[music]

Brian Lehrer: It's The Brian Lehrer Show on WNYC. Good morning, everyone. Between now and October 18th, the politics in Washington will probably be loud enough to raise the roof. The question is, will it raise the debt ceiling? We're starting today with an explainer about something that could potentially crash the economy that few people understand. NPR White House correspondent Ayesha Rascoe, asked President Biden about it yesterday.

Ayesha Rascoe: Is it possible that the US will not pay its debt that is [unintelligible 00:00:41]

President Joe Biden: I can't believe that that will be the end result because its consequence is so dire. I don't believe that, but can I guarantee it? If I could, I would, but I can't.

Brian Lehrer: President couldn't guarantee that the debt ceiling would be raised by the October 18th deadline, but as you heard there, he did assert the consequences of not doing so would be dire. What's this all about?

With me now to answer my questions and yours about the debt ceiling, and by the way to argue that it should be abolished, is Teresa Ghilarducci, a senior contributor to Forbes magazine on the topic of retirement, security and jobs. She's an economics professor at The New School and previously taught economics for 25 years at Notre Dame. She has written several books on retirement economics, including Rescuing Retirement: A Plan to Guarantee Retirement Security for All Americans. Her article on Forbes is called Debt Limit Is Silly And Dangerous.

Professor Ghilarducci, thanks for coming on for this, and welcome back to WNYC.

Teresa Ghilarducci: Yes, thank you. I'm very happy to talk about the debt limit. It is silly and it's really serious.

Brian Lehrer: Listeners, anything you always wanted to know about the debt ceiling but didn't have an economics professor over to dinner to ask, you can call up and ask now. 646-435-7280. 646-435-7280, or tweet your question @BrianLehrer. Give us a little debt ceiling 101, Professor. What is it exactly? What would happen on October 18? If it's not raised, do you agree with President Biden that it would be dire?

Teresa Ghilarducci: I do think that President Biden described it perfectly. The debt limit is a very peculiar American institution, no other major democratic market rich country has such a thing. We've had a limit on how much the government can borrow since the turn of the last century. It's part of [unintelligible 00:02:49] or anti-government sentiment in this nation, but it has not been weaponized for all those years until around 2011.

What it is exactly is that Congress spends money. The President approves the budget, we spend it. People in the economy, agencies in the economy depend on that money, but it's like charging on our credit card that our vendors depend upon us paying. We also have to have this little quirk where Congress also has to pass a law that says that we can borrow money over a certain amount, which is completely arbitrary. It has no economic meaning. If our spending gets to a certain amount, and it's not even indexed, it just sits there in this nominal amount.

Brian Lehrer: Let me jump in right there and ask you a follow-up question that probably a lot of listeners are thinking right now because you wrote in Forbes, as you just said that the debt ceiling has no economic value. Explain further why not, because if I max out my credit card, and ask to raise my credit limit and keep borrowing without having any more income, my personal debt ceiling would have the economic value of preventing me from going bankrupt or not being able to pay the rent. Does it not work like that for more and more borrowing by the federal government?

Teresa Ghilarducci: Brian, you went right to the heart of it, does the debt have any economic meaning? It does not in the way that you just described. A household is not the US federal government, the government debt and the household debt are very different. Households need to keep their fiscal house in order. I've been on the show before advocating that people save for their retirement and keep their debt under control. That's because households can't go to the world market and sell our debt.

Japan is not interested in my debt, a pension fund is not interested in my debt, but US government debt, US Treasuries, is the most valued asset of governments, of rich people, of endowments and of pension funds. It would be quite serious if the US federal government stopped borrowing money and stopped having these high-quality assets in the financial system. There is a theoretical limit, where we couldn't borrow any money because all the world and all the pension funds would say, "Hey, the US is going to default," but we have never even come close to that sentiment among our lenders.

The US government, by having a false debt limit, that has political meaning, means that the Republicans, it so happens to be the party, can use it as a weapon to threaten Democrats for whatever they want, tax cuts for the rich or to prevent tax increases on the rich, or to make Nancy Pelosi look bad which this looks like that's happening.

