, this cut in the value of labor power. That is the little value of labor power, value per labor hour. And not to do that, I would like to introduce again, the labor market in the United States over these years. So let me put on the blackboard the graph for the labor market. Here is the, I'll put the real wage of workers and here is the demand and supply of workers of their labor power. So here is the supply and here's the demand. Okay, for labor power. First, I'll put this in a different color. Now, I'll dot it. This price of labor power, put this in real terms. So the unions had to bargaining for a higher real wage for their members. This was, this power was eroded by President Reagan and Congress. That was part of this Reaganomics that was elected to office. So the blue line is broken. The, in industry after industry, the major industries in the United States, over time the unions have their power to set that blue price of labor power gets eroded. Hence what happens is that the market approaches a more free market, free of the monopoly power now of the unions. And so the price, as you can see, because I just erased it, the price has a tendency to fall. While that is occurring, so let's do that, let's put it here. Number one, so you have reduced union power and that has its impact in this market by reducing the price of labor power in real terms. Number two, while that's going on, from what I just said in a moment ago, the demand for labor power is shifting to the right. I'll put that in a dotted line there. And the reason it's shifting to the right is because of capital accumulation is occurring in the United States, okay? So, and that goes back to what I just mentioned to be before that the corporations now do expand their capital accumulation as you reduce the payments they have to make to these three groups on the right-hand side, including the reduction in federal taxes, they can redistribute their surplus to expand capital accumulation, and employment grows, as we just talked about having its impact on consumption, okay? So one might think, okay, that's a tendency for the real wage to rise. But at the same time, the supply of labor power, okay? So you might expect this to be the new real price of the new real wage, but at the same time, the supply of labor power shifts to the right, and hence we end up with a new kind of equilibrium that looks a little bit like this. Let me do this in blue. I did it too dramatically, but you get the idea. Here at the real wage actually then begins to fall in the United States.