 The 1992 World Development Report was on sustainable development and the relation between the environment and the economy. First draft comes, there's this diagram, it has a rectangle labeled economy and an arrow coming in from the left of the rectangle labeled inputs and an arrow exiting from the other side of the rectangle labeled outputs. The caption was the relation of the economy to the environment. So how am I going to say this is utter nonsense in a way diplomatic. So I wrote this very good idea to draw a picture here and the caption and exactly the relation of the environment to the economy is just what we want to see. But we really don't have the environment captured here. We just have this economy receiving inputs from nowhere and sending outputs to nowhere. So why don't we draw a big circle around that the whole thing and call that circle environment and then it will be clear that the inputs are resources coming from the environment into the economy and the outputs back to the environment are waste products and then we can look inside the economy box a little more and talk about what goes on in there. Next draft comes, same thing, only this time the thing had a bigger rectangle drawn around the whole thing just like a picture frame but it was not labeled anything, nothing was changed in the text. So I wrote back, well this is just a picture frame around the picture why don't we set the same thing I said before. Every time it comes the diagram has disappeared, it's no longer there and it's just too difficult to draw that picture. I'd heard that in the US in the early 70s one person's minimum wage supports a family of four but by 2000 it took two minimum wages to do the same thing. I wanted to find out why and why was it that the shirt I was wearing was probably made by someone working in a sweatshop. I thought taking a basic or introductory economics course would help. Waste in one location, simultaneous starvation in another. Isn't there? In this film we'll see how mainstream economists use these models to hide the forces of inequality and environmental destruction. Law of supply and demand. The main supply model will get you a long way in economics. Prices to everything. If the price is $5, people wish to purchase 10 bushels worth of tomatoes. How many bushels of tomatoes do farmers produce? 25. What do we call this? Surplus. You get too many tomatoes. The price is $1. A lot of these demand it is 22. Farmers because the price is low only produce 12 bushels. People want to buy 10 more bushels than are available. We'll call that for short. Right here about $1.89. Aren't there any people who want tomatoes who can't afford them? An economics individual human want that is not backed by purchasing power does not exist. Nothing. It's prayer or something. It drops out of our modeling. So when we discuss a demand we mean what's sometimes also called effective demand i.e. demand backed by purchasing power. Markets. In addition there are some things that are not possible to demand on an individual basis but can only be supplied socially. Some goals are intrinsically social. My goods, my goals are intrinsically connected to other people and it's relational. The assumptions that economists make about people and how they relate individualism, self-interest, unlimited wants. Two facts are true about everyone regardless of gender, creed, color, income. The first is unlimited wants. Everyone has unlimited wants. Take my own family for example. Home, two dogs, cat, two cars, big TV, multiple computers and yet no matter what we have we'd always like to have more. I'd like a double oven. It's not human nature. Well my husband's always dreamed of his own airplane with a home in an air park. At best these are assumptions that might be appropriate for people in our society because of the way our society has evolved and been constructed. Even if we ended up getting these things there would always be something else. Unlimited wants. Markets as they are ideologically abused by neoclassical economists is the fiction that whatever the suppliers supply they do to meet the demands of those who come on the other side of the market and that therefore a kind of efficiency is achieved. Efficiency has to be always relative to a goal. There's no such thing as abstractly just efficient per se. Things are produced that people want. This fantasy avoids dealing with an overwhelming reality which only economics as a profession could choose to pretend isn't there. It's called advertising. I like to take it apart and put it back together. Like instant minced onions. These were things you had to be sold out. The advertising industry, marketing industry, creating certain ideas, certain associations and encourage people to consume more. Consumerism is very destructive. Because it promotes ecologically unsustainable lifestyles. But it's also in many ways very harmful for individual consumers themselves because there are many psychological studies that show that people get most happiness and satisfaction in life, not from consuming more and more and more, but from the quality of their human relations. The mainstream model of markets assumes you have money, assumes you always want more stuff and that stuff is all you want. The law of supply and demand. The economy isn't for labor since labor is just another commodity within it. In 2005 I interviewed the author of the textbooks we used in these courses. These textbooks are amongst the industry standards selling millions of copies and dozens of languages around the world. The weight the supply curve and the demand curve down. You see raising the wage above the equilibrium level causes unemployment. To see how this works, let's look at the labor market for unskilled workers in a large city. As usual, equilibrium occurs at the point where the demand and supply