← Economic Update with Richard D. Wolff
Loading summary
Transcript35 lines
- [01:00]
A
Welcome, friends, to another edition of Economic Update, a weekly program devoted to the economic dimensions of our lives. Our jobs, our incomes, our debts, those looming in the future, those for our children, all the things having to do with how we connect to the system we call capitalism that produces and distributes the goods and services we depend on. My name is Richard Wolff. I've been a professor of economics all my adult life, and currently I teach at the New School University in New York City. I wanted to begin today by reminding everyone that this is now a program, Economic Update, that has had a continuous run. We have produced a program every week since we began in March of 2011. Every single week. Even if in your particular radio area you might not have heard one or another because there was fundraising done or other things interfered. We did in fact produce a unique program every single week since March of 2011, and those are archived on our website so that if you're ever interested in seeing what we did when it's all available 24, 7, no charge at all, on the archive of our websites. And I'm going to give you their rdwolf with 2f's.com and democracy at work. That's all one word, democracyatwork.info, we also add new features to these websites all the time, and I want to mention one in particular today that you might want to we have begun producing a feature called Left Out. The fourth episode of Left out is now available on our website and it's called Philanthro Capitalism. It's a study of how philanthropies shell out huge amounts of money each year in our capitalist system, particularly in the United States, where, By the way, 2015 showed the largest amount of philanthropic giving in the history of the United States. But a question has been raised as to whether this philanthropy is really a kind of backhanded way of dealing with some of the sad or tragic symptoms of this capitalism, but ways that do not change or question the very structure that produces those symptoms. Well, if that's an interesting question for you to think about, take a look at our website, particularly democracyatwork.info go to the main page or click on the Media tab and look for Left out, which has this new video that is available for you to look at to talk about philanthropitalism. Last week I began briefly as a kind of teaser to tell you about a new book that is scheduled to be released any day now. And I want to remind you and fill it out a little bit. This sketch the author's Name is Bradley Birkenfeld. I'm going to spell it for you. B I, R K E N F E L D. And this book, which is a remarkable study, called Lucifer's Banker. Something to think about. Lucifer's Banker. Well, what is this book about? Mr. Birkenfeld was a banker at UBS Union Bank Suisse, it used to be called, one of the largest banks in the world, based in Switzer. In his capacity as a private banker at UBS, Mr. Birkenfeld was involved in helping wealthy people around the world, particularly Americans, escape their taxation by hiding their money in Switzerland, something many, many wealthy Americans have always done. As far back as anyone can remember, he kind of blew the whistle on all of this. And as a result, in 2009, UBS paid a fine, $780 million. That's a pretty hefty sum. To avoid prosecution in the United States, they paid this fine. Mr. Birkenfeld was arrested because he was part of this illegal activity of hiding money, tax evasion on the part of his clients. He spent 31 months in prison, but when he got out, he got quite a reward. The Internal Revenue Service here in the United States paid him a record $104 million for his help in recovering unpaid taxes because the IRS went after the Americans whose names and tax evasion they had Learned about from Mr. Birkenfeld. So he's a colorful character with quite a history behind him, but clearly he must have done something to get the IRS to give him $104 million. If you work it out for the 31 months that he was in jail, he got paid 104 million DOL. That's a lot more than he would have gotten paid doing virtually anything else. So jail had a silver lining for him. One of the interesting stories, he has many in this book to tell. One of the interesting stories has to do when he was called to testify by a committee of the United States Senate which was looking into tax evasion, which it is their job to do. And he was called to the committee, and he gave testimony in late 2007 to the Senate committee. Sitting on that Senate committee was one Senator Barack Obama, at that time, Senator from Illinois. During this time, According to Birkenfeld, Mr. Obama was on the payroll of UBS, that is, members of the UBS management, according to Mr. Birkenfeld, were bundlers. They arranged campaign contributions. Each of them was responsible for about $500,000, which were funneled to Mr. Obama. This is legal, by the way. However, Mr. Obama, interestingly, never attended any one of the sessions of that committee at which Mr. Berkenfeld testified, raising the question whether there might have been some sort of conflict of interest of being a senator, listening to te testimony from a banker from a bank that was giving you money as a senator. Well, it's a question. I don't know the answer. But we won't know unless and until Mr. Birkenfeld's revelatory book gets the attention, which in my humble opinion, it deserves because of the important issues about the cozy relationship between big banks, big business on the one hand, and leading politicians on the other. Every year, an agency of the United nations issues a report. It's called the Report on the World Social Situation, and it is the responsibility of the Department of Economic and Social affairs at the