You asked me what will happen on October 18th. I think President Biden got it right, but he didn't talk about why it would be disastrous. On October 18th, we are projected to reach that debt limit. If Congress does not raise it, then we will have to shut down some operations of the government. Because our society is so unequal, and so many people who work depend upon government spending, it will hurt low-income families more than it will hurt high-income families, and that's the disastrous part that I see.

Social Security checks will keep being sent out, and doctors will still get paid for Medicare, but if you're a new applicant to Social Security and Medicare, you might not get processed, and food stamps could be stopped.

Brian Lehrer: Let me ask you to go further on that, because you wrote in your Forbes article, that the US leads wealthy nations in the percentage of workers in low-wage jobs, and those workers are the most dependent on the so-called discretionary government programs that would have to be curtailed if they fail to raise the debt limit by October 18th. Seniors is one thing, you've just mentioned Social Security and Medicare, those already on those programs, wouldn't be affected because those are not considered discretionary programs.

Teresa Ghilarducci: Very good. Right.

Brian Lehrer: You're talking primarily about working-age Americans and their children. Give us more detail about this, that a lot of our listeners may not have thought about before that we the wealthy countries in the percentage of workers with low-wage jobs. Give us more on that.

Teresa Ghilarducci: Because the debt limit and what Congress does is within the context of what our underlying economy is. We lead the nation, America leads the rich nations in having the highest percentage of our workers working at low-wage jobs, and we have an international standard for that, which is how many workers work below two-thirds the median wage.

Now that sounds like a technical explanation, but it really says, a country has living standards, and how many people are living way below what is considered lower middle class, the kind of living standard where you can go to work, dress okay, have a modest birthday party for your kid. If you're living two-thirds below that median, you don't have that kind of living standard.

We have about 23% of our workers, most of them are working full time, are not reaching a lower middle class of living standard, not even a working-class living standard. They are probably in debt, even though they work and they depend upon government assistance. If you're working low-wage jobs, you most certainly qualify for food stamps, you may qualify for Medicaid for your children, and you may qualify for a taxpayer subsidy called the earned income tax credit.

We just have that embedded in our economy and we've led the world in low-wage jobs for 20, 30 years. If there's anything different about Biden's economic plans, different from Clinton or Obama, Bush, all the rest, it's actually to change that structure. You can do that by bringing up minimum wage way over $15 an hour, which happens to be two-thirds of the median wage. You can do that by helping unionize. That's part of the underlying current of the Biden administration.

Now, why does this matter for this debt limit? The debt limit is essentially political and it turns out to be a fight between the republicans that want to stop that really very progressive plan to make life better for those low-wage workers by raising their wages, and the democrats who want to continue on the plan.

If your listeners want to understand what's going to happen on October 18th, I would relax a little about whether or not there will be a massive government shutdown that will hurt the economy. Even though I put that as a possibility in my Forbes blog, it could cause the recovery from the pandemic recession to slow down, but worry more about the politics about whether or not the infrastructure bill will pass and whether or the other reconciliation or build back better agenda passes.

Brian Lehrer: Seth in Englewood, you're on WNYC with New School economics professor Teresa Ghilarducci, who wrote an article in Forbes called Debt Limit Is Silly And Dangerous. Hi, Seth.

Seth: Hi, Brian, how are you?

Brian Lehrer: Good. Thanks. Go ahead.

Seth: Professor, Paul Krugman wrote a piece in The New York Times within the last week or so suggesting that under existing law, the Treasury has the authority to mint $1 trillion coin and to draw down on that account to cover the United States debts. Is that actually possible?

Teresa Ghilarducci: It is actually possible--

[crosstalk]

Seth: He also refers to the-- I'm sorry.

[crosstalk]

Teresa Ghilarducci: I'm sorry Seth, were you done?

Seth: He also raised a protection in the 14th amendment that he suggested could also be used to avoid this political litigation regarding the debt ceiling. I'm wondering if either or both of those is possible and what you think the viability of that is?

Teresa Ghilarducci: Paul Krugman has been writing that article every time we reached a debt limit. It is an important rhetorical point to point out that the US Treasury could get around Congress and mint $1 trillion coin, or actually give the authority to the executive [unintelligible 00:12:40] to the president to ignore Congress and say, "Hey, I know you have this silly thing called the raising the debt limit, but I have this higher authority to pay our bills." I do mention those two possibilities in my column.