curves intersect. In this case, that equilibrium involves a wage of $5 an hour. Many people may regard this wage as being too low and so governments pass minimum wage laws that mandate a wage higher than the equilibrium level. And suppose a minimum wage of $6 is set. 8,000 unskilled individuals would like to work. But only 6,000 jobs are available. There is a surplus of 2,000 workers. Because the minimum wage law prevents the wage from falling, this surplus will persist. Whenever governments interfere with the operation of a market, they guarantee that the quantity supplied will not equal the quantity demanded. There's a serious problem in all this in that notion of how the market is working. There's no indication that that wage level is going to be at a wage that people can survive on. The other thing that has to be said, when you raise the minimum wage, basically the effect will be to redistribute income in favor of low-paid workers. And low-paid workers with low income will spend much more of their money than the business owner, for example. So this kind of redistribution will actually increase the total demand for goods in the economy. And this may actually increase the employer's demand for workers, therefore shifting out the demand curve for labor. Or you loan people the money to buy the stuff which they can't buy because their wages are insufficient. So kind of ironically, what you're probably doing is loaning them back the money you didn't pay them in wages which you took as profit. So their loss is compounded and over time the inequality spreads. Why someone that works in Walmart makes something like the minimum wage or maybe a little better and someone who owns Walmart makes so much. In the early 70s, someone who made the minimum wage had much higher standards of living than someone who makes it now. I think that's an important topic. The question of why is that the wage gap between skilled and un-skilled workers has grown over time. Why someone that works in Walmart makes something like the minimum wage or someone who owns Walmart makes so much. I think that's an important topic. The question of why is that the wage gap between skilled and un-skilled workers has grown over time. Most people think it's really driven by the changes in technology that have made the productivity of skilled workers higher relative to the productivity of un-skilled workers. If you want to understand what happened to wages, you have to look at political decisions not to raise the minimum wage, mainly in the 80s, that the minimum wage has not been ratcheted up. And when the minimum wage doesn't rise, people above that, you know, folks making a dollar over, they find it hard to raise their wages too. And the decline in unionization, which has been dramatic since the early 80s. I mean, of course, if workers have less bargaining power, wages are going to fall. And the other issue is trade and immigration. We had the continuing flow of immigrants coming out of a third world that was being decimated in those years by poverty and economic difficulty and who looked for a better life. And trade laws and the threat of losing your job because of trade. Trade can make everyone better off. That is one of the ten principles introduced in chapter one. The theory of trade is just the theory of the social division of labor taken to a world level. In other words, Adam Smith, right at the beginning of the Wealth of Nations, said the division of labor is so wonderful because we all do the things that we're best at doing and trade with each other. The division of labor gets deeper as you extend the market. As the market gets bigger, you can have a more and more refined social division of labor and that's what produces the wealth of the nation and therefore the wealth of the world. If this is so, you might ask, why then do we find so much opposition to trade and globalization? How are the rewards from trade distributed? The standard argument is that there are gains and losses from trade. Some people lose. But trade is good because even if the winners compensated the losers, there would be something left over. There would be a net gain with trade as opposed to no trade. The problem is we rarely compensate the losers. Which in the United States, it's manufacturing labor that's primarily been impacted by the opening up of trade in manufacturing with the poorer countries. These are the people that are being hurt. The people that are being helped are not only owners of capital here but owners of capital in the low-wage countries. Historically, the English, the Americans, the Germans developed behind a wall of protection. In other words, we did not have free trade during our period of industrialization. The World Bank's criteria, poverty is less than because people make more wage income but it's just incredible pollution in the countryside through industrialization. So what does it matter if your wages are higher but you can't drink the water? Trade can make everyone better off. The story is Sam Walton, I don't know, he's apocryphal, no doubt. He wants to pay his workers so little that they have to shop at Walmart. Look, everybody wants to pay the least amount for what they get. Whether you're buying labor or buying a hamburger or buying anything. The efficiency in a system like that is that everybody has to be voluntarily engaged in trading something for something. In other words, there shouldn't be a gun at their back. See, you have to give your services or we're going to shoot you or we're going to make you star. On Monday, 22nd of May, 2006, about 100,000 workers from the Dakar Export Processing Zone and surrounding areas protested for higher wages a mandatory day off on Fridays. Regular payments and extra pay for overtime. In terms of current pay, for example, a finished sweater is about 11 cents. The workers