United nations. And in 2013, they issued their report. They do it every year, I believe twice a year, actually. And in 2013, they issued one called Inequality Matters, which is pretty daring for the United nations, unfortunately. Anyway, there is a table in here that I think teaches us something interesting, and I want to make sure that this is in everyone's mind so we can be clear about what's at stake. The number I'm about to re report to you is the percent of the total income earned in a country by the top 1%. If things were fairly done, the top 1% would get 1% of the income, the top 10% would get 10% of the income, and so on. In other words, your size within the community is roughly equal to your size of the total income that that is available for everybody. And as all of you know, I think we don't work that way in a capitalist system. It doesn't divide things in that kind of equalizing way. So here's the number for the United States in this report dated 2013. The top 1% get 19.3% of the income. 1% of the people get one fifth of the income in the whole country. Now, there's a list on this table of approximately 30 countries, one of which is the United States. Out of those 30 countries, the top 1% in the United States gets the biggest share of total income of all 30 countries. Number two you might be interested in is Argentina, where 16.7 is the number that is the top 1% of Argentinians get 16.7% of the income, still well short of the 19.3 that the American rich 1% get. And the next country down, South Africa, where the top 1% get 16.6. Well, I won't go through it all but let me show you how different other countries are that you might not have thought of different. I'm going to begin with France. The top 1% in France get 8.9% of the income compared to the top 1% of Americans who get 19.3%. That's an enormous difference. How about a country that's the big up and coming other country in the world today and which is producing millionaires at quite a clip? The People's Republic of China. What's the story there? 5.9%. That is the richest 1% of Chinese get 5.9% of the income compared to the richest 1% of Americans who get 19.3%. I could go on, but let me drive home the point Bernie Sanders enjoyed in his campaign talking about Denmark. So it turns out Denmark is on this UN list. So what's the top 1% of Danish earners get as a share of income? 4.3%. Mr. Sanders was celebrating a country whose top 1% gets 4.3% of income. And he was doing that in a country where the top 1% get 19.3%. The United States distributes income more unequally than virtually any of the other major developed and even moderately developed economies in the world. The United States is not typical. The United States is unusual in its inequality. Let me turn next to a story that got an enormous amount of attention during the last few days of August and the early days of September. This had to do with the decision of the European Commission to instruct the Apple Computer Corporation Apple to pay taxes technically for the period 2003 to 2013, that should have been paid to Ireland, where Apple and its subsidiaries are mainly located in Europe, but weren't. And the amount that the European Commission said Apple had to pay was just short of $15 billion, 13 billion euros. Well, that's a record breaking fine if you like, or punishment. It's not as though this is a minor affair because it implies that what Apple did, which Apple, as I will explain in a few minutes, is not alone in doing that. What Apple is doing in Europe and for all we know elsewhere as well, is a violation of what a major part of the world believes to be legal and acceptable behavior. What is the argument? The Europeans point out that Apple set up in Ireland for two reasons. One, because the tax rate in Ireland is 12.5% on corporate profits versus in the United States where technically it's 35%, even though with all the deductions and exceptions and so on, it's back down to around 25%, but that's still well above the 12.5% that Ireland charges. But that even beyond that, Ireland entered into a special agreement with Apple, it turns out that cut their taxes even further. So that, for example, they paid a total of 1% on their profits in 2003 and less than 1/100 of a percent in 2014. And I could give more data, but we don't have the time. The Europeans therefore charge that what's going on here is straight out tax evasion, that it hurts taxpayers because it means that the tax revenues coming into this country, Ireland, are way less than what they should be, what they ought to be, what the Europeans believe their rules require them to be. And that this hurts the ability of the Irish government to provide services for the $15 billion that they could have and should have gotten just for those 10 years themselves. Number two, the Europeans argue it is anti competitive. In other words, Apple can afford to cut the prices on certain items it sells to the detriment of other companies competing with them. Because unlike those other companies who pay their taxes where they're located, Apple has cut a deal where it doesn't have to pay taxes. And that is unfair competition. And finally, and perhaps most importantly, the Europeans say we are trying to build a unified Europe. Ireland is part of the European Community. It has not voted Brexit type of decision to leave. On the contrary, the Irish polls indicate overwhelming desire and need to stay in Europe. And it is damaging to other European countries to have Ireland cut this kind of deal. Because what it means is that Apple settles in Ireland. It didn't settle in Spain or France or Germany or fill in the blank because those countries have, or at least have not yet matched the cozy deal that Ireland offered to Apple. And that therefore what we have here is what economists