Paul Jay, Senior Editor, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore.
On Thursday, President Obama was in Austin, Texas, saying that the economy is poised for progress. Here’s a little bit of what he said.
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Barack Obama, U.S. President: Thanks to the grit and determination of the American people, we’ve cleared away the rubble of the worst economic crisis in our lifetimes. So we’re poised for progress.
Jay: Now joining us to give us his take on President Obama’s plan and vision is Bill Black. He’s an associate professor of economics and law at the University of Missouri-Kansas City. He’s a white-collar criminologist, a former financial regulator, and he’s the author of the book The Best Way to Rob a Bank Is to Own One.
Thanks for joining us again, Bill.
Bill Black, Assoc. Prof. Economics and Law, UMKC: Thank you.
Jay: So what do you make of President Obama’s comment, the economy is poised for progress?
Black: So President Obama believes in the magic bullet theory of macroeconomics, which is it doesn’t matter whether you’re running a stimulus, it doesn’t matter whether you’re running austerity. As long as you have a few good programs in there, they will somehow miraculously produce an economic turnaround. And that’s not how economies work at all, and indeed nobody in economics thinks that.
So we are not going to get progress if we get progress through these kind of tech centers. These tech centers could be perfectly rational, but you need a policy of non-austerity, and President Obama has been leading us into ever deeper austerity for about 18 months. And so these programs will prove to be ineffective.
Jay: And these programs, just to—are—he’s actually asked Congress for $1 billion, but he’s started some already. They want to create these high-tech centers which are government, private, and nonprofit cooperation to create technical innovation in various sectors of the economy, and this is supposed to attract more investment and create more jobs. That’s the theory.
Black: Right. And, again, these programs might be perfectly sensible, but the problem is jobs. And $1 billion is, frankly, trivial in terms of the macroeconomic problem of having austerity. And this fits into a couple of the other things we’ve been talking about in the last several weeks and what I’ve been writing about.
First, there’s the whole question of, you know, Bangladesh. So Bangladesh is the example of where the industrial manufacturing jobs have gone. The garment industry is now massive in Bangladesh, to the tune of about $20 billion. And what we’re seeing—the death toll is now over 800 confirmed in Bangladesh, which makes it the worst industrial accident probably in world history. And, of course, it could have been considerably worse, because there were many more workers in these factory buildings when it collapsed. If it had collapsed in a nastier fashion, the death toll would have been even higher. And the injury rate is roughly twice the death toll. And the injuries are often incredibly severe—amputations, head traumas, and such—that are going to cause permanent disabilities, and if you’re in Bangladesh, that’s terrible.
What’s the point of all this? The point of all this is it isn’t really necessarily cheaper to manufacture clothes in Bangladesh. You simply transferred a lot of the costs of manufacturing—called safety—to the workers, where we don’t allow that in the United States or Canada or in Europe. And so as—unless and until we change how the international globalization works, where the foreign competitors can simply gain a cost advantage—and a very large cost advantage—in manufacturing by simply endangering their workers’ lives, you’re not going to have a success in bringing back manufacturing. So that is a pipe dream.
Jay: It seems to me President Obama’s model, if you read between the lines, is that, number one, the objective is the United States should become more competitive globally, and the recovery will be led by exports, not by domestic demand, and what will fuel that is lower wages—he doesn’t say that, but that’s the model created in the auto industry, where starting wages went from $26 an hour to $14 an hour. So if you have lower wages in the United States and then you combine that with investing in innovation, so the United States stays or moves even further out front in terms of innovation in various areas, low wages plus innovation leads to more exports, and that’s supposed to lead to a recovery. Do you think that’s what he’s essentially talking about? And if so, what do you make of it?
Black: Well, yes, and we’ve talked about this before. You can’t have all nations be net exporters, right? My export is your import. So this is not a strategy that can work globally, this is not a strategy that can work for all nations. So my export is your import. So we can’t all be net exporters.
Is it an area where the U.S. has a big competitive advantage? Well, no, because of our wage structure, but even more because we actually try to keep our workers alive. So if you go this route, which we call the road to Bangladesh strategy, everybody globally competes to have the lowest possible wage that people simply don’t die under. Well, we’re not going to win that kind of competition. Bangladesh already, from a large number of its garment workers, they work full-time and they just barely make what the World Bank and the UN define as extreme poverty. So, you know, you could impoverish tens of millions of American workers, and that of course would simply weaken the country, not strengthen it.
More broadly, what they’re doing is austerity. And that brings us to the other shoe that dropped this last week, and that was this wonderful reduction—you know, reductio ad absurdum, of the debate between the extremely conservative historian Niall Ferguson and Paul Krugman about whether you should have stimulus or austerity. This was a debate back in 2009. And, of course, it was right in the expertise of Krugman, so if it had been a boxing fight, it would have been stopped in the first round as a technical knockout type of thing.
But Ferguson eventually comes along and admits, well, I was wrong about all of that, and then says, but actually I didn’t say what I said. And then Krugman actually brought out the words that Ferguson had used endorsing austerity and claiming that stimulus was going to destroy us by creating massive hyperinflation and huge interest rates. Interest rates, by the way, are at record lows. So that didn’t go well.
