Episode Overview

Podcast: Economic Update with Richard D. Wolff
Episode Title: Government Deficits; Why They Happen, Who Benefits From Them, and MMT
Host: Richard D. Wolff
Date: August 26, 2025

Main Theme:
In this episode, Professor Richard D. Wolff unpacks the reality behind government deficits—what they are, why they happen, who benefits from them, and how alternative economic theories such as Modern Monetary Theory (MMT) confront mainstream assumptions. Wolff challenges prevailing narratives around deficits, revealing the class dynamics at play and exploring systemic alternatives.

Key Discussion Points & Insights

1. What is a Government Deficit?

• Deficit Defined:
  • A deficit simply means the government spends more than it takes in through taxes.
  • "It's very silly to blame the one or the other, because it's only the relationship between the two that makes a deficit...the simple name of that gap is the deficit." — Richard D. Wolff [07:16]
• Mechanics:
  • The government borrows to make up the shortfall (for example, spends $15, collects $10, and borrows $5).

2. Why Do We Have Governments?

• Role of Government:
  • Governments exist across all economic systems (capitalist, feudal, slave economies) to resolve human conflicts, adjudicate disputes, protect society, and manage money creation.
  • "Government is something human beings have felt the need to create...having an institution that's there for that seemed reasonable." — Wolff [10:52]
• Misconceptions:
  • Some believe government is unnecessary or inherently harmful—a view Wolff attributes to libertarian or misunderstanding, not historical or functional reality.

3. How Do Governments Fund Themselves? Who Do They Tax?

• Taxation System:
  • Governments tax both employers (primarily on profits) and employees (on income/wages).
  • Employers want government services (military, for instance), but fear its power due to democratic voting, as employees vastly outnumber them.
  • "Employers are 3% of our people. The other 97% are not." — Wolff [13:45]

4. The National Debt and Its Roots

• National Debt = Sum of All Deficits:
  • The national debt is the accumulation of past deficits minus what has been paid back.
  • "The national debt is simply the sum of all the deficits from which we subtract whatever portion...the government has paid back." — Wolff [16:01]
• Government Borrowing via Treasury Bonds:
  • The government issues bonds with varying maturities and pays them off over time.

5. Why Do Deficits Occur (and Persist)?

• Core Reason:
  • Deficits reflect something systemic, not just overspending.
• Keynesian Insight:
  • When employers (corporations) decide not to reinvest their profits—out of fear or poor business prospects—it creates a spending gap leading to potential economic downturns.
    • "What they do with their profits is the issue ... if it looks like the economy isn't in good shape ... you'd be nuts to invest." — Wolff [21:48]
• Government Response:
  • The government steps in, borrows from those same corporations, and spends to fill the gap—effectively ensuring economic continuance but at a cost.

6. Who Benefits from Deficits?

• Primary Beneficiaries:
  • Corporations that withhold investment get their cash recycled as government bonds, which are safe, interest-paying stores of value.
• Perverse Incentive:
  • The very actors who trigger the need for deficits (corporations refusing to spend) get rewarded, as government borrows from them and covers for their lack of investment.
• Punchline:
  • "The deficit run by the government is a bizarre, odd mechanism to solve a problem caused by the employer class in capitalism. And it's bizarre because it rewards them by borrowing rather than taking the taxes from them." — Wolff [34:36]

7. Possible Alternatives—Why Not Just Tax the Corporations?

• Unexplored Solution:
  • The government could tax profits that are withheld rather than borrow—directly funding needed spending without incurring debt.
• Class Politics:
  • Proposals to tax corporations or the wealthy are avoided “because that violates our capitalist religion” [34:10], revealing ideological bias and class power.

8. Wealth Distribution: Who Could Be Taxed?

• Stark Wealth Inequality:
  • Bottom 50% of Americans: 2.5% of US wealth
  • Next 40%: about 30%
  • Top 10%: two-thirds of all wealth
  • "The bottom 90% that you and I are in together have about one third ... The top 10%, they own the other two thirds." — Wolff [36:40]

9. Modern Monetary Theory (MMT)

• Challenge to Orthodox Practice:
  • MMT argues that the government needn't borrow in the conventional sense; instead, it can issue money directly for spending and use taxation to pull excess money out of the economy to control inflation.
• Democratic Control:
  • MMT seeks to place monetary levers directly under government (and thus voter) control, not in the hands of a semi-independent Federal Reserve or markets organized around creditor interests.
• Critique of Status Quo:
  • “None of this deficit nonsense would be necessary, and we wouldn't be facing a situation where...the people who run this economy, the employer class, try to present themselves as hamstrung [by debt markets]." — Wolff [39:32]

Notable Quotes & Memorable Moments

• "As a teacher of economics all my life, the job done by the mass media in teaching about this [deficits] is somewhere between awful and abominable. That's how bad it is." — Wolff [05:58]
• "Employers know they need the government, but they don't like it. They're afraid that...the employees—that's the majority...might vote against them to tax them, to limit their profits." — Wolff [13:11]
• "If corporations start to hold back out of their own profit calculations...we could have a collapse of our economy. Now you're going to get the answer about deficits. Deficits are the government's way of fixing this problem." — Wolff [25:02]
• "If we taxed it away from you, there'd be no debt to you and we wouldn't have to worry about our credit rating. But that's off the table...That violates our capitalist religion." — Wolff [34:10]
• "Modern monetary theory...is to say, let's have our monetary system in the hands of the government where it belongs and where we as the voters can vote if we're dissatisfied with how it's being run." — Wolff [39:11]
• "Don't be fooled." — Wolff [41:14]

Timestamps for Significant Segments

• [04:14] Setting up the topic of government deficits and media misconceptions
• [07:16] Simple explanation of what constitutes a deficit
• [10:52] Why societies always have governments
• [13:11]-[13:45] The employer-employee dynamic and taxes
• [16:01]-[16:42] National debt and government borrowing
• [21:48] How employer decisions not to invest impact the economy
• [25:02]-[27:01] Why deficits really happen (Keynes, corporations, government intervention)
• [34:10]-[34:36] Core critique: Why not tax withheld profits? Why is borrowing preferred?
• [36:40] Wealth distribution in the U.S.: who could afford to be taxed
• [39:11]-[39:32] Introduction to Modern Monetary Theory; critique of present arrangements
• [41:14] Closing statement: "Don't be fooled."

Tone & Language

Richard D. Wolff uses a clear, critical, and accessible teaching style, often using analogy and humor (“It’s a little bit of the mouse roaring against the elephant” [13:00]). He remains engaged, opinionated, and incisively critical of mainstream narratives about deficits and debt, always bringing the conversation back to class power and the need for systemic analysis.

Summary Takeaway

Wolff’s episode reframes government deficits as not a technical failing or inevitable evil, but a deliberate, class-structured mechanism that stabilizes capitalism while primarily benefiting the employer class. He encourages listeners to question default political choices around deficits and to consider alternatives—such as direct taxation of idle corporate profits or systemic shifts advocated by Modern Monetary Theory—that put democratic control and social need above inherited economic dogmas.