Economic Update
Economic Update: The Economics of US Labor Struggles and Gaza
In this week’s episode of Economic Update, Professor Wolff discusses the economic repercussions of Western sanctions and how the retaliations they provoke. We then turn to the latest labor strikes and wage & benefit gains achieved by unions at Boeing and East Coast dock workers. We highlight China's dominance of the global energy markets; and U.S. spending on military and police. Finally, we close with an economic analysis of Israel's ongoing violence in Gaza.
Support from the production of Economic Update comes in part from Democracy at Work. A non-profit 501(c)(3) organization and publisher of books by Richard Wolff, who is a professor of economics emeritus at UMass Amherst and a visiting professor at the New School University, has authored numerous books on the subject of social economics, including Greek thinking Marxism, Understanding Capitalism, and Democracy at Work, a cure for capitalism. Further information is available at democracy@work.info and rdwolf.com. Welcome friends to another edition of Economic Update, a weekly program devoted to the economic dimensions of our lives and those of our children. I'm your host, Richard Wolff. I want to remind you before we plunge into today's topics, that Charlie Fabian is awaiting word from you if you have suggestions or ideas for our programming. We really do appreciate those of you that take the time and trouble to communicate those to us. Easy to do, charlie.info438@gmail.com. Okay, today's topics are quite numerous, but I think you'll find them coming together into a remarkable program. We'll begin by talking about how sanctions of the kind applied by the United States and Europe can provoke retaliations of all kinds that can be quite consequential in terms of the damage they do. And we present that not only as a general corrective to the notion of sanctions being some powerful weapon, which they have proven not to be, but to also understand that they have costs, which the proponents of sanctions rarely tell you about. I then want to talk to you in some detail about the two enormously important strikes that have happened in the recent past. The strikes of the International Longshoreman Association, the dock workers on the east coast and Gulf ports of the United States on the one hand. And on the other, the enormously important strike at the Boeing company that produces the aircraft and so on. We'll also be looking at where clean energy is being produced in the world today, which may surprise you. We're going to be looking at military spending and police spending. And we'll close today with an analysis of the economic crisis on top of all its other crises of that part of the world known as Gaza, the Palestinian, part of the Palestinian homeland in that part of the world. Okay, so let's jump right in. Russia, which has been the target of what some have called the mother of all sanctions programs, Russia has been sanctioned pretty quickly following its invasion of Ukraine back early in 2022. Russia has been the subject and the object of sanctions in the past as well. So it should come as no surprise if you understand what sanctions are. And let me remind you, it's a punishment. It's a specific punishment in this case of Russia, but other countries have been punished too by imposing economic difficulties on them. In the case of Russia, for example, Europe stopped buying oil and gas, a crucial export for the Russian economy and a very severe punishment. Indeed, there were other punishments beyond that. The West seized hundreds of billions of dollars of wealth held by the Russian government as a reserve for its currency, which many governments around the world do that was seized by the West and so on. Well, what you may not have heard about and what I want to correct is the notion that everybody in the world who gets sanctioned like this, and we are the number one sanctioning country in the world, we Americans, and there are many countries who suffer one or another kind of sanction, not just Russia or Cuba or North Korea or countries like that, a whole bunch of others as well. Well, these countries are not passive and they can and they do retaliate. And I'm going to give you just one example, but it'll serve to help people understand. Russia has retaliated, and in one of the ways I thought I could bring to your attention. It has seized hundreds of aircraft. These are airplanes typically owned and leased by relatively small companies that do that to all kinds of big corporations and others who want to have a flight into or out of Russia to carry their executives or their engineers or whatever it is they need to move. Hundreds of these planes happen to be parked for that moment that they're there in Russia at the time the United States imposed sanctions and the Russians retaliated by seizing the airplanes. Step one, step two, the airline companies went to their insurance companies and said we've lost our airplanes, we insured our airplanes with you pay up. The insurance companies realizing that if they had to pay to compensate for hundreds of airplanes, they would either go out of business, go bankrupt, or have to jack up their rates in ways that would really hurt lots of other people who insure with those companies. So they fought back. So now we have the problem. Either the insurance industry is going to take a hit and raise its prices, or these airline leasing companies will take a hit, the insurances won't compensate, and they'll be losers and bankrupt, and they'll have to raise their prices. Notice either way the prices go up. Either way, the inflation gets worse. Whoa, turns out the retaliation can make problems in the United States just as the sanction makes problems over there. It becomes a kind of warfare, but it isn't one-sided. It isn't the freebie. It's very, very costly. Not only that, but around the world, everybody's taking steps to protect themselves in the event that the United States might try to sanction them. They're taking proactive steps that are hurting the United States in countless ways. I just gave you one example, but it's important that you get the point of sanctions being something that can come back and bite you in a very uncomfortable place. I want to turn next to two enormous strikes that are important for a number of reasons. First, we have 45,000 dock workers along the East Coast and the Gulf ports of the United States. They're on strike, or they were on strike in September until they reached a tentative arrangement to go back to work and resume their strike if needed, their negotiations if needed, on the 15th of January. This is a problem that we're in the middle of. It's not yet resolved, but