On Contact: American economic illusion
On the show this week, Chris Hedges discusses with the economist Richard Wolff the nearly $5 trillion being allocated by the Biden administration for Covid-19 relief and infrastructure projects.
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Chris Hedges: Welcome to On Contact. Today, we discuss the nearly $5,000,000,000,000 being allocated by the Biden administration towards COVID relief and infrastructure with the economist, Richard Wolff.
Richard Wolff: Here's the little detail of economics people should remember, the--when the government doesn't tax corporations and the rich, and chooses instead to borrow, the people it mostly borrows from are corporations and the rich. Look at it for a moment from their perspective. Instead of having their wealth and income taxed to pay for something that the society needs, they are instead offered, "We'll borrow it from you. In a few years, we'll pay you back and we'll pay you interest for the interval." Choosing between deficit spending and being taxed is a no-brainer.
CH: The ruling elites know there is a crisis. They agreed, at least temporarily, to throw money at it with a $1,900,000,000,000 COVID-19 bill known as American Rescue Plan, ARP. And some $3,000,000,000,000 dedicated over the next few years to addressing the country's badly decayed infrastructure. But the some $5,000,000,000,000 will not alter the structural inequalities, either by the raising the minimum wage to $15 an hour or imposing taxes and regulations on corporations or the billionaire class that saw its wealth increase by a staggering $1,100,000,000,000 since the start of the pandemic. The health system will remain privatized. Meaning, the insurance and pharmaceutical corporations will reap a windfall of tens of billions of dollars with the ARP. And this, when they are already making record profits. Corporations that do construction and repair work will reap similar windfalls enriching stockholders. Eighty-four percent of stocks in America are held by just 10% of the population. And providing lavish bonuses to corporate managers, the endless wars in the Middle East, and the bloated military budget that funds them will remain sacrosanct. Wall Street and the predatory global speculators that profit from the massive levels of debt peonage imposed on an underpaid working class and loot the US Treasury and our casino capitalism will continue to funnel money out--money upwards into the hands of a tiny oligarchic cabal. There will be no campaign finance reformed and our system of legalized bribery, the giant tech monopolies will remain intact, the fossil fuel companies will continue to ravage the ecosystem. The militarized police, censorship imposed by digital media platforms, vast prison system, harsher and harsher laws aimed at curbing domestic terrorism in descent. And wholesale government surveillance will be as they were before the primary instruments of stature control. What happens to the majority of Americans who get government support for only a few months? What are they supposed to do when the checks stop arriving at the end of the year? What happens when the money for infrastructure projects runs out? Will our roads, bridges, harbors, public transportation, and electric grids again be neglected? Will the federal government orchestrate another massive relief in infrastructure package? Joining me to discuss these relief bills and the future of the American economy is the economist, Richard Wolff, a visiting professor in the graduate program in International Affairs of The New School in New York, the host, the nationally syndicated program, Economic Update with Richard Wolff, which is produced by the Democracy at Work. So Rick, let's talk. It's a lot of money, $5,000,000,000,000. But let's break it down and what it--what it really means. We can start with the COVID Relief bill and then go onto the infrastructure bill proposal.
RW: Well, I think the basic message of both of these big bills is that the capitalist system of the United States is now 100% on life support from the government. It is literally life support in the COVID case because of the disastrous failure of our public health system to manage. We are four percent of the world's population and we have twenty percent of the world's deaths from COVID. It is a staggering statistic that screams the inadequacy of what was done here. And so we're going to throw money at it, rather than asking, "What were the conditions that produced a failure of this magnitude?" And for that, blaming Mr. Trump won't do, it does not go far enough to understand why it was even possible for one politician like that to be able to act in the way that he did. And it's really the same with the Infrastructure Bill because there, it's, again, a government on life support, having neglected our infrastructure so that we are a disaster--that's according to the engineers here in the United States, not some foreign entity making a value judgment. We've let that go because of the structure of our system. Private enterprises are not charged with maintaining the infrastructure, that's a government function. But the government, unwilling or unable to tax corporations and the rich, is--does not have the money to do it, neglects it because you can get away with that as a politician, it's our political economic system. You put all this together and, yeah, they are throwing tons of money at it, but that is a substitute for changing any of the basic conditions that brought both the public health disaster and the neglected infrastructure to the critical point that something has to be done and throwing money at it is the last gasp step of a system unwilling to question its basic structures and looking for a temporary quick fix.
