[S12 E17] New
In this week's show, Prof. Wolff talks about Sri Lanka’s economic crisis as a global example, and how US billionaires escape taxation at our expense. In the second half, Wolff discusses how and why the market system produces inflations like today’s.
Transcript has been edited for clarity
Welcome friends to another edition of Economic Update. I'm your host Richard Wolff. In today's program we'll be talking about how emerging market economies—in this case Sri Lanka—get themselves into the kinds of catastrophic problems that that island country now has…and that many other countries have had…and will continue to. We’re also going to talk about how billionaires here in the United States keep evading their fair share of taxes year in and year out. Then finally the bulk of today's program (mostly in the second half but some in the beginning) we’ll be talking about that inflation we're suffering and how it connects to our market economy and to the capitalism that is the name of our system. Okay let's begin.
Sri Lanka, a country in Asia—known in the old days by another name, Ceylon—off the coast of India. An independent country [which] has had a strong manned government for quite a while…a very powerful leader. But it is less interesting for that fact (which it shares unfortunately with many others) than it is for another fact (which it also shares) and that is it is in the last stages of an extreme economic meltdown. There's not enough food, there's not enough fuel, there's not enough medicine. People are in the streets in huge numbers battling against a government that clearly the majority of people there don't want around anymore. And I wanted to explain why that happened…not so much just in Sri Lanka (although every country has its particular facts) but because it happens so often in Asia…in Africa and Latin America.
Okay, here's how it goes…it starts with international banks—usually not located in these countries. Located in—you guessed it—New York or London or Paris or Berlin—one of the old colonial centers. Japan might be another one. Here's how it goes…the bankers see an opportunity to make a very profitable loan. They get in touch with the big strong man government. Sometimes, of course, it goes the other way…the strongman government gets in touch with the bank. By now it has happened so many times back and forward that it really doesn't matter. They get together and they make a big fat loan—these days in the billions of dollars. And here's how it works—the official word is that the loan is for the economic development of Sri Lanka or the economic development of Nigeria or the economic development of Ecuador—doesn’t really matter.
Here's what happens—the money comes…billions…but it is used primarily for two immediate purposes. The government of the strongman leader who gets the loan uses it to build up its political support…to give money to those areas where they need votes…to bribe all kinds of political movements or communities to vote for them—the usual things that politicians do. Another part of the loan is used to pay fees and consulting bids to the very bankers from whom the loan comes. That’s right—the bank makes the loan because it's going to get back 10, 20, 30, 40 percent of that loan in fees and early payments…in all kinds of money coming back. In other words the two sides of the loan—the lending bank and the strongman government—each get a pot of money to use for themselves. What then does the bank do? Having gotten back 30, 40 percent of the loan within a very short time—they then sell the loan. And remember the loan still says 10 billion dollars or whatever amount owed by Sri Lanka to a collection of banks in London so that debt is still there. But the bank sells it to what is called a vulture capitalist—a company that buys that 10 billion dollar loan owed by Sri Lanka but only pays the bank 6 billion. The bank is happy it's gotten the rest of that money back way earlier than it thought anyway—so it's golden. The vulture capitalist now has the incentive because they own a loan that Sri Lanka has to pay of 10 billion but they only paid 6 [billion] for it. So, they can force payment out of Sri Lanka—even if they give Sri Lanka a billion off—they will have made a fortune too. And so they go to work…they go into courts all over the world hounding the Sri Lanka government…taking its money where they can get a court to seize it…blocking exports and imports that aren’t paid for in advance. Because they're demanding repayment of their loan, they use every device to squeeze Sri Lanka. That's what's happening. That's why Sri Lanka cannot import the food, the fuel, the medicine to keep its people going. That’s why there's chaos in the street. In other words, in the end, either this strong man will repress these movements—and then you'll really have blood running in the street…or the people will overthrow the strongman.
But here's the sad [part]—you know what they'll turn up next? Somebody else who's going to be the next strong man. And even if he or she isn't intending to…they will be approached by the banks and they will be approached by the political forces in their country to do it all again. There are many countries in which this horrific story is repeated over and over again.
If you allow the people who run your country to be a small unaccountable group—they will cut these deals with bankers and the people will suffer and suffer and suffer. It is the history of what has happened in most of the countries that fought for independence from their own colonial master—just to discover that even when you’re independent—if you don't change your basic economic system—you're going to be stuck—again and again. Basically that's the so-called world of high finance.