I wanted to point out some of the most interesting things about it. Very large union, very large workforce will have all kinds of impacts on all of us one way or another directly or indirectly. These workers took an enormous hit between 2019 and 2024, because the agreement they agreed to back then did not anticipate and did not take care of the inflation. Very important that folks understand that union contracts fix what the workers get paid. They do not fix what the employer of those workers can charge in prices. And if employers in general raise prices, which we all know they did between 2019 and 2024 today, it means these workers fell behind. Their wage increases were not only poor, they were way less than inflation. They could afford less in the way of expenditures at the end of their contract than they did before. Their real wage in terms of what they could afford to buy went down over those five years from 2019 to 2024. They therefore are demanding a catch-up. That's often not explained when you hear about the wage increases. And the wage increases they got over the next period of time. Six-year contract they're talking about is in the neighborhood of 50 to 60 percent. Wow, that sounds like a lot. It is a lot. But when you take a look at it, which is what I'm about to do, it's way less than you might think. First, a good chunk of it is just going to bring them up to where they were five years ago. In other words, increase so they can pay the higher prices. Only another portion will help them in the next six years. And if you look at it closely, it works out to about seven or eight percent a year that they're going to get. And is that extraordinary? Well, in today's United States, unfortunately, it is. But is it extraordinary pay? No. Let me explain. The expected inflation over the next four or five years is four percent, three and a half to four percent. All right, so more than half of their increase is going to be just keeping up with inflation. And a good part of the remainder will be lost because their taxes will go up as their income does. So what's left is a real increase per year, probably in the neighborhood of two percent, which is no great shakes. Given that they are becoming more productive, that the technology makes each worker more productive. And here comes the next point that people don't understand, which is urgent on the docks. More and more workers are being replaced by machines. They need fewer and fewer workers. One of the reasons they're willing to pay even these increases is because they will offset the cost of higher wage by having fewer workers, which they're freely allowed to do. Now, the same is true of over 30,000 Boeing workers. They too are actually, as we prepare this information, voting on an agreement, not even a proposal of the corporation that will give them sizable interest rates, six, seven percent a year, a $7,000 signing bonus, a commitment to share productivity gains in the aircraft producing business with their workers. These are powerful unions, the machinists, the dock workers. They've maintained a strong union. They've been willing to go out on strike, and they've gotten good settlements. But when I use the word good, please understand that compared to what they need, these are modest agreements. They barely catch up. They give them very small increases in the real standard of living they can enjoy, and they leave them considerably vulnerable to losing jobs to productivity. The precarious problems of the American working class, even in these cases of good settlements, in these union struggles, remain. And that is an issue which we will be attending to in the months and years ahead. We've come to the end of the first half of today's show. Please stay with us. Gaza, the defense expenditure, and a number of other topics of interest will be covered in our second half. Welcome back, friends, to the second half of today's economic update. The International Energy Agency is an effort of the countries of this planet that we all share. To keep track of energy, because we are all needing it more than ever, modern society unthinkable without dipping into enormous resources of energy to run our factories, our offices, our stores, our transport, our homes, you name it. And recently, we have become aware that it's not simply as it once was, finding adequate sources of energy. It turns out that burning fossil fuels, coal, oil, gas, and so on can have horrific effects on our planet. And therefore, we have to be very careful and find energy resources that are not dangerous, that are not damaging. And the International Energy Agency monitors this. They produce a report every year about how well we're doing. It's called renewables. And I want to read to you a sentence from the latest, the renewables 2024. They do this every year. And the reason I do is because it summarizes the important role that China has come to play in the global search for and use of energy. In one statistic summarized in what I'm about to read to you, you can understand how the world has changed. Here we go. Quote now from the report, renewables 2024. Energy trends in China, the world's largest energy producer and consumer help set the trajectory for the global energy transition. While China's demand for fossil fuels continues to grow, it is also the world's leading clean energy powerhouse, adding renewable capacity at an unrivaled pace and dominating many clean energy supply chains. Sentences like that, produced in the reports of international agencies for years, were written about the United States as the number one user, the number one producer, the number one busy making the transition to something better. That position has now been taken instead by China. And we should all take note of what that suggests and implies. My next update responds to what many of you have asked me to talk about. Military spending, police spending, all of that kind of spending that governments do. And how does the United States and the rest of the world, how do they shape up on this scale? You might call it. So I'm going to give you some numbers gathered by the Stockholm Research Institute, which is famous around the world for tracking these kinds of expenditures. These numbers applied for the year 2019, which I understand, of course, is a few years out of date. So the numbers would not be the same if we did it today, but they wouldn't be all that different, particularly in relationship to one another. Far and away, out by itself is the United States. So in 2019, just to give you an idea, the United States spent $731 billion on defense. Number two in the world, in 2019, China, it spent $261 billion. So less than a third of what China spent. The United States spent