So Ferguson got his great revenge last week, or at least he tried to. But he ended up shooting himself in the torso. And it fits in with the discussion we’ve just been having. So Ferguson got asked a question about whether the United States was in what we call a liquidity trap. And that’s an economic concept where monetary policy is very ineffective, and it’s one of the big ideas associated with John Maynard Keynes, the famous economist. And as part of the question the questioner who is, you know, a biggie in finance asked Ferguson—the questioner mentioned Keynes’ famous line about the long run may not have very good policy guidance for what makes sense in the short run; in the long run we’re all dead. So queue up Ferguson. And Ferguson chooses not, of course, to answer the liquidity trap argument at all about what’s really going on substantively in the economy, launches instead into a gay-bashing attack on John Maynard Keynes, saying that John Maynard Keynes was childless, and this is because he was a homosexual, and even though he was married, he probably just talked poetry to his wife instead of having sex, and because Keynes was childless, he didn’t care about future generations. And then Ferguson said this line about in the long run we’re all dead meant that we shouldn’t worry about any future generations, and so, you see, that’s what’s wrong, and Keynes has destroyed our economy because of that short-run perspective.
And so this is all crazed, made-up stuff that is designed to say, hey, austerity, well, I was wrong, but I’m always right, we need austerity, we need austerity. So this is the same disease that fundamentally affects Obama’s financial advisers. And it’s weird in terms of economics, because, as I said, we’ve had this debate. We had the austerity forces predict that if we followed their policies, all would be well. Europe did, and it’s disastrous. And the United States followed insufficient, mild stimulus, and the results were quite good according to the economic studies. Even the International Monetary Fund, which is the home of austerity, now admits that austerity has been a disaster and that stimulus has been very effective.
So where does that leave us? Well, the people trying to oppose it at this point are going crazy with this gay-bashing type stuff and disregarding economics entirely. And we have the president of the United States sending our economic advisers to Europe saying, stop this austerity, stop this austerity, it’s insane, it’s destroying the world economy, and then they come back home and they inflict increasing austerity over the last 18 months in the Obama administration, and, again, as I say, with the theory that Obama has, and only Obama has, that there can be a magic bullet, that you can have austerity shrinking the economy or really slowing down the recovery dramatically, and then if you just have a program and you spend $1 billion on it, you will somehow turn around unemployment and turn around exports.
Jay: So what is the logic of Obama and his economic advisers? They obviously are smart people. They model this. They have economic projections. I mean, they just seem to have this sort of faith, is it, or some logic that the economy just necessarily comes back, or what?
Black: Well, it depends on which economic advisers at which time. So his initial economic advisers, who he listened to with the stimulus program, were actually pretty good economists, you know, excellent technical economists, and they told him he needed stimulus, and he largely did that.
Over time, Geithner became his principal economic adviser. And, of course, Geithner is not an economist, doesn’t know really much of anything about economics, and is a Republican, after all, that simply as a fig leaf became an independent to take the job. And so Geithner believes in austerity. It’s, you know, a good Republican belief. And for reasons that pass all understanding, Obama chose this guy, who was of course a disaster as a regulator and helped produce the crisis, as the guy that he had, you know, in the books, the man crush on—not a gay, just, you know, really liked the guy and they really melded and such. And so that’s who he got his advice from.
And since that time, he’s tended to get his advice from Lew, and Lew is, you know, now the Treasury secretary, was again the guy that was the principal person at OMB pushing for austerity.
So there is this very strong Wall Street wing of the Democratic Party very much associated with Rubin and his proteges, and they include people like Lew and Geithner who are still all through the Obama administration. And Wall Street doesn’t much care whether Republicans or Democrats are in power; it just wants these kinds of policies that have proven so destructive for the world.
Jay: And they just believe that, one, you cut these programs, you have austerity, you reduce government spending, you reduce public debt, and somehow that either prevents inflation or gives—continues confidence in the dollar. And two, they just believe—what?—eventually the economy bottoms out, and eventually it comes back, because it always does.
Black: It’s very difficult to figure out what they think they mean economically. Again, these are not people who are economists. So they—.
Jay: But these are people that—but hold on. These are people that represent people that know how to make money, and these guys are not, you know, detached from the economy. They know how to take advantage of it, and, you know, they watch trends, and they want to make money. They’re motivated.
Black: Yeah, but making money doesn’t mean that you have to understand the real economy, right? The real economy has almost nothing to do with the stock market, and they largely make their money off the stock market or they largely make their money in debt plays, where understanding fundamental economics isn’t necessarily the great advantage.
But there’s something broader going on, and that is simply there have been some really interesting studies recently of what the very wealthy believe. And the very wealthy are not like other Americans in their belief systems. So their big thing is the budget deficit. You know, when they rank problems, they rank the budget deficit. And they rank—for example, 25 percent of them rank inflation as a principal fear. Now, inflation is essentially nonexistent in the United States and the great bulk of the world. We should be so lucky as to have some inflation. That would actually help the recovery in many parts of the world.
So you shouldn’t assume that these really rich guys that run financial institutions actually are very good about economics at all. And, yeah, they get rich, but they could get richer by having a strong economy instead of an economy that is constantly in crisis.
Jay: Well, maybe then you could take some of Ferguson’s logic and apply it to them, because many of the rich do have children. On the other hand, they think their children’s future is secure because they’re so rich and they don’t much care about other children. So they don’t think long-term. If they’re making money today, that’s good enough.
Black: Now there’s something more direct. The United States is no longer the nation that is so socially dynamic. In other words, we’re actually now one of the least socially mobile nations in the developed world.
Jay: By that you mean people who start in classes without much money, and some individuals are able to rise to classes that have money.
Black: That’s right. So both directions. So people that started out in low-class circumstances and end up in high-class circumstances, we’re very low on that, but also the other direction. If you’re white in particular or Asian American and you start out in a very wealthy class situation, your chances of your kids ending up in that position are very strong in the United States, much stronger than in many other, European nations. So the very wealthy know that the system now is very successfully rigged in terms of their kids.
Jay: Alright. Thanks for joining us, Bill.
Black: Thank you.
Jay: Thank you for joining us on The Real News Network.