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PAUL JAY: Welcome to The Real News Network. I'm Paul Jay. And welcome to this week's edition
of The Weeks Report with John Weeks, who now joins us from London.
John's a professor emeritus at the University of London School of Oriental and African Studies.
He's the author of the forthcoming book The Economics of the 1 Percent: 1 Percent Economics,
99 Percent Ideology, and he's the founder of JWeeks.org.
Thanks for joining us again, John.
JOHN WEEKS: Well, thank you for having me. It's always a pleasure.
JAY: So what caught your attention this week?
WEEKS: Well, two things caught my attention. The more pressing thing is that--the report
that the U.S. economy contracted. Everyone had assumed that it would expand in the last
three months of 2012, but it contracted, in fact. The U.S. economy had been growing at
a quite respectable 3 percent. There was a problem about generating employment and so
on, but at least it was growing. And it contracted in the last three months, the last quarter.
What was going on? I think that most rational people say what happened is that the budget
cuts--even though the budget cuts were in the military part of the budget, which is
not necessarily a bad thing--it's probably a good thing--still, budget cuts are budget
cuts. And what happens is the military was ordering fewer things from the factories,
and the people who supply the military were laying off people, and the people who were
laid off had less money to spend, and so on. So as a result the U.S. economy contracted.
Okay. So I would say we're being sent a signal there, and which I hope President Obama and
his advisers recognize that signal, namely, that if there's a so-called compromise in
which there are budget cuts to go along with raising the debt ceiling, then we're going
to contract again.
JAY: Now, you get an argument from the conservatives in Congress in the United States that this
will only take some time, that if you have smaller government and less government spending,
eventually the private sector is going to pick all of that up. What do you make of that
theory?
WEEKS: Well, I've always had a preference for fairy tales, but not that particular one.
I mean, it is amazing how much nonsense that you hear, the idea that if the government
were just smaller, then the private sector would expand to fill the gap, you might say.
There is a bit of truth to it. If the government contracted, the financial interests would
be able to appropriate what formerly had been the taxes that we were paying, so instead
of us paying to the federal government, we would be paying to the big banks in the United
States. I mean, there might be some people that prefer that their money go to the big
banks than go to the government. But to be serious, no, there is absolutely no sign that
the private sector will expand in the absence of a government stimulus, kickstart (if you
want to use a cliche), to get it going.
There is--interest rates are close to zero. How would a contracting public sector, how
is it supposed to expand, give a stimulus to business? The way it's supposed to happen
is the government stops borrowing, it reduces the deficit; that reduction in the deficit
brings the interest rates down, 'cause before, the U.S. government had been competing with
the private sector to borrow money, pushing interest rates up.
I think you can see that that story is absolutely madness now. I mean, the U.S. Treasury rate,
short-term borrowing rate is below 1 percent, below 0.5 percent. The long-term U.S. borrowing
rate is barely above 1 percent. So, therefore, if there were any businesss out there that
were eager and panting to borrow money and expand, just waiting for the government to
contract, why didn't they do it by now? They got--the money's not going to get any cheaper.
JAY: And certainly for the big banks, money's virtually free right now from the Fed. But
that doesn't seem to be inducing them to be lending it out.
But there's a critique of this that you can say comes from the left, which is that if
there's--government does matter, deficit funding does matter, some day rates will go up, and
then people are going to be paying extraordinary amounts of their national wealth towards paying
off this loan, and that it's better to have much more taxation than more borrowing.
WEEKS: Well, I wrote a little bit about this in The Real News last week that's still up.
At the present time, of the--about 6 percent of the federal budget goes to interest payments.
In 1991, the last--well, 1992, actually, the last year in which George Bush senior was
president, the percentage was 15 percent. So what we're paying now is far less than
it was then. And if interest rates were to triple, it would still be below that peak
in 1992. So what I would say is, let's worry about that problem when it comes around. Right?
Another aspect of it is, as the economy recovers, the deficit's going to get smaller, and it
will be less necessary to borrow, because as the economy recovers, more taxes will be
paid, there'll be more--more people will have higher incomes, more people will be employed,
businesses will be making larger profits (bless 'em), and the government will have more revenue,
and the deficit will go down.
In fact, that has been happening over the last 18 months. It's actually--the deficit
has been going down, and the ratio of public debt to GNP is becoming smaller. Sure, it
hasn't--no, it hasn't dropped tremendously, but the deficit, for example, has gone down
to about 6.5 percent. It partly depends on how you calculate it. But, you know, however
you calculate it, the deficit is less now than it was two years ago, and that has nothing
to do with the cuts. As a matter of fact, the cuts have probably made it worse, because
they slowed down the rate of growth.
