Why the Stock Market Plunged w/ Prof. Richard Wolff

Over the weekend, Donald Trump refused to rule out that his policies might accelerate a coming recession. On Monday, the stock market plunged. On Tuesday morning, it continued to go down. Of course, stock markets can go down and up. We know that. But we're going to talk about why the stock market is so volatile. We are excited to have Professor Richard Wolff join us again for our regular weekly segment where we talk about the biggest stories related to the economy, the state of the working class and the crimes of big business. I'm your host, Brian Becker. Richard Wolff is the co-founder of the organization Democracy at Work. He's the author of many books, including Understanding Capitalism, which is available at democracyatwork.info. Professor Wolff, welcome back. Thank you very much, Brian. Glad to be here. Well, Richard, whenever the stock market starts to crash, the specter of another 2008, 2009 meltdown or earlier recessions, of course, the Great Depression that started with a big stock market crash in October 1929, that becomes the dominant news. I'm looking at Financial Times today, Wall Street Journal today. There's obviously a sense of alarm in these newspapers that are principally, their principal audience is the capitalist class, the big banks, the corporations. There's a sense of alarm. I'm going to read some of the headlines after you get a chance to react to it. I want to start, though, with a clip, and it sort of gives you a sense of the alarm that was sort of everywhere in the mainstream media as of Monday. Let's listen. Let me show you the Dow Jones Industrials. We have a four-digit loss in the Dow Jones Industrials at the moment, 1,439 points just chopped off that index. We now stand at 41,759. The Dow has now turned negative for the year. We do have to say, though, not all the blue chips have turned red, but the, you know, this is a major percentage smackdown. Apple is taking, look at Nvidia. Okay, so we'll go to the laggards here. Apple down 5.7 percent. And then you can see Nvidia, it is the biggest laggard here, down nearly 6 percent. But don't ignore the fact that Goldman Sachs is getting absolutely crushed here, down 5.9 percent. You know, all of the big financials, American Express down 5.5 percent, JP Morgan down also more than 5 percent. But the Dow, it's stuck in the mud. All right, Richard, very alarming. Tuesday morning at the time we're recording this show, the headlines from The Wall Street Journal are Dow S&P extend losses as Trump ramps up Canada tariffs. Another headline, Trump says he will raise Canada steel and aluminum tariffs to 50 percent. And the final headline, Wall Street fears Trump will wreck soft landing. Anyway, your thoughts? Yes, yes, yes, yes. I mean, I do not want to indulge in what the Germans call schadenfreude. I don't want to take any kind of satisfaction from this. But having said that, I cannot resist. I told you so. All right. So I got that out of my system. Let me explain. Everything that is done by whether it's President Biden or it would have been President Harris or now it is President Trump, everything they can do as politicians is limited and constrained by the ups and downs of the economic system they preside over. In their enthusiasm and in their partisanship, they blame each other for almost everything. Mr. Trump this week or last week famously blamed the former president, I'm trying to be nice here, for the egg prices. You know, there's no limit to all of this kind of craziness. But here's the reality. Capitalism is a system that has been unstable from its beginning in the 17th century, wherever capitalism has settled in as the dominant economic system across the globe, in the United States, everywhere, it has brought with it what is politely called the business cycle, what is less politely called recessions, inflations, upturns, downturns, crises, crashes, I could go on. Our vocabulary is very rich because we cannot shake this disease. And that's what it is. It's a disease of capitalism. And capitalists know that. They have been working since the beginning, trying everything they could think of to prevent this, to cure this disease, to stop these cycles. We even have a whole branch of economics that we teach called Keynesian economics. That remembers Mr. John Keynes in England who developed it. When did he develop it? In the depths of the depression of the 1930s. He wrote a famous book, The General Theory, which is taught across the world, in which he explains, better than anybody else had until that time, why these cycles keep persisting, why they persist despite every effort of countless governments to deal with them. And we thought, naively, after the Great Depression, which was so horrible, lasted 11 years, unemployment rate at its peak of 25%, one out of every four workers out of work, that we had come up with a plan, with mechanisms, with commissions, with rules. But then in 2008, we all got our comeuppance when capitalism went through another crisis. We can't fix it. We are condemned to have it. And what does it do? Every five to seven years, that's the average, our capitalist system crashes. Sometimes these are short and shallow downturns. Sometimes they are deep and long. That varies with the circumstances. They're not the same. No two crashes are identical. But getting out of them? No. Well, now let's do this simple arithmetic. If it's four to seven year average, when was the last one? Answer. The year 2000. The so-called pandemic or COVID crisis. Well, here it is. We're five years later. Right on schedule. We have the beginnings. And by the way, this average of every four to seven years, the professionals in this field, the folks down in Wall