Welcome friends to an edition of
Economic Update a weekly program devoted
to the economic dimensions of our lives,
jobs, incomes, debts, those coming down the
road for us, and those facing our
children in the years ahead.
I'm your host Richard Wolff. I've been a
Professor of Economics all my adult life
and that in a way has prepared me to
present this last week's economic
highlights. For your interest I'm gonna
begin with what's been on everyone's
mind who watches the media or listens to
them namely these enormous storms first
in Texas and in Florida with more
apparently churning their way up from
the Caribbean and threatening to bother
us yet again in serious ways I'm not
going to talk about the natural
dimensions of it you've heard that story
I'm not going to talk about the heroic
efforts to rescue people which are
indeed stimulating and provocative in
the best sense I want to talk about what
the media generally doesn't talk about
which is the relationship between our
economic system capitalism and these
storms and what they mean. So I'll start
with a few dimensions and then build up
to what I think is the big question
first a few dimensions one of the things
that got a lot of play and I'm glad it
did was what we call an economics price
gouging the two biggest examples were
when Delta Airlines jacked up the price
of a flight out of one of these areas
from $400 in something to $3,000 and
something simply taking advantage of the
desperate need for people to get out of
the way of a desperate storm there was
another picture that flashed across the
media of a Best Buy store where a case
of bottled water was being sold in
excess of $40 in other words sellers of
commodities were taking advantage of a
natural disaster so it was called to
really squeeze people at a moment when
they had no choice when they were
desperate it's an example of how markets
work
kids are a part of our system and
markets as you all know depend on the
laws of supply and demand and if the
demand becomes desperate for people
literally trying to save their lives
well then you can charge quote what the
market will bear and that's what they
did
big-time all over the place not just
those that were recorded by the media
but thousands of examples that were not
or not least not in a general way what
is this about well you do have and I'm
apologized for my fellow economists
since many of them do this you do have
those who believe that profit is holy or
at least as holy as anything can be
and that therefore profit can never be
questioned so since the people who gouge
in moments of crisis make more profits
by jacking up their prices well then
that must be reasonable and indeed my
fellow economists more than then I would
like to admit have been busy in recent
days justifying this unbelievable
behavior but I'm also proud of the
American people at least in the sense
that the bulk of the comments that I
could see did notice that if you jack up
the prices if that's how the market
works in a time of crisis making it more
difficult for all of the people
suffering to cope with a crisis
situation in order to benefit the
profits of a relative view that that
might not just be the best way to manage
an economic crisis or a natural disaster
and maybe that suggests that the market
and the system of profit driven
decisions in business isn't the best way
to go maybe not just in emergencies but
more generally then I noticed another
aspect from the capitalist system some
years ago when big profitable insurance
companies noticed that storms kept
coming particularly to Florida they
withdrew from the state this is another
aspect of the capitalist system if you
can't make profit don't do it
then opens the question what happens to
the people who need whatever it is you
do that you're not doing anymore
in the way of Allstate and other big
insurance companies that withdrew well
lots of little companies came in to
catch hold of the profits that could be
made there it is the profit system by
setting up small insurance companies to
fill the vacuum left when the more
profitable big ones withdrew then the
problem is an insurance company is only
as good as the money it has to make good
on the claims of the policyholders and
if the insurance company is small it may
not have oh you can see where this story
is going can't you well you're right
that's where it's going
the little insurance companies that now
do the bulk of the business in Florida
don't have enough money to cover their
claims not themselves and not in the
reinsurance a--'s that they themselves
take out to cover the situation so the
fear growing in Florida now is that the
government will in the end have to
backstop because that's how a capitalist
system solves the difficulties of
private profit by fixing it with public
money that looks like what it's going to
happen either the taxpayers of Florida
will have to kick it in or or the people
making claims won't get what they
thought they could get when they bought
the insurance policy what a way to
handle natural emergencies but these are
the little stories I want to get to the
big one and this is actually more
applicable to the Texas situation than
to Florida because of the way the storm
evolved the amazing thing about the
harvey storm in Texas was the absence of
preparation the governor of the state of
Texas goes on the television during the
crisis to answer reporters questions why
did you not order an evacuation of all
of the
areas lying in the path of this horrible
storm so they would get out of there and
not be threatened in their lives and in
their their homes and his answer was to
scoff at the reporter and say you don't
seem to understand if I said evacuate
the highway would immediately be filled
with millions of cars who would they be
unable to move well this is a none too
subtle way of saying I can't handle it
we're not prepared I learned later that
the ground in Texas around the area that
was hit is spongy it absorbs a certain
amount of water and then it can't
anymore in other words you have to
prepare and now let's look at the
economics of preparing who's gonna do
that the developer eager to build tracks
of homes eager to build shopping and
industrial malls eager to build roads if
you're a construction company they'll
want to hear about all the difficulties