CH: Isn't it just trickled down economics? I mean, they…
CH: They're giving all this money--all this money to private corporations and then, you know, this mantra of it's going to trickle down to the American public.
RW: Yes, it is and I--I'm so glad you brought up that old statement, that old phrase, "trickled down" because it is old. It is a standard operating procedure, when the system begins to stumble over itself, you throw money at the top, you tell everybody about the wonderful useful things it may do, but you leave out all the little details, so let me go through them and I'll use, in this case, the infrastructure story because that's on everything's mind these days. You are looking at $2,000,000,000,000 to $3,000,000,000,000, depending on how it finally breaks out in the Congress, that is going to be spent. But let's look at where it's going to be spend--spent. Part of it will go to very large corporations, you know, the kinds of corporations that rebuild bridges, pave the roads, develop electric charging stations for electric vehicles, all of that, that money is going to go to big corporations. The other part of the money is going to go to the peaks of the political system, governors, government agencies at all levels. Well, they have a very cozy relationship, these two. The government leaders are the ones who give the contracts to the big corporations. They will take the federal money that comes to them and give it to the big corporations who don't get the money directly from the federal government and there'll be many of those. And now, let's see what they will do. Well, they will do what large corporations always do. They will pay very nice dividends to their shareholders, they will maintain or enhance the pay packages for their top CEOs and other officials, they will pad their own budgets, they will plan for the future, and then there will maybe some trickle down to the mass of the people. But we know how they behave, we've watched it for a century, there's no basis to expect that they're going to behave any differently. So there may be some roads that are fixed, absolutely, and some bridges that are reinforced, and that's all very nice. But you have done anybody nothing to transform the inequality of this system, the fact that a decision made by a tiny minority, the employer class in this country, is what shapes the economy for all of us, the majority, who are excluded from just those decisions. You've done nothing about that. So it seems to me the Biden administration stands exposed as everything [INDISTINCT] of it was, which is a less harsher version of what the GOP offers us, but is equally committed to reinforce the basic structure of this system and simply trying to get us through this severe crisis without shaking any of the basic structures.
CH: Let's talk about the stimulus checks. Biden, of course, campaigned on $2,000 stimulus check. That had been reduced to $1,400, extension of unemployment benefits, I think, until July, and then the tax credits for children. These are very temporary measures. By the end of the year, all of that is going to have been evaporated. And we should put in context the distress of the American working class at this particular moment. So can you speak about those measures that are targeted towards citizens themselves?
RW: You know, it has become a staple of American politics that when you give an enormous gift to the rich who don't need it, you'll always throw a little bit, it's a kind of trickle down. You throw a little bit at the masses in the--hoping that the illusion takes that we're all getting the help. And so you give a little--the big tax cuts, always had a little tax cut for the average person, not enough to make much of a difference, but enough to get you through the ideological problem that you're giving the lion's share of these things to the people who need it least. Let me give you a simple example. These checks that were sent out as part of the relief, American Rescue Plan, were originally scheduled to go to many millions more people than they in fact are now going. And the cutback was used--was justified by a remark made by many politicians that we only should give money to those who need it, as if they--we all have an agreed notion of need. But I love it because it stands in such contrast to what was done during the tax cut time in the December of 2017 when Trump gave an enormous tax cut to corporations and the rich. No one then said, "Gee, this tax cut should only go to those businesses that need it and not to all the businesses that don't need it." When it was obvious that that would've been a reasonable thing since the preceding 30 years had been record profits for American corporations. So the question of neediness was certainly there. No one said a word, but when you give a small check, $1,400, as I'll get to in a minute, suddenly, the need issue gets raised and people nod and say, "Yeah, you know, we should limit it to need." The selectivity of the need calculus has to be stunning when you think about it. Let me give you one statistic about how it can--you can see the inadequacy of a $1,400 check. Forty-three million families in America rent their home, nine million of those forty-three are now in arrears, that is, they have not paid their rent for one or more months. They had been tortured by being told in two or three, or four months, you're going to have to make good on all of this, the eviction ban has now been extended yet again. Kind of cruelty to do this every two or three months with the fear of being forced out of your home on everyone's mind, it's now been extended until the last day of June of this year, which isn't that far off. Okay. We know that somewhere between $5,000 and $6,000 is the average arrear miss. Okay. A $1,400 check doesn't even begin to deal with that one issue for--and by the way, nine million out of forty-three, that's over twenty percent of people renting in this country are this impossible position. Will $1,400 help? Sure. It will. Like, will there be some roads built? Yeah, there