Bernie Sanders advisors Bill Black and Stephanie Kelton tell Paul Jay that the public-private partnership model is a disaster, and increased infrastructure spending combined with austerity would throw the economy into a recession
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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Chicago at the People's Summit. And we're about to talk to 40 percent of Bernie Sanders' economic advisory team. And we're going to talk about some of Bernie's thoughts about the economy and perhaps things he should be addressing that perhaps he is isn't. Now, first of all joining us is Bill Black. Thanks for joining us, Bill. Bill is obviously a regular on The Real News Network--practically every week. He's an associate professor of economics and law at the University of Missouri-Kansas City, a white-collar criminologist, a former financial regulator, and author of a book that has one of the best titles I've heard, The Best Way to Rob a Bank Is to Own One. And also joining us is Stephanie Kelton. She's an economic adviser, as I said, to the Bernie 2016 campaign. She served as chief economist on the U.S. Senate Budget Committee, is professor of economics at the University of Missouri-Kansas City, and founded the blog New Economic Perspectives. Thanks for joining. So I interviewed Bernie Sanders. And, actually, maybe what we'll do is I'm going to run a little clip from that interview, 'cause I asked Bernie a question I don't think he'd ever been asked before, at least not on camera. So this is a clip where I ask Bernie whether he would support a direct federal jobs program in New Deal, 1930s New Deal style versus the kind of stimulus program that President Obama had, or even before him President Bush, where you kind of give money out there, and they're usually either for public-private partnerships or they're sometimes to states and cities to spend, but often that money winds up in private-public partnerships versus just a direct-jobs, federal jobs program. And here's what he said.
JAY: Would you consider a Roosevelt-style direct federal jobs program, perhaps targeting the inner cities like Baltimore?BERNIE SANDERS, CANDIDATE IN DEMOCRATIC PRESIDENTIAL PRIMARIES: Absolutely. Absolutely.JAY: 'Cause when it's come through the cities and the states, a lot of times ordinary people don't get the money.SANDERS: No, that's right. That is exactly right. There are two elements. Number one, we have to rebuild our crumbling infrastructure. And that is our roads and our bridges, our water systems, our wastewater plants, airports, rail, etc., etc. But second of all, when we talk about job creation, the federal money has got to go into those areas that need it the most. And what is happening in inner cities all over the country is a story that is not being effectively told, but we have crisis after crisis after crisis--crumbling public school systems, high unemployment, mass incarceration rates. We have got to start focusing on rebuilding inner cities in America.JAY: So a direct, federally funded jobs program is on the table with you.SANDERS: Absolutely.
JAY: Stephanie, so he said he would support it, but he never really had said anything about that before, and he I don't think has said much about it afterwards. What have you been advising him in terms of what this infrastructure program looks like?STEPHANIE KELTON, ECONOMIC ADVISER TO BERNIE SANDERS: Well, I think he didn't invoke something like this before. He didn't use the sort of language that you used. You specifically said something modeled on the old New Deal programs, like the WPA, CCC, the National Youth Administration. There was an alphabet soup of these direct job creation programs under the New Deal, right? You asked him, should a Sanders administration be supportive of something like that, and he said absolutely. The closest that I can recall him coming to doing something like this before your question was in his speech on democratic socialism. And that's where he invoked FDR's Second Bill of Rights and he said, we need to go back as a party and rethink what it means to be a Democrat, and he laid out the sort of things that he thinks are important. And he went right to the heart of FDR. He said this is sort of unfinished business. FDR wanted a Second Bill of Rights that included not just the health care piece, which he talks a lot about, right, a guaranteed right to health care, not just the education piece, which he talks a lot about--everyone should have a right to an education, and of course he's been pushing higher education to be included beyond K through 12--but also a right to employment. And that's part of the Second Bill of Rights. He did it there, and he did it again in his remarks at the Vatican in April, where he talked about what it means to him to talk about a moral economy, and again he invoked the Second Bill of Rights. And there he got more specific. He talked about a guaranteed right to employment. And so when he talked about this kind of stuff, the infrastructure piece is, I guess, a part of that, but it doesn't go far enough. It doesn't guarantee a right to employment for anyone who's ready, willing, and able to work and unable to find work elsewhere in the economy. Infrastructure is primarily for males of a certain age with certain physical capabilities, and so it doesn't have the reach of a full-throated federal jobs