Economics professor Fred Moseley specializes in U.S. economic history, Marxian economic theory, history of economic thought, and macroeconomics. He has written or edited seven books, including, most recently, Marx’s Theory of Money: Modern Appraisals (Palgrave MacMillan, 2004). Questioning Authority asked him to explain what is going on with the debt ceiling debates in Congress and to give his take on what should be done.
Questioning Authority: What is the debt ceiling? Why is it important?
Fred Moseley: The debt ceiling is the maximum amount the federal government is allowed to borrow, which is currently $14.3 trillion. It is not an authorization to spend, which occurs with the budget laws. It is an authorization to borrow in order to pay obligations already incurred.
QA: What happens if the debt ceiling is not raised?
FM: Then the U.S. Treasury could no longer borrow money (sell bonds) in order to meet current expense obligations, including government employee salaries, Social Security payments, Medicare payments, and interest on the outstanding debt. Obviously, this could cause a fair amount of disruption, at a time when the economy is already weak. If the interest on the debt is not paid, then the U.S. government would be in default, which could cause a severe financial crisis, depending on how long it lasts.
QA: Given that the debt ceiling has been raised more than 70 times in the past, why is it such a contentious issue today?
FM: The Republican party, especially in the House, is trying to use the debt ceiling issue to force significant reductions in government spending. The fundamental issue in the debate is defining the appropriate role of the government in the economy. The Republicans want minimum government involvement in the economy, which means lower taxes; minimum use of the government to try to reduce unemployment, poverty, and other economic problems; minimum government health insurance; and minimum regulations of the environment, of workers’ health and safety, and of financial markets.
I think the Republican anti-government agenda would be a disaster for the U.S. economy. I teach a course on U.S. economic history, and one of the main lessons of studying the late nineteenth and early twentieth centuries is that the U.S. economy, left on its own without government intervention and regulations, produces tremendous inequality of wealth and income. It is unstable, creates recurring boom-bust cycles, is dangerous for many workers—for example, the Triangle Shirtwaist Factory fire in 1911, which killed more than 100 workers, and which inspired one of Mount Holyoke’s most famous alumnae, Frances Perkins, to a lifetime of dedicated public service for workers in our economy—and is destructive of the environment. The government interventions and regulations that are now in place are there for good reasons, as attempts to solve the problems that the economy by itself creates. Republicans have a huge case of historical amnesia, and somehow think the government is the cause of economic problems, and that less government would mean a stronger and better economy. History very strongly suggests otherwise.
I think the Republican agenda is also very mean-spirited, and shows no sense of community and no sense of responsibility for the well-being of less-advantaged members of our society. Their attitude seems to be: I will take care of me, myself, and my family and friends, and to hell with anyone else.
QA: What do you think about President Obama’s “$4 trillion deficit reduction plan”?
FM: Better than the Republicans’, but still not a good plan. The $4 trillion is divided between $2 trillion spending cuts, mainly on Social Security and Medicare—later eligibility ages for both—$1 trillion increased revenue, mainly on “closing loopholes” without raising tax rates, and $1 trillion in hoped-for lower interest rates. In other words, it attempts to reduce the deficit mainly off the backs of senior citizens, with very little sacrifices from the affluent. This is not the kind of “change” I was hoping for.
QA: What are your recommended policies?
FM: First, raise the debt ceiling by a significant amount so we don’t have to continue to have this fight every few months.
The main problem in the U.S. economy today is unemployment, not the deficit or the debt ceiling. More than 14 million workers in the United States are unemployed today, almost half for more than six months—and this does not count many millions more who have given up looking for a job, or are working part-time and are not counted in the official statistics. Many lives and families are being wrecked, with long-term consequences. The government should take strong actions to provide millions of jobs, including revenue-sharing for state and local governments—so they don’t have to lay off teachers, firefighters, and others—infrastructure projects, and green energy and technology projects. There is lots of work that needs to be done, and many capable unemployed people who could do the work. What is wrong with this picture?
In order to pay for these job-creating policies, taxes should be increased on upper-incomes—those earning more than $250,000 a year—and the military budget should be reduced by 25 percent, which could be accomplished by ending the two wars in Iraq and Afghanistan.
Finally, Social Security funding problems could be largely solved by eliminating the cap on taxable earnings, now at $106,800, for the payroll tax. Medicare funding problems could be largely solved by increasing its share of the payroll tax by a mere 0.25 percent.