The ProPublica internet magazine released some documents recently that are really remarkable. They are about the 15 richest income recipients here in the United States and what they pay—or to be more honest—what they don't pay—in taxes. I want to just mention one—because it’s so gross it'll stand for the others. Michael Bloomberg, once the mayor of New York City, a multi-multi-billionaire, they looked at his income from the five years 2013 through 2018 during which time he had many billions of dollars of income…that’s in addition to the billions of dollars of wealth he already owned. What was his tax rate over those five years?…on the billions of his income…Ready? 4.1%...That’s way less than most people who work for a living pay as a percentage of their wages. He didn't work for the money. He got it all in dividends and interest and all the rest. Here’s how this works in case you haven't figured it out already. The billionaires donate to the politicians and the politicians write the tax laws the way the billionaires who donate to them prefer—that allows the billionaires to hide money around the world, to escape taxes legally and all the rest—and that gives you Mr Bloomberg.
Some of you know that the income tax in the United States is so-called progressive. What that simply means is the higher your income the larger the percentage of it you are required to pay. What you may not know is that the income tax which is the only progressive tax, basically, in this country, has been bringing in less and less of the government's money. It now brings in less than half of the government's money. Equally important is Social Security which is not a progressive tax. It is the opposite—a regressive tax—in other words the richer you are the less the proportion of your income you pay for social security withholding. It is the opposite of progressive—but that's just a federal tax. If you turn to the state and local taxes they're overwhelmingly regressive. In other words, most states rely on a sales tax. You go into a store…you buy a can of beer…you pay exactly the same amount of money as Rockefeller does when he goes into that store and buys a can of beer. In other words your ability to pay—the idea behind progressive taxes doesn’t apply. Mr Rockefeller, for whom the tax is totally irrelevant, is in the same boat as you are—for whom the tax is a significant part of your income. So if you put it all together we don’t have a progressive tax system. We have quite the opposite—federal, state and local put together are regressive.
But here is probably the single most grotesque part of our tax system—we don't rely on taxes the way other countries do. For example, we could have a tax system based on property not income…what you own—not what income flows to you. So for example. Michael Bloomberg owns billions of dollars mostly in the form of stocks and bonds and financial assets…they’re called. Guess what? There’s no property tax on that kind of property. Your local community taxes property in the form of land, in the form of your house, in the form of your car. That kind of property called tangible property is taxed usually at the local level in this country—not by states and not by the federal but by the local government. But here's the gross thing—for you never to forget—in our country, the only kind of property that's subject to taxation at the local level is tangible property—land, house and car. It's the kind of property middle income people can afford. The kind of property that rich people (mostly) have— stocks, bonds, cash— stuff like that—does not get subject to property tax. You sell your 100 thousand dollar house you stop paying property tax. When you had the house you had to pay property tax. When you sold the house and bought shares of stock you don't have to pay property tax anymore. That's a subsidy to the rich. There’s no excuse for it—there’s no need for it. Other countries and even this one at different points in time didn't do that. It is simply and grossly unfair as is Mr Bloomberg and others like him getting away with not paying anything like the same rate of taxation that most of you and I pay as a matter of course. We are being ripped off because the government—that doesn't get the taxes billionaires ought to pay—is a government that either makes us pay in the place of those billionaires or…uses the fact that the billionaires don't give them taxes to do something else…to go to them and borrow the money instead. That’s right—instead of the billionaires paying taxes—they lend that money to the government. Get it all paid back to them and we pay extra taxes to give them interest while they wait for the repayment. Only rich people could have designed the tax system like that.
We've come to the end of the first part of today's show and as we at Democracy at Work continue to celebrate our 10th anniversary, we want to invite and encourage all of our listeners and viewers to explore the variety of other shows, podcasts and books we produce. For example, Capitalism Hits Home, a podcast hosted by mental health counselor and long-time activist in the feminist movement, Dr Harriet Fraad. You can find her show and get further involved with all of the work we do at Democracy at Work by going to our website democracyatwork.info Please stay with us. We’ll be right back.
