Leo Panitch: The drive for austerity measures is destructive but bond holders focused on paying state debt without raising their taxes
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington. If you look at the documents that came out of the Toronto G-20, or if you look at any of the business pages and most of the finance newspapers around the world, or you listen to leading politicians from Europe or North America, you will find out one thing: they seem to be far more worried about debt than depression. Why? Now joining us to help us explain or unravel this somewhat mysterious proposition is Professor Leo Panitch. He’s a distinguished research professor at York University, where he teaches political science, and he’s the author of the book In and Out of Crisis: Global Economic Meltdown and Left Alternatives from PM Press. Thanks for joining us, Leo.
PANITCH: Hi, Paul.
JAY: So what do you make of this? The G-20 documents and all the talk coming out of the politicians and most of the elite, as expressed through the business press, is stop–cut the debt. We need austerity. We’re far more worried about debt than depression. So why?
PANITCH: Well, you know, they’re under the gun. They are facing the difficulty of having the public debt of a great many countries, and most imminently countries in Europe, simply not renewed by the people who’ve lent the money to them, whether that’s banks or insurance companies or pension funds or what have you. So they really are facing the guillotine, in a sense. And you see the enormous power that finance still has over everyone’s lives. Now, the United States is rather different, and a country like Germany is rather different. They don’t face this problem, for different reasons: Germany because of their enormous export surplus, which is one of the things that causes deficits and debt in Greece and Spain and Portugal and Ireland, because they import so much from Germany; but the Americans don’t face the problem, that way, at least, by virtue of all of the bankers and financiers in the world seeing the United States as, ironically, the safest place to put their money, so they’re all buying American Treasury bills. The reasons in the United States for the pressure around cutting the fiscal deficit is rather different. It’s a more long-term one. It relates to the fear of the wealthy that their taxes will increase in order to cover this deficit in the future, and it relates to the concern about the people who are lending money in the future that there be the money available in the future for the United States to pay them back. But they aren’t immediately under the gun of this. And that’s why the Federal Reserve is engaging in what is known as quantitative easing, is facilitating the large fiscal debt in the United States by buying Treasury bills and by keeping the interest rate on Treasury bills extremely low.
JAY: So why–are the rich in favor of this or not?
PANITCH: Well, yes. I mean, the rich are in favor of it because they are the investors. One needs to understand that it’s not that governments aren’t concerned or even the rich aren’t concerned about the depth of this crisis and its implications. They are concerned. But they’re, above all, concerned to save their own skin and to protect the system of capitalist globalization as it’s been constructed over the past three decades. And the main work that states do, and especially the American state does, is try to get the economy, not only the local economy but the global economy, through each one of these inevitable crises that are produced by financial volatility, so that the game can keep on going. And that’s really what it’s all about.
JAY: Well, let’s focus on the American situation for this segment. So if there isn’t this immediate pressure on the US, in terms of people really being worried about the Americans defaulting on government debt, why the immediate pressure coming from not just the Republicans, but Obama’s in on it, this deficit commission that they have in the Congress? All the talk is about where cuts are going to take place. There’s no talk of more stimulus. And it seems fairly obvious that if there isn’t more stimulus, there’s going to be more recession. The economy really isn’t coming back on its own. So why is there so much pressure on the US side now in the short term?
PANITCH: Well, it’s primarily internal pressures–not exclusively, but it’s primarily the internal balance of forces. You know, politically in the United States it is indeed difficult to be–to simply ignore large deficits. There is this tax mania, this constant tax revolt that politicians play to, and especially the Republicans, ever since Reagan, have made the centerpiece of their politics. It’s combined with a whole small-state vocabulary and rhetoric that doesn’t at all square–I mean, a lot of it’s quite illogical and irrational–doesn’t square with the size of the Pentagon, the size of the security apparatus, the role that the state plays in underwriting business and correcting crises. But that is the rhetoric of American politics. It’s the populism of American politics. It’s the appeal to people in terms of we will reduce your taxes, however ridiculous that is in terms of the enormous savings on taxes by the rich, and the miniscule, if anything, savings on taxes by most Americans. But they look upon politics in that sense–as a means of reducing your taxes. So there’s an internal dynamic in terms of political ideology and the balance of class forces in the United States.
