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Eric Margolis debates Paul Jay about the ways to reduce government debt

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay. And joining us from our studio in Washington is Eric Margolis. He’s the author of American Raj: Resolving the Conflict between the West and the Muslim World. And he writes at and in many newspapers around the world. Thanks for joining us, Eric.


JAY: One of the things you’ve been writing recently is in praise of the austerity measures in the UK. You were supportive of the G-20 call for halving the deficit by 2013. You’ve been saying America desperately needs austerity measures, even though they’ll be unpopular. Why do you think so?

MARGOLIS: Debt is what caused the financial crisis of 2007-2008. The United States is drowning in debt. Its whole financial system is being debauched and it could topple any day now. The United States can’t pay its bills. It runs on borrowed money. In fact, the United States, as I’ve been writing, is addicted to debt and to war. And the red Chinese now own $1 trillion of American debt. The only way the American government can keep working is by selling IOUs to the Chinese. This is an untenable and unacceptable situation.

JAY: Well, you’d think it’d be the people loaning the money would be more worried. I mean, if you’re in that situation, it’s the lenders that are more at risk than the borrower.

MARGOLIS: Well, [inaudible] the Chinese are not doing this for commercial reasons—well, they are, to promote trade with the US, but they know they have tremendous leverage over the American government. And the problem is that it shows the ascendancy of Wall Street now has become the center of power in the United States. For example, the main supporter of Obama when he was running was Goldman Sachs.

JAY: But the crisis of 2008 wasn’t state debt. It was Wall Street speculation and [inaudible]

MARGOLIS: Well, yes. It was debt, I said. It was debt. It’s all kinds of debt.

JAY: Private, not public. I mean, it became public because the public was asked and agreed to—through the administration, to funnel trillions of dollars back into Wall Street.

MARGOLIS: That’s quite true. But the US government cannot raise enough in taxes now, so it has to finance its current and future operations through ever larger debt demands, which are undermining the commercial markets and jeopardizing it. I’ve just come from Wall Street. I’ve been talking to leading money managers. I manage money myself. And I can tell you that people are really very, very nervous. They say the system is very fragile, and one event could set the thing into crisis again or could topple the banks and make liquidity vanish. So we are drowning in debt.

JAY: Okay. There was a Canadian named Bob Blair who was—he passed away a couple of years ago, but he took a company, an oil and gas company in Alberta that became known as Nova [Chemicals] Corp.—it began around $8 million a year. When he retired, it was $8 billion a year. And last time we were in this big debt crisis, in the early ’90s and such, he started a campaign which called, let’s go where the money is; the rich should pay down the debt. It’s not that there’s not enough wealth in the society, he said. He said it’s that the governments just don’t have the guts to tax the rich. So there’s plenty of money in the United States to pay down the debt. I mean, if one were to tax some of the speculative gains that were made over the last 10, 15 years, the debt could be paid down rather quickly. So I’m asking you, if it’s so important to pay down the debt, then why not go where the money is?

MARGOLIS: Well, there are two ways of doing it. Yes, Americans are not taxed enough. And I’m a taxpayer, an American taxpayer, and I have—and it hurts me to say it, but it’s true, particularly the rich: the Bush tax cuts were really intolerable. They were a giveaway to the wealthy and they were not right. I mean, for hedge fund managers who are making $50 million a year to pay 15 percent total tax is scandalous. But let’s look at the other side of the coin, and that is: the American defense department, the Pentagon, consumes 50 percent of the world’s defense spending—50 percent. It is incredible, at a time when the American deficit is at $1.4 trillion for this year, 2010, that the Pentagon is increasing defense spending by 6 percent.

JAY: Almost $1 trillion a year.

MARGOLIS: That’s correct. And pursuing the war in Afghanistan, and now talking about attacking Iran and Somalia and Yemen and God knows what. So I said America’s become addicted to debt and to war.

JAY: So why not then target the Pentagon budget, taxing the wealthy? But generally when austerity programs are talked about—and what they’re talking about in the US is going after Social Security. They want to go after people’s retirement funds.

MARGOLIS: Well, unfortunately, you know, we should do what Prime Minister Cameron is doing so well in England, and that is cutting across the board. Everybody’s going to have to pay. Do you know the United States is waging two wars now that are not being paid for by taxes? They’re being put on the national credit card; they’re being put on the national debt. If Americans were taxed to pay for the wars in Iraq and Afghanistan, like, $1,000 a month or whatever they cost, I could bet you those wars would end pretty quickly and Congress would cut the money off. But we have this make-believe system. And the Pentagon’s budget should be cut by 50 percent. That’s what I said. There’s no need for it. But then you’re up against the military-industrial-financial complex.

JAY: Well, isn’t that the point here is that it’s easier to go after less state employees, less teachers, less policeman, less food stamps, it’s so much easier to go after that than take on the powers that be, where the money really is?

MARGOLIS: Everybody has to be taken on.