program.JAY: If it's a private-public partnership, a big whack of that money turns into profit that in theory could have been more direct jobs, and also whether even how much hiring you do is then guided by how much profit you're going to make. The objective isn't jobs for everyone if they want them.KELTON: Yeah. So I think what you're saying is in these private-public partnerships a lot of the money is peeled off before the work even begins. It's peeled off by layers of government officials, it's peeled off by consultants, and those sorts of things. So it never actually does the job of employing people in building out infrastructure. Of course, doing public works projects like the kind that were done in the New Deal actually turns out to be very profitable as well, because you tend to boost the economy. And when you have so much job creation and people with new incomes and spending, it's also very good for private industry.JAY: Bill, what have you been advising in this respect? 'Cause I say again, if you're going to counter the power of billionaires, if you're going to have a jobs for everyone, you're going to have to have a serious build-out of the public sector, which I think includes not just throwing money into the public sector but also a real reform of how the public sector works--you can say even a democratization of the public sector. Does he not have to grapple with all this for this infrastructure program to make sense? And just to take another step, we're talking at this conference about political candidates that carry on this political revolution, and the next step for people here is to support candidates that take up these objectives. Don't they have to flush this infrastructure thing out more?BLACK: Yeah, and they need to, in our view, stop talking about infrastructure almost exclusively and as if it's magic. So they think, for example, that you could have austerity, but if you spent $600 billion on infrastructure your economy would suddenly grow massively. Well, no. Right now it would be thrown into recession. Right? So aggregates matter, and if you run austerity plus--.JAY: If you did all the infrastructure spending, that would throw you into recession? BLACK: No. They want to combine it with austerity, right? And so they act like it's magic: Well, as long as we're spending money on infrastructure, doesn't matter that we have austerity. And that's not true. If you have a substantial increase in infrastructure spending but you decrease spending in other areas, keep your taxes the same, you'll throw this economy into recession and you'll do it within a quarter.JAY: But Sanders isn't suggesting that.BLACK: No, but lots of people talk this way. For example, the Obama administration endlessly talks this way, that, oh, if we could just spend an extra $100 billion on infrastructure and have offsets in other fields, everything would be great. It wouldn't be. Right? So infrastructure can be valuable, right? You build the Erie Canal, one of the best things ever done in the United States--and Canada, by the way. It helped both of these economies grow enormously. But there are other infrastructure projects that have almost no effect on the real economy. And in particular if you're trying to find blacks and Latinos, long-term unemployment, or teenage unemployment, as Stephanie has just explained, these are not infrastructure-type jobs in many cases. And so literally it's sometimes handfuls of people that are hired. Now, I wouldn't think exclusively through governmental programs, because there's another sector, and that of course is the NGO sector. And that is ready-made to be able to expand jobs without having that kind of peel-off that you're talking about of private sector profits that get in the way. But I want to endorse also and reemphasize something Stephanie said. All of these stimulus programs are actually very good for business as well. And I don't care, right? I'm there to help the people. But if it helps businesses as well, hey, that's fine. We just don't want the stuff siphoned off into the private-sector profits directly. And so the private partnerships with government, as an overall statement, have been a terrible failure, one of the first things that we've done in the United States. And a pure profit model, where the private sector's trying to take over, would have been government functions and nonprofit functions. I'm talking about for-profit universities. Well, The Wall Street Journal reported that if you went and got a degree at one of those places, you ended up poorer than if you had never gone to those kind of universities.JAY: Yeah, 'cause you pay enormous tuitions, borrow money, and take forever to get out of debt, and you almost never get a job that had anything to do with your training.BLACK: Because your training is crap.JAY: It's crap, yeah.BLACK: In circumstances.JAY: And we know, seeing it even at Real News. People that have come from some of these private tech colleges, they come out with almost no worthwhile experience for professional use.BLACK: And that's because the incentives are wrong. It turns out if you want to educate people, it works a whole lot better in a setting that isn't driven by profit. If it is, then you get exactly what Trump University--. And so Trump University lawsuit is great, because it reveals how the system is rigged, right? That isn't just rhetoric when the