US debt ceiling deadline looms

This is an audio transcript of the FT News Briefing podcast episode: ‘US debt ceiling deadline looms’

Marc Filippino
Good morning from the Financial Times. Today is Monday, May 8th, and this is your FT News Briefing.

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The Kremlin is pinching oil producers for more money. And education companies are hurting because of artificial intelligence tech like ChatGPT. Plus, the US economy could be headed for a disaster if lawmakers can’t agree to raise the debt limit soon. We’ll take a look at why Democrats and Republicans aren’t getting this done. I’m Marc Filippino, and here’s the news you need to start your day.

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Remember back in December, G7 countries introduced a price cap for Russian oil at $60 a barrel. The idea was to keep Russian oil flowing to the global economy, while also making sure that Moscow doesn’t make too much money to fund its war in Ukraine. Turns out Russia is trying to plug that gap caused by the price cap by raising taxes on its oil and gas producers. The FT recently saw an analysis of Russia’s tax change from a G7 member. The analysis found that the higher tax could do long-term damage to the industry since it hurt how much producers can invest. Russian oil and gas tax revenue fell by 45 per cent year-on-year in the first quarter of 2023.

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You’ve probably heard a bit about the US debt ceiling recently. For those who don’t know, the debt ceiling is the limit on how much the federal government can borrow. And US Treasury secretary Janet Yellen said last week that the government could run out of money as soon as June 1st. That is, if Congress doesn’t raise the debt ceiling. Here’s Yellen on ABC yesterday.

Janet Yellen
This would be really the first time in the history of America that we would fail to make payments that are due. And, you know, whether it’s defaulting on interest payments that are due on the debt or payments to, for social security recipients or to Medicare providers, we would simply not have enough cash to meet all of our obligations. And it’s widely agreed that financial and economic chaos would ensue.

Marc Filippino
Democratic president Joe Biden and Republican House Speaker Kevin McCarthy are planning to meet this week to work out a deal. But what if the two sides can’t figure something out by the end of the month?

Lauren Fedor
We don’t know exactly what would happen. We’ve never been here before.

Marc Filippino
That’s the FT’s deputy Washington bureau chief, Lauren Fedor.

Lauren Fedor
The Treasury’s warned that a default would be a catastrophe. They say it would spark an economic downturn not only here in the US, but abroad. The latest phrase they were using is “unknown but substantial severity”.

Marc Filippino
So, Lauren, Republicans are saying that any increase in the debt ceiling has to come with deep spending cuts. And you recently went to Republican congressman Bob Good’s district about 150 miles south of DC. Tell me about the trip and what you learned about the debt ceiling fight.

Lauren Fedor
This is all the result of divided government. And divided government means that the Republicans control one chamber of Congress and the Democrats control the other. The Republican side says that they’ll only raise the debt ceiling if the Democrats agree to some pretty steep spending cuts. So, Bob Good is one of the members of the so-called Freedom Caucus. This is a group of rightwing Republican congressmen and women who are among the biggest proponents for spending cuts. I followed the congressman around as he met with some small businesses and I spoke to him afterwards about, you know, why he feels the way he does and whether or not he’s open to compromise.

Marc Filippino
And Lauren, what does he think?

Lauren Fedor
The answer is he’s not really open to compromise. He’s pretty adamant that these cuts need to go through. And that is, you know, the opposite of what the Democrats, the opposite of what the White House is calling for. And this opposition between the two sides is pretty concerning given we’re running out of time.

Marc Filippino
And what did Democrats say they want?

Lauren Fedor
They say that they’re open to having a conversation about the federal budget and how that money is spent. But they want it to be a separate conversation from the debt ceiling. They’ve accused the Republicans of holding the economy hostage by linking the two. They also argue that the debt ceiling has been raised several times before, including under Republican administrations, without the drama.

Marc Filippino
What do you think, Lauren? I mean, what are your sources telling you?

Lauren Fedor
You know, most people will kind of sigh and say, you know what, this happens on Capitol Hill all the time. They make a lot of noise. And at the eleventh hour, they always come to a deal. And on one hand, that is true. That’s what we’ve seen several times before with the debt ceiling and other high-stakes negotiations in recent years. On the other hand, this is a pretty polarised time in Washington, and the two sides are very far apart. We’ll be looking ahead to a meeting that’s gonna be happening at the White House this week, where Joe Biden is gonna meet with congressional leaders for any signs that progress could be made. But until then, I think people are gonna be pretty nervous.

Marc Filippino
Lauren Fedor is the FT’s deputy Washington bureau chief.

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Chegg is a California-based company that provides online study guides and its shares plunged last week. Why? Well, Chegg says students were using the AI chatbot ChatGPT and that’s hurting sales. Chegg’s warning also got investors nervous about other education companies like Pearson, Duolingo and Udemy.

Bethan Staton covers education for the FT. She says the problem for companies like Chegg is that ChatGPT can basically do what they do.

Bethan Staton
If you look at a company like Chegg, it's a study tool that creates answers. It’s been accused of cheating for those reasons. But even the more legitimate-seeming and advanced capabilities of talking students through answers to questions, ChatGPT can do. So it’s a kind of duplicating effect there for companies like Chegg, which is a real problem. The question there is how do they create value added that makes them different from the kind of AI that everyone can now access really easily and very cheaply online.

Marc Filippino
Bethan, what’s the cost factor in all this?

Bethan Staton
One of the things I think, which isn’t really recognised so much, is using AI and ChatGPT plug-ins or different kind of AI providers is just an additional cost to companies. We know that ChatGPT is incredibly expensive to run and those costs are passed on to the third-party companies who are using it, like Chegg or Duolingo, and then they’re in turn passed on to customers. If you use a basic version of ChatGPT, it can give you kind of answers to questions, but you don’t really know whether they’re true or not. It has all the problems of hallucination and other issues which we’re familiar with for these language models. Well, existing companies are going to offer and need to convince consumers and investors, I guess, that they offer really attractively is a kind of branded experience which uses the AI in a way which is user-friendly, which is easy to navigate. They can also train AI on their own data, so it will make much more, sort of, sense within the app to be using something which is properly verified and which consumers know it’s kind of trustworthy.

Marc Filippino
Now what does this mean for students? Could education get even more expensive for them?

Bethan Staton
One really interesting aspect of this is how it changes what we’d hope would be a level playing field for students in terms of accessing technology and support for their learning. Particularly when the more, kind of, mainstream products now, so ChatGPT being the most obvious one, if that starts to be put behind paywalls and the more powerful versions are quite expensive and difficult for students to afford, it will be an advantage for those who can pay over less, sort of, well-off students. And that also presents a big problem for universities. I was speaking to a kind of academic technology lead at a university this week, and he was saying that when faced with that issue, it will be the responsibility of universities to subscribe to ChatGPT for their students in order to enable the level playing field. But that raises ethical questions as well, you know, are these products which universities feel comfortable basically investing in and creating partnerships with. It’s a real minefield.

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Marc Filippino
Bethan Staton is the FT’s public policy reporter. You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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