demand 16. The inequalities do lack of skill. The lack of skill has a variety of pathologies that generate it. That's where I think, that's to me, that's the button to push. Try to change those pathologies. Poverty wages are caused by individuals' pathologies. Isn't there going to be somebody who works at the cash register at McDonald's? Sure, why not? Why would you want to get rid of that job? I wanted to pay more. Why? For example, I buy my lunch either at the University cafeteria or on Thayer Street. So I'd have to go and ask them what are they getting before I decided where to eat. Do you do that when you go out to dinner? No, that's why I think that... But do you want to do it? No, I want there to be more... You want government to do it? No, I want unions to do it. Unions to do it? Yeah, I want unions to be able to negotiate with their employers what's the fair wage considering the profit of the company. What do you want me to say? I think it's bizarre. It's bizarre, absolutely bizarre. Who owns enterprise? Is it employee owned, co-operatively owned? I get to buy the sweater for a lot less than if it was made in the United States by a unionized worker. Well, I'm not sure. The ILGWU would tell you that the $20 sweater might have cost $23 if it was made in the United States. All the studies say that the $20 sweater would cost at the most $21 for somebody to have made it with a living wage in Mexico. So how many sweaters do each of us need? And I encourage you all to go shopping more. Economists believe that self-interest can be an effective way of organizing a society. If you ask a lot of people, what do you think would happen if everyone believed selfishly? If everyone acts selfishly in society? The result you get from most people, the answer you get is, well, that would be chaotic. If everyone was selfish all the time, it would just be crazy. But, you know, if you look around at the world around you, many market exchanges rely on self-interest. Adam Smith, that idea that when you're looking out for your own self-interest, it's almost as if there's an invisible hand guiding you to perform in a way which will benefit society as a whole. Economic expansion of economics is defined about individual rational autonomous agents making choices. It's leaving out people's ethical dimensions, people's social dimensions, interdependencies, and dependency. There's no elderly people, sick people, children in the models of freely choosing adults. Laborers don't just pop up 18 years old ready to work, and that was built around denying the interconnected. Their wage is what people only accept as far as I'm concerned. As a human being, I can be very selfish or I can be very generous. Through political decisions, you don't allow any kind of labor, as a minimum wage, to start working. You don't allow any kind of wage, as a minimum wage. You don't allow any kind of working conditions. There are regulations. Yes, because we want to protect our fellow citizens, ourselves, from our selfish behavior, because we know that our selfish behavior exists. But this is precisely the reason why we have institutions like the state. Capitalists never accepted the New Deal, for the most part, in the United States. If you've got the economy inside of society, and then all societies inside of a physical environment. Every market has rules. What are the rules going to be, and who's going to make them? Market economy is a situation where there is no government interference. Here's a discussion that always just states against markets. You start off the market, and you don't know where markets come from, and you're hucked under the organized, and people don't steal one another. That's for granted. After that, you know, comes to states. And actually, the thing is that this is kind of both logically and historically wrong. The free market is a situation where there is no government interference. There's no regulating the labor market on behalf of workers, meaning increasing minimum wages, meaning labor unions that establish some basic decent floors for wages. It's not a free market. You only get up the wage of unskilled workers if you hire them. It's not a free market model. It never was. We got a dramatic proof of that. And of course, big banks got bailed out in the most massive bailout, maybe in the history of capitalism. There's on behalf of workers. For example, the dynamics of the apparel industry are best understood in my view by visualizing a pyramid. At the top of this pyramid in the United States are a handful of very well-known brands and retailers. The next layer of the pyramid are all of the less well-known brands and smaller brands that sell to these retailers. Another step down the pyramid are hundreds of thousands of factories around the world that actually produce the clothing. Because the labels, the brands buying the clothing, don't own these individual factories in which they're buying, they have the opportunity whenever they wish to switch from one factory to another. And this creates an intense competition for business. This places those companies at the top of the pyramid in a position of extraordinary power to dictate the price they are willing to pay for the clothing they're buying and the time frame in which it can be produced and that it is the brands and the retailers who define the terms of trade, define the conditions of production. The market is interacting between buyers and sellers. Sellers are represented by supply. Buyers are represented by demand. In society, there are relationships of power. The profits, they're nowhere in the picture. To talk about why people get paid when they get paid, I think you need an historical story. We never talk about power. You know what I mean? Oh yeah, different course. First, imagine a world without politics. Relationships of power. Then, construct