call a race to the bottom. The decision by Ireland puts enormous pressure on other governments to follow suit to compete for the Apples, The Googles, the McDonald's of this world to come to their countries and give 5,000 of their people jobs. Because that's the order of magnitude we're talking about that the Irish have arranged to do. And this is a disaster for all of Europe. And one member of the European Union. Ireland should not be allowed to do something that is uncompetitive, hurtful to its own taxpayers, and dangerous for the unity of which Ireland wishes to be maintained. What is Apple's defense basically has two parts. One, we are abiding by the laws. That's a major point that they're making. This is I'm going to be very polite here. Disingenuous. It's one of those nice words that sounds better than the short word that could more or less say the same thing. But I won't go there. Why? Because Apple, like many other corporations, is endlessly using its money, its influence and its power to shape laws. That's why they give money to candidates. That's why they have lobbyists working both at state houses and national parliaments. So to say we're abiding by the law neatly avoids their responsibility for the laws being written the way they are. But it's worse than that because they're also using laws that give political leaders all kinds of discretion to cut special deals. And there are laws in Ireland that clearly gave their leaders special discretion, presumably legally, to make the special deal with Apple that gave Apple basically a tax free haven in Europe. Ireland from which then to service all of its European clients. The Apple subsidiaries in Ireland have on their books billions and billions of dollars that they have not paid taxes on because of this deal they've cut. So what happened in the United States after the Europeans said oh no you don't. Before I tell you what happened here, let me remind you that as I have reported on this program in the past, American politicians, including Mrs. Clinton and Mr. Trump, have been saying that corporations have not been quite playing fair and should pay something more. This is an awfully polite way to call out what I'm talking about here. But did they jump on the bandwagon? Did they congratulate the Europeans for taking the step that they so far had failed to do? No, they didn't. They came out all nationalistic, denouncing the Europeans for imposing this on the corporation, etcetera, etcetera. I guess it plays better in our electoral system to come on that way. It certainly cozies up to Apple and companies who face the same thing. Because Apple is not alone. Google, McDonald's and many others are busy in Ireland doing the same thing, cutting the same deals or deals very close to them. So no, the United States is going to play the nationalist card. We don't want the Europeans to do this. Either it shouldn't be done or we in the United States are going to do it. In fact, for those of you who know tax law, there's an interesting wrinkle here. If the Europeans ever collect this tax after Apple and Ireland appeal. Since the Irish politicians who cut this deal don't want to tax Apple, they want more companies to come to Ireland to create jobs there and to do whatever nice Things they do for the politicians that make those nice tax deals for them. They want all that fancy game to continue, so they're not going in that direction. So we don't know if it'll ever get paid. But if it did, then when those companies like Apple bring their money back to the United States, which one day it's expected they will, those profits they've earned, they will pay less to the United States government because of the amount that they had to pay to Europe. And the American government doesn't want to lose that money either. What's the lesson in all of this? Well, let me offer a perspective you won't find in the mass media. And in order to do that, I have to remind you of two stories I've told you in recent weeks. One about the VW Volkswagen car company in Germany and the other one about the Harley Davidson motorcycle company here in the United States. Basically, those two companies were cited, were found to be doing something unethical and illegal. In the case of vw, as I explained, they put a device in their diesel cars that basically gave one reading about pollution when they were being tested by the pollution control and in fact released much more pollution when they were operated on the highway. VW was excoriated in the American press, fined, punished, is subject to lawsuits now, and has set aside billions with a B to deal with a fallout from what they were caught doing. Literally a few months later, Harley Davidson turns out an American company producing motorcycles to have produced a device which they sold to motorcycle purchasers which allowed those motorcycle purchasers to attach the device to a motorcycle and effectively do the same thing, release much more pollution than was reported by Harley Davidson to the United States authorities. The fine for Harley Davidson, $12 million. That's the equivalent of finding one of you 27 cents for something you wouldn't bother to pay attention. Harley Davidson isn't. It is not too strange to imagine the German saying, wow, we got treated to billions. The Harley Davidson gets off not with a slap on the wrist. That'd be called a kiss on the wrist. And maybe, just maybe, the Europeans feel about these things sort of the way the Americans do and decided here's an opportunity to do something to an American company to make an example the way the Americans seem to treat our car company and their car company. VW is an even more important part of the German and European economy than is the case with Apple. Last item that we have time for today, the tpp, the Trans