The Economics of the 1%: Deficit Disorders and Debt Delirium

John Weeks: A fundamental misconception of neoliberal economics is that governments need to balance their budgets like a household.

TRANSCRIPT:

JAISAL NOOR, TRNN PRODUCER: Welcome to The Real News Network. I’m Jaisal Noor in Baltimore.

We’re continuing our discussion about the new book Economics of the 1%. We’re joined again by its author, John Weeks, professor emeritus at the University of London, regular guest of The Real News.

Thank you so much for joining us again, Professor Weeks.

JOHN WEEKS, PROFESSOR EMERITUS, UNIV. OF LONDON: Well, thank you very much. It’s a pleasure to be here.

NOOR: So, Professor Weeks, you wrote this book to kind of break down the mainstream mythology of economics and break it down for the average viewer and consumer to really be able to understand, and you attack some of the central myths that permeate throughout our media and society. And one of those myths is around—as you break it down in your chapter “Deficit Disorders and Debt Delirium”—and it’s the idea—and you hear it all the time if you put on the mainstream news, whether it’s CNN or Fox or MSNBC—is that we have to run our national government like we would a household, as far as budgets go and debt goes. The same way as you don’t want to be in debt with your own budget, our national government should not be in debt. Can you break down what’s so wrong about that idea?

WEEKS: Yes. I think that this is a good example, the triumph of nonsense over good sense. I mean, most people know that that’s wrong deep inside, because they behave in a way that shows that they know it’s wrong. Yet they repeat it. And politicians make—gain purchase on people’s votes by pursuing it.

So let’s take a few examples. Households shouldn’t go into debt. What about mortgages? Most households in the United States have mortgages. Now, it’s true, the subprime crisis led to a lot of people being stuck with debt they coudn’t manage and losing their houses. But that’s not a problem of going into debt. That was a problem of a bunch of crooks selling mortgages, for which they did not go to jail, unfortunately.

For generations, people have been buying houses by borrowing. Okay. So you say, well, alright, I accept that, but when you buy a house, you get an asset, and so it’s sort of borrowing, but you have this house. It’s an asset. And you can always wipe the debt out.

The exact same thing is true of governments. Governments have a very large amount of assets. And I’m not talking about the roads and things such as that. I’ll give you an example. People will say that U.S. public debt is $13 trillion, $15 trillion, $16 trillion. It partly depends on exactly how you measure it. That shows a tremendous confusion, because the U.S. government actually holds assets—we’re talking about financial assets. I’m talking about euros sitting in the Federal Reserve system and in the Treasury. These are liquid assets. The what’s called a net debt of the United States is below $10 trillion. So it’s, like, 60 percent of it. First.

Second—and this really hard to get through to people’s minds, and it’s so important—the U.S. public debt is also simultaneously an asset. How could you say that? That sounds totally crazy. All that—you know, the government’s putting up money. How can it be an asset?

Let’s take the Social Security system. Millions of Americans (I’m one of them) receive Social Security payments, and that program has been extraordinarily successful in keeping elderly Americans out of poverty. Where does the money come to pay those pensioners every month? The Social Security system holds public bonds. That is, they hold government debt. The government pays interest to the Social Security system, and the Social Security system pays that interest to people like me and your grandparents and elderly people all over the United States, and elderly people who worked in the United States and live in Greece, live in India, all over. These are assets. The Social Security system alone holds about 40 percent of the U.S. debt. Other pension funds, private pension funds, hold another 20 percent. So a tremendous amount of that debt is actually an asset. So that’s a first point.

Households go into debt—mortgages. Government goes into debt. And you also—households go into debt when they buy automobiles. But [incompr.] those are assets, aren’t they?

So you can say, well, they compensate each other. Households go into debt to send their children to university, colleges. Most middle-class households [incompr.] I’m sorry. I’m so opposed to debt. You’re just going to—at 18 you’re just going to have to go out and get a job. I can’t send you a loan. Either I have to go into debt to do it or you have to go into debt and do it. So of course people go into debt to do that. It makes sense. You’re increasing your earning power.

And there’s still another example which is quite important in terms of the function of the federal government, and that is: say that, heaven forbid, you are—decide that you didn’t want to work for The Real News anymore, that you were going to quit and go to work for some other—something like openDemocracy or whatever it is. (Let me say, I’m not recommending it. I hope you stay where you are.) Okay. Well, it’s very possible that when you quit one job, the other one won’t begin the next day. So you have a couple of months, maybe more than that, in which you won’t have an income. So you say to yourself, no, no, I can’t change jobs, I can’t, because those months I would just—I would have to borrow. No, no. Of course people borrow all the time to do exactly that.

The problem comes when a household is unable to repay. And when a household is unable to repay is when the national economy is in recession, as it has been for the last five or six years. And that’s when we need the federal government to come in and support people’s incomes through unemployment compensation—which it does, of course, but there had to be a very bitter fight to extend that.

To end this up, summarizing, you might say, when the reactionaries say governments should run their budgets like households, they’re right, but for entirely the wrong reason. Households go into debt. Households realize you should have things like bridging loans and that you should not stop consuming the moment your income drops. The difference with the government is, unlike a household, its expenditure is so important in the economy that it can actually stimulate the recovery of the economy. An individual household can’t do that. And that’s what President Obama did in 2009, but inadequately. But, still, that explains why the U.S. economy is growing a bit while the European economy is in total stagnation.

NOOR: Professor Weeks, thank you for joining us for part two of this discussion.

WEEKS: Thank you very much for having me.

NOOR: You can watch all three parts at TheRealNews.com. Make sure to watch part three as well.

Thank you so much for joining us.