your economic model. If you have money, the market is your servant. And if you don't, it's your master. Mark says, you're supplying to me as more or less correct. It's just a trivial statement. Of course the price is different. What do you think? Let's talk about how a system is reproduced that enables people who do nothing socially useful really to earn billions of dollars. That's a more interesting discussion, don't you think? Yeah, yeah. Markets. The emphasis is on exchange value. Water has a use value. Air has a use value. Food has a use value. You're wealthier if these things are available in abundance. But in the capitalist economy, the emphasis is on exchange values. And exchange value becomes possible as goods become scarce. Private riches expand through the destruction of public wealth. To the extent that something that was freely available before is somehow made scarce, then a price can be put on it. Human beings would become poorer as measured riches increased because we only measure wealth or riches based on price. And a price exists only to the extent that something is scarce. Now we'll see model portray profits as costs. Profits don't get figured into the calculation of how many people had to hire at what wage and the textbooks are in discussion. Well, profits are part of the firm's decision. We start off when we analyze something like the minimum wage, look at supply and demand for labor. When you actually look at where the demand for labor comes from, we look at firm's decisions. Firm's decisions come from a profit maximization problem. You start off with supply and demand. For the moment you're suppressing the decisions that lie behind the demand curve. Then later in the course you sort of say where that demand for labor comes from. The demand for labor comes from a firm deciding how many workers to hire, from profit maximization decision. So in the complete model of the economy, you have profits playing a central role, which is that firms are profit maximizing, that's what they're set up to do. Well, that's the other thing. I didn't understand how then these profit maximizing firms always come down to zero profits when in the world they're making profits. Oh, should we read the distinction of accounting profits and economic profits? There's a whole section on that which is, I think, very important. But competitive market, free entry, tends to drive profits down because of course it needs to competition. That doesn't mean that accounting profits, that account will be driven to zero. It means that economic profits as an economist measure it will be driven toward zero. Profit maximization problem. Economic profits as an economist measure it will be driven toward zero. This next part will seem unreal and you're right, but I hope you can follow along with me. You know, competitive market, competition, drive, profits down. There are many firms, thousands of firms, and each firm acts as a price taker. The professor gets the price and the quantity from the point where the supply and demand model lines intersect. A good example is farming. No one farmer has control of the price. That's determined in the markets. It seems big corporations are creating monopoly though, aren't they? Well, it's an interesting question, how much monopoly power is in the US. That's a very interesting question. And I think what's probably true is that the amount of monopoly is far less today than it was true, say, 50 years ago. If you imagine an hourglass at the top there are the millions of farmers who grow our food and then at the bottom there are the billions of us who buy that food every day. But in the middle there are just a handful of corporations that control the truck and bar to particularly international sale of food from farm to fork. We have tremendous open markets and international trade has been a source of competitive pressures. For the global market in tea, one company, Unilever, controls 90% of the global market. I just added the total cost curve. Shape like a U to represent spreading out the cost of producing, say, shoes. It costs a lot to build the factory to produce the first pair of shoes, but the average cost of each additional pair of shoes goes down as you spread the cost over a lot of pairs of shoes until you hire too many workers, let's say, who are now too crowded around the machines. So now the cost of each additional pair of shoes starts to go back up again. Look at the price line. That's how much revenue they're making per unit. How much does it cost them per unit? Well, that's the average cost. Yeah, it's a per unit profit. How much is the area that rectangles the total profit? Profits induce entries. When other firms enter, the supply... For example, shoes goes up. And the price of shoes would go down, down, down, down, down. Shoes get cheaper. The dynamics of the apparel industry. Profits at factories get competed down, put profits to a few retailers, go way up. The model focuses on the many factories and ignores the few market controlling big retailers. By eliminated, he means they've been reduced to what they call the opportunity cost of capital, which I hope to explain next. I mean, my economic profits is revenue minus cost because they're all inclusive, including the opportunity cost of capital. Payments to capital. The opportunity cost of capital is included as a cost. The idea being that the minimum that your investment must do is pay you back the money you would have made should you have made a safer investment. You know, in the classic easy case, you know, if you have bought your US government treasury or a very basic safe bond, that too, it must pay you back so that if the treasury right now is earning about three and three-quarters percent, then the first three and three-quarters percent or so of your profit doesn't, in effect, count because