Pacific Partnership and the ttip, the Transatlantic Trade and Investment Partnership. Two Deals being cut on the two major oceans of this world, the Pacific and the Atlantic, to enable corporations and governments to work out their disagreements in a cozy way. Much of it done in secret by something called the isds. And for those of you that are interested, the ISDS I have to get for you here my recognition of what it's, I don't remember. It's a secret court tribunal system that ISDS represents. It's been going on for years, but it is being written into these deals that are being cut. Bernie Sanders attacked it. Hillary Clinton, who used to support it, has now decided, at least for the length of her campaign, to be against it. Mr. Trump is against it. Over these last few days, Francois Hollande, the President of France, has said he will not participate in this anymore. And the negotiations as far as the TTIP should come to an end. The Germans are turning against it. Their claim is that the United States is in, is making demands and not willing to give in. This is the kind of horse trading that these deals are about. If you're interested, a remarkable and comprehensive discussion of these has been published by buzzfeed. It's an interesting website. If you've never gone there, go to Buzzfeed. B u z z f e e d buzzfeed.com There's a four part series by Buzzfeed, the reporter's name Chris Hamby. H a MBY all about this. The ISDS system of secret tribunals that work all these deals out. Basically, here's the story. Corporate lawyers, the kind who make their living by working for big corporations, compose a tribunal. Corporations can go to the tribunal when a government does something they don't like. Seize their factories, for example, hit them with a big tax, arrest their leaders for corruption. They can go to this court full of lawyers whom they normally hire and appeal and get a ruling which controls what a country can do. It's the end of even the pretense of a democratic control of capitalist enterprises. The enterprises have gotten so big and so global that they need to subordinate countries the way they subordinated states within countries 50 to 100 years ago. So it has come to that point. And who is excluded from all of this? Trade unions, Political opponents, socialists? All of the people who have a criticism about how this system works are conveniently kept out and because it's secret, literally frozen out of the process. And that leads me to my final story for today. One of the most influential economics writers in the world is a man named Martin Wolff. By the way, no relation, he spells his wolf with one F I spell it with two and he writes regularly for the Financial Times. Well, the Financial Times column by Martin Wolff on the last week of August, so very recent, raises the question that is identical to the question raised by the TPP and the ttip. He asks the capitalism and democracy. The strain is showing. Wow. And what Martin Wolf there says is, look, we are in trouble. Capitalism is producing such a different experience for a tiny group of rich at the top versus everybody else that it is driving the mass of people to use their democratic rights, or what little is left of them, to try to push back against the people who champion capitalism because it works so well. And he's very worried that, as one article writer about this who noticed it, said that capitalism and democracy may be headed for divorce and the results will be as messy as as many divorces have proved themselves to be. We've been talking about the lack of democracy in and by and for capitalism for a long time. And I want to welcome Martin Wolf to having seen what is so blazingly written across the economic history of our time. We will now take a short break. I want you to come back after this break. We will have an interview. The friend of mine who is going to talk to us about the crisis of Puerto Rico, which in many ways illustrates much of what the first half of today's program was about. Stay with us, we will be right.
- [29:31]
B
I was born a lover Everybody knows Just the way it is, just the way it goes. She's a cold companion like a desert rose the worse it is the more she glows.
- [29:57]
A
Sam. Welcome back, friends, to the second half of Economic Update for this beginning of September 2016. I'm your host, Richard Wolff, and during this second half of the program, I am very pleased to welcome a friend of mine named Ian Seda Irizarry. He is a assistant professor in the economics department of John Jay College at the City University of New York, and there he teaches courses on political economy, introduction to economics and global capitalism, and the economics in Historical perspectives. He is also a member of the Partido del Pueblo Trabajador. Hope I've got that right. In English, the Party of the Working People of Puerto Rico. And he writes newspaper and magazine columns for a variety of media outlets inside and outside Puerto Rico. Ian, thank you very much for joining us today.
- [31:31]
B
Oh, thank you very much for bringing me again and for your viewers and listeners for tuning in.
- [31:36]
A
Okay. Puerto Rico, as I have reported repeatedly in the past, is a kind of microcosm, a kind of example of the problems of the American economy. Indeed, of global capitalism. But because it's here and it's close by, and because Puerto Rican people are citizens of the United States, et cetera, there's a special interest that we have and lessons we can learn by looking at this particular situation. So let's begin, Ian, by asking you, what is this so called current crisis of Puerto Rico? How did we get into this? And in particular tell us about the role both of bankers in New York and political leaders in San Juan in their bringing this situation to pass.
