Marxist Economist Richard Wolff on How the Debt Ceiling Benefits the Rich & Powerful
Written by GRB on 31/01/2023
This is a rush transcript. Copy may not be in its final form.
AMY GOODMAN: This is Democracy Now!, democracynow.org. I’m Amy Goodman, with Juan González.
House Speaker Kevin McCarthy and President Biden are preparing for their first face-to-face meeting Wednesday to discuss raising the debt ceiling. The U.S. technically hit the debt ceiling earlier this month, but Treasury Secretary Janet Yellen has taken extraordinary measures to keep paying the government’s bills. House Republicans are pushing for major spending cuts as part of any deal to raise the more than $31 trillion borrowing limit.
To talk more about this and the economy of the Ukraine war, we’re joined by Richard Wolff, professor of economics emeritus, University of Massachusetts Amherst, and a visiting professor at The New School university, the founder of Democracy at Work, hosts a weekly national TV and radio program called Economic Update.
So, Richard Wolff, if you can talk about the debt ceiling, what’s happening right now, and what you feel is most important to understand about it?
RICHARD WOLFF: The debt ceiling is a decision made by the Congress of the United States to limit themselves. And let me explain. In our federal budget in the government, in order to spend money on the Defense Department, the war in Ukraine, Social Security and all the rest, the government basically relies on taxes. But therein lies a problem in our economic system, because the corporations and the rich, on the one hand, and the rest of us, on the other, want the government to provide services, but we don’t want to pay taxes. And the politicians we elect are caught in that dilemma. They don’t want to lose votes by taxing the rest of us beyond what they’ve already done, and they don’t want to lose donations and all the rest of it from corporations and the rich by taxing them. And they found a solution, because they don’t have much political courage — namely, to borrow the money. In that way, they can pay for the spending without taxing anybody, and they can parade around as if this is an act of efficiency rather than an act of no courage to do what they know could be done — raise the taxes or cut the spending — and then we wouldn’t have to borrow.
They’ve been borrowing so much. Let me give you an example. In 1982, the debt of this country and the GDP, our output, were roughly the same. Today, our output is $21-22 trillion, but our national debt is $32 trillion. That is, over all these years, when we’ve had a sequence of debt ceilings, a rule that you can’t borrow more, after the theater of the president and the head of Congress getting together, they extend the debt, they raise the debt again, the ceiling is eliminated or postponed or reset at a higher level, and so the debts keep going. It’s 99% theatrics. Mr. McCarthy can say, “I’m against taxes,” which his base likes, and the Democrats can say, “Well, we don’t want to savage the spending the country needs,” which is what their base wants. They go back and forth. It gets dicey. We have late-night press conferences. And then we raise the ceiling, which is literally kicking the problem down the road.
JUAN GONZÁLEZ: But, Richard Wolff, it’s not just a question of not wanting to raise taxes, but under various Republican presidents and in Congress is the actual cutting of taxes. Didn’t the Bush tax cuts and then the Trump tax cuts have an important effect on the growth of the debt?
RICHARD WOLFF: Absolutely, the debt grows again. If you cut taxes, obviously, and you don’t cut spending, you’re going to have to borrow the difference. Or, if you like, if you don’t mess with the taxes but you spend more, then you’re going to have a bigger debt problem.
What we’ve had is a series of actions in which the euphoria of the moment gets a vote in the Congress without anyone speaking publicly about the impact. I’ll give you two examples. The one you will point to, the tax cut of Mr. Trump, still one of the greatest tax cuts in American history, in December of 2017, it was a savage reduction in how much taxes the government could get, and therefore, of course, it expanded how much you’d have to borrow to replace that debt. Here’s one on the other side. If you suddenly, over the year 2022, expand by $100-plus billion the spending plan for Ukraine, well, then, of course — for the war there, I mean — of course, you’re going to, therefore, get yourself again in an imbalance between the money coming in through taxes and what you’re spending.
There is another dimension to this that people are afraid to talk about but needs to be talked about. If the government borrows instead of taxing, this is really good news for corporations and the rich, particularly. And here’s why. If they can succeed in cutting their taxes, as they did under Mr. Trump, for example, then the government has to borrow. You know who the government borrows from? Them. It borrows mostly from corporations and the rich. The average people of America do not lend to the government, because they don’t have the money. So, the irony is there’s an imbalance. For corporations and the rich, they can get out of the taxes they might have to pay, and instead the government comes to them and borrows from them the money they otherwise would have had to pay in taxes. They have to pay that money back to those people, plus interest for the time that they hold this debt. So you can see that when corporate America pushes for tax cuts, it’s looking at two benefits: It doesn’t have to pay taxes, and instead it gets to have a loan to the government. The choice between those two is kind of obvious.
JUAN GONZÁLEZ: And the link between this increased spending, especially for adventures like the Ukraine war, and the inflation that many Americans are — or, all Americans are confronting today?
RICHARD WOLFF: Well, the biggest thing, which is, for some of us economists, kind of amazing to watch, over the last year, we’ve been told that the government, the Federal Reserve, has to raise interest rates. And the logic of hurting all the people whose credit card bills, whose college payment bills and whose car payments are all going up as interest rates rise, we are told this is necessary, because if interest rates rise, it becomes more expensive to borrow, and therefore people will do less of that, and they’ll have less to spend. And with less to spend, we will be slowing our inflation.
At the same time, the government is spending tens of billions of dollars on a new program — namely, the war in Ukraine — which has exactly the opposite effect. But the rules of our politics seem to mean we have to talk about Ukraine only in terms that are carefully cleansed from the inflationary impact such a plan has. It’s a kind of split consciousness that goes together with the theatrics of Biden and McCarthy, because they’re not facing the hard realities. They’re kind of dancing around them more to distract us.
AMY GOODMAN: And finally, Richard Wolff, if you can talk about the just concluded strike at your own school, at New School University, and Parsons? Tell us about it and whether you supported it.
RICHARD WOLFF: I supported it. If it was more than 100%, I would say more than 100%. Yes, I’m proud, I’m happy that we were part of a strike wave across this country. It’s the American working class waking up, realizing what’s been done to it for the last 40 years, which includes inflation, rising interest rates, several collapses of our economy, the worst one in 2008 and ’09. We’ve been suffering as the employee majority of the United States, and now there’s the beginning of the realization that getting together at the workplace to have a union, to fight, to strike if necessary, these are traditions that the American working class has the right to be proud of in the past, and even more the right to begin to exercise again now. So I’m very happy to be part of that process.
AMY GOODMAN: Richard Wolff, we want to thank you for being with us, professor of economics emeritus, University of Massachusetts Amherst, visiting professor at the Graduate Program in International Affairs at The New School university, host of the weekly program Economic Update. And we’ll link to your writings and work. That does it for our show. I’m Amy Goodman in New York, with Juan González in Chicago. Thanks for joining us.