Welcome back friends to the second half of today's Economic Update. I want to talk to you about inflation—the one roaring across the American economy as we speak. Eight and a half to ten percent depending on exactly how you measure it—may be worse if you measure it in the way maybe you ought to—but let's leave that issue for the experts and the technicians. Prices are rising fast. Everyone knows it and it's really a burden, isn't it? Let’s be honest, we as a nation have come through the worst public health disaster in our country's history—and the second worst economic crash—all in the last two years, 2020 and 2021. What a thing now with that two-year disaster behind us—we get hit with an inflation worse than anything we've seen in 40 years. It's really extraordinary what you are subjecting the working class of this economic system to these days. Well, let's be clear what it means when inflation happens. This is all too simple and yet all too quickly overlooked in most of the mass media.
Prices are set in our country by a tiny minority of the people—employers—the class of employers. If you're an employee, like 99 percent of us, you know that you've never been in a room where you set the prices of the products you help to produce—the goods and services. Your employer has that exclusive responsibility and privilege. So if prices are rising—let's be real clear friends—it's the employers that are doing it. Let's listen to what their employers are saying to explain the prices they’re raising for all the rest of us to pay. They give two basic arguments—number one—we're doing it because everything we buy has gone up in price. In other words, the employers are telling us they have to do it…Why? Because other employers are doing it…oh, how interesting…all the employers together are using each other as an excuse.
Here’s the second excuse—workers are demanding higher wages. Well, here's a problem folks, prices are rising roughly 8.5 to 10 percent. Wages are not rising like that. They’re not even rising more than about half of that on average—with millions of workers getting no wage increase at all. So that's simply not true. But let me do the economics with you because you'll understand something here—very clearly. Suppose workers have more money to spend—I mean they don't these days—but let's assume they do. Let's assume, even further that…having not spent money during the pandemic and the crash…saving it up—they're now ready to spend. Let’s assume they're borrowing more again so they have more to spend. Here’s a lesson in economics you should never forget. Every business man or woman—the person who's the employer in the factory, the office or the store—has a choice to make. When workers or consumers (let’s call them by their other name) come toward you with more money to spend—there’s one thing you can do but there’s a second thing you can do—you can respond to the rising demand for whatever it is you produce and sell either by making more of it… because you can sell more…or by raising the price. In the so-called free enterprise system, we give a tiny minority of our population—employers—the freedom to choose. They're going to choose whatever they prefer so one business will raise its prices…another one will order more produce to sell. If more people are coming in the store you can go either way but the social consequences are enormously different.
If the business responds to rising demand by ordering more goods and selling more—that’s great because that will mean people get hired to produce those extra goods. It’ll mean more jobs—we like that response. Compare that to the other choice the employer has—not to order more goods—to say—Oh great! All these extra people coming in with money to spend—I'm going to jack up the price! I may even sell less than I did before but I'll make more profit because I've jacked up the price so much! Then the private decisions of employers produce the inflation we're suffering from…Here’s what I want everyone to understand—whether we have more jobs…which we want…or an inflation…which we don't want—is a decision made by a tiny minority of unaccountable people. They're not accountable to us or to the society. They may bless with more jobs or condemn with more inflation. They do whatever they want for their profits and we all live with the results.
You want to live in that kind of economic system? It's a little bit like choosing to be a slave…[Is that]really a choice you want to make? We live in it now and you know what the institution is—I'm talking about the free market—that's right—it's the free market that gives to employers that choice how to respond to rising demand from the public. Produce more and get more people jobs or jack up the price and produce the kind of inflation we are suffering through now. And, by the way—do you have to handle things this way? Not at all.
Let me give you some examples of other ways to do it. We could say, look, we’re going to produce more because that gives people jobs. Then we're going to distribute them—not in a market—not by allowing anybody to jack up prices—we're not going to do any of that. Prices are fixed. The government's going to fix them and you know what the government's going to do—it’s going to distribute the goods that are being produced—putting more people to work. We'll get more jobs, we'll get more output and we'll distribute it. We don't need the market. We don't need all this price nonsense. Well, is that really doable? Yes. Did people ever do that? Yes. Did that ever happen in the United States? Yes.
