Book Name

Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It by Richard D. Wolff

Rating

Sit Down and Read

One Line Summary

Our current economic system is fucked up

The Setup

If you’ve read my bio, you know that I have a Master’s degree in Financial Economics. However you may have also noticed that I neither work in finance, as an economist, nor seem to give a shit about traditional economic theory in general. That is not a coincidence.

While studying for my Economics degree at Rutgers University, I became very interested in the 2008 global financial crisis. Some time had passed since the crisis and so theories were beginning to emerge to try and figure out what exactly went wrong. Most of the mainstream answers consisted of “greedy bankers on Wall Street” or “irresponsible home owners” or “risky financial instruments”. None of these answers satisfied me. They were far too simple.

At the same time, I began to become disillusioned with what was being taught in school. These professors strutted about as if the crisis was the most predictable thing and it would easily be solved if people just paid attention to economic theory. But I smelled a rat. Despite having perfect hindsight, not one of these professors seemed to have seen the crisis coming. And nothing we were doing as a country seemed to be fixing it.

I decided to go searching for my own answers. Eventually, I randomly stumbled across a man named Richard Wolff thanks to a post from Reddit. And for the first time, I found someone who seemed to be talking sense about the crisis.

Capitalism Hits the Fan is an in depth analysis of what happened in 2008 that completely flips the problem on its head. Instead of pointing the finger and blaming this or that corporation, Wolff points out that the real root cause of 2008 is systemic. It isn’t a “financial crisis”, it’s a crisis based on the inherent nature of the economic system we all live in called Capitalism.

Why it’s Awesome

Let’s break down Wolff’s argument. The primary cause of 2008 was not greedy bankers but the way in which businesses are organized. In modern capitalism, you generally have a small select number of people called CXOs or a Board of Directors that decide what goods/services to produce, where to do it, and what to do with the profit. Workers than come to work and enact out these policies.

What does this have to do with 2008? Well let’s do some history. Have you ever heard that America was the “land of opportunity”? That’s because in its early years, it really was. We had a unique situation where there was massive amounts of unused resources and not nearly enough workers for businesses to profit. And so the wages workers were paid were incredibly high, in order to incentivize immigration.

A turning point was the 1970s. Because of new technology, women moving into the workplace and a drastic increase in outsourcing, suddenly there we had a surplus of workers in America. Basic economic theory and common sense would correctly tell you that a surplus of workers means that wages will be lowered. And that’s exactly what happened. For the first time in America history, wages began to fall.

At the same time as wages stopped rising, productivity rose even faster. Technology was amazing at making people more efficient. And so a very obvious thing happen for American business: huge, huge profits. Here is a graph to show you what I’m talking about:

wages

What happens when businesses are making extraordinary profits and workers are struggling to maintain the lifestyle they once had? You start to get a whole lot of borrowing. This is when the credit card was invented. Businesses began lending to the working class what they no longer paid to them in wages.

This is, in hindsight, what someone might call a time bomb. With people borrowing insane amounts of money and seeing no increase in their ability to pay off their loans, the perfectly predictable happened: massive number of defaults.

From there, the story is all very straight forward. The American government (re. the American people) was forced to step in and bail out businesses that began going bankrupt because people were defaulting on their loans so fast. In order to get the money to bail out the businesses, the government was forced to borrow massive amounts of money, hence the current national debt crisis. And while large businesses have made a great recovery, the average person has not.

What’s going on here? It’s like every solution only causes another problems. Decrease regulation in order to make more profit and you get risky lending. Lend money to people in order for them to maintain their lifestyle and it causes massive defaults. Bail out bankrupt business and the U.S government goes into debt.

The reason is that the problem isn’t going to be fixed within the system. You have to change the system itself.

We have a fundamental problem that no one is addressing, and that is what I mentioned in the beginning of this post. The way we organize business is flawed at its very core. It’s a Win/Lose system instead of Win/Win.

