Transcription
Professor Saxs, let's turn back to an economy that has you worried, the United States. Now, the Fed, the central bank, in its latest minutes of their meeting, have warned of an increasing recession risk. The US has seen recessions before. What do you see different this time around as far as the impact on the rest of the world goes?
Well, first, we're having a self-inflicted, uh, recession or economic crisis. Uh, the economy was not heading for a downturn before all of the uncertainties and instabilities, uh, of recent weeks took hold. These are, uh, uncertainties that are causing the Fed and private forecasters to revise their estimates. They've also caused a downturn, albeit with ups and downs in consumer sentiment. There's just a tremendous amount of uncertainty, and that uncertainty is largely self-inflicted. We can't seem to have a rational economic policy, uh, that rationally examines where an economy should, uh, head, and in particular to digital and green technologies that is low-carbon. The US has abandoned the low-carbon, uh, road at the federal level of this administration. So we don't even know which direction to go because, uh, Trump has pulled the US once again out of the Paris climate agreement and has downplayed structural transformation that's needed. And then comes the tariff disruptions of world trade. And now comes a budget policy that, uh, is, I guess in Elon Musk's world's words, a monstrosity. And so this is, this is our problem. We're making a mess of things internally. Here you have the, the richest economy in the world, but it just can't behave in a rational way.
Talking about the US and its ballooning deficit, Trump's mega bill is facing some opposition from Republican senators, not just Elon Musk. The bill is forecast to add $2.4 trillion in debt over the next decade. If you could explain in simple terms why this is such a big problem.
Basically, there is no agreement in the United States about what the government should do and how it should pay for what it does. And the result is that we have a chronic situation where the government at the federal level takes in about 16% of gross domestic product and spends 22 or 23% of gross domestic product. That gap is our deficit of about 6 to 7% of GDP, and that deficit is financed by selling, uh, government debt, uh, US Treasury bills and bonds. That debt is rising sharply. We have a mountain of debt, uh, that has accumulated that is now about 100% of our national income. That means that as interest rates rise, the interest bill on this debt is now, uh, around 3% of our gross domestic product. And it will continue to rise because interest rates themselves are now rising, certainly at the long-term end, to above 5%, 5 percentage points, I should say, 5% per year yields. So we have a mountain of debt, a rising debt, rising interest rates on that debt, and this stretches out, uh, for decades to come. On the current policy scenario, our Congressional Budget Office projects that the debt will rise to above 150% of GDP.
Well, what, what does that mean? Uh, it has many implications. One is financial instability. Governments with such large debts are, uh, unstable, and that is why Moody's just downgraded the US credit rating by one notch, one, uh, step. That means higher borrowing costs, and that can lead to a vicious spiral where the borrowing costs, uh, uh, rise, that exacerbates the deficits because you have to pay interest on this mountain of debt, at, uh, and that leads to a spiral of instability. Of course, many countries have been caught in the past by such a spiral of instability. Uh, these, uh, debts and this low saving, of course, translate into this large borrowing from abroad that puts the US in this extraordinary position where it's trying to boss the world around, but it absolutely depends on the world for borrowing. Uh, China is one of its major creditors, and yet it wants to have an economic war with China. It's mind-boggling to go to war with your creditor this way. Uh, so this is another cost. Of course, there are many drags on the US economy. One of the notable drags is that in the modest steps to do something on the spending side, the US is cutting into the heart of its science and technology policy. Uh, it's actually cutting my university, Columbia University, and other major universities off from funding for scientific research. Mind-boggling. Uh, of course, that's cutting your artery of innovation policy, which is the lifeblood, in fact, of rising, uh, living standards through improved technology. So there's so many things wrong with having a government that overspends chronically and in which there is not an honest debate and then a resolution, what should we spend on and how should we finance it. We don't have that kind of agreement in the United States.
Let's talk a little bit more about US education. Now, Professor Saxs, you teach at an Ivy League institute, Columbia, as you mentioned. This week saw Trump escalating his attack on Columbia. We've seen the fight for with Harvard get uglier and uglier. What do you predict happening with America's elite institutes? Will it really be worthwhile for students from all across the world, including India, to risk studying at these universities given this chaos?
It's chaos. I call it America's cultural revolution, of course, recalling the, uh, absolute instability and self-inflicted harm of China during the 1960s when the major universities were basically closed down. And, um, this administration again, lawlessly, in my view, without authority, uh, without the rule of law, is on a warpath. Now, when, uh, Trump issues such proclamations from on high, most of these are utterly illegal, without, uh, due process, without legal authority. And so Harvard runs to the courts and gets a judge to say no. Uh, the administration can't do that. Of course, then a lot of long-term litigation ensues. Columbia, my university, hasn't run to the courts. It's tried to play nice with the administration. You don't get very far with this administration. Playing nice goes back to the trade negotiations also. Uh, from Trump's point of view, if you play nice, it means you're weak. Uh, it means there's something more you can exploit. And so Columbia keeps facing more and more grossly illegal challenges, the most recent, uh, decision on high that Columbia does not deserve accreditation. Here's one of the world's leading institutions. Uh, it's been, uh, open for business since 1754, providing quality education. Uh, it, it's got a spectacular science faculty and, uh, wonderful colleagues across many different schools. And then comes the president of the United States and declares this place should not be accredited. You'd laugh it off if it weren't so serious, uh, in its short-term implications. For the long term, I'm not worried. For the short term, it's really self-inflicted harm of the United States.
I'd like to talk a little bit about Ukraine. Professor Saxs, you see US President Trump and Russian President Putin as largely sharing a similar position on how to end the war in Ukraine. And you've also suggested, very controversially, that Ukraine should give up territory seized by Russia. Why do you make that argument?
Well, first of all, Ukraine is losing a vast number of its population. It's a tragedy. Uh, it was avoidable, easily avoidable. Uh, by the way, what happened in Ukraine needs to be put in its historical context, and that is that the US and extremist right-wing forces in Ukraine overthrew a government in 2014. So the government in power in Ukraine is a, is a kind of regime installed by a regime change operation in which the United States played a major role. These regime change operations of the United States are a core part of US foreign policy that are absolutely destructive and insidious. The US has overthrown dozens and dozens of governments. It almost always ends badly, as is the case in Ukraine. Why did the United States conspire to overthrow the government in Ukraine in February 2014? Because that government of Viktor Yanukovych had the temerity to want neutrality for Ukraine, which is the only sensible policy for a country's, for a country in Ukraine's geography. That is, Ukraine sits between, uh, Western Europe and Russia. And that means that it's really in between a US, uh, military alliance and Russia. And if you're between two giants, uh, please be careful. Uh, this is, was my advice to the Ukrainians all along. But the Ukrainians said, "No, no, no. The Americans will protect us." I said, "Oh, God help you. Uh, the Americans don't protect you." Remember Henry Kissinger's famous adage that, of course, to be an enemy of the United States is dangerous, but to be a friend is fatal.