Robert Pollin: The President still perpetuates myth there is a fiscal crisis.
Robert Pollin is Professor of Economics at the University of Massachusetts in Amherst. He is the founding co-Director of the Political Economy Research Institute (PERI). His research centers on macroeconomics, conditions for low-wage workers in the US and globally, the analysis of financial markets, and the economics of building a clean-energy economy in the US. His latest book is Back to Full Employment. Other books include: A Measure of Fairness: the Economics of Living Wages and Minimum Wages in the United States, and Contours of Descent: US Economic Fractures and the Landscape of Global Austerity.
Paul Jay, Senior Editor, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore.
President Barack Obama has begun his second term. He gave his inaugural address on Monday in Washington. Of course, he spoke of many things, but here's one small clip.
Barack Obama, US President: We the people still believe that every citizen deserves a basic measure of security and dignity. We must make the hard choices to reduce the cost of health care and the size of our deficit. But we reject the belief that America must choose between caring for the generation that built this country and investing in the generation that will build its future.
Jay: Now joining us to talk about this issue and others in the inaugural address is Professor Bob Pollin. He's the cofounder and codirector of the Political Economy Research Institute in Amherst. He's a professor of economics at University of Massachusetts Amherst. And his newest book is Back to Full Employment.Thanks for joining us again, Bob.
Robert Pollin, Codirector, PERI: I'm very glad to be on, Paul. Thank you.
Jay: So let's narrow the discussion, to begin with, about this promise to fight deficits. There was a promise to, you know, save money on health care. I'm not sure what he means, 'cause I don't know that he's got any new health care initiative coming. He's going to focus on fighting—lowering the deficit, no talk of any kind of stimulus, and no—I didn't hear much in terms of what he's going to do to deal with unemployment. What was your take?
Pollin: I agree with you. He had some nice words about the need to create opportunity for the middle class and poor. But how do you create opportunity for the middle class and poor? The number one way is to create jobs. And by focusing instead on deficit reduction as opposed to any strategy to move toward full employment, to create jobs, this ends up being just rhetoric. And the problem of the deficit is still being treated, even in his own inaugural speech, as the primary economic problem of the day and not a secondary one. The primary problem is the need for job creation. Deficit reduction is a secondary problem.
Jay:Now, you wrote a blog recently about the appointment of Jacob Lew as secretary of the Treasury. And you take that, and you also take the speech, which is sort of still on this narrative that deficit fighting is the critical issue, and you made a critique of this. Why don't you take us through that?
Pollin: Thank you for mentioning my recent blog post. I try to make three simple points that are irrefutable. These aren't, like, huge philosophical issues as to whether 47 percent of the population are freeloaders or not or whether we tax the rich more or not. We can get into that. I have strong opinions. But let's just start with three points that are absolutely irrefutable.The first point is simply we are not in a fiscal crisis. Now, what do I mean by that? If you take the common-sense meaning of the term fiscal crisis, that would suggest that the U.S. government is facing difficulties paying off its creditors next month, two months, six months a year. We're nowhere near close to that.As a matter of fact, the U.S. is now paying, as a share of its overall budget, a historically low amount to creditors relative to, for example, even the 1980s. The 1980s and '90s, under Republican presidents Reagan and Bush, we paid about 16 percent of overall government spending to interest payments on our debt. Today, we're paying 7.7 percent of our total government expenditure on interest payments—less than half. There is no fiscal crisis. That point should frame all debates in Washington about the need for deficit reduction. There is no fiscal crisis.Number two, the interest rates that we're paying, the government is paying on Treasury bonds, how much we borrow, is historically low as well. We're paying less than 1 percent on the money the government borrowed. That's of course the reason why the interest payments are also historically low. Under Ronald Reagan, the hero of the conservative right of this country, when Reagan borrowed, we were borrowing at 15 percent interest. Now we're paying less than 1 percent. Why can't Jacob Lew, the Treasury secretary designate, just hammer on that point over and over again?And then the third point is, of course, the fiscal deficit as a share of GDP is high. It's about 8.5 percent of GDP, which is historically high. But isn't it obvious that the reason we have high fiscal deficits is due to the recession?In 2007, the fiscal deficit was 1.7 percent of GDP, which—. Now, are we going to argue that all of a sudden people started demanding stuff that they didn't want in 2007? No. It's ridiculous. In fact, the deficit is due to the recession and mass unemployment. Solve mass unemployment, you will solve most of the deficit.