- [32:25]
B
Well, as you can guess, with any event, there's multiple interpretations of what happened in Puerto Rico. For example, we've heard about blames for the government in terms of spending beyond its means, spending on the basis of borrowing, ending up paying its debt on the basis of more borrowed money. That's one very common perspective. Another perspective points to the fact that tax incentive schemes provided by the Internal Revenue code of the US section 936 ran out in 1996 and there was a 10 year transition towards 2006. And if you actually look at the economic data that points to the growth of the island, normally it's the year 2006 that's pointed towards the beginning of the 10 year depression that we find ourselves in right now. So that was part of change in the tax laws. A change in the tax laws that initially it was brought up in 1976 as part of a general global flexibilization, let's say, of capital flows throughout the world so profits could be moved around easier without being taxed. So that was part of the incentive for firms to come to Puerto Rico, especially high technology firms, pharmaceutical sector, electronics, et cetera. So that right now in 1996 there was a 10 year transition and then in that period either firms left or adjusted themselves. So there was nothing to basically substitute that industrial base that we had. And that's precisely what other people say. It's a joint, a shared responsibility of both the US And Puerto Rico, that this happened because nothing was proposed or implemented by the US or the government of Puerto Rico. So that's why they emphasize the sharing of it. And then there's another perspective, which is the one that I prefer a little bit, which recognizes that Puerto Rico is a colony of the United States, which basically implies that we don't have all the means and tools to necessarily address the crisis. We're also in a situation in which double standards prevail regarding, for example, Chapter 9 bankruptcy law that doesn't apply to Puerto Rico, but it does apply within the United States. We have to Use the United States merchant fleet, which makes goods in Puerto Rico more expensive. So there are those things over there that people emphasize, the colonial dimension of the relationship with the United States. But there's also another aspect to it which is the self inflicted dimension of the crisis. The fact that groups within Puerto Rico participated in the looting and theft of the public coffers of the treasury of the island for the sake of their own individual private benefit and that of firms, multinational firms, mainly American capital. So that's going to be an important dimension because many pro independence Puerto Ricans, for example, blame all of the faults of the United States and the legal colonial relationship without the United States. And they don't look within to see who were the collaborators of all of this, who were the intermediaries of this. So you can speak of particular governments, you can speak about local law firms, you can speak about groups within the private sector that have their own organizations, they're very well organized. The Coalition for the Public Sector in Puerto Rico. The outcome of all of this has been that now we have been imposed what's called a junta, a fiscal control board in which just a couple of days ago President Obama named its members. And worry before that naming of the members, what was, what was going to be the degree of participation of Puerto Rico. And Obama in his infinite wisdom, decided that many of those members would be either Puerto Ricans or have Latino last names so that people would feel comfortable about it. But when we look at the profile of the members and who they are, it's highly evident that clearly this is not an issue of the US versus Puerto Rico. It's a more complex thing. But historically speaking, going back to the roots of the crisis, you have to point at the economic model of the island, which is basically based on tax exemptions, subsidies, all types of credits, benefits, incentives for firms to come and invest because supposedly those incentives will make firms provide jobs for the island. So that has been the rule of the game since the 1940s when the industrialization process began. In a sense, we like to emphasize me and other economists in Puerto Rico, like Professor Quinones, who's a dear co author, we like to emphasize the self inflicted aspect of the crisis, to try and go beyond the usual critiques that understand everything in terms of relationships between the US and Puerto Rico, Americans and Puerto Ricans. And that's because the complexity of the situation warrants such an analysis.
- [37:09]
A
This is very interesting for two things. One, in the first half of today's program, when I talked a little bit about the so called Crisis between Ireland, Europe and the Apple Corporation. It's crystal clear that Apple's got its tax deal in Ireland through a cozy deal between Apple on the one hand and the politicians who were prepared to sacrifice the taxes that they needed to run Ireland. I don't know whether those politicians got something under the table. Certainly wouldn't surprise me. This is very common. But in any case, they made a deal that is now unraveling on them. So there's the question of the complicity of local leaders in all of these kinds of things without which these corporations often can't do what they do. But before we get into that and whether that same thing is true of Puerto Rico, can you tell us a little bit about this composition of the board that Obama named and what you think it represents in terms of where this new control of the economy of Puerto Rico is likely to take the island?