I’m going to give you an example. During World War II, we had a problem. We were fighting a war—partly in Japan, partly in Europe—in Asia and in Europe. We needed a lot of resources to go to fight the war…to make the bullets and the guns and the planes and the ships…to equip the soldiers and all the rest which meant that the resources we had left here in the United States to produce food, clothing and shelter for the American people during the war were less. In other words there was a shortage. The demand for food, clothing and shelter at home didn't go away but the supply was reduced because we were fighting a war. So the question was—How do we distribute the reduced supply of food, clothing, shelter and so on to the American people? If we had allowed the free market to do it—it would have meant allowing the producers of food, clothing and shelter to jack up the price—the way they're doing now. We would have allowed it then but wise people in Washington understood if we did that, rich people would be able to get through the war very comfortably and everybody else wouldn't. And that would destroy whatever unity we had in this country which we badly needed to fight the war.
So we wouldn't have a free market—we banished the free market. The government issued ration cards—that's right—a little card that entitled you to buy a quart of milk, a pound of meat, a pound of sugar, a gallon of gasoline for your car and many many many other things. If you didn't have a ration card you couldn’t get it. Money didn't buy you anything. The price didn't go up—didn't matter if it did—without a ration card, you didn't get it—with a ration card you did. And how were ration cards distributed? Some of you will enjoy the irony here...to each according to their need—if you had a lot of children in your family—you got a lot of ration cards for milk. If you didn't have any children—you got fewer ration cards for milk. Not so hard to understand and it worked and it worked for years here in the United States. It’s a non-market system of distributing. There was no inflation to worry about—because we didn't handle the distribution of goods and services with a market. A market is a human institution. It has got its strengths, it has got its weaknesses. It's important to understand those weaknesses so that we don't get bamboozled by right-wing folks who want us to bend over and pray to the market in the way that we were warned not to let false gods lead us into idolatry, if you may remember. The market is a false god and Americans know that.
Let me give you some examples of where we don't allow markets. One of them is inside our home. How do we arrange for the division of labor in a typical family household? You know somebody takes care of the garbage…somebody washes the dishes…somebody cooks the meals…somebody goes out shopping…somebody mows the lawn—whatever. Do we use a market? Do we pay somebody to mow the lawn? Junior, you mow the lawn…I'll give you four dollars. Okay... Mom, I'd like a a piece of cake. Okay son, here's three dollars. We don't do that we don't use market exchange. If we do that—we get a lecture from our parents or grandparents saying in this family we don't do that. We help each other because we love each other—that’s why we do it. We don't do it—I'll give you two, you give me four.
Here's another example—we don't organize our public parks. I live in New York City. If I go to Central Park, I don't have to buy a square of lawn to put my blanket down and have my picnic. We all put money in a pot together—don’t we?…and that takes care of having a beautiful clean park for us to go to when and if we wish to…and I don’t begrudge my neighbors three children going to the park because I only have one child and go. We don't live like that. We don't calculate like that because we don't want to market in park access. Public school—we put a fund together to run our elementary schools and our high schools. You go if you need it. You go if you're a child…you go if you want an education etc etc. We don't do—you got to pay six bucks for two hours worth of instruction in arithmetic.
There’s lots of places we don't [use markets] and you know, here's an irony for you—many of the largest corporations have gotten large by what we call vertical integration. That is they bought the company from whom they used to buy something and they brought it inside the corporation. You know why, if you read the literature, because they don't want—you'll love this—the insecurity…the uncertainty of markets. For example, an automobile company doesn’t want to worry that it can't get the steel or the copper it needs at the price it can afford…at the time it needs it. If it uses the market, it never knows so it buys the companies from whom it used to purchase…brings them inside. Then even a greater irony—once the company has brought in, merged, if you like, with all these others. You know how it organizes the movement of goods and services among the units of the company? By central planning—they have a whole office that plans how the corporation works. The very thing that the head of that company denounces in the larger society—planning—is what that corporation does inside. Don’t be fooled. The market is a sometime institution. It's got as many flaws as virtues. It has to be regulated and controlled like every other institution and nobody should ever allow someone to tell you—it's a perfect mechanism. The next time a politician tells you—leave it to the market—you now know what the real message there is—leave it to the tiny minority of employers to do what they want for their profit and the rest of us pick up the chips wherever they fall. That’s what celebrating the market is really about.
Thank you very much for your attention. I hope you have found this of use and as always, I look forward to speaking with you again next week.
Transcript by Barbara Bartlett
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