Street and all of that, who love capitalism and who are its biggest boosters and cheerleaders, they know it too. So if we're five years from the last one, which we are, and there begin to be some scary signals, which we've got, they put those two things together and the scared ones leave the market real quick, like yesterday, like this morning. We shouldn't be surprised. This has happened in a bigger or smaller scale many, many times. Now what set them off? That's easy. Mr. Trump, not the remark he made, but the fact that we have extraordinary instability. Last week, with very little attention, the Atlanta Federal Reserve Bank issued a prediction. Suddenly, having for the previous many quarters said how great the economy was, suddenly they said, looking at the numbers, the year 2025, we'll see a recession, a decline of the output of goods and services in the United States of two or three percent. We are a $28, $29 trillion economy, two or three percent. We're talking trillions of dollars of declining output. And they predicted a recession. Very few people paid attention. But the professionals did. Uh-oh. The second big signal is all the herky-jerkiness. We don't know from one day to the next if tariffs will happen. They won't happen. They'll go up. They'll go down. They'll be suspended. They'll be exempted. This is crazy. As most professionals will tell you, more than whether it goes up or go down is stability, certainty, a sense of knowing where you are. No one knows. No one, no industrial corporation is going to move production, say from Mexico to the United States, to escape the tariff if there's a chance the tariff won't be there next week, next month, next year. It's very expensive to move production. You're not going to undertake that expense if you don't know where things are. You can live with a higher tariff, but you've got to be able to say, okay, we got that as our framework, now what's our best strategy? But if the next day that tariff is removed, if it becomes clear that the government is attacking the working class, which this government is, this wholesale meat-axe approach to the federal workforce is symbolic. Its economics is trivial, but its symbolism is unmistakable. The ancient, old BS, we're bringing efficiency, is so easy to dispel that you're left with, well, then what is the purpose? Well, the purpose is like Reagan firing the air traffic controllers. It's a very important symbol of a regime that's going after the working class in whatever way that it can. And that means to a smart investor, we've got a problem. We have a government more actively going after the working class than recent ones have dared to do. And that raises the question, will the working class tolerate it? Will the working class accept it? And if you don't know the answer, and there is no way to know that at this point, if you don't know the answer, you hold back on investment. You put together the uncertainty of Mr. Trump's economic behavior and the uncertainty of how the working class is going to react to what is unfolding, and you've got a situation that will produce very frightened investors and the kind of rollercoaster you saw on the Wall Street yesterday. You mentioned Keynes and Keynesian economics, and just again for our audience, for people maybe who don't know the history of Keynes or don't study economics, this is basically a form of government intervention for the government to spend money to buy things that are not being purchased on the so-called free market, the private market. And as a consequence, it primes the pump. It stimulates production because it provides a buyer for goods that otherwise won't be bought. And that's what oversupply, so-called overproduction that leads to these five to seven year recessions, depressions, et cetera. Now, if we think back to the 1930s, Richard, where Keynesian politics and Keynesian's economic program basically was adopted by FDR and the New Deal, where the government actually did spend a lot of money, that primed the pump and the economy started to recover again. Before, by 1931, one out of every four workers in the U.S. was unemployed. But by 1933, 34, it started to recover a little bit with the help of Keynesian economic stimulus. But by 1937 or 38, it crashed again. It was going back into recession. And it was really only the spending, the massive spending for war, getting ready for World War II that sort of ended the mass unemployment in the United States. And then the U.S. won the war, Europe was destroyed, Japan was destroyed, the means of production were destroyed all over the world. They had to be rebuilt. There was a new market after World War II. And the U.S. had this preponderance of economic, political, and military power to take advantage of that. I just wonder when we think about whether or not Keynesian economics could work, I notice and I know you follow German politics closely, that the new incoming German government, Christian Democratic Union government, a conservative government, has announced that the German economic policy is going to change rather than having a balanced budget approach to everything, which has been the policy of the German government, that it too is going to resort to Keynesian type economic stimulus by expanding government spending. But it will be for weapons of war. Again, it seems to be like an additional sort of amount of gasoline on a fire. If it's not a full-scale fire yet, it's certainly getting started. Anyway, your thoughts? Yeah, it's very interesting that you bring up the German example. The Germans are reacting to the Trump administration's withdrawal, more or less. We haven't quite finished that story yet, but the seeming withdrawal of the United States from the Ukraine war.