Richard D. Wolff in The Sickness is the System exposes the flaws and failures in the capitalist economic system, and argues for workplace democracy, finds Phil Armstrong

Richard D. Wolff is a world-leading socialist economist who has made a major contribution to the economic and political debates of recent years. This latest book represents a valuable addition both to his own impressive work and to the existing literature. Wolff is particularly adept at taking a Marxist perspective on economic events and shedding light upon them, delivering insights that are almost always missed or mischaracterised by mainstream analysis. In this volume, Wolff collects more than fifty short and incisive articles which highlight individual problems and importantly, together form part of a coherent critique of the current state of the capitalist system. The multiple crises of the Covid-19 pandemic, climate change, spiralling global inequality and increasing economic and political instability have clearly shown the ‘sickness is the system’.

The articles are sub-divided into five sections. The first is entitled ‘Capitalism Crashes Again: COVID-19 Was Just a Trigger’. The articles in this part cover a lot of ground but particularly highlight the inefficiencies of capitalism and how it has been unable to cope with the Covid-19 crisis. Wolff explains how the need to prepare for a crisis runs contrary to belief in the efficiency of markets and desire for short-term profits:

‘But capitalism is a system focused on profits – profits for the enterprise and profits as soon as possible for the enterprise. We fetishize profits in a capitalist system, and it is a kind of disease. So, none of this preparation was done because it wasn’t profitable’ (p.16).

In the contributions included in this section, Wolff explains the irrationality of relying on market mechanisms to solve crises. He points to the concept of price gouging (pp.9-10) as an example. Free-market advocates maintain that if scarcity leads to significant price hikes, then this effect will be beneficial as production of the scarce commodity will be encouraged, leading to future equilibrium where supply satisfies demand. They argue against government intervention and consider it as grit in the market machine. Wolff counters by arguing that such a process takes time, something potential consumers may not have, especially in a pandemic, and higher prices mean some individuals are effectively excluded from future consumption. He argues that ‘There’s no morality to this’ and contends, in turn, in favour of relying upon democratic government to ‘distribute scarce things in a way that respects people’s democratic decisions about the communities’ needs for scarce materials’ (p.9).

Capitalism and Covid

The second section, ‘Capitalism versus COVID-19: Failures to Prepare, Contain, or Both’ begins with a brilliantly insightful summary of the nature of the two-party political system in the US. Wolff’s succinct analysis of the modus operandi of the Republicans and Democrats, their approaches to various social and income groups, their contribution to the maintenance of the status quo and the growth of US inequality is compelling. The author follows this piece by considering the ways the left might challenge neoliberalism and counter the attacks upon the working class which have manifested as increasingly precarious employment set against a backdrop of outsourcing and a general reduction in the share of income going to labour as opposed to profits.

He suggests that the Left’s core aim must be the democratisation of enterprises for, although improved welfare, for example, is beneficial, the gains that follow from it are never secure while the surrounding system is capitalistic. I find the two consecutive pieces on unemployment, focusing upon its unnecessary cruelty, to be amongst the most pertinent and heartfelt articles in the book. I agree entirely with Wolff’s contention that unemployment is always a policy choice.

Wolff talks about the need for the government to act as an employer of last resort (ELR) when workers are unable to find jobs. Such an approach has many advantages; it provides income for workers and their families, and protects their skills, social networks and self-esteem from the damage unemployment might bring. Importantly, it puts an effective floor on pay and conditions. As demand expands, if private-sector firms want to attract workers from the employer of last resort pool, they must offer a sufficiently attractive package. We can see that an ELR policy makes firms compete for workers, not the reverse, which I argue to be good thing. Wolff’s analysis adds to the significant and valuable work regarding developing ELR policies (or Job Guarantee schemes) which has been recently produced, notably by Tcherneva (2020).

Capitalism, racism, sexism and democracy

‘Capitalism and Pandemic: Social Illnesses that Affect Us All’, is the title for the third section and, in it, Wolff begins by examining the close relationship between capitalism and racism. He notes how the effects of capitalism’s inherent instability and tendency to generate inequality have tended to fall disproportionately on particular groups; often non-white races have been ‘assigned to play the role of shock-absorbers in and for capitalist business cycles’ (p.81). The burdens of low income and precarious employment have fallen heavily on subgroups of the population, effectively insulating some (white) groups from the detrimental effects of capitalism. This, in turn, allows those who do well out of capitalism to blame those who don’t for the latter’s supposed inadequacies rather than pinpointing the root of the problem in capitalism itself (p.82).