So if the deficit is getting smaller, then we'll be borrowing less.
And in any case, there is another way to do it, for the government to do it, that doesn't
bother any of us, and that is for the government to borrow from itself. And what that means
is for the federal government, for the Treasury, which pays out all of these things and actually,
you know, pays for them with checks and money and so on, to go along to the Federal Reserve
system and say, give us a line of credit, whatever it is, you know, $100 billion or--sounds
like a lot of money, doesn't it? Whatever it happens to be, $1 trillion. And then you
don't have to borrow in markets.
And there's no--when we pay our taxes to pay off the debt, where are those taxes going?
The federal government itself is holding that debt. Where are they going? I'll tell you
where most of them are going. Most of them are going to the Social Security fund. Twenty-five
percent of our debt is held by the Social Security fund. So, therefore, when the debt
goes up, 25 percent of it more or less, if your taxes go up to pay more debt, part of
it's going to the Social Security fund. Another part of it's going to private pension funds.
I saw a recent estimate that said that the part of the debt which is held by the private
sector--and you might say the private profit-making sector--including foreigners, is probably
about 48 percent of the debt, slightly less than half.
JAY: So if--but if you look at from President Obama, who talks about the need to deal with
the debt--and certainly on the conservative side they find it the number-one priority,
and not just in the United States; you see the same debates in Canada and in Europe and
most other countries. But the elites certainly believe you have to pay down the debt. And
I assume it's because they think their assets are going to get devalued if that isn't done.
What's wrong with that? I mean, it's not just propaganda. These guys do seem to believe
it has to be done.
WEEKS: Well, I think it's a--it's not easy to explain. Many people say, or in the past
people have said, well, banks don't like debt because it might provoke inflation--which
I think in the current context is complete rubbish, but let's say it did. And so, therefore,
the banks don't like the deficit, they don't like spending, because it might provoke inflation,
and then the loans that they made will be devalued by inflation.
Well, I think that's no longer true, because banks don't make their money from lending
out anymore. I wish they did. And if you look at the financial sector profits, then they've
actually been going up while the rest of us have been not having such a happy time of
it. So it appears that the banks can make money when things are bad. They make money
when things are good. And it's no longer [crosstalk]
JAY: But there's a lot of people other than banks that would be affected if it became
inflationary, I mean, from people owning houses to people on fixed incomes to anyone that
owns some physical asset. They're worried about it depreciating.
WEEKS: Let me come back to that, that issue, 'cause that's--you ask, you know, why are
these--why are the wealthy, why are the rich, why are the 1 percent, why they're against
deficits and want the debt to be brought down. I think for the right--for the Tea Party people
in Congress and for the right wing all over Europe, they see a historic opportunity before
them that they haven't had in 50 or 60 years, and that is to destroy the welfare state--in
the case of the United States, to destroy what's left of it, and so they can say, look,
we've got to get this deficit down, we've got to do something about the debt, because
all of those future generations would like to pay it off, and all of those arguments,
and we might have inflation, and we've got to get it down, and the only way to do it
is to cut social welfare. Because what are the biggest programs in the United States?
Medicare and Social Security benefits. And so, I mean, you know, my heart bleeds, but
we've just got to get those down, 'cause otherwise America is going to go deeper and deeper in
debt. I think that that's their basic agenda.
JAY: And why?
WEEKS: And--you mean and what should we do about it?
JAY: No, no, I said why. Why? Because the alternative is higher taxes.
WEEKS: Because they want to redistribute income. See, currently people pay taxes. It goes to
the government. The government makes expenditure. Increasingly, those expenditures are--directly
or indirectly affect the 99 percent. What the 1 percent wants is to get rid of that,
is to get taxes down and say to people, look, you should be happy your taxes are lower.
But what will be happening in that process is there will be a redistribution of income
towards the wealthy, just as has been going on for the last 30 years. I mean, it's not
accidental, if you look at the statistics, that the decline in the size of the federal
government has gone hand-in-hand with the rise in the incomes of the 1 percent. And
I think that that's what they have in mind.
JAY: Alright. Thanks for joining us, John.
WEEKS: Well, thanks for having me. It's always a pleasure.
JAY: And thanks for joining us on The Real News Network.