Jay: Well, is part of the issue of why they're so focused on the deficit is they know they're not going to solve mass unemployment, the things that are necessary to solve mass unemployment, which would include, I assume, a major kind of stimulus package, maybe connected with green technology, but also something that allows, that facilitates wages to go up—a raise in the minimum wage, laws that unions can get organized? All of that is they don't actually want to do. So if they don't want to do what it takes to have a solution to mass unemployment, then maybe that's why they're so focused on the deficit, 'cause they don't see the growth that's going to reduce the deficit.
Pollin: Well, yes, it's a matter, of course, who the they is. Jacob Lew, the Treasury secretary designate, is certainly a creature of the Washington bureaucracy and Wall Street. He's a protege of Robert Rubin, who was Treasury secretary under Clinton and head of Goldman Sachs and then went back to Citibank after he managed the deregulation of the financial market.I think it's very clear that those people don't want to do the things that are necessary to build a full employment economy. The majority of people, the overwhelming majority of the people in this country would benefit hugely, the people that Obama in the very beginning of his speech, of his inaugural speech today, says that that's who he's fighting for—he's fighting for the middle class, he's fighting to create opportunities for the poor to get into the middle class. To do that, you need to fight for job creation.
Jay: So, I mean, we heard lots of talk about fighting for the middle class and such during the election campaign coming from Mitt Romney. I mean, it's easy to throw those words around. But if you don't actually support the policies that are going to lead there—and I don't—is there any indication from this inaugural address that we're going to see anything different than we saw in the last four years?
Pollin: No, I don't think that there's anything that's clearly in the inaugural address that suggests any clear path. This is a matter of fighting for these things. And it's not going to come from Obama. It's not going to come from Treasury secretary designate Lew. It has to come from the people that elected Obama. I would guess that of all the 600,000 people that were sitting out there in the cold today watching Obama, they would be very much in favor of a simple program to fight for full employment and, as you mentioned, combining that with a program to control climate change.
Obama: We the people still believe that our obligations as Americans are not just to ourselves but to all posterity. We will respond to the threat of climate change, knowing that the failure to do so would betray our children and future generations. Some may still deny the overwhelming judgment of science, but none can avoid the devastating impact of raging fires and crippling drought and more powerful storms. The path towards sustainable energy sources will be long and sometimes difficult. But America cannot resist this transition. We must lead it.
Jay: So, Bob, this is something you could say, in terms of the second term, something new or different, 'cause climate change kind of came right off his agenda in the first term.
Pollin: Well, the first term—so when Obama got elected president and when he began the presidency, the level of commitment on fighting climate change was actually unprecedented. He fought for it. It was in the stimulus, as we've discussed at various points. I was actually consulting the energy department on that part of the stimulus. And in my view there were some significant successes, not enough.But then, when the Republicans took over Congress in 2010, that idea of building a green economy became a whipping boy and Obama retreated dramatically, never mentioned it during the campaign, which was outrageous, that he never mentioned it, he wouldn't fight for it. It now seems at least it's back in his rhetoric.Now, the fact that it's in his rhetoric means that people have to push him and fight for an agenda to build the green economy. And that agenda for a green economy is also an agenda for full employment. It's also an agenda for poverty reduction, because investing in the green economy will create a lot more jobs, three times more jobs than maintaining our fossil-fuel economy.
Jay: And that's going to be the question. If he really does take up climate change, is it investment in the economy that leads to jobs, or is it structuring things like cap and trade that create more opportunities for speculation?
Pollin: Well, we do need to put a restriction on fossil fuel consumption. How exactly you do that—I mean, I certainly am not in favor of creating new speculative markets.The crucial part of building the green economy is that we have to invest in energy efficiency dramatically and we have to bring down the costs of renewable energy. That is, we have to make solar energy affordable and we have to make wind energy affordable. We're not that far off. What we need is an industrial policy that will achieve those things.Yes, we do also need to put a price on carbon emissions. That is, when we consume fossil fuels and that creates carbon emissions, we need some measure of the extent to which that is creating damage to the environment. And so when you put a price on carbon emissions, either through a cap on emissions or a tax, when you do that, all that's doing is reflecting the environmental damage of burning fossil fuels.So the speculative market, no. The notion that you have a carbon speculative market is not something that we need. It's not something that I favor. But we need to invest in efficiency and renewables and combine that with putting a price, either through a tax or a cap, on carbon emissions.
Jay: Alright. Well, I guess we'll know in the next few months just what all these nice words mean. Thanks for joining us, Bob.
Pollin: Okay. Thank you very much, Paul.
Jay: And thank you for joining us on The Real News Network.