Mainly, as a political point, there is no other serious economic debate that suggests that President Biden is having these two options at the top of his list. It's mainly used by Krugman as a columnist, not so much as a professional economist to point out how silly and political this debate is. More likely, Congress will raise the debt limit like they have since 1919. There may be a little pain for people who are on food stamps, and who are trying to apply for Social Security, and for the 15% of our economy who are government workers who might not get paid.

I have a neighbor who works for the Smithsonian, and she's really worried about missing a house payment because she might not get paid in November. There is real targeted pain that Congress really should pay attention to that this won't be shared equally, but it's more likely that we will raise the debt limit, than we will print the trillion-dollar coin. It's a good point to show that in our democracy, we have this battle between a very strong presidency and control of Congress.

Brian Lehrer: Listeners, here's an idea, even though Professor Ghilarducci tells us it's not likely to happen, it has been in Paul Krugman's column. It has been on Vox the other day. It has been elsewhere this notion that President Biden could just order the Treasury to mint $1 trillion coin. If President Biden ordered the Treasury to mint $1 trillion coin listeners, whose face should be on the front, or what image should be on the front of $1 trillion coin? If you want to go the next step, what image should be on the back?

You want to tweet those at us? Our lines are full with people asking actual serious economic questions. If you want to tweet @BrianLehrer, whose likeness or what image should be on the front and the back of $1 trillion coin if that's what President Biden chooses to do to get us out of this silly debt ceiling politics. Tweet @BrianLehrer, who should be on $1 trillion coin. Do you have any thoughts off the top of your head about that, Professor?

Teresa Ghilarducci: I was just saying, I wish I wasn't on the show and I could tweet you. Probably Susan B. Anthony to mark her complexity on the coin. I would put an eagle on the back. It's a very American thing to do. There's a really serious point underneath the idea that the President could mint $1 trillion coin. It does reduce the power of Congress, and it raises up the power of the presidency. That has other political implications that go beyond me as an economist, but I think the politics of that put our democracy out of balance.

Brian Lehrer: The first tweet has come in from somebody tweeting as fried liver attack, and says, "Donald Trump on the front of the coin." Michael in Brooklyn, you're on WNYC. Hello, Michael.

Michael: Hello.

Brian Lehrer: Hi Michael, you're on the air.

Michael: Hi. Adam Schiff tweeted last week, and he said Republicans passed a $2 trillion tax cut for billionaires and corporations, and now they're refusing to pay for it. Is it really that simple?

Teresa Ghilarducci: It's really that simple, but Congress caused the debt by slowing down the revenue. This point is very important. It's not just spending that causes the debt, it's the lack of raising enough money, but it's the things together. It's also paying for military equipment and national parks and not raising the money to pay for it. It's not quite that simple. It's the spending and the revenue side. We could solve the debt problem if people still think that's a problem by raising revenue and not cutting government programs. That's a really important point. It's spending and revenue.

Brian Lehrer: Tweet says, "Mitch McConnell on the coin for sure would drive him crazy, and he's the reason it's needed." Another one says, "Barack Obama because Republicans would refuse to use it." Another one, it's a little dirty I won't read that one. Another one says, "On the trillion-dollar coin, Alfred E. Neuman, what, me worry?" Jenna in Westchester, you're on WNYC. Hi, Jenna.

Jenna: Hi, Brian. Hi, professor. I have a question coming from a young 25-year-old. I guess my question is, I know that there is so much debt, and it seems so high already. My question is, it doesn't seem like we're ever going to pay it back, so why does it matter if we keep raising the debt ceiling? Why do the dance every couple of years?

Teresa Ghilarducci: Jenna, you're spot on. I do want to recommend to listeners, my colleague's book called The Deficit Myth by Stephanie Kelton. It really explains the politics and the real economics of the debt limit and Jenna got it right. Since people will buy our debt, as I said endowment funds, pension funds, you and me value a government bond in our portfolio. Jenna, if you have a pension fund, and you should start saving, part of your assets are going to be a bond from the Treasury, as well as stocks and bonds from companies.

