this is richard wolff from democracy at
work responding to another ask prof wolf
question from our patreon community
but in fact today i'm going to respond
to two questions that overlap and so
allow me in a way to respond to more
than one at a time
which i would like to do when it's
possible so let me begin by thanking
nancy schwartz who sent in one of these
two questions and michael tanzi who sent
in the other
both of these questions go to government
finance in other words what is this
exactly uh go what is going on we might
say when the government borrows money
why does it do it what are the
consequences what alternatives are there
and of course this is an urgent question
because in our times right now
governments are borrowing more money
than we have ever seen uh in the history
of not only peace time but any time uh
in the the lives of countries including
the united states
so here we go when the government does
things all kinds of things and let's be
really clear in the history of
capitalism and before that too
we have always had governments do
enormous numbers of things
there's all kinds of reasons for that
including the economic
reality that we see everywhere that if
you have a big entity doing a whole lot
of things it's often cheaper than having
all of those things done by individual
units called economies of scale uh in
economics it's why we have large
corporations it's why we have large
governments they can do things and by
doing it for everybody they can minimize
often the costs and so on that are
involved but in any case when we have
governments and we want them to do
things like maintaining roads or
providing security or whatever it is the
question is how we're going to pay for
that
and one way to do it is to tax and
societies have been doing that for a
long time we take money from individuals
from institutions from corporations from
businesses we bring it all together give
it to the government so it can pay the
people and the input costs for providing
the services we want and that's the end
of that story it can be done we can pay
as we go as a nation by taxing ourselves
to enable the government to function
however
what we have particularly in capitalist
societies is a very well coordinated
effort by business to avoid paying taxes
and by rich people to avoid paying taxes
it's not that the rest of us don't want
to avoid it but we don't really have the
way to do that big corporations collect
into their hands amounts of money that
allow them to buy politicians and you
know the rest of that story rich people
likewise so they begin to resist paying
taxes and they do that quite
successfully that pushes the burden of
taxes on to the rest of us the mass of
the people and they keep doing that
until the mass says no more we can't
have it now the government's in a jam
everybody wants the services it provides
businesses workers and so on but nobody
can pay for what it now costs and what
happens is the politicians
solve that problem by borrowing they
don't tax the rich they don't tax the
rest of us as much as they might need to
to perform their functions but they
borrow instead that's another way of
getting the money and by borrowing we
call that issuing bonds in other words
they give an iou to whatever
lender is going to give them money and
that's all a government bond is it's the
same thing as government borrowing it's
just a form in which that borrowing is
done you literally if you lend to the
government get a piece of paper where
the government promises to pay you back
at a certain point and to give you
interest payments between now and when
they pay you back it's an iou like any
other
now here comes the politics of it all
who lends to the government the answer
is the mass of us
employees don't
the major lenders to the government of
the united states for example are big
corporations led by banks
big insurance companies very wealthy
individuals who lend and foreign
governments that's basically it the mass
of the working class doesn't lend to the
government oh
now let's understand what that means
the government is spending money for
services
but is borrowing it
from the rich
it could have taxed the rich it could
have taxed the corporations
but they were politically powerful and
got that stopped
so instead they still give money to the
government but instead of a tax
they have arranged for government
borrowing the government comes to them
and borrows the money it did not have
the courage to tax
and so now for rich people and
corporations they are in the catbird
seat aren't they instead of paying taxes
they give that same amount of money to
the government but it's a loan which
they will get paid back and while
they're waiting they'll get interest
this is the best arrangement for funding
the government that rich people and
corporations could ever have imagined
and guess who has to come up with the
money to pay him back
and the money to pay the interest uh-huh
you and me who will pay the taxes
eventually to do all of this
payback that has to happen
so government bonds are a maneuver
borrowing from corporations is a
maneuver it saves them from having to
pay taxes and then doubles the reward
not only will you not have to pay taxes
but we'll borrow the money from you pay
it all back and give you interest in the
meanwhile no wonder eventually this
system blows up as the mass of people
watch themselves squeezed ever more by a
government that is serving the rich and
powerful in this way which is a little
bit hidden but once you study it you can
see exactly what's going on final point
there are critics of this system of
course
one of the most recent ones is modern
monetary theory which simply explains
you know the government could print the
money
the government needs to do its services
and inject money into the economy to pay
for the things the government wants and
that way there'd be no debts there'd be
no serving the wealthy you would put the
money in when the government needs to
spend and you'd pull the money out where
the economy needs it by taxing and you
know who you'd probably tax if the mmt
people were in charge you'd probably tax
corporations and they're rich which is
where you should have started in the
first place
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