Wolff argues, convincingly, that only an effective partnership between anti-capitalists and anti-racists can provide a means to escape (p.85). He then discusses how capitalism has systemically disadvantaged women. He notes how women, historically, have been excluded even from the limited benefits of capitalism:

‘Exploited by capitalists at work, men could, in turn, exploit their wives at home. It’s women’s subordination inside households that has produced many of the inequalities, discriminations and abuses women are protesting to this day’ (p.87).

Wolff points to way forward, again stressing the need for democratisation both in business and in the home. Only in this way, can the continuation of this exploitation be prevented.

In the fourth section, ‘Capitalism and Reform: Resist, Evade, Weaken, Repeal’, Wolff develops his recurring theme of the lack of democracy in capitalism and focuses on the dictatorial power of capitalist employers that ‘wield enormous power and control that is unaccountable to the social majority around them: their employees and the communities in which they live’ (p.123). Wolff points to capitalists’ power to decide what to produce, the techniques employed, the business location and their ability to draw all the profits generated from the work of their employees. Power is concentrated in few hands with the mass of the workforce unable to exert meaningful influence.

This powerlessness is extended into the political arena, as the wealth of the capitalist class allows them significant influence over political parties and their policies, especially in the US. Big business exerts an overarching influence on governments, first subjugating them and then drawing upon their currency-issuing power. Essentially, the power of capital allows it to capture the state (Mitchell and Fazi 2017). Consistent with his theme, Wolff argues in favour of worker control, such as the worker cooperatives which can be found in Europe. However, he is critical of a US system where ‘government has provided a vast array of services, tax advantages, and subsidies to capitalist businesses with nothing remotely comparable for worker co-op business’ (p.126).

The minimum wage

In ‘System Change is Underway: Which Side are You On?’, the fifth and final section, Wolff takes issue with the conduct of the debate surrounding the minimum wage. He notes the usual criticism that raising minimum wages will ‘price workers out of jobs’, all else remaining equal. However, as Wolff argues, raising minimum wages necessarily means that, on a macroeconomic level, things change. Those on the minimum wage are likely to spend the great majority of their increased income, so firms, collectively, will see rising demand. If the wages of waiters across the economy rise, then more people will visit cafes and restaurants. The owners won’t turn the new customers away – and are likely to hire more workers, not less.

Some might argue that prices might rise. Of course, that is possible, but two points need to be made, first the effect will be relatively small and second, more importantly, raising the wages of the poorest workers involves a redistribution of real income in their favour relative to the rest of the population. Surely this is something that all progressives should support? As Wolff argues:

‘Economists and others in solidarity with the laboring majority should be refusing further rounds of that minimum wage debate. Instead, they should demand and pursue an economic system that provides both full employment and decent incomes, and support for those who cannot work. That is the only system that deserves our backing (p.165).

Wolff concludes the book by considering what needs to be done; he contends that:

‘we must organize a mass base to put real political force behind social democratic policies, parties and politicians. We need something like the New Deal Coalition. The pandemic, economic crash and gross official policy failures (including violent official scapegoating) draw many towards classical social democracy. The successes of the Democratic Socialists of America show this’ (p.186, parentheses in the original).

At the end of his text, Wolff ties up his discussion by again arguing against leaving capitalists in the exclusive position of making all the productive decisions and reaping all the profits, and in favour of a transition from capitalist to worker-based cooperative organisations, concluding that such a radical change could well be described as a ‘revolution’ (p.187).

State spending

I note that the author’s political astuteness is impressive and apparent throughout the work, but his failure to correctly conceptualise the nature of the monetary system makes the picture he paints incomplete. I might point to two areas in this regard, the misunderstanding of the nature of debt and the likely effect of interest-rates changes. First, Wolff argues (with reference to UK and US), ‘both governments paid for bailouts with decreasingly progressive tax revenues and still more borrowing’ (p.39). Such a statement is symptomatic of an acceptance of the so-called government budget constraint. By this affirmation of orthodoxy, Wolff is conceptualising the government as a currency-user, which might finance its spending by taxation, borrowing (debt issuance) or ‘printing money’. However, as argued by the advocates of Modern Monetary Theory (MMT), the state should be conceptualised as a currency-issuer.