will be some and some bridges. But what you're doing is a fake, a kind of sop to a--to the masses so that you can get through the enormous gift. One last point, Chris, that's so important here. The government had a choice to make. Mr. Biden had a choice to make. He could fund both the COVID Relief bill and the infrastructure bill by taxing corporations and the rich. It would've gone a major step in the direction of reducing the grotesque inequality in this society and it would have funded those programs without borrowing. Here's the double irony. Mr. Biden chose not to do that to make the adjustments to our inequality much smaller than he could have and should have, controlling both houses of the Congress and maybe going to the mass of people. But here's the little detail of economics people should remember, the--when the government doesn't tax corporations and the rich, and chooses instead to borrow, the people it mostly borrows from are corporations and the rich. Look at it for a moment from their perspective. Instead of having their wealth and income taxed to pay for something that the society needs, they are instead offered, "We'll borrow it from you. In a few years, we'll pay you back and we'll pay you interest for the interval." Choosing between deficit spending and being taxed is a no-brainer. And the next time you hear some big corporate executive giving you a 4th of July speech about how the government should live within its means, remember that when the government borrows, that's a gift to corporations and the rich because they then don't have to pay in taxes and instead get to make a loan to the government and they get all that money back. The illogic and the injustice of this is a screaming reality.
CH: Great. When we come back, we'll continue our conversation about the future of the American economy with Professor Richard Wolff. Welcome back to On Contact. We continue our conversation about the relief bills and the future of the American economy with Professor Richard Wolff. So the pandemic has been very, very good to the rich. That's the irony of this particular moment. Explain how they have managed to make such profits while most of the country has suffered such a catastrophic economic assault.
RW: I'd be glad to, Chris. And it's a window, if you like, to the way American capitalism has worked for quite a while since these are tried and true measures that have been used in this case. Let's begin with the decision to let the Federal Reserve, our central bank, play the kind of leading role in coping with a catastrophe of the twin catastrophes of a viral pandemic and a global capitalist crash. What the Federal Reserve did and what it typically does is two things. Flood the economy with new money, print money like it's going out of style, with a flick of your wrist, you can add to people's bank accounts. And all of that was done. And the second thing the Federal Reserve did was drop interest rates to virtually zero, actually negative in a few cases. This was a wonderful move, classic, designed to give huge amounts of new money at virtually no cost to the American Corporate System. I shoulder underscore every corporation in America that had any kind of economic problem over the last--not just the last year, but really most over the last ten years, but particularly in the last year was able to solve that problem, whether it was a commodity that no one wanted to buy, or a poorly chosen, technology or a decision to invest abroad. Whatever it needed money for, the easiest, quickest, and cheapest way was to go to the Federal Government, the Federal Reserve which was dishing out the money at next to zero interest rates. That's why all of corporate America is up to here in its financial indebtedness because of this peculiar policy. But the irony is all that extra money and all those low interest rates did indeed lead businesses to borrow, but not to produce more goods and services. And the reason they didn't was because we have millions and millions of people unemployed who can't possibly pay for or buy what they were even able to buy before the pandemic. And we have millions more who didn't lose their jobs but seeing the unemployment all around them, seeing the uncertainties of their job future they face are not about to spend money the way they used to, they are holding back. They are frightened. So no capitalist had the incentive to borrow money to produce more goods and services or to hire more people, the classic hope of those who support federal policy. Where then did the money go? Answer, stock market. People borrow that money at low interest rates, and did with it that one thing that look like it might make you money. Buy shares of stock, hold them for a few weeks or months, sell them to the next guy who's also borrowed the money from the Federal Reserve, will pay you more than you paid for that share in order to then resell it himself or herself three months later to the next one. This is a classical Ponzi scheme like game in which the stock market goes up. Why do I tell you the story? Because the rising wealth of the already rich in America is the story of the 10% who own 85% of the shares, they have participated in this rising stock market in a way that the rest of the country cannot do which produces the ironic result that in a period of national catastrophe, the twin crisis of a COVID disaster and a capitalist crash, the riches people got richer and millions of other people used up whatever savings they have. Let's remember, over 60, 6-0, 60 million Americans were unemployed for part of the last year, some only a few weeks, some the entire time. That's more than 1/3 of the entire labor force of the United States. When you're unemployed, you use up your savings if you have any. You become a burden on your fellow community members, your family, your friends who are also in economic difficulty. It is a story in which the working class was really hammered in a way it hasn't for a long time while the riches got richer. That's an unsustainable economic outrage.
