Dean Baker is senior economist at The Center for Economic and Policy Research (CEPR). He is the author of several books including, The United States Since 1980; Social Security: The Phony Crisis (with Mark Weisbrot); and The Benefits of Full Employment (with Jared Bernstein). He appears frequently on TV and radio programs, including CNN, CBS News, PBS NewsHour, and National Public Radio.
transcriptAARON MATE: It's The Real News. I'm Aaron Mate. The Dow Jones industrial average has risen above 22,000 for the first time. On Twitter, President Trump posted a series of messages taking credit. "Corporations have never made as much money as they are making now," Trump said. To what extent is Trump responsible for these gains, and if he has something to do with it, does that even matter? Joining me is Dean Baker, co-director of the Center for Economic and Policy Research and author of Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Welcome, Dean.DEAN BAKER: Thanks for having me on. AARON MATE: So what is Trump talking about here, and what does it mean?DEAN BAKER: The market has hit record highs, no doubt about that. Question is is this, A, does Trump deserve credit for it? B, is that something anyone really want to take credit for? Basically there's three stories one could tell about run up in the stock market like this. One is that it's just irrational. That people are ... Greenspan used the famous term irrational exuberance. So it's not really based on anything. Now if that sounds strange, here you have these well informed investors moving around billions of dollars, could they be poorly informed? Well, answer yes. We've seen that again and again. Back in 2000, AOL.com was worth 250 billion. Year or two later, it was worth about 1/10th, maybe a 100th of that. They make serious mistakes. Of course, back in the housing bubble years, they all thought subprime mortgage backed securities were Triple A. You can't rule out that they're just excited, prices are going up, great. Keep going up. That's certainly a possibility. But let's assume that it's actually based in some fundamentals. Very important to keep in mind, stock market, in principle, is the value of future corporate profits. So let's say it's based on the fundamentals. They now expect corporate profits to be higher than they did, let's say, going back before Donald Trump was elected. Two reasons for that. One could be they expect more rapid economic growth, so we'll have a bigger pie, which means profits will be larger, other things equal. The other possibility is they think corporate profits will grow at the expense of wages. Taking those two possibilities, I literally know no one who's increased their projection for economic growth. The International Monetary Fund actually just lowered it. If you're going to say investors know better, you go, usually if they were expecting stronger economic growth, that would go along with higher long term interest rates. We don't see that. So it's a little hard to believe that they're expecting higher economic growth, which gives us that third option, that they expect corporate profits will rise at the expense of wages, expense of consumers. That's a very plausible story. President Trump has promised big corporate tax cuts. So if they think they'll deliver on that, that's more profits for shareholders. He's weakening labor regulations to protect workers, protect unions, that pushed down wages. Weakened financial regulations to protect consumers from being ripped off by the financial industry. Again, all of these are things that could plausibly lead to higher profits at the expense of workers, consumers, other segments of society. So that's a very, very plausible story. That's something that might win you applause from, say the 5, 10% of the population that has a lot of money invested in the stock market, but for everyone else, that's not really good news, not something you'd really be happy to see your president taking responsibility for.AARON MATE: Yeah, Dean. When you're talking about this, these forecasts as perhaps based on lower wages, I'm reminded of the testimony to Congress by the former Fed chair Alan Greenspan, who was taking credit for economic growth, but attributed it to, I believe his words were, growing economic insecurity.DEAN BAKER: Yeah, we've seen, again, workers' bargaining power is much weaker today than it was two or three decades ago. Part of that story, the obvious part is labor unions are much weaker. You go back 1980, close to 20% of the workforce was unionized. Today we're looking at around 10%. That's a big deal. We've had long periods of high unemployment. Certainly we're coming down, the unemployment rate today is 4.3. That's not high, but we've had this long period of very high unemployment, which means made workers insecure. They ate up their savings. So workers certainly are feeling, I think, less secure in most cases, and that puts them less well positioned to push up their wages.AARON MATE: Dean, what about GDP? In the second quarter, it grew 2.6%. Trump took credit for that as well. Said it was fantastic. Is that actually a impressive rate of growth?DEAN BAKER: 2.6 itself is not particularly impressive, but even more striking, again these numbers are erratic, so you have to combine quarters. The first quarter was 1.2%. If you want to take the average of that, we're looking at less than a 2% average rate of growth. That's not terribly impressive. Again the other part, how much did he contribute to that? He hasn't passed any major legislation since he's been in office. He's made some regulatory changes, which over time may have some effect. Again, how much we could argue over, but at the outside, maybe it could increase growth a tenth of a percentage point. It almost certainly has done nothing like that today. So, A, it's not a lot to brag about, and B, it's not clear he deserves any of the credit for it.AARON MATE: I just want to ask you more about something you said earlier, which is this notion that stock market prices are whimsical. That they're based more on mood than actual concrete economic factors. How is that possible when it's such a huge part of our economy, and we rely on it so much to help gauge where the economy is at?DEAN BAKER: We see it again and again. We shouldn't rely on it as a gauge, and it's something I've written about. I just did a blog post on it, but I've written