For nations with their own sovereign currencies, operating under floating exchange rates, such as the UK and the US, state spending (or lending) must precede taxation (or borrowing); the currency is a public monopoly. Only money that has already been issued by the state can be collected in taxes or used to purchase state debt. When the state spends it credits the target recipient’s bank account increasing the value of her deposit, (a liability to the bank) simultaneously adding reserves to the recipient’s bank’s reserve account (an asset to the bank) at the central bank. Bond sales are not ‘borrowing’ in a conventional sense and are best conceptualised as a reserve drain (as bond sales serve to remove reserves from the banking system and change the composition of risk-free net saving held by the non-government sector). Under the current exchange-rate system there is no operational reason for the UK or US government to issue debt (Armstrong 2015). If a positive overnight risk-free rate is deemed to be required, the central bank can pay a floor rate on the ‘excess’ reserves in the banking system (as is presently the case).

Second, Wolff argues that, ‘cutting interest rates to next to nothing, risks leading this economic system to go on a binge of borrowing that the world has never seen before’ (p.42). I would argue that, certainly in the ‘normal range’ of risk-free rate settings such as we have seen in the last twenty years or more, the sensitivity of non-government borrowing to interest-rate settings is very low and setting overnight rates at zero should not by any means be expected to generate a ‘binge of borrowing.’ Importantly, in stark contrast to mainstream opinion, I would stress that interest-rate reductions are not expansionary, rather they are contractionary (Mosler 2011).

The usual argument is that raising interest rates will be contractionary as higher rates reduce non-government-sector borrowing and redistribute income from borrowers to savers. This redistribution is believed to be contractionary, given the underlying assumption that the marginal propensity to consume (mpc) of borrowers is higher than that of savers. However, the state is a net-payer of income to the non-government sector and, given the current level of state debt to income ratios in nations such as the US and the UK, the expansionary effects of increasing non-government sector income following from raising interest rates is likely to dwarf any contractionary effect following from the reduction in borrowing and the effects of the differing mpcs of savers and borrowers.

The asset-price inflation following from increased borrowing which preceded the global financial crisis is best described as a result of financial deregulation, excessive development of derivatives, reduced lending standards and importantly, fraud – all set within an environment characterised by unjustified over-confidence. Low interest rates, in of themselves, should not be viewed as the cause. Indeed, when interest rates are low (or even negative, in the case of Japan), in an environment where agents lack confidence, it seems impossible for central banks to generate inflation, no matter how hard they try (Mosler 2011).

I argue that financial stability cannot be ensured by interest-rate management and instead agree with Minsky (1992), who notes stability is inherently destabilising (in his ‘Financial Instability Hypothesis’, Minsky contends that the capitalist system is inherently unstable). In other words, periods of stability encourage over-confidence and sow the seeds of excessive risk-taking. The ensuing financial crisis is followed by a period characterised by a lack of confidence and an unwillingness to take risks. Furthermore, as stability returns it merely creates the conditions for the next period of instability.

These misunderstandings of fiscal and monetary operations, notwithstanding, I would argue that this book certainly has much to commend it. Wolff delivers his message with authority, backing his arguments with compelling evidence, providing much-needed clarity when considering the key drivers of recent capitalist crises. The structure of the work – the text being divided up into largely stand-alone ‘bite-sized’ chunks – makes it easy for the reader to dip in and out of the work. In addition, the author deserves credit for the fact that the individual contributions collectively form part of a coherent whole, and Wolff’s astute observations of the weaknesses and failures of capitalism, especially its latest neoliberal manifestation, are compelling.

References

Armstrong, P. (2015), ‘Heterodox Views of Money and Modern Monetary Theory (MMT)’, https://moslereconomics.com/wp-content/uploads/2007/12/Money-and-MMT.pdf.

Minsky, H. (1992), ‘The Financial Instability Hypothesis’, The Levy Institute of Bard College, Working Paper no. 74, http://www.levyinstitute.org/pubs/wp74.pdf.

Mitchell, W. and Fazi, T. (2017), Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World, London: Pluto Press.

Mosler, W. (2011), ‘It must be impossible for the Fed to create inflation’,

It must be impossible for the Fed to create inflation – The Center of the Universe (moslereconomics.com)

Mosler, W. (2012), Soft Currency Economics II, US Virgin Islands: Valance.

Tcherneva, P. (2020), The Case for a Job Guarantee, Cambridge: Polity