they want to get the contract build a
house build the people who buy the house
and leave the long-term effects are not
part of their profit calculation because
they'll be out of there
once the development is undertaken gee
they might then push against the
government holding up the project until
they can decide what's safe the
government mandating walls and barriers
to protect the government deciding to
move a production a site from one
location to another to be less risky and
that would give the government power and
private capitalism like to do that
unless the government is helping them
and these things don't seem to help them
we have a system that systematically
under prepares that's true in Texas and
that's true in Florida because it's not
privately profitable no one is doing it
and the government demonized by the very
private profit mechanisms and
institutions of our culture the
government is unable to raise the money
to do these things
constantly portrayed as wasting money as
if intrinsically it was less efficient
to do something in the government than
it was to do it in the private sector
and let me be an economist for a moment
there's absolutely no evidence for this
there are as many examples of
inefficient private production as there
are of inefficient government production
and the same is true of efficiency
besides which how efficient is it to now
have hundreds of billions of dollars if
you combine Texas Florida and who knows
how many others coming down the pike how
efficient is it not to take the
protective measures that could have and
that should have been taken one final
word here there is a society near where
the storms hit it's different that gives
the government an enormous role we're
used to making fun of that society it's
called Cuba so I want to read you from
the New York Times on the 10th of
September the following story and I'm
quoting from the New York Times on that
day quote while the Cuban response to
the storm seemed to be a well-oiled
machine elsewhere in the Caribbean the
government reaction has been halting
this is the New York Times language for
saying the Cubans have a well-oiled
system of preventing and protecting
their because they're not driven by
private profit the way we are there's a
lesson here but of course like all
lessons if you're not open to learning
the lesson well then you won't - tech
anomic update has to do with something I
have come back to over and over again
but I have to because it's an ongoing
crisis that's economic as much as
anything else it's the drug crisis or
more precisely the epidemic of overdoses
from opiates and opioids in this country
now running at the rate of 50 to 60
thousand deaths from overdose per year
in the United States these are numbers
that are staggering I'm gonna explain in
a few minutes how different they are
from country to country depending on how
the economy deals with this awful
situation but just to give you an idea
and then whet your appetite I'm gonna
tell you a little bit later about
another country Portugal
not that far away which handles its drug
problems differently deaths per million
can be measured and have been measured
in the United States and in Portugal in
the United States deaths per million
about a hundred and eighty five overdose
deaths per million of American citizens
185 per million over these last two or
three years dying in Portugal how many
per million three not three hundred not
thirty three how is it possible that in
our country a hundred and eighty five
per million kill themselves by overdose
and in Portugal which once had a very
severe drug problem has reduced it to
three well I will come back and I will
tell you but first let's talk about the
economics of the drug business here are
some of the businesses involved in drugs
in the whole drug epidemic and so on
first there are all the businesses that
produce the drugs that transport the
drugs and that distribute the drugs many
of them are legal businesses many of
them are illegal businesses but in terms
of the drug epidemic it really doesn't
matter because they are a big business
employing thousands of people earning
millions if not billions of dollars
producing transporting and distributing
them and there's a second group of
businesses those involved in the medical
care and the medicines for people
already addicted because the number of
addicted is of course much larger than
the number that are dying from overdose
of those drugs then there is the
enormous cost of the criminalization of
drugs the enormous
apparatus of police of prisons someone
once told me that a majority of the
people in prisons directly or indirectly
have something to do with the drug
problem in the United States we know
from statements made by the Haldeman
Ehrlichman combo those that are left
from the Nixon administration that
prosecuting african-americans and young
radicals for drug possession became a
way of decimating that part of the
population denying them the vote because
if you have a felony conviction you
can't vote in many states United States
and so on that but prisons and staffing
prisons and supplying prisons that's
another big business which might be
harmed if you legalized or better yet
solved your drug problem it's a failure
we've had this drug on war on drugs now
for many years it hasn't done very well
according to what I can see the death
rate from overdose being worse now than
it has been in a long time so we're not
succeeding in dealing with it and I
suspect that the economic interests that
have money to be made from this industry
and have been making a lot of money from
it are not a small part of why this war
on drugs
seems to be so on so horrible and
unsuccessful and then the last thing
that just happened this last couple of
weeks the Attorney General in the state
of New Mexico a Hector Balderas filed
suit in court against the opioid
producing pharmaceutical companies for
systematically misinforming and
basically finding ways to sell their
death dealing drugs he specifically
singled out the following and I thought
you'd be interested to know Purdue
Pharma Johnson & Johnson endo health
solutions
tave of pharmaceutical industries an
activist he accused them publicly of
falsely representing and downplaying the
highly addictive nature of the
painkillers to doctors in doing this mr.