- [38:18]
B
Yeah, so as I mentioned before, the first thing that pops out to the view is the fact that it's composed by people whose last names is Latino, let's say. So you see Garcia, Carrion, Gonzalez, Mata, Santos. The second thing that you notice is that there's absolutely no threads or evidence of any type of knowledge regarding economic development. These are people who are either bankers, they have served as officials in governments of Puerto Rico. These are people who are experts in law, which is a very important dimension of it. But just to name a few of the persons, you have a person called Andrew Briggs, who is an academic who supposedly is an expert on dealing with pension funds and the restructuring of pension funds and benefits for workers. It turns out that he has worked for the American Enterprise Institute and the Cato Institute, which are two organizations that are usually identified as think tanks of, you know, conservative right wing, you know, ideology.
- [39:20]
A
Absolutely.
- [39:22]
B
You have.
- [39:24]
A
So Obama puts these right wing conservatives on this.
- [39:29]
B
Well, he approved the recommendations from the both Democratic and Republican party. So most of them were actually Republican candidates. You have for example, a former collaborator of Arnold Schwarzenegger in California, her name is Anna Matos Santos. She was one of the principal advisors when deficit cuts were happening in California under Schwarzenegger. So they brought that expert in. The jewel of the crown in my opinion is the former head of the Government Development bank of Puerto Rico. His name is Carlos Garcia. He was the head of that important institution in terms of economic issues in Puerto Rico. He was the head of that institution under probably one of the most corrupt administrations that we've had, that of Governor Luis Fortuno, who turns out to be a Republican inclined Puerto Rican. And it was during the tenure of Carlos Garcia that the government of Puerto Rico, for example, administered over $7 billion of the American Recovery and Reinvestment act of Obama in that stimulus of 2009, I think it was, they increased the debt of Puerto rico so over $10 billion. The government of that. He was also part of the architects of the infamous law number seven that was implemented by the governor in which thousands, over 20,000 public employees were fired. And this was after. This was In March of 20.
- [41:01]
A
Was.
- [41:01]
B
It 9 or 8? I can't recall, but in December of the previous year. Standard and Poor. So this is not Rick Wolf here in Economic Update or Amy Goodman in Democracy now or any other progressive outlet. Standard and Poor's, a credit rating agency, told the government of Fortuna, you cannot cut government spending till the private sector recovers. What did he do? Three months later, he fired 20,000 public employees. And by what we economists call the multiplier effect, for each public job loss, you lost at least one in the private sector. So all of those things also undermined the tax base, eroded the tax base of the government, which again gave further incentives to borrow money for making up for that lost revenue. So, yeah, that's why Carlos Garcia, I consider him the jewel of the crown in this group. He has given a new meaning to this issue of revolving doors, of which his boss, our former governor, was a perfect example of that. He gave a contract for $22.8 million to a law firm while he was governor. Step two and Johnson, we never saw the results of that. But he then, after getting out of office, being voted out of office, he now works for that same firm. So it's like the ghost of Fortuna is coming back to haunt us. And the same people and the same policies that in a sense got us to this point are going to be perpetuated through this fiscal control board that basically negates the relative autonomy.
- [42:28]
A
Let me ask you a question that your story brings to my mind. Political leaders in a capitalist system are always stuck with a peculiar job. They're supposed to preside over the provision of public services, to help companies do their business, to help the public live their lives. In order to do that, they have to raise money. They can tax corporations, or they can tax the people, or they can tax both of them. But the more they tax, the more opposition they get from the very people who want the government to do all the things they need to raise taxes for. So a politician who doesn't want to either raise the taxes and be voted out or hated or Cut the services for the same reason has then a built in out, a built in escape. Borrow the money, go to the rich and say, I'm not going to tax you instead of taxing you. Lend me the money, I will pay you back in a few years, plus I will pay you interest. Rich people would always rather loan the money to the government than be taxed when it's simply taken away. That way, they can provide services for a few more years using the borrowed money and hopefully move on to another career by the time the money has to get paid back. So that instead of looking in each case, like in Puerto Rico, at the particular corruption of the particular leaders who played this game, could we say that Puerto Rico is simply an extreme example of a very common behavior that you can see in most cities and states across the United States too. Does that make sense?
- [44:17]
B
Yeah, absolutely. If you look at the tax system in Puerto Rico, you'll see that it's clearly biased in favor of property. So if you look at the functional distribution of income, and I have the latest statistic here in the economic report of the governor, the table number 11 of the statistical appendix, you will see that income based on property for the last 10 years has increased 57%. Income based on work, wages, benefits for wages has gone down 3.7%. So that tells a lot about the income distribution and how the bias in the tax system manifests itself in the distribution of that wealth and income.
- [44:56]
A
Even at a time of extreme economic difficulty for Puerto Rico, the distribution of income and wealth went to the rich even then.