As Wolff explains, the driving motive behind capitalism is profit.  If a CEO decides to close down a US factory and open a new one in China because he can pay the workers less, he will do that because his job as CEO is to increase the bottom line of the company. If genetically modifying food to the point where it’s destroying the health of millions of people will increase profit, that will happen too.

Note that I’m not trying to wag the finger and say that business is evil. A lot of amazing things come from business. The only reason I’m able to reach you as a reader is because a company made this laptop. Don’t look for the easy truth.

But essentially, capitalism in its current form is ego driven. It wants external results over the joy of living itself. It is in an endless struggle for more profit and “efficiency”.

The main argument in favor of the profit motive is that it’s more efficient. If a company can make more money by going overseas, it should do that because it’s the efficient move. But let’s not be myopic. What is “efficient” about the way the 2008 crisis unfolded? What is “efficient” about an economic system that puts millions of on the street while simultaneously having record number of unoccupied homes? What is “efficient” about an economic system that completely breaks down every couple years?

But even if the profit motive was the most efficient way to organize business, is efficiency the most important thing in the universe? Since when does “efficiency” trump health and happiness?

At this point, I’ve done a lot of criticizing. So let’s move into the solution Wolff provides.

Instead of organizing business in a way where only a small number of people at the top are in charge and profit is the driving force, what if people worked much like a team? Monday through Thursday, everybody comes to work and does what they usually do. Then on Friday, everyone who works at that business gets together and decides what to make, where to make it, and what to do with the profit.

This creates a powerful force that was missing: aligned incentives. If a business is made up of workers from a community, they would think twice about, say, polluting the community in which they live.

This also allows people to become much more creative with their talents. They are not a mindless drone working for someone else, they are a creative and essential part of the team. Steven Covey calls this synergy.

Is this idea so far out there? Maybe, but maybe not. There are already many, many successful business that a run like this. Many of them reside in a place called Silicon Valley. Innovation is kind of its “thing” over there.

There also is something these days called a B-Corp. Feel free to look it up. Essentially a B-Corp is a corporation where community interest is a part of the agenda as much as profit is.

The internet and technology is changing everything. With so many things available for free these days and manual labor being handled by machines, I can envision a future where nothing costs anything anymore. People simply either trade or work for the sake of work.

I know it seems impossible to the average person that work could be something you actually want to do, but that’s mostly because of the current economic system we inhabit. Is it any wonder people resist going to a job where they are constantly told what to do and how to do it, just so they can increase the bottom line of some corporation while they struggle to make ends meet?

Work, when it’s created out of authentic desires, can be a beautiful thing. I’m able to write so many of these reviews because I’m not resisting it. Sure, I’m not saying 100% passionate all the time. That would make me a cartoon character. But overall, I’m doing this because I want to. I love learning and sharing these ideas.

Why Does It Suck

While I love these ideas in theory, I don’t see capitalism changing any time soon. We are talking about a shift in global consciousness. That shit doesn’t just happen overnight.

I also am skeptical of humanity’s ability to leave behind the desire for hierarchy. It’s hard wired into us from evolution to demand that someone be above or below us. In a situation like this, you’re essentially putting everyone on the same playing field. That’s fine in small organizations where maybe you have a few very conscious people, but otherwise our desire for hierarchy is way too strong.

Even in our modern democratic system is still hierarchical based. People don’t want to have to think in a complex, nuanced way. They want simple truths. And that will always hold back the idea of community businesses.

The Wrap Up

This was a life-altering book for me because it got me questioning the system in which we were all raised. I can’t say I’m 100% bought into Wolff’s ideas, but that isn’t the point. The point of reading this book is to get people thinking. What other solutions are out there if you don’t like the one proposed by Richard Wolff?

Capitalism will eventually fall away just like any other economic system before it. And it won’t happen with some big flashy revolution. It will happen with ordinary people just making small changes in their lives and then watching those small changes compound.

That’s what I want to see.

Buy Capitalism Hits the Fan here on Amazon:

http://amzn.to/29QGNuO