you could have done something risk-free and still gotten that 3.75 percent. You're just earning the opportunity cost of capital, which means that if you had put your money in the bank, then you'd be guaranteed that rate of return. Now, notice the sleight of hand there. Back before regulations, banks failed very regularly. So you couldn't even be sure what the rate of interest was. Putting her money in a safe place where each deposit is insured. The economist's model will subtract the thing that you could have done that was risk-free from the profit that you got. What they want to say is then... At three and three-quarters percent or so of your profit doesn't, in effect, count. They want to say it doesn't count. Instead of saying you get... Three and three-quarters percent. So they want to call that zero. And by doing that, they get the government out of the model. The idea is that all the firm's profits will get competed down to the lowest return on investment. Why would you go to all the trouble of building a shoe factory and marshaling all those resources to build a shoe factory? And imagine all the headaches involved in building a shoe factory. Sounds like a royal pain in the neck to me. In order to get the same return you could have gotten if you had just stuck your money in a risk-free account somewhere. Why would anybody do this? It is an absurdity on the face of it. Economic profits, as economists measure it, will be driven toward zero. Economists getting to zero would include the pay to management and... Oh, that's right. Economic profits is revenue minus costs, but costs are all-inclusive including the opportunity cost of capital and the manager's time and so on. Also all-inclusive including manager's time. Payments to managers aren't separated from payments to workers in the model. In 1960, CEO pay is 40 times the average worker's pay. In 2000, CEO pay is 400 times the average worker's pay. So the opportunity cost of the CEO is now 400 times the average worker's opportunity. Extreme economics taught the capitalist market system as the best of all possible systems according to the textbooks, but there was a big but. Capitalism has no mechanism to avoid severe recessions or depressions. Markets may be efficient according to this view, but they have many problems. These problems required some outside actor to remedy it. Progressive income taxation to reduce the degree of inequalities. Strong trade unions to reduce the degree of inequality. Government action to prevent environmental destruction. Problem also of the tendency of monopoly to develop, which would require government antitrust policy. Well, in the 1970s, the economics orthodoxy changed extremely rapidly. There's no need for the government to try and prevent monopoly. Competition is the normal rule in a free market economy. It became the newly-done idea. In any competitive market, some people are going to win, some people are going to lose. What generally happens is the winners eat the losers. The public, when they look around them, what do they see? A whole collection of visible hands attached to Exxon, other large corporations. It's obvious. These are not small, independent competitors jostling with each other for the patronage of the public. These are large organizations with substantial influence on their markets. The choice of language. Perfect competition. Perfect. This explanation leaves out monopolies, speculation, market-rigging, price-fixing. In product markets, you can see this process which innovation leads to fresh competition, new entrants. It's very difficult to be a stable monopolist. When you're talking about the accumulation of financial wealth, though, it just seems to keep piling up. Right now, as we're talking, corporate America has about a trillion dollars in cash that doesn't know what to do with. Dry profits down. Profits is the opportunity cost of capital. CEOs are the cost. That doesn't mean that accounting profits, that accounting measure would be driven to zero. It means that economic profits, as economists measure it, would be driven toward zero. Right. But it then sort of makes the issue of profits more difficult to tease out or be something that's discussed. Do you follow me? No. For example, Walmart compensation story. The CEO, Mike Duke-Stock Awards, wore worth $24.6 million, not $2 million, making his total compensation for 2008 worth $29.07 million. Correction. It's at a cost. Right. I guess it just seems as though it's a problem that the owners make so much and that there's no way to... It's a problem. When you say it is a problem, you've gone past the science. You've said, I have values judgments that I'm going to impose. Economist's first job is to say, let's understand this phenomenon. Let's step back and let's not talk about good or bad, problem not problem. Why is this happening? What's the right theory to explain this? What's the right model to explain this? How can you explain the data we observe? Don't impose values on it. Let's just look at the facts. In terms of current pay, a finished sweater is about 11 cents. The workers demand 16. The mainstream theory is kind of incredible when competition is perfect, there's no profits. So the mainstream theory is not a theory of capitalism, at all. It was part of the alternative that was crafted to argue against the notion that capitalism exploits people. You will look in vain in the standard of economics or a discussion of Marx. You won't find Marx directly addressed, but he's a ghost of sort of poverty. Economics professor Stephen Marglin teaches an alternative and critical introductory economics course at Harvard, but it is an elective for economics majors and doesn't fulfill the introductory economics course requirement. The idea that, on average, that in general, workers don't get as much as they produce just can