about this many, many times in the past. It really is not a gauge of anything in particular. When you see very dramatic movements that don't seem to have any basis in the fundamentals of the economy ... Go back to the late 90s, we had the Nasdaq peaking at over 5,000 back in 2001 I think, March of 2001. A couple years later, it was down around 1,200. What had changed? It was just people's expectations. To take another example going back a little further, in the late 80s, we had the famous crash in October of 87 where the market lost 20, 25% of its value. People have studied that very closely. No one could identify any major factor. There's always news, but anything that could lead to anything remotely like a 22% drop in the market. You just can't find anything. So it clearly is driven to a very substantial extent by psychology. People are optimistic, they're pessimistic, and it causes very erratic fluctuations.AARON MATE: So, Dean, you mentioned the 87 crash. I want to ask you about the anniversary right now of the 2007 credit crisis. The Financial Times has put out a series marking 10 years since the global credit crisis began, and they had a chart called Financial Crisis Crime, Main Street Versus Wall Street, in terms of looking at the number of individuals convicted of crimes for this 10 year crisis. The number of individuals in Main Street who've been convicted, and that's community bankers, mortgage lenders, real estate brokers and developers is 324. The number for Wall Street is zero.DEAN BAKER: This is an outrage, and this is exactly the sort of thing a lot of people were upset at the Obama administration about, because this was under their control. So you look back to the Obama administration, there are a lot of people that, myself, other progressives that we said we wish he had done more in terms of stimulus or gotten us a better health care package, all sorts of things like that. He can say he has to get stuff through Congress, and that's of course true. So it's a tough debate. What could he have gotten through? Could he have gotten more? Who knows? He could have certainly tried, but that's beside the point. But the question here, he had control over prosecuting the Wall Street crimes, and there's no doubt that these guys committed lots of crimes. Just to be clear, a lot of them, people have done analyses, a lot of them were heavily invested themselves in real estate. They say things, and I think it's true, they believed in the bubble. That doesn't change that a lot of what they did was a crime. Putting a fraudulent mortgage into a mortgage backed security is a crime. And it's almost inconceivable to me. These are not stupid people. It's almost inconceivable to me that you didn't have a lot of people at Goldman Sachs, at Wells Fargo, at Morgan Stanley, the other big banks, that knew that they were putting a lot of fraudulent mortgages into mortgage backed securities and selling them around the world. That's a crime, and not one of them had to go to trial for it.AARON MATE: Yeah, I should clarify. I mean there were a couple of people from Wall Street overall, like one lender I believe who was convicted, but the zero number refers to senior Wall Street officials. Let me ask you, Dean. The explanation that I've heard from Eric Holder, who headed the Justice Department during all this, is that, look, prosecutors would love to make these kinds of cases. "They're dream cases," he said, but he just said that the cases were not there. It was too difficult to be able to prove a criminal act.DEAN BAKER: Well, there's zero evidence they tried. I mean the way you would do this is you would build up. So you have people going, "Okay, you put this clearly bogus mortgage," or literally hundreds of mortgages, you pull them out. They're totally, "You've crossed out numbers, you have all sorts of things that don't make sense. You put this into a mortgage backed security. Why'd you do this? Are you an idiot?" And these are all people with Harvard degrees. They're not idiots. Eventually you'll get these people to flip, because you go, "You want to go to jail? Or do you want to talk about why you did it?" And presumably a number of those people would be persuaded, rather than spending a number of years in jail themselves, to say, "Well, I did this because I knew the person over me wanted these sold." Then you go to that person over them, and you go, "Hey, we got two of the people working under you said you wanted them to put fraudulent mortgages in mortgage backed securities. What do you say? Do you want to go to jail?" That's the way you build a case, and these guys know how to do that. They've done that, many of them. They do it in other circumstances. That's how you build a case. There's zero evidence they tried.AARON MATE: So finally, Dean, I want to ask you about Democrats. They recently put out their new agenda that they are putting forth to voters to reach them in the 2018 and 2020 campaigns. It's called A Better Deal. Does not include single-payer healthcare, but it does include a plan to lower the cost of prescription drugs. It calls for taking on corporate monopolies. And it revives the infrastructure proposal from the Hillary Clinton campaign, a mix of private sector incentives and also government investment to create something like 10 million jobs I believe. What are your thoughts, quickly, on A Better Deal?DEAN BAKER: It's a mixed bag. I mean, the infrastructure part's good. It's great to see them talk about antitrust, because again this is an area President Obama completely neglected. They certainly could be bolder in going after the pharmaceutical industry. There's a very good bill proposed by Sanders and Warren and signed onto by even people like Gillibrand, more centrist members of the party. It's not there. I'd say it's a very mixed deal. I should also point out, nothing on Wall Street. Very, very big disappointment. So I think they're kind of stuck here in the sense that they see the sentiment on the left, the activists pushing them to the left, but these are people who made their careers with big donors, and they're not about to buck them all right now.AARON MATE: Dean Baker, co-director of the Center for Economic and Policy Research, author of Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Dean, thank you. DEAN BAKER: Thanks for having me on.AARON MATE: And thank you for joining us on The Real News.