- [45:05]
B
Yeah. And then to top it off, the government, of course, and it's also infinite wisdom, paid a lot of money to bring in experts to evaluate the situation of Puerto Rico. One of them, the famous or infamous Ann Krueger, who is renowned in the third World for her role in dealing with fiscal crisis and debt. One of the conclusions of the report is that the minimum wage in Puerto Rico is very high compared to its productivity. So to make it competitive, we have to lower it. So while in the United States the debate is about the $15 per hour minimum wage in Puerto Rico, and this will be one of the powers that the fiscal control board, the junta, will have, is the possibility of lowering that minimum wage for a certain age group, those that are just starting their adventures in the labor market to $4.50. Tell me again, $4.50. So while we're here in this mainland, the United States, discussing an increase for $15 minimum wage in Puerto Rico right now, power has been given to the junta to lower it because the federal minimum wage is the one that prevails in Puerto Rico. But they have one of the articles in the junta's powers gives it power to reduce it to $4.50.
- [46:29]
A
So Puerto Rico, which if I understand correctly, is one of the poorest parts of the United States as a national entity, is considering solving its problems by lowering the minimum wage from $7.25 an hour, the federal minimum, to $4.50 an hour.
- [46:53]
B
Yes. For the people who are just starting their life in the labor, people who.
- [46:56]
A
Are just starting their life, it's important that the political party that dominates in the Congress and that dominates on this junta, on this control board, is often given to give speeches about its deep commitment to family values. So for young people starting out who might want to have a family, what can we do other than wish them very good luck on doing that on $4.50 an hour. Nor do I hear a word from Trump or Clinton about this.
- [47:33]
B
Yes, no word at all. And an important detail in all of this is that an added incentive will be given to people to just leave the island. That's the way to escape the structural adjustment program that's going to be implemented. And we've already had huge immigration in the last 10 years. We've had over 600,000 people, which means 60,000 people on average leave the island every year. So this is just one added detail in what's been a long story of the failure of an economic model that cannot serve the needs of most of its people. And this is not something that just happened in the last 10 years. It's been at the root of the model since its beginning. So just to give you one piece of data that reflects this, only once in the post war period has unemployment gone below 10%.
- [48:25]
A
Only once since the Second World War. Yes.
- [48:29]
B
And this was, if you read the economic literature, Puerto Rico was an example of the transition from an agricultural society to an industrial one. But it could never serve the needs of the island. Right now, the poverty rate in Puerto rico is like three times that of the U.S. i think the U.S. poverty rate is around 15% in Puerto Rico is like 45, 46%. So this is an absolute disaster in which one of the escape vaults is precisely emigration. That's the way to escape the imposition of a junta who's going to take resources away.
- [49:00]
A
So as somebody from Puerto Rico, what is your sense? What is the strategic goal here? What is being done is to depopulate this island, to literally drive, what is it, population now 3 million something. So you're driving away 600,000. That's 1/5 or so of the population. It is stupefying. What is going on. How do you understand the United States treatment of this part of itself?
- [49:33]
B
Well, the strong card that's being played is the fact that we have a very corrupt government, series of governments. So the intervention of the junta is seen as a way of correcting those bad attitudes. The responsibility, the fraud, the corruption that has, without a doubt permeated all of our administrations. The two main ones, the two main political parties, be it the New Progressive Party that supports statehood. Or the party that supports the current arrangement, which is what we call, in a diplomatic way, the commonwealth is the colony, which is the Popular Democratic Party. This is absolutely common throughout their tenures in government. And of course, a majority of Puerto Ricans right now, it seems it's still a majority, believe that the junta is going to put everybody in its place. And it's going to provide the tools to actually contribute to the growth strategy of Puerto Rico. But in reality, the junta is coming here to get the money of the bondholders, the money that's owed. And interestingly enough, there's a sector within Puerto Rico. This is why, again, it's very important to identify the groups that's made of around 60,000 bondholders who, when you look at the news and you read the newspapers and see the ads in television newspapers, what you see is old people, women, children, and how their future is going to be undermined if the payment of those bonds held by Puerto Ricans is not paid. So you have that group of people on one hand, and then you have coperatives who also have an important chunk of the debt. While also Puerto Ricans were saying, like, you know, we can wait, but we want to make sure that it's also paid. So people are appealing to patriotism in terms of who should be first in the list of priorities. In terms of the payment of the debt. Should it be Oppenheimer funds, should it be Franklin Investment? Or it should be local?