be discussed in most economics departments. The return to capital interest profits as being a reward for patients that are invited and saving. Somebody's willing to forego consumption today in order to save and invest for the future and also reward for risk-taking. Patience seems that I've got money and I'm waiting for it to make more money. So there is no exploitation, there's no injustice. There's no predictive value in the Marxist theory for my wage. I don't work with any machinery. Right? That idea, though, too, how we make our income is social versus individual. I'm not sure what that means. Well, the reason I make the money that I do is not because of the one thing I do but because I have a road to get there and a school to teach in. The whole interconnection is the subject of what economists call general equilibrium theory, which is the idea being that there's not just one market in the economy. There's many, many markets in the economy. It affects all the other markets in the economy. And what prices and wages are doing is sort of moving to a cruel right all these markets simultaneously. So what general equilibrium theory tries to do is try to figure out all those interconnections. New classical economics, basically the model doesn't have profits as its central feature even though that's the goal of all business. It's not really part of the model. I know this is hard to believe. Basically, we all felt the whole point on the classical comics and all the graphs, the math and all that is not allow the masses of people to understand it. That's their key point. Not allow us to understand it. And once we do not understand it, we just let it go. It's like, okay, there are some people out there economists who know better and they will take care of everything. First, you learn about the efficiency of markets. McDonald's and Walmart are very efficient operations. And it's that efficiency that is the driver force between world-rising living standards. And then, as a footnote, you learn, well, sometimes this is not the case underlying this concept of efficiency there are no what are known as externalities. When your activity imposes costs on others, the very term externality is misleading. It suggests these are somehow marginal. They are the exception. If you can make money by imposing externalities on others, then why wouldn't you do so? They're not a marginal phenomenon. They are political successes of the economically powerful groups within capitalist society. The wealth inequality in capitalist society translates into political inequality which translates to externalities. And that was just built around denying the interconnected. Macroeconomics looks at the entire economy. Macroeconomics is about employment interest and the value of money. Classical economics feels like a style of economics. It really has a difference between tomatoes and workers. In 1929, the depression starts. The economic solution to the high unemployment during the depression is weight. It will go away. In 1936 Don Maynard Keynes argued that the labor market is not the same as the tomato market. Keynes taught what the government should do in a later recession. Is to spend money on what? Doesn't matter. Keynes actually argued for targeted spending. What should you target on? Well, you target on the unemployed. You give the unemployed jobs. Construction work on water conservation project requires an immense number of skilled and unskilled workers providing immediate employment for hundreds of those who would otherwise be on relief. Don Maynard Keynes argued you can't just take single markets and end up until you get the whole economy. If you're going to look at the economy as a whole you need a different model. You just happen to have one. In that clip you say that Keynes had a different model. What is that model? We use aggregate demand and aggregate supply but it's still that economic X. It's just a very simple two lines they cross. Macroeconomics really came into economics as a critique of economics. And that the critique has been kind of co-opted. If people need jobs, what do you do? You don't give them jobs. President Kennedy's Secretary of Labor Arthur Goldberg has stated we must create 13 million new jobs in the next 10 years. This is where advertising comes in. You don't want a general increase in demand. You want targeted increases of demand. All spending carries an inflation risk. It's not just government spending as I can private consumption and investment spending. You can use taxes to fight inflation. So the mistake that was made in the 60s by the so-called Keynesians who thought they were following Keynes toward this argument of Keynes. Well, look at what's happening in the 1970s. We have high unemployment and high inflation. Orthodox economists actually said the best that we could do is use the government to control inflation and let unemployment go wherever it's going to go. And that was really the beginning of neoliberalism. Unemployment is always concentrated among the least advantaged people in society. Employment. Everybody who's listening, I want to be absolutely clear. I believe in the market. I think that's the way we generate jobs. I have absolutely no interest in having the government maintaining the levels of intervention that we have right now in the financial market. You're working your asses off, alright? Call companies like to do mountain top removal because they can get more call quicker, cheaper with less people. The private sector is a for-profit sector. It creates jobs only so as to generate profit. They're not in the job supply business. They are in the for-profit business. Employment and the value of money. The way to keep your currency strong is to have a strong economy. How do you have a strong economy? By getting everybody to work. On Conservation Project All money