As long as the US economy and the government is seen as trustworthy to grow and to pay their debt, government debt from the US government will be a very valued asset. I really can't stress that so much. I was on an advisory board in the 1990s of a big pension fund investment. We were panicked that the US government was going to balance its budget under the President Clinton. That actually caused more economic pain than anybody realized, because we had no good assets to buy anymore, and we would have to pay more to buy our assets and we would have to scramble to find a safe asset. Not having US government debt could actually disrupt the world economy in very negative ways.

Brian Lehrer: Jenna, can I ask you as a 25-year-old, are you concerned that the US government debt will get so big that it will affect your retirement as they borrow more, as Republicans would emphasize to pay for the retirements of the baby boomers.

Jenna: Honestly, I don't know that I have enough information to provide a nuanced opinion on the matter, but I'd say that I think personally I do fear a lot, around, I do have a 401(k) I've been saving for the first couple of years of my full-time job out of school.

Teresa Ghilarducci: Good work.

Jenna: Thank you. I do think about the fact that it really concerns me that all of it is just a bet. I am saving all this money, but there's a large part of me that wonder as well, should it be going into a high yield savings account instead, because there's no guarantee that this money is actually going to be there for me when I need it in 40, 50, 60 years.

Brian Lehrer: Professor Ghilarducci, since you do personal retirement savings advice, what would you tell Jenna about that? Then we'll get back back to policy.

Teresa Ghilarducci: Yes, sure. On that Jenna, you are doing the right thing just by saving 3% of your salary. I hope you're saving a little bit more, but just 3%, 4% or 5% of your salary for the rest of your life, you will have enough money even at a modest rate of return and it will go up and down your whole life. When you retire supplementing Social Security to maintain your living standard. If you waited until you're in your 50s, you would have to save half of your income to even catch up to what you're doing now.

Don't worry so much about where your money is right now. Be really concerned about continuing to save, put it in a balanced portfolio. If I were you, I would put it in more risky assets because over time it will even out. You should have a few government bonds, but mostly equities. I can't resist saying that, but you are doing the right thing. You're doing the wrong thing if you're worrying too much. We've had plenty of history with generation after generation saving money in American institutions and getting it out in 40 years.

To everybody, Brian, the of Social Security will certainly be there when Jenna does retire, there is nothing formidable about solving the revenue problem and we always have. I have enough faith in our democracy to do that. Our financial markets are stable enough that you can count on it. It's not 100% guaranteed, but nothing is having a diverse portfolio and keep on saving is about the closest you can get to secure your future.

Brian Lehrer: Jenna, thank you for raising those issues and I hope that was useful personal retirement savings advice for you. Thank you very much. Twitter says, "For the trillion dollar coin, let's put Dolly Parton on the front and Fauci on the back." Another one says, "Dr. Fauci on the front and a certain former guy's rear on the back." We'll keep going on these as we continue in a minute with professor Teresa Ghilarducci from the New School, who's explaining the debt ceiling and talking about her article in Forbes about why she thinks it's silly and dangerous and should be abolished altogether.

I also want to follow up when we come back, Professor Ghilarducci on something that you said a minute or two ago, that is so the opposite of what I think most people believe. Which is that for those few years during the Clinton administration, when the federal government actually ran a surplus, that that was a really good thing that we should try to emulate at the federal government level if we can. You said it's a bad thing. When we come back, I'm going to ask you to explain that a little more, as well as see who else people want to put on the front of $1 trillion coin. Stay with us.

[music]

Brian Lehrer on WNYC. We are talking about the debt ceiling. What is it? Why does president Biden predict dire consequences for the nation if Congress doesn't agree to raise it by October 18th and should it exist at all. Is it a necessary economic tool? My guest New School economics Professor Teresa Ghilarducci says it is not. She's got an article on Forbes called The Debt Ceiling Is Silly And Dangerous. Let's take another call from Amy in Manhattan, who has a debt ceiling question. Hi, Amy, you're on WNYC.

Amy: Hi, Brian. Hi Professor Ghilarducci. Professor, you talked about the government borrowing [unintelligible 00:24:49] money. I'm wondering who's the person the government borrow it from, who's the debtor to?