senators, both Bernie and Senator Warren, use that phrase; that's actually a very concise, accurate economic description. And that's what we give advice on in some substantial part is how is the system rigged and how do you fix it. And as you say, it isn't enough to spend more money; we do have to change how the public sector operates. Right now, these private-public partnerships are a disaster.JAY: Right. Some people talk about Trump as sort of an aberration--you know, endless articles in the media, how did he get here, who created him, who's responsible for--but all like he's a some kind of illegitimate bastard child of the system. And it seems to me he's quite not that, he's quite a legitimate representative of just how parasitical capital has become. He is the quintessential unproductive speculator who sells his brand and speculates on real estate with all kinds of shenanigans and apparently did well--maybe not as well as he wants everyone to think. But he's a legitimate representative of what's become of the whole economy in many ways. And it seems to me his enablers have been the leaders of both parties, because as long as the leadership of both parties protect these superprofits made from this kind of speculative economy, then it's the fertile soil for somebody like a Trump politically, 'cause they've gotten so cynical about the whole economy. I'm making a little--my own rant here. I have to come up with a question. I guess what I'm saying is in terms of advising Sanders, he's been railing against the billionaire class, but one of the things that the speculative economy hates, perhaps the most--and if you're going to have any infrastructure spending, that's actually going to be a stimulus, 'cause you're not going to cut it somewhere else--you're going to have to raise taxes, and there's nothing this whole speculative class hates more than paying taxes. Sanders has talked a little bit about the need for some raising taxes in his health care plan. He says, in the end working-class families will wind up better off. He's talked some about raising taxes on the rich. But this is going to have to be a pretty significant increase in taxes, one would think, to build out an infrastructure program the way he's talking about without making these offsets.KELTON: Well, if you come into this with the commitment to paying for everything, having a revenue source for every item on the agenda, and you say, well, I can pay for my infrastructure bill, it's all going to be paid for, then for Senator Sanders it's paid for through a tax on what he calls Wall Street speculation. It's a financial transactions tax.I got little bit lost in the Trump--.JAY: No, the reason it got lost is 'cause the first part of my rant had nothing to do with my question, and I figured out I had to somehow get it back to the question.KELTON: But you said you have to raise taxes. Now, the question is: do you have to raise taxes? Because the Republicans are all too happy to put forward legislation to cut taxes on the argument that these things pay for themselves--you're going to end up with so much economic growth as a result of these tax cuts, which are going to incentivize the job creators, and they're going to go out and they're going to invest and they're going to hire and the economy's going to do well and the tax revenue's going to come pouring in. Now, look, you've got people like Larry Summers making the argument that if we were to do massive infrastructure investment today--and Larry always points out that interest rates are practically zero and that bond markets are begging us to borrow money and all of that--maybe that's not the way that I would pitch it if it were me, but this is the way many Democrats are making the case for infrastructure investment: we can borrow at next to nothing, everything is falling apart, we have to make these investments at some point, deferring the maintenance makes no sense in an environment in which you can take advantage of very low borrowing costs, and so let's go ahead and do that--and, by the way, it may end up paying for itself largely or in full because you're going to get so much economic growth out of this if you do it big enough. Another way to do it would just be to say, what if Congress just authorized $1 trillion of increased spending on infrastructure without it paid for? Because it's a difficult thing. You've got a Democrat in the White House, you've got Republicans in control of both houses. So if you introduce a--.JAY: Which might be changing.KELTON: You introduce a bill in the Senate the way Senator Sanders did--$1 trillion for infrastructure investment. You've got to make a decision: how am I going to introduce this piece of legislation? Am I going to attach a [pay for?]