CH: Let's look at what happens when by the end of this year, these relief checks are gone, this money is spent, and we should be clear that $1,400 check is going to go right into the pockets of credit card companies, student debt services, landlords, utility companies, et cetera. It won't last very long. Don't we end up right back where we were?
RW: Yes. We have never gone away from that. This crisis has been handled first by Trump. Well, I have to be honest, if you go back to the 2008 crash--because we should all remember, we have now been crashed twice in a mere 12 years, not much in historical time. A catastrophe in 2008 and '09, and now again in 2000. We can always blame some external event, the subprime mortgage disaster in 2008 or the COVID viral pandemic. But this is a system that crashes very regularly and blaming the trigger is a game when you don't want people to ask, is there something built into this system? But yes, we have done nothing to change it. The charge of the Republican and Democratic Party leaderships is to get the system through its own crisis without compromising who's the rich people, who are the ones in power, and in control. And you can see it step by step, nothing makes it more clear than this growing gap of inequality. Mr. Trump came in to office promising implicitly and explicitly to do something about the inequality. Phony, he made it worse. Mr. Biden is coming in, made the same promise, and now it looks from these two bills like he's just not able to do it or willing to do it. Look, in December of 2017, the tax rate on corporate profits was dropped by Mr. Trump and the Republicans from 35% to 21%. A staggering cut in the tax on corporations which came after a 30-year-period in which corporations were more profitable than at any other comparable period in American history. If ever the case could be made, they didn't need a tax cut, that was the case to be made then. They got it. They got it and in this tax cut was buried a commitment to keep the system going only more so. And what is Mr. Biden proposing? To raise the corporate profit rate from the 21% that Trump brought it down to back up to 28%. Literally halfway back to where it was and the chances are he won't even get that through the congress, it'll end up being less than the 28%. Well, you know, this doesn't--barely reverse Trump, let alone make a positive change. And with all the hoopla about spending on COVID relief, and I'm glad he's doing it, and the hoopla about infrastructure, and I'm glad he's doing it, the other side of that story is the absolute refusal to make anything like the basic cultural changes. And a final addendum, Mr. Biden said the other day that this is a basic change, then he used the phrase, "I'm not tinkering around the edges." Well, the way you can summarize what I'm arguing is that's exactly what he's doing. He's tinkering around the edges, and like other politicians, hopes that by saying he isn't doing what he's doing, we all miss the reality of what he's doing. And that is a--he's not even doing FDR. He's not making a structural change. He's not introducing a social security or a minimum wage, or all the breakthroughs that FDR made and he didn't change the capitalist system either because he was part of it. But he at least recognized you need to make basic changes, we're not even seeing that here.
CH: Just in a last few seconds, economic and political consequences.
RW: The inequality and the bitterness of the American people, the mass of the working people, as the American Dream slips further and further away is more anger, more bitterness, more openness to scapegoating that any irresponsible politician can think of. And we got lots of those to worry about because of the failure to change a system that doesn't work anymore.
CH: Great. Thank you very much. That was Professor Richard Wolff on the future of the American Economy.