JAY: But if you take on ordinary people’s spending power, that’s part of what got us into this economic crisis in the first place. There wasn’t enough real purchasing power, and people were using their credit cards.

MARGOLIS: And people got scared. But public sector unions are another major villain, and they need to have their cushy lifestyles cut back. And this is exactly what’s happening in Europe right now. Europeans have decided, who’ve been through inflation of the 1930s, they are making massive cutbacks. Even though everybody’s screaming and yelling about it, they know. They got a big scare with the drop in the euro and the recent crisis there. But Obama keeps pouring on more of what caused the crisis, which is debt.

JAY: But what do you think of Bob Blair’s proposal, which is a voluntary—or if not, compulsory—asset tax, like a one-time tax on people that have made, you know, ridiculously large gains over the last decade or more, and pay down most of the debt? Simply tax the rich. Not just income: go after some of the assets, so you’re picking up some of the money that was made over the last decade.

MARGOLIS: Paul, there’s no such thing as a temporary tax. Once it’s put in, it usually stays forever—or longer. Secondly, the rich pay most of the taxes. People who make less than $100,000 a year pay only a fractional amount of taxes. The fat cats are the fat payers, too. So I agree, Wall Street should be taxed double taxes on financial transactions. But try getting that through Congress.

JAY: Yeah, I mean, that’s the problem. And Warren Buffett says himself that he pays less tax many years than many people making in that $80,000-$100,000 area.

MARGOLIS: That’s quite right. So you need a warrior. There’s talk of a financial dictator who’s going to come in and lay down the law. But all Obama has to do, as I’ve been writing in my column, is to follow the lead of Prime Minister Cameron in Britain. And, you know, when Cameron was here in Washington, I was so impressed by him. He flew back to London commercially; he bought a business-class seat on British Airways and flew back. Yet Mrs. Obama is overseas with an entourage of 30 people, I am told. Our politicians are flying around in private jets. This is not acceptable.

JAY: But Cameron’s cuts are leading to this minutia. We ran a story yesterday people can watch, from Channel 4, on what’s happening in Nottingham—you know, the cutting of teachers, the cutting of daycare centers. I mean, it’s stuff that people desperately need, but he’s not going after any serious taxing of wealthy Brits.

MARGOLIS: Paul, when I try and cut budgets in companies, everybody has a wonderful reason to justify holding on to their budgets. The answer is that it must be an across-the-board budget cut. The country has grown much too fat during the years of debt-fueled growth, and it now has to go on a crash diet.

JAY: Well, I don’t know about everybody. There’s a lot of people working two jobs just to pay their rent and eat. I’m not sure how fat they’re getting. And they’re the ones going to be losing the daycare center.

MARGOLIS: Yeah, but they don’t pay the taxes.

JAY: I understand. But by cutting their daycare centers is—may reduce a little bit of state expenditure, but they’re also not the people that made it and helped contribute to the finance crisis, which is really—the biggest piece of this most recent debt is all the stimulus money that had to be shoved into the economy because so much real purchasing power had been sucked out of a period of 10 to 15 years, with higher productivity and stable or even lower wages. So all that extra wealth went into, we all know, the top 2, 3 percentile and gets stuck there ’cause it doesn’t circulate. But this is what I don’t understand is you hit austerity measures, you’re actually going to have less purchasing power in the economy. So you’re going to have, like, this double whammy of less purchasing power.

MARGOLIS: That’s the risk. That’s the risk.

JAY: It really makes no sense, does it?

MARGOLIS: We’ll see what happens on the continent in Europe and in Britain, because they’re doing this in spite of warnings that you can’t give up debt, debt is necessary for human existence, and cut back. And we’ll see how much the economies really suffer from that. My personal view as a businessman for many years is that what we need is dramatic and drastic cuts, and people will suffer for a short period, but we’ll restore and revitalize our economy so we can go ahead to more future growth. If we don’t do it, we’re going to be saddled with this debt monstrosity from now till kingdom come, and we’re never going to pull ourselves out of this swamp.

JAY: Alright. Well, I’m with you on that, as long as it’s—from my point of view, let’s start with the wealthy, let’s have some big cuts there, and then let’s look at daycare centers.

MARGOLIS: I put your name on the list, Paul.

JAY: I wish. Thanks for joining us, Eric. And thank you for joining us on The Real News Network. And if you would like me to be in a position I can get on Eric’s list, click the Donate button. But it would take a heck of a lot of Donate button pushes before I’ll be on that list.

End of Transcript

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Eric Margolis is an internationally syndicated columnist and renowned book author. He’s a veteran Korea-watcher who specializes in north Asian military/strategic affairs. He’s been all over the DMZ and produced his documentary there last year featuring a segment from Panmunjom on the DMZ. Two special areas of focus:  1. What would a war actually look like if one erupted?  2. The geopolitics of the region – the Koreas, Japan, China, Russia, the US.  Eric was a regular columnist for Japan's Mainichi Shimbun and is a long-time member of the International Institute for Strategic Studies in London.