three times what China spent. And China is a country four times larger than that of the United States. Number three is India, which $71 billion. That's 10% of what the United States spent. And then Russia, $65 billion coming in fourth and then everybody else is smaller. Here's a statistic that blew me away. It is possible to know how much is spent by the United States, not on military activity abroad, where we are clearly off the chart, number one, $731 billion in 2019. But here's the amount of money spent on police, what you might call our internal military. Ready? $118 billion. If we were to rank US police, they come in third in the world. We spend more on police at home than India spends for its entire defense budget. And India is not even close. If we add to what we spend on police, what we spend on prisons, $81 billion, the FBI budget, $10 billion, and a few other smaller accounts, well, then the United States police are getting close together with prisons of spending as much as the Chinese do on their entire military. I stress this because I want everyone to understand that whatever else you know about the American economy, the degree to which it devotes its labor, its resources, its surface of the planet, its land to warfare and police and guns and bullets is off the chart. No other country, either in total or on a per capita basis, comes anywhere close to the importance of military and police personnel activity than the United States. And has it worked? We incarcerate more people per person than any other country. Our crime problems are as severe or more than most other countries. Doesn't seem to be doing a job but it sure does take the money. And I'll leave to all of you just imagining where we might be if that expenditure, those resources were used to better our society. Might even make it so much better that we would never miss not having that many soldiers and that many guns and that many police, wouldn't need them. Just saying. I want to turn finally to, of course, a difficult topic, Gaza. And I want to make sure we can talk about the economics of Gaza. There are millions and millions of people who live there, who depend on that. That is an economy too. Israel is one economy, Gaza is a different one. Israel is trying to expand and shrink Gaza so they can take that land. That's crystal clear. What we have here is what used to be called settler colonialism. When Europeans would come to a place and examples are the United States, Canada, Australia and New Zealand. There are more but those are the ones that come to mind where Europeans come and tell themselves strange stories like there's nobody here or it's empty or they don't need so much land if they admit there are some people. But to make a long story short, they kill a large number of people and they heard the few that remain into reserved areas. We call them reservations here in the United States. Sounds like something you do to get into a restaurant, but you can all know that it's not quite what they have in mind. Okay. What happened in October of 2023? Hamas committed war crimes. No question. War crimes are defined as crimes against civilians. A war is bad enough. It's supposed to be the fighting between armed forces. They are supposed to go out of their way to avoid killing civilians. Hamas didn't do that last October. And Israel hasn't done it ever since. And a level of destruction is underway. Therefore, in Gaza, that is threatening not just the Gaza economy, but every economy in one way or another in that area. And that's even more true now that Israel has expanded the war in terms of the destruction it causes into Lebanon and so on. Here's what I want to talk about. The economy of Gaza required hundreds of thousands of Palestinians from Gaza and from the northern part of Palestine to work in Israel for Israelis. They have been excluded from Israel during this warfare. How will they ever go back given the destruction they've seen, the killing of people on a scale that the whole world is a guest to watch? It'll be hard for them ever to go back. It'll be hard for the Israelis to tolerate it. What is going to happen? The Gaza economy depended on it. The Israelis have suggested they will import Filipinos and other Asian people to work in Israel the way they already do in a number of Arab countries. Oil emirates and so forth. That's going to change everything in that part of the world if even they could achieve it. The Israeli economy is shot. Its people are busy fighting wars on several fronts at the same time. They've exhausted their resources. They've exhausted their military. They use weapons provided mostly by the United States. You know what Israel is going to be economically speaking? Whenever this warfare stops, it's going to be an economic basket case. It's going to be dependent on the United States. Virtually, it's only major sustainer. Even the former European helpers are really considering I'll be as polite as I can. How much help they're going to provide Israel? That's not good for the future of Israel either. The Palestinians will be bitter, angry, and squeezed into ever smaller territories. At least the way things look now. Will this have produced security? No. But we shouldn't be surprised because all of the earlier the six-day war, the many military conflicts between Israel and Lebanon, Israel and Syria, Israel and the Palestinians were all justified on the grounds that was necessary for Israel to gain security. It didn't gain security. That's why it's doing what it's doing now, and this won't get it either. Not if security means a resolution to the conflicts that undermine it. The economic prospects here ought all by themselves to be a powerful pressure to stop the fighting, to sit down and work out an acceptable solution to all the parties Palestinians included. That may be too late. I don't know. But the effort is worth making. Just like a ceasefire that is the effort to stop killing people is an effort that I thought religious people, Muslim, Jewish, Christian, were committed to. It's just I don't see it here. And we need it here more than ever. Thank you for your attention to this program. And as always, I look forward to speaking with you again next week. Support from the production of Economic Update comes in part from Democracy at Work, a nonprofit 501(c)(3) organization and publisher of Books by Richard Wolf, who is a professor of economics emeritus at UMass Amherst and a visiting professor at the New School University, has authored numerous books on the subject of social economics including rethinking Marxism, understanding capitalism, and Democracy at Work, a cure for capitalism. Further information is available at democracy@work.info and rdwolf.com. [Music]