- [51:28]
A
It's an old strategy for major banks and bondholders to enlist little people, particularly giving big photos of them. As if it wasn't that the bulk of all of this had gone to a tiny group of financiers. But to get the small players in.
- [51:45]
B
This game, they appeal to reactionary nationalism is a way of saying it.
- [51:49]
A
But where do you think this is going to go? Tell me what do you see coming? And then I want you to tell us what you would prefer to see. But first, what do you think is coming down the road here?
- [51:59]
B
Yeah, so first of all, there was a meeting recently between various members of the private sector and government in a hotel in San Juan in the capital to discuss the situation and discuss the coming of the Fiscal Control Board. So a protest was convened. Over half of the invited guests didn't make it. Many of the candidates for governor that were also invited either rejected going on the basis of their principles, going there, or as they saw what was unfolding, they decided not to attend. And a couple of them. So there is resistance to this. This is positive, I think outcome of all of this. It's slowly building up. Remember that in Puerto Rico, just as in the US many institutions that have been around for years were basically dismantled in the last 30, 40 years. So it's basically popping up again in terms of the outcome. It's now part of the discourse is that now why would we have elections when at the end it's the Fiscal Control Board that will decide what's to be done with the budget. Whatever is proposed by the governor has to pass through them. And if there's a contesting, you know, an issue that's contested, then the governor has to go to the president, Congress. So people are wondering why are we really now, absolutely, in this extreme case of colonialism, even having elections for that. So people are wondering about these things now. Independent groups and organizations, community groups and alternative political parties are trying to bundle together efforts to try and oppose all of this. So it's a struggle that's still in the making. Still in the making. What's expected in terms of the election is that in November it seems that the candidate of the New Progressive Party, who wrote an article in Forbes saying he would shrink even more, the government will win the election. So it seems that between that and the Fiscal Control Board, more pressure is going to build up. And the question is, how is that going to manifest? Is it going to explode or are things like immigration going to alleviate a little bit that social potential for explosion? So it's a complicated thing. It's of course very difficult to think.
- [54:15]
A
Tell us what you would like to see.
- [54:18]
B
I would like to see a rejection first of the two party system that we have. I would like to see the identification of the different groups that have identified, contributed to this disaster in the island, both inside of Puerto Rico and outside. I would like to see a different perspective of what economic development means. So for example, there's lots of initiatives, very important initiatives based on agriculture and comparatives that we import over 75% of what we eat in terms of fish, we're on an island. We import over 80% of the fish in there. That's. That's absolutely insane. So people in moments of crisis, as it always happens in capitalism, are looking for alternatives. Now, what we have to recognize is that when the space opens up for opportunity, it's for the whole ideological spectrum. It doesn't matter if you're progressive or conservative, left or right, the opportunities are for everybody. Like we saw in Greece with Golden dawn, giving food to homeless people in the streets and appealing to nationalism and xenophobia and all of those things. So in Puerto Rico, again, things are, again, very disputed, and it's a critical situation. And again, lots of groups are trying to get together and articulate a strategy. So we'll see. We'll see what happens both in Puerto Rico and outside of Puerto Rico. Here in New York City, for example.
- [55:40]
A
In Puerto Rican communities of Commipil who have left Puerto Rico but are still identifying themselves as part of the Puerto Rican family in some sense.
- [55:50]
B
Yes. I've had the opportunity to go to Boston, for example, and be part of an activity there by the Service Employees Industrial Union over there. And it was incredible. The militancy and incentives for helping the island. These are people that I asked the question, how many of you have left in the last three years? And our 70% of them had. So it's going to be interesting how to draw the bridges, the connections between the diaspora here and Puerto Rico in terms of how to confront both the junta that's coming in a couple of weeks that the Puerto Rican people will have to pay for, by the way. And how are we going to hopefully articulate an alternative economic model that can serve the needs of most of the population there?
- [56:34]
A
Thank you very much, Ian. I really appreciate it. And to my audience, let me only say that the same motivation that had me bring Ian onto this program leads me to say, pay attention to what is happening in Puerto Rico. It is, unfortunately, the kind of future that those who control the American economy are thinking about and experimenting with in terms of states and cities across the country who have a very similar history of borrowing in a kind of collusive game between local politicians and financiers outside of the area who work to make a lot of money, that the mass of people will be demanded to pay back at some later point. We've come to the end of our program. I want to thank you all for listening. This is Richard Wolff. I want to thank truthout.org, that remarkable independent source of news and analysis ask you please to check out their website. And I look forward to speaking with you again next week, Sam.