Professor Wolff: There is going to be a “Compression” in Wages and Benefits

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imf describing just how bad the economic
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outlook over the next few
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next few years actually will be and this
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economy could potentially be the one
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that joe biden would inherit as
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president of course so currently voters
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seem to trust biden more on all issues
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except the economy
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latest cnbc polls show that 44 of voters
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favored president trump’s economic
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policies
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over bidens but joining us now to talk
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more about the impact of coronavirus on
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the economy and his longevity
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is professor of economics richard wolff
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uh professor wolff thanks so much for
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joining the show again
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it’s good to see you my my pleasure
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thank you
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so professor wolf i mean one of the
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things we were talking a little about in
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the break is that you’re very worried
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about the state of the economy and then
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you see a lot of structural deficiencies
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that are ready you know possibly like a
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house of cards
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that could fall what is it that you’re
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seeing sir could you outline it
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yes let me give you just two or three of
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the key kind of dimensions
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in april and may roughly half of all
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commercial establishments in the united
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states
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did not pay their rent because they
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couldn’t they weren’t
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functioning they weren’t getting any
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revenue okay
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that meant their landlords were put in a
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jam
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why because the rentals that tenants
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paid to their commercial landlords
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is what the commercial landlords used to
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pay off their debts to the banks
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so the failure to pay rent to the
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landlord of your commercial
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establishment
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plunges the banks and the landlords and
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the tenants
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into a mushrooming crisis they have all
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now turned to their lawyers
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they are all getting ready to go into
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court to fight
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all the old leases all of the old
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arrangements that keep capitalism going
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are now defunct and they’re going to be
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fought out in terms of who has the most
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money
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to hire the most lawyers to win this
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game
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this is kind of a situation in which a
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structure doesn’t function anymore
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and it’s everybody for themselves in a
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war of all
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against all and that never ends very
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well
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number two the federal reserve has now
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made a decision about a week ago
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to start buying corporate bonds in the
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secondary market
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what that effectively means is that the
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government is backstopping
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the entire credit apparatus of the
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united states
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it already stands behind most homes
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through the
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mortgage systems that we’ve developed
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since the 30s
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and now it is standing behind all the
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corporate loans
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because in effect it becomes the banker
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of last resort
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any idea that the economy is now
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quote-unquote
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a free private enterprise economy
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is is downright silly as well as
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ideologically backward we now have a
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an economic system utterly dependent on
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the creation of money by our central
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bank
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i could go on but these are signs of
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disintegration
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of one kind of economic system and the
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transition towards another one
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it’s not clear exactly where this will
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end but as i said to you
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this is a level of breakdown
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that is really impossible for me to find
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in the prior history of our capitalism

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at least since the civil war
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and so i mean you just basically said
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there are no
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historical analogies because that was
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going to be my next question like what
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period is this analogous to i mean can
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we find any strains or any parallels
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from any experiences in american or
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world history
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really that’s the best question because
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it’s our only guide to what to do now is
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to have some sense of what we did in the
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past
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the problem with the only parallel which
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is the great depression of the 1930s
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was that the political reaction then
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compared to what we’ve had so far now
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uh is so different in the 1930s
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a massive movement politically to the
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left
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occurred you know the cio the greatest
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union organizing period in american
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history
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never had anything like it before we’ve
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never had anything like it since
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two powerful socialist parties a
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communist party
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they all work together and they produce
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the pressure
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that got fdr to make a new deal we’ve
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had
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almost the opposite we’ve had a lurch to
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the right
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at least for the last 15 20 years
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culminating now in president trump and
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all that he’s doing
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with the unions weaker than they’ve been
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in half a century
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with socialist and communist parties
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almost extinct
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uh and certainly with minimal influence
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so we don’t have any
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of the pressures that might give us some
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sense
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of what to do so we’re left with this
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the kind of vague hope that there would
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be
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something comparable now to what
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emerged in the 1930s but here then your
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point about biden
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uh at the beginning is crucial
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he’s not that bernie sanders might have
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been that
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but mr biden and and the people around
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him are not the kind
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to to learn from our history what did
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work in the 1930s to finally get us out
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we don’t even have that now and that’s
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what makes me so
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worried about our situation right and
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professor let’s talk about because i
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think
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you know people can get carried away or
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they may not be able to understand the
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ramifications of what you’re saying
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what are the downstream ramifications to
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the average consumer

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and worker in the economy that we’re
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beginning to transition to
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very good let’s start with the
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unemployment we have
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record unemployment in the shortest
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amount of time
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we’ve had over 42 million people file
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for unemployment compensation
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there is no precedent
for something
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happening
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that deep that terrible a cut in that
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short a period of time
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when you have unemployment like this the
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way capitalism as a system works
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this level of unemployment sends an
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unmistakable message
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to every single employer whether that
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person is a nice person and not nice

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person greedy not greedy
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really doesn’t matter what every
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employer knows is you can now go to your
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workers
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and say to them often quite honestly
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i’ve had a hard time the pandemic has
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hurt me the crisis has hurt me
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i’m going to have to cut your wages by
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20 i’m going to have to contribute less
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to your benefits you’re going to have to
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come in a half hour earlier
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you’re going to have to stay longer and
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your lunch is going to be shorter

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i’m very sorry but you and i both know
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that if you don’t accept these
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conditions
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there are 40 million people out there
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who will be
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grateful since they’re so worried about
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whether they’ll have a job when this is
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over
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and what the conditions of that job will
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be so here’s what’s coming
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and that’s why i’m a little down about
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it we’re going to have a compression
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which is a nice word
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a diminution a reduction in the
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standards of living and the standards of
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consumption

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in the years ahead unless something
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drastically changes
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because that’s how our system works even
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if you’re an
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employer who wouldn’t want to take
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advantage of the situation
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your competitors will be doing it and
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then you’ll be forced
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on pain of your own survival to do
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likewise

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no one that i hear is talking about
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what is going to be done and what is
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going to happen to the consciousness
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the feelings the attitudes the politics
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of the american working class
as it goes
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through
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what i just described so i have a
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feeling that
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joe biden is not going to be giving you
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a call anytime soon
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unfortunately but if he did what would
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you advise them to do
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the first thing i would do is something
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very simple learn
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from the germans
and i could by the way
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give you other countries the japanese
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the french
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the british but i’m going to use the
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germans at the beginning of the pandemic
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in middle march the german unemployment
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rate was 5
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today the german unemployment rate is
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six percent

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a marginal increase we quadrupled
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our rate of unemployment from about four
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and a half percent to roughly 17 to 18

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now that’s crazy the german
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working class doesn’t face the problems
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we do

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because the condition for getting help
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from the german government was you fire
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nobody
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if you won’t fire anybody we won’t give
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you the bear the wherewithal to get out
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of this mess

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all the german industry accepted this
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deal nobody in
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germany virtually nobody lost their job
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they’re not anxiety written about
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getting one back
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the job
is there for them and the
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government picked up
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70 to 80 of the wage bill

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to manage this situation for the life of
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me i do not
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understand why mr biden and the people
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around him
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don’t understand what i just said
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why that is so much better for the mass
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of the people
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and why by the way it would mean if you
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did that and the workers in germany stay
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home you wouldn’t see the pressure to go
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back to work
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as desperately unemployed people
want
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to resume some kind of normal life
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because they kind of get it
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where things are going and they don’t
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want to be
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lost in that process our whole politics
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would be different
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in a much better way if we just took
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that lesson
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yeah yeah couldn’t agree with you more
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sir well we really appreciate you
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joining us in your analysis professor
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thanks
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my pleasure thank you absolutely love
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more rising for you
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after this