Teresa Ghilarducci: Great question. The government borrows from you and me, I have government bonds in my portfolio. You might too, if you have a professional investing your own pension fund. University endowments have a safe asset and portion and they'll buy the government debt. The Japanese government and their savings they buy government debt, almost any entity, whether from a billionaire's to you and me, to big governments, to big institutions that need to save money for spending later, we'll have a portion of their portfolio filled with US government debt.

That's one thing that Paul Krugman will also emphasize every once in a while, Stephanie Kelton in her book, The Deficit Myth, every single economist. Whether they're left-wing, right-wing, up wing, down wing, of all political stripes. Understand that the US government bond is one of the most coveted assets in the world. That's one of the reasons why when the treasury issues the government debt, they go like that, people snap them up. To answer your question just very straightforwardly, people and institutions all over the world own our debt, meaning that we can borrow money from almost anybody.

Brian Lehrer: We also borrow a lot of money from China who you didn't mention. This comes up from time to time that China is so invested in US government bonds, US government debt that it holds a lot of leverage over us. With the competition between the US and China, especially economically, if they wanted to crash the US economy or really damage it, they could just decide not to pay their US government tax and China has too much power to do that. That's another reason to decrease the federal debt altogether. What's your response for that?

Teresa Ghilarducci: I think it's a little bit of the opposite. If you owe someone $1, they may have leverage over you, but if you owe someone $1 trillion, who has leverage over who? Because the Chinese government really trusts the US government and buys our debt. They buy our debt, it's their assets, and they hope to get those redeemed at some point. They have a stake in the US economy being healthy. They have a stake in the US economy paying them back.

I actually think it's the opposite that we have leverage over them because they depend upon us paying them back and redeeming our debt. It's not the most important holder of our debt. That's actually why it didn't come to mind, but the Chinese government has a lot invested in our ability to pay back that debt.

Brian Lehrer: Listeners, if you're just joining us, part of the segment is having a little fun with the idea that Paul Krugman in his New York Times column suggests from time to time, which is that the government could just get out of its debts by minting $1 trillion coin. We're asking who should be on the front and the back or what image should be on the front or the back of $1 trillion coin, if president Biden were actually to take up this suggestion.

Another one that has come in is, "If a $1 trillion coin is minted, I think it should have Ruth Bader Ginsburg on the front as a reminder of times when the Supreme court functioned as a nonpartisan institution and a picture of the earth on the back." Okay. That's another one. We'll keep throwing those at you. I did say, Professor Ghilarducci, before the break that I wanted ask you to follow up on your assertion a few minutes ago, that in the few years, in the '90s, under President Clinton, when the US government actually ran a surplus, that that was a bad thing rather than a good thing. Really?

Teresa Ghilarducci: Yes, it was a bad thing because what that did was freeze the ability of the US to issue government bonds, to issue government IOUs. All of a sudden, all those institutions I talked about, the auto worker pension fund, the Harvard University endowment, the Chinese government, all of our other borrowers and mostly it's Americans who who lend money to the government. They had nowhere to go. What asset were they going to buy? Where they going to buy Australian bonds, were they going to buy a gold coin? Those are all very, very risky.

If the US government stops minting IOUs, stops borrowing money. The flip side of that is that they deny assets to all these portfolios. That meant the government fund that I was a trustee of, and that we advise to make it a diverse portfolio. That meant that instead of US government bonds, we had to go to more risky assets that we didn't know much about. It was a little scary to consider buying Italian bonds where they have a problem in paying or Argentina bonds. We were really at sea about how we could balance our portfolio. Our debt is somebody else's assets.

There's another question that I wanted to answer. It's one of your callers got to the heart of it. I think it was Seth about whether or not there was an economic limit to how much borrowing we could have. I want to go right at what people might be worried about. It was even you that said there must be some limit to how much we could borrow.

Let me make that argument. If our borrowing caused our lenders, those pension funds and other countries to be nervous about whether or not we could pay it back then I would worry. Then we would see the interest rates paid on US government bonds to rival those of Argentina or Mali. We would look like a country that was borrowing too much money and did not have the fiscal capacity to pay it back, but there's nothing in the market or in our fundamentals to suggest that we're anywhere near that point.