Balderas cited documents from the
Centers for Disease Control I won't
repeat those all to you I just want you
to know that New Mexico is now the
eighth state eighth state to have its
Attorney General filed suit against
these or other companies alleging that
they systematically did what made
profits by distributing killer drugs
addictive drugs to people in ways that
directly violate the law that's the
charge that now eight states have
limited now Portugal 2001 Portugal was
suffering from major problem with opiate
type drugs heroin and so on and so they
made a drastic decision they would
legalize drug possession basically no
more punishment you don't go to jail if
you're caught with heroin or a synthetic
version of heroin like fentanyl and so
on
you get a reference to a drug treatment
center and you may get a very small fine
the money accumulated through such small
fines and in other ways is used to
provide a countrywide program of drug
counseling psychotherapy medication and
so on overdose deaths in Portugal are
three per million and in the United
States there are a hundred and eighty
five per million something is working in
one place and something is not working
in another the big drug companies either
didn't bother or weren't able to get the
freedom to function in Portugal that
they have in the United States
and I will keep talking about this
crisis so long as the economics seem to
dominate and keep that industry alive
and growing in terms of its profits and
in terms of the social damage it does I
also came across this last weekend and
presenting to you the findings of a new
study and this new study caught my
attention because of who did it and what
they were studying so let me tell you
first who did this study it was carried
out by the National School of Tropical
Medicine at Baylor College of Medicine
and it was a study conducted in
conjunction with the Alabama Center for
Rural Enterprise AC r-e here's what it
found that a disease associated
throughout the history of Medicine with
poverty has resurfaced in the United
States decades after it was officially
announced to have been eradicated the
disease is called hookworm an intestinal
parasite that thrives this is a quote
from the story in the Guardian on
extreme poverty here's what it found
that in the state of Alabama which is
where this study was conducted there are
all kinds of incidences of hookworm that
we thought we had eradicated to give you
just one example in a survey of people
living in Lowndes County which is a
county in Alabama an area with a long
history of racial discrimination and
inequality thirty-four percent of the
people tested positive for traces of
hookworm a third of the people and the
reason that the number is like that is
because they haven't been looking for
this since they thought it had been
eradicated if you want signs that the so
called
economic recovery from the crash of 2008
has been a very very gated business some
people the rich
and large have recovered and the rest of
us haven't here's another statistic that
drives that point home poverty has
returned of a kind we thought we had
eradicated and with it
come diseases like hookworm the last
economic update for which we will have
time is gonna come in a minute but
before that I want to remind you that we
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be okay the last economic update that we
will have time for today
has to do with the elite universities of
the United States I returned to them
from time to time because of their
remarkable economic situation this is an
economics program as I'm sure you know
because we've discussed it elite
universities and indeed all universities
enjoy in the United States a tax
exemption that is unlike you when they
buy something at the store they don't
pay a sales tax unlike you when they
earn income somehow they don't pay an
income tax neither to the federal nor
the state nor if area in a city which
has an income tax not to that either
they don't pay property taxes they pay
no taxes at all on their educational
property and activities which is mostly
what they do and this raises an
interesting question because they get
all the public services that everybody
else gets if they need the police the
police come if they need the fire
department they they get the fire
department if they want the children of
their employees to get a public
education indeed if they want their
employees to have a public education
they don't have to pay for the police or
the fire of the schools that they
benefit from that's the value to them of
a tax exemption most colleges and
universities got these tax exemptions
long ago in American history when the
communities states or localities decided
that in order to have an educational
institution it being difficult and
expensive to set one up they would make
it easier by foregoing taxes for a while
but in institutions that have been
around as the elite ones have for
hundreds of years they are now very very
wealthy and long ago stopped being
institutions that need a tax exemption
in order to provide the teaching that
helps our society so why do they get it
that's a big question let me explore
that then with you not long ago the New
York Times in fact had an editorial back
in 2015
which had pointed out critically that
Yale University in that year had spent
four hundred and eighty million dollars
in fees to hedge funds to manage their
endowment during the same year that they
paid out four hundred eighty million
dollars to hedge fund managers they
spent one hundred and seventy million
dollars on all tuition and fell to ition
assistance and fellowships for students
let me do that again
they spent way more on fees to manage
their billions in endowment than they
provided in fellowships and in tuition
assistance to all their students
seventy-five percent of the wealth owned
by american institute american
university excuse me seventy five
percent is owned by four percent of the
university's Harvard Yale Princeton you
know who they are so I was touched by
the fact that universities like that are
getting a tax exemption billions that
they would otherwise pay to support
locality states in the federal
government they don't have to pay they
get all the services everybody else does
but they're not required to pay for them
well the initial rationale was they're
helping everybody in the community but
then imagine what you do with the
following statistic which comes from the
equality of opportunity project the
elite universities including Princeton
and Yale I'm quoting from the report
admit more students from the top one
percent of earners in America than from
the bottom sixty percent combined more
students from the one percent richest
then from the bottom 60% but it's the
bottom 60% who suffer the consequences
of the tax exemption because if you have
to provide fire police and education to
the elite universities
they don't pay any taxes to pay for that
then it's you and me who pay for that we
pay the taxes that keep the fire and the
police departments serving Harvard and
Yale and Princeton the 60% suffer the
consequences of the tax exemption but
their kids don't get the goal in the
school it is a bizarre upside-down Robin
Hood in Reverse situation isn't it it's
taking from the middle and the bottom to
service the top and that is the bottom
line of much of today's set of economic
updates there about a system that
doesn't work anymore for the majority of
the people and that has to be confronted
otherwise all of these interconnected
problems will continue to provide raw
material for this program but will not
be overcome so that we can go on to
other and more interesting things thank
you very much for joining me in this
first half-hour of the program and we
will continue after a very short break
you
