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What a hidden gem - Jack
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Gerald Epstein is codirector of the Political Economy Research Institute (PERI) and Professor of Economics. He received his Ph.D. in economics from Princeton University. He has published widely on a variety of progressive economic policy issues, especially in the areas of central banking and international finance, and is the editor or co-editor of six volumes.
PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I'm Paul Jay in Washington. And joining us again is Gerald Epstein. He's the codirector of the PERI institute, an economic think-tank at the University of Massachusetts Amherst. He's also one of the co-organizers of SAFER, a group of economists that are trying to make the financial sector safer, I guess. Thanks for joining us again.GERALD EPSTEIN, PROFESSOR OF ECONOMICS, CODIRECTOR OF PERI: Thank you.JAY: So in the first two segments of the interview, we talked about things that Obama could do within today's congressional politics, like, in this, what we could say, the realpolitik solutions. But are they the real solutions? And I guess what I'm getting at here is two things. One is, if the fundamental problem is there's just way too much capital disconnected from the real economy. Like, Goldman Sachs, one of the packages they had was something like a $720 billion package, which was a bet on how another package of securities were going to do. But neither side actually owned the securities. It was a straightforward bet. So if there's just so much capital circulating around that the only way to make money is literally creating this, you know, almost virtual casino through these products, and the real economy's dying for capital, how do you solve that in a fundamental way? 'Cause just, you know, having a year of debate over, you know, what's going to wind up being watered-down regulations is not going to change that fundamental fact. And then one other piece of this: if the reason there's so little ways to invest capital in a good way and that gives you good return in the real economy isfundamentally, it's 'cause people don't have enough money to buy things, 'cause wages are too low. That's in no way being addressed and not even being talked about in Washington. So talk about all of this.EPSTEIN: Yes. Well, look, I completely agree with the thrust of what you're saying here. The role of the financial system should be to facilitate improvements in standard of living of the people, of the generation of employment, making this important transition that we have to make to a greener economy, one that doesn't destroy the Earth. Instead, the whole financial system has been turned into a combination of a casino, as you described, and also a massive Ponzi scheme, where those of us who work are trying to save for our retirement. We have very few alternatives about how to invest our money so that it will actually help the economy, will really feed back, and to help create jobs, help create higher wages, help create this green transition. Instead, we're told we have to put our money into this casino, this Ponzi scheme, in the hope that somehow, 20, 15, 30 years from now, the productivity and the health of our economy will be good enough so that money will be worth something. And we have to pay these huge fees and take these huge risks to turn this money over to Wall Street in the hope that somehow that's going to make our economy better for us 15 or 20 years from now and for our children. Instead what we should be doing is generating mechanisms so that we can turn real savings into real investments that will really improve the state of the economy. And that is the only way that we can truly save, both for our own retirement and for the future of our children.JAY: Okay. So let's say you had a Congress that wasn't owned by Wall Street. What would you do?EPSTEIN: Well, first of all, we need public options; that is, we need financial institutions that really serve the broader public interest. One term I like to use is we need finance without financiers. We can startthere's a long history of that. Western Europe recovered after World War II by having public banks that were working in concert with the government to direct credit to productive uses. In Japan they had the same thing. In the United States, after the Great Depression, the Reconstruction Finance Corporation used its resources not only to get ready for defense but also to build houses and other infrastructure. There's a lot of history in a lot of countries of finance without financiers, where the publicly controlled or publicly oriented [inaudible] financial institutions engaged in credit for real investment. So, for example, we now, you and I and all of us here, we own some big financial institutions. We own AIG. We should be using our ownership role in AIG and other financial institutions to insist that these financial institutions stop the gambling, stop the Ponzi schemes, invest in housing, invest in solar power and other kinds of green-transition sources of employment, loans for small businesses, support for employment schemes, private-public partnerships [inaudible] employment schemes, and so forth. And I think there should be a support for cooperative banks. David Gordon, who was one of my mentors many years ago, who tragically died a number of years ago, wrote in his final book, Fat and Mean, that there ought to be a cooperative bank that lends money to cooperatives, lends where workers can form their own employment, their own jobs, their own companies. We need a lot of public kinds of investment for community banks who know what the need is on the ground in their own communities for housing and other infrastructure. The government can play a much bigger role in these kinds of initiatives.JAY: Now, what do you make of the role of the Fed? And what kind of reform of the Fed is a piece of the solution/puzzle?EPSTEIN: Well, I think there's a simple term: it has to be democratized. The Federal Reserve should not be under the control of banks who control the regional office.JAY: So you're talking more about, then, democratizing the Fed. You're more or less talking about get rid of this Fed and create some kind of publicly controlled central bank.EPSTEIN: That's right. We need a publicly controlled central bank. And we know how to do it. You get rid of the influence of the bankers and the regional banks. You have a Congress that starts to exert much more oversight of the Federal Reserve. You have the Government Accounting Office that is able to audit the Fed. You have appointment of Federal Reserve governors that's coterminus with the president's term so that the president doesn't have to inherit a new Federal Reserve officials. And you get rid of the situation where the banks essentially own the Federal Reserve. So we know what to do. There are a number of different things. It has to be a democratic Federal Reserve.JAY: So some kind of bank as a public utility, to have direct credit for small business and housing and such, and get rid of the Fed as it exists, and have some kind of real public central bank. What's another piece of this?EPSTEIN: Okay. The other piece of it is thatand I agree with those who say, look, we have to get rid of the speculative casino aspects of our financial system and have a core. They can be privately owned banks, but they have to get back to the job of acting as plain vanilla banks, lending for housing, lending for small businesses, lending for investment, instead of the gambling.JAY: What about an expansion of the nonprofit banking sector? There's an interesting statistic in the health sector. When you compare mortality rates in hospitals, the actual worst mortality rate is a privately owned hospital.EPSTEIN: That's right.JAY: The next best mortality rate are the state-owned hospitals. But actually the best rates are in the nonprofit hospitals.EPSTEIN: Yes.JAY: Why not that as an idea?EPSTEIN: Absolutely. There's a whole network of community banks, of small neighborhood nonprofit institutions that the government could give subsidized credit to, could give lines of credit to, could give technical assistance to, and support in various ways at a fraction of the cost that they spend supporting the huge banks like Goldman Sachs.JAY: Without the danger of all the bureaucratization that may come from some great big government central bank.EPSTEIN: That's right. That's right. And that's why we're saying also about cooperative banks the same kind of model, where the government gives a lot of support, but doesn't control them, and also has to have accountability. I mean, they can't throw the money away, but there has to be accountability. So it can be a much more decentralized system, where bankers and nonprofits have an arms-length relationship with their customers.JAY: Seems obvious.EPSTEIN: Yes. And we have experience with it all over the world where these kinds of systems have worked. So it's not like we'd have to be reinventing the wheel.JAY: Unfortunately, the current leadership of the Democratic and Republican Parties are not very interested in this plan.EPSTEIN: Not the slightest. But there are good people in Congress. Some of them may be. But the leadership is not.JAY: Thanks for joining us.EPSTEIN: Thank you.JAY: And thank you for joining us on The Real News Network. And don't forget our financial accountability and our financial crisis inquiry commission, which is all found on the Donate button.DISCLAIMER:Please note that TRNN transcripts are typed from a recording of the program; The Real News Network cannot guarantee complete accuracy.
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