Brian Lehrer: That's a really interesting point. It goes back to the 25 year old caller, Jenna, who's just starting to save for retirement way down the line and worries about the ups and downs of the stock market, putting her money into things like that, rather than just a high yield savings account. Well, no savings account is giving anything called a high-yield these days. When you look at the other thing that's considered a really safe investment, a no risk investment, it is US treasury bonds, and they're also paying close to zero.

I think you're making a really important point that that actually relates to something in the real world about the debt. If treasury bonds are paying close to zero interest, it's because people consider the risk to be close to zero.

If we were in another country where the risk was higher, they would have to offer higher interest rates in order to get people to invest in their bonds. For us, the interest rates are close to zero because even with current levels of debt, even with the debt that is being considered in the reconciliation bill, for example, which is actually not that much, if they raise taxes the way the bill includes, but for whatever debt it would incur. Even with all of that prospect, the treasury bonds are not going up to anything that you would call risky bond status. That's a central point, right?

Teresa Ghilarducci: You got it. Another way to look at it and I'll use your household analogy is, say you're first starting out, say Jenna actually buys a house and she buys or an apartment and she buys it at 3%, but because she sounds really hard working and conscientious, her income is going up. Her debt level stays the same and then interest rates fall to 1% or 2%. Her ability to pay back that debt has only increased.

That's actually happened in the United States because we are borrowing money at such low rate, just like somebody buying a house for like 2% rate and our economy is now thriving, thank goodness, from the pandemic recession, our ability to pay back the debt that we're now issuing and that Congress should actually allow us to issue by October 18th, our ability to pay back that debt has never been stronger. That's another way to measure whether or not we should borrow more money.

It depends upon what we spend it on. I think as an economist, what is embedded in the spending bills is actually not spending but investment, especially around children and, an education. That investment, that spending now will come back to us in a more healthy economy and a healthier tax base.

Brian Lehrer: Who should be on the trillion dollar coin. One listener says it should be the cartoon character wimpy from Popeye who is famous for saying, "I'll gladly pay you Tuesday for a hamburger today." Another listener says, "It should be a rain forest on the front and a Tesla car on the back."

Let's finish up this way. Listeners, if you want to keep tweeting who or what should be on the hypothetical trillion-dollar coin, or if you want to go and read what your fellow listeners are tweeting about that, you can just go to our Twitter feed @BrianLehrer. What do other countries do? Do they have this debate every time they reach a politically determined debt limit in the UK or in France or Japan, the other countries that we tend to compare ourselves with?

Teresa Ghilarducci: No, they did not embed this in their political system. They have another way to figure out whether or not they can raise debt and that is, raise their debt limit. That just goes to the market. They see what they need to spend money on. They see how they can raise revenue to pay for it and then they see what the market says about whether or not they can sell their debt to anybody.

If you're Italy, your debt limit is basically the market. The Italians now have to pay multiples of what the US has to pay to borrow money. Other countries have the market to limit their debt and also their imagination and their political system to figure out what they want to spend and invest on and how they want to raise the money.

I think the US has this funny little political quirk, because we're almost unlimited in how much we can borrow because our economy is so strong and our government is so trusted. I think it is time and this is a way-- we can end it here in this way and in my article.

It's really time to stop this weaponizing of a debt limit. It's really hard for people to understand and people get too worried about it. I'm really worried about my neighbor who's frantic or Jenna, who's worried about her financial future. We should just eliminate that and have this rule like every other country. If you authorize to spend the money, then you have to pay your bills.

Brian Lehrer: My guest has been New School economics Professor, Teresa Ghilarducci. She is author of books on retirement security, including her latest Rescuing Retirement: A Plan to Guarantee Retirement Security for All Americans. Her article on Forbes is called Debt Limit Is Silly And Dangerous. Thank you so much.

Teresa Ghilarducci: You're welcome. It was really good to talk to you again, Brian.

Brian Lehrer: We'll put you on the front of $1 trillion coin. Brian Lehrer on WNYC. Eric Adams next, stay with us.

 

 

Copyright © 2021 New York Public Radio. All rights reserved. Visit our website terms of use at www.wnyc.org for further information.

New York Public Radio transcripts are created on a rush deadline, often by contractors. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of New York Public Radio’s programming is the audio record.