is debt. It's the debt of the issuer. If you issue your own currency you spend it into existence. You also could lend it into existence. But you can't run out of it. The Government Accountability Office revealed the Fed provided more than $16 trillion in secret loans. When the government gives money to Wall Street the increase in money will be created at interest. Meaning it will become someone else's debt. For example the banks can borrow from the Fed a quarter percent make student loans at nine percent that the government guarantees. Do you believe the personal retirement accounts can help us achieve solvency for the system and make those future retiree benefits more secure? I wouldn't say that the days you go benefits are insecure. There's nothing to prevent the Federal Government from creating as much money as it wants and paying it to somebody. The question is how do you set up a system which assures that the real assets are created which those benefits are employed to purchase a system your life were. At compound interest every rate is a doubling time 5% rate of interest doubles in about 14 years this simply can't continue for long Mark's pointed out All money is debt it's the debt of the issuer. Who owns the power to create money? Today we give it away to commercial banks 80% of bank loans are for mortgages. Who owns the land and the housing? Your life were. Most people pay more money in interest to buy a house than the seller actually gets as the purchase price of the house. More money will be paid to the banks to turn into larger loans. That interest you should pay that to the community because it's a community that gives the value. The value of a house of real estate going up is the value of the public investment roads and water systems better environmental protection investment in the planet and people People don't understand or they misunderstand they think finance is a scarce resource the problem is finding good borrowers Wages are flat What makes bank debt valuable is the borrowers ability to repay it. An absurd human convention i.e. compound interest What makes government debt valuable is the productivity of the nation and its power in relation to other nations. Most countries don't spend their money on importing goods and services they spend it on paying debt. The detonation credits is clothing to export to the US to get dollars to repay the loan plus interest compound interest they have to be able to keep exchanging whatever they're making at a rate that's faster than the growth of their debt. For every dollar third world countries receive an aid. Aid is almost entirely loans. They repay a dollar and a third so even though we import more than we export the value of the dollar doesn't go down as so many countries owe so many dollars. All of the basic natural monopolies that were public enterprise in Europe and still are in Scandinavia and other countries there's no way this infrastructure can be built up without the government doing it. They made America a developed nation. There's nothing to prevent the federal government from creating as much money as it wants. Secondly, be regenerative by design allowing nature to regenerate biological material but also man-made materials their food for the next process. Economists in terms of thinking about distribution of income are driven to thinking about the distribution of productivity. Individuals and also the factors between capital and labor are all the importance of capital and labor in production. Okay. Distribution of income in the distribution of productivity. What does? The oil industry and the banks have gone together. Their idea of development is to make the hole in the ground. They're extractive. In the textbooks it's as if we lived on Mars in an economy where everybody earned money by being productive. How much income really is unearned income? It has nothing to do with labor, nothing to do with enterprise. But owning land, owning mineral rights or oil rights or a monopoly or the largest privilege given by the government is the banking privilege, the right to create credit. Capital in the financial sense becomes debt. No person could amass the physical requirements sufficient for maintenance during his old age because like man it would rot. It would spore. So we have to do an in-run around that by giving our surplus now to someone to invest and then we get in exchange for that the future revenue of the economy which presumably has been enhanced by this investment. Tropical deforestation accounts for an astounding 20% of worldwide greenhouse gas emissions. That's more than all of the aeroplanes, cars and trains put together. And this is a blowout quarter for Caterpillar but you and I were speaking earlier and you said as usual it's not so much about the quarter that's passed it's about what's coming. They have a goal that they have reiterated time and time again of achieving 55 to 60 billion dollars in revenue by 2012. I was sent in Brazil about three weeks ago and demand for Caterpillar's equipment is up 75%. I wouldn't see your retirement account as your politics. I would see your retirement account honestly if you want to do things that are progressive you should make as much money in the account as you possibly can through aggressively managing it for maximum risk-adjusted gain like anyone else and just use the money you make from it to support things like your film projects. All we would need is a more generous social security system a larger one but we wouldn't need all these private pension funds. What is scarce is not money which is debt but the natural world and our ability to do work. Economists claim that all the costs are included in their cost curves but they don't count the gifts of mother nature. The way we deal with nature is more like super-exploitation it's outright robbery you're not