JAY: It seems somewhat self-defeating from the point of view of people with a lot of money. I mean, if what you’re worried about is that someday in the future the US state may not be able to fulfill its obligations, and if you listen to people like Pete Peterson, who has this foundation–he’s a billionaire who’s been fighting taxation and for smaller government for quite some time. If you look at it from their point of view, if the country goes into deeper depression because of these cutbacks in government, then government has less revenue and even less ability to pay back its bondholders and its lenders. So it seems to be a no-win situation on that side as well. But they still seem to be pursuing it.
PANITCH: Well, I mean, one should never think that capitalism, let alone capitalists individually, are rational. That’s only a myth of the economics profession, number one. Number two, people like Peterson–who, by the way, was Nixon’s commerce secretary and has played this kind of role for upwards of 40 years in the United States–is obviously of the type who believes in trickle-down economics. He thinks we only get anywhere insofar as we feed the rich and then we live off the droppings that the rich give us. That’s his politics. And you would expect–and he often engages in this kind of hysteria. He very famously did in the mid-1980s, predicting American decline at a time that Japan was presumably going to replace the United States as the leading capitalist power. He always engages in this kind of hand wringing, to the end of reproducing and extending the dependence of people on private businessmen, and especially on wealthy hedge funds of the kind that he runs in the United States.
JAY: Yeah. And a point you made earlier in the interview, which is so much of this is about avoiding higher taxes in the future, so the way to do that is to cut back on Social Security and cut back on, you know, what they call entitlement programs and other–.
PANITCH: Yeah. I mean, the whole point of it is to make people more dependent on capital, and to ensure that the state doesn’t establish any arenas of noncommodified life so that people aren’t dependent on capital. That’s what it’s all about in the end. Now, you’re right, I think, that insofar as passing any attempted stimulus through capitalism doesn’t work, they may in fact be digging themselves a deeper grave. That’s true. And insofar as they engage in ridiculous predictions, that the American state is about to go bankrupt, and in that sense induce the Chinese to pull out some of their accumulated reserves from Treasury bills, that might indeed cause a greater crisis, that’s true. But as I say, you shouldn’t assume that capitalism is necessarily rational. What they are is powerful, and what we see is their enormous power in the American political process. I must say, however, that on the whole, the American state is pushing austerity much, much, much less than are the European states. And in fact, the rest of the world states are pushing the United States to engage in greater fiscal austerity. They are also complaining about the one stimulus measure that’s being undertaken, which is the monetary stimulus (which is not Keynesianism; it’s pure monetarist Friedmanite economics), that when the banks aren’t lending, you throw liquidity at them in order to make them lend. You don’t do it through the fiscal system; you don’t do it through government spending; you do it through providing the banks with money. And this is being opposed, hysterically opposed, I must say, by other governments. What they would like is greater restrictions on American spending, on the kind of spending that would fall on American people. They’re not concerned about unemployment. And they’re putting pressure as much as the wealthy are putting pressure on the United States.
JAY: But why aren’t they as concerned with the weakening of the American domestic market? They–it’s their biggest market.
PANITCH: Their main concern is with their currency and the currency relations with the American dollar. You’re right that there’s an element of irrationality there too, insofar as the Americans have been and remain the consumers of first and last resort of so much of the world’s exports. Yeah, and, you know, they need to be assuming that the bottom 15, 20 percent don’t consume that much and the upper 20 percent are the ones who do most of the consuming.
JAY: So if the entitlement programs get cut, it won’t affect the consumption of the upper end as much.
PANITCH: Yeah. So I think you need to be very careful here in terms of thinking that this is simply about the Americans themselves, even the Obama administration, not being concerned about depression. They are indeed very concerned about it. And that’s evident in the completely revolutionary behavior in conventional monetarist terms of the Fed. You know, I, in fact, myself had said 20 years ago in the Canadian context in the early 1990s recession that the Bank of Canada ought to be purchasing government debt, rather than being fearful of what the New York money market would do to Canadian bond ratings, and for that I was considered, you know, completely irresponsible and irrational. Well, now we see the Fed doing exactly that, the world’s central bank. The point is, and I think we need to get to this, that neither of these strategies, neither the strategy being pushed by Keynesians, which is more fiscal deficits, nor the strategies of the Fed, which is really a monetarist Friedmanite strategy, which is throw liquidity at the banks, is going to work.
JAY: Thank you for joining us, Leo. And in a future interview, we’ll talk about the limits of austerity and the limits of Keynesianism. Thank you for joining us on The Real News Network.
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