? If you attach a [pay for?] that involves raising taxes on anybody anywhere, what are the odds that your bill is going to get the votes that it needs to get out of the Senate? Absolutely zero. And infrastructure, by the way, is one of those things that Republicans historically used to be able to vote for. They like infrastructure. They get it. They mostly don't view it as wasteful government spending and intrusion into something the private sector ought to be doing. Republicans could get behind infrastructure. But if you tell them, we're going to do infrastructure, they may say, okay, and you say, and by the way, we're going to raise taxes in order to do this, absolutely not. So this is the conundrum.JAY: So how do you solve the conundrum?BLACK: Well, let me take first the Trump question. So Trump inherited substantial wealth. If he had simply invested it in Vanguard, he would be much, much wealthier than he is today. So he's not a representative of someone who actually makes money through predatory practices; he's actually reduced what his wealth would be if he were simply a passive investor. In other words, he's a crappy business person. So he is representative of a significant class of billionaires who are actually really crappy business people.JAY: But my point is his heroism is as a parasitical speculator. He turned this into somebody who's supposed to be an icon.BLACK: He does that somewhat inherently in that he buys large real estate projects. But most of the things involve rigging the system, right? So I'm going to get a special deal by giving--and he says this openly; this is the fun part, and this is your point that it's both parties--he says openly, look, I've been on the other side of the table. All these members of Congress, these Senators, people running for president come to me and they want huge amounts of money, and they make it clear to me implicitly: if I want things done for me in the future, I pony up. And so I do. I don't care about ideology. I just give. Now, this obviously undercuts the whole Paul Krugman, Hillary Clinton claim that contributions don't matter. Trump is telling you they matter enormously.Then Trump says, look, I rig the system, I get political intervention, I get a zoning change--this is how you make money in real estate--because of my political contributions.JAY: We know all about that in Baltimore.BLACK: Right. But then sometimes I still lose. And then, even though I'm supposedly enormously wealthy and could pay my debts, I create subsidiaries and I put those subsidaries into bankruptcy so I never have to bear any substantial expenses. And then his next line in the debate was: all the greats do this. Right? So he's really showing you the face of capitalism. And it's a very ugly face. It's a rigged system. They're not terribly competent. But even when they lose, they don't lose very much, because they shunt it off on other people. And they have absolutely no moral compunctions about any of this. So what do you want to do with people like that? Well, you want one heck of a billionaire tax, right? So the conservatives call it the death tax. But this is a tax about--it's not good for a society to have these seventh-generation incompetents destroying wealth and such and corrupting your political system. So you should have that not because it raises revenue; you should have that because it makes a democracy work better, it makes an economy work better. It's not a good thing when the system is rigged for, really, many people. I mean, it's literally one-thousandth of 1 percent in those circumstances.JAY: I'm hoping we get you both together again soon and we can really dig deeper into the economic stuff. But the kind of burning questions that are at the summit are what's the attitude of the Sanders movement towards, first of all, what's next for the movement, what's next for Bernie, and what's the attitude towards people who really don't want to vote for Hillary Clinton but are being asked to in some quarters. What's your take on all this?KELTON: Well, what's next for the movement? I think we're at an event today that is attempting to kind of get an answer to that question, where do we go from here and how do we continue to channel the energies that we have seen over the course of the last 12 months or so that have produced this thing that now everybody is referring to as a movement, how do we keep it going beyond the campaign season. And I think one of the big things that you're seeing is that people are getting actively involved in politics. And this is what Senator Sanders asked in his remarks the other night. He said to people, please run for office. You know, he's always said no president--not Bernie Sanders, not anybody--could do this alone and no senator, if he ends up staying in the Senate, no senator can do it alone. When he introduces a piece of legislation, he needs cosponsors and he needs support and he needs the population behind him making the phone calls and pressuring their members of Congress to get behind his bill. He needs that support. And I think that's what he's telling people: I need you to stay actively engaged in the political process; this was not a one-off thing.JAY: And he doesn't seem to be saying that it needs to be within the Democratic Party. He just seems to say, elect progressives. KELTON: I think that that's right. I think that he is focused on the broader goal of having a movement of actively engaged people, however they choose to label themselves. And he's fully aware, as most people should be, that most registered voters in this country are not registered as Republicans or Democrats. There are far more people registered identifying as independents than any other party affiliate. And so you kind of have a place for those people who feel disaffected and who don't feel connected to the values and goals of either of the major political parties.JAY: Alright. Great. Thanks very much.And thank you for joining us on The Real News Network.
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