providing the basis for the reproduction the sustainability of nature. Neoclassical economists that would seem sometimes at least do not believe in material causation because their production functions K and L, capital and labor They're all the importance of capital labor and production. Well, where's resources? It's not in there. Capital and labor. Capital is generally thought of as produced means of production the gifts of nature are not. The recipe which tells you that you can get a cake from the inputs of a cook and her kitchen and there's no no ingredients are needed. Capital it's not something you can just walk outside and grab. So fish in the ocean. Fish in the ocean are not capital. Oh yes, when extracted they're valued by the marginal cost of capital and labor needed to extract them. Nature is a free good. While Capital in the financial sense not only has value but its value increases exponentially. What is scarcity? People think finance is a scarce resource. Scarcity means that there's not enough of something to satisfy everyone's wants at a zero price. So how do I decide who gets the product? Well, one way is to start charging money. Can you think of any drawbacks? The fact that the wealthy get the goods and services while the poor go without. Not a perfect system but hey, that's capitalism. Anyway, if something is non-scarce, that is there is enough to satisfy everyone's wants. Such a commodity would be known as a free good. Can you think of any free goods? Breathable air maybe? But even this may become scarce at some point. Okay. At the time that you were taking that course. 2004, 2005, yeah. I would argue that yes, we had dampened the business cycle. We couldn't stop it all together. We had hopes that we could stop it all together but there are just too many random shocks. OPEC, things like that are simply not forecastable. So you're saying that it isn't internal in the market economy the instability? No, I think that the private market is still stable but it's going to oscillate. In the textbook there isn't an explanation of how crises happened. Equilibrium gives you this. Equilibrium is a very long run concept. So you're saying that the market isn't going to clear because wages are sticky? Yeah. That was one of the things they simply do not fall. Okay. So but if they did fall you would get rid of them. The unemployment would go away. Do you think that's accurate? Yes, I do. Or? Employment's now zero and nobody's earning much more than a dollar a day. That's an extreme. But it's an equilibrium. Nobody's earning much more than a dollar a day. Remember I told you never criticize a model for being unrealistic. In the textbook then in the classes there isn't any concentration or accumulation. The mainstream theory is not a theory of capitalism at all. What I see as class differences are just not in the economics textbooks. Most people have to live off selling labor. How much income is unearned income? I don't know. I'm not sure of that. I mean I think the basic model in all the economics textbooks today is supply and demand and wages and prices moving to equilibrate supply and demand. That's been true for many, many years and it's true in all textbooks. I mean not just mine. Forget the old Newtonian supply and demand because it's not like gravity. It's the wrong kind of science, the wrong kind of physics. Anything in life that spirals up, up, up or spirals down, down, down is dominated by reinforcing feedback. And the essence of that is that the more you have the more you get. I would eliminate the minimum wage. Now see I don't actually sometimes you think of capital income as unearned income. It's often referred to as unearned income. I hate that phrase. Capital income is the return to patience. Patience and 42. Patience and 42. Patience and 42. And things will come your way. A lot of you students are here probably going to go to Wall Street. Some of the smartest students in the world. Does it make sense for you to go to Wall Street? It probably does because you're going to be deciding the future of the U.S. economy. You may be doing it just to get rich. But that's the magic of the invisible hand. Away with that problem. Try hidden magic. It's the perfect solution. Find it hard to take the models that are recited in the textbook and apply them to more journalistic writing. Books like Robert Aaron writes. I think economists are often frustrated by journalistic representations because they seem impressionistic and lacking in rigor. The reason economists tend to move towards math is because math forces one to be rigorous. It's much easier to be illogical with words than it is to be illogical with equations and graphs. That's the main reason why the economics profession has over time. And this is really a 20th century phenomenon. It has during the 20th century moved toward greater use of mathematics and expressing its ideas. The world's five richest people own the same wealth as the 3.5 billion poorest people. The richest 1% will own more than the rest by 2016. As a new study finds the world's eight richest men control as much wealth as the poorest half of humanity. These are the results and actually they should have been the predicted results of relying more on markets because wealth and income don't trickle down. Wealth is more like cream. If you have a theory in which collapse is impossible then you can't talk about collapse. Questions so fundamental that they never actually explicitly get asked what the economy is and what it's for. Economics means the art of household management. We have to take economics out of the equations, out of the ivory towers, make economists of us all. If we have different goals of enjoying work and having everyone share in the abundance of natural resources and products, human products then we have a different measure of efficiency.