November 3, 2010

How the Dems Lost on the Economy

Mark Weisbrot: If Obama and Democrats had fought harder for more stimulus, they would have faired better
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Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. He received his Ph.D. in economics from the University of Michigan. He has written numerous research papers on economic policy, especially on Latin America and international economic policy. He is the author of the book Failed: What the "Experts" Got Wrong About the Global Economy (Oxford University Press, 2015), and co-author, with Dean Baker, of Social Security: The Phony Crisis (University of Chicago Press, 2000). He writes a weekly column for The Guardian Unlimited (U.K.), and a regular column on economic and policy issues that is distributed to over 550 newspapers by the Tribune Content Agency. His opinion pieces have appeared in the New York Times, Washington Post, the Los Angeles Times, and almost every major U.S. newspaper, as well as for Brazil's largest newspaper, Folha de Sao Paulo. He appears regularly on national and local television and radio programs. He is also president of Just Foreign Policy.


How the Dems Lost on the EconomyPAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington. Now joining me in Washington to discuss Tuesday night's election results is Mark Weisbrot. He's the codirector of the Center for Economic and Policy Research in DC. Thanks for joining me, Mark.


JAY: So let's say in the next day or two you get a call from President Obama. Now, you're known as a progressive economist, so that would be a first, because he did not surround himselves with progressive economists. But let's say he calls and says, okay, how do you figure? What happened? We took it on the chin. What should we do to turn this situation around? What kind of advice would you give him?

WEISBROT: Well, I don't think he's going to call me, but if he did, I would say he should do what he should have done at least a year ago or more, which is to have a much bigger economic stimulus. The stimulus that was passed was about one-eighth the size of what was needed just to make up for the falloff in demand, in private demand that you had from the bursting of the real estate bubble. So, in other words, we lost about $1.2 trillion a year in spending because of the bursting of the real estate bubble. And if you look at the stimulus package, it was maybe $150 billion a year after you take off what the state and local governments do, which went in the opposite direction.

JAY: So the argument you would have gotten back from the president is two things. Number one, I passed as big a stimulus as I possibly could have. You know, we wanted a bigger stimulus, he'll say, but I couldn't get it passed through the—either the House, but particularly not the Senate. And number two, there is some worry, he would say to you, there's a point at which you can't have so much debt. So how do you answer him?

WEISBROT: Well, he could have fought for it, first of all. He didn't do that. He didn't come back and even ask for another stimulus. So you can't say—I mean, you could say that he wouldn't have gotten it if he asked for it, but that's a different story. If he would have fought for it, then he could have said—I mean, he would've made it clear, told the truth to people, just said, you know, just what I said here, even. You know, this is necessary. We're going to end up in a situation like we're looking at today if we don't do this. Then he could have come back and said, well, it was their fault. And so maybe it would have been doomed anyway. I mean, it is possible.

JAY: But is there a problem here that, to start with, the president and the people around him, and then let's get to the Republicans, actually don't understand what's causing this economic crisis? 'Cause they kept talking about recovery is around the corner, green shoots we kept hearing about, and we're not hearing anything about green shoots anymore.

WEISBROT: No, that's kind of strange, because there had to be people in there, people like Larry Summers, who understood that this was not going to work, or Christina Romer. She's not there anymore, but she pushed for a much bigger stimulus, actually. And so I think that it is hard to explain why they did that. They made other big PR mistakes, too. For instance, they failed to convince the public that there was a difference between the bailout of the banks, which was unpopular for a very legitimate reason, and the stimulus. Most people don't make any distinction. So that's why you've got these polls saying majorities are against the stimulus. They're thinking of the bank bailout. So that was a big public relations error.

JAY: The bank bailout itself was more than just a public-relations error, too.

WEISBROT: No, but I mean the fact that they couldn't even distinguish between those two, yeah, I mean the bank—.

JAY: Between stimulus and bank bailout.

WEISBROT: Yeah, that they didn't make that clear to the public. That hurt them a lot.

JAY: Because they became seen as the party defending the banks, not defending Main Street, even though there was lots of rhetoric about it.

WEISBROT: That's right. And the media, too, I think, was negligent, to say the least, in the sense that they presented this issue of whether the stimulus actually created jobs as if there was some really debate among economists. It was reminiscent of what happened during—you know, for years in the debate over global climate change, where, you know, it was treated—even though the whole scientific community was in consensus about it, and it was treated as though, you know, there were a handful of people who said no. Well, it's the same thing in terms of the stimulus. I mean, the nonpartisan Congressional Budget Office estimated that by middle of this year you had between 1.3 or 1.4 and 3.3 million additional jobs because of the stimulus. Now, we lost 8 million, so it wasn't enough, but the point is that there was no doubt that it helped.

JAY: Is part of the problem here that the Democratic Party leadership is in fact part of the elite? They're, you know, not just the Wall Street elite, but they're as tied to big business and various billionaires—more or less as much as the Republicans are. And they can't fight in terms of the economic argument, 'cause they can't really tell the truth of the economy and what makes the economy work. Like, they can't talk about wages are too low; they can't talk about why having so many unionized workers forces wages down. I mean, you know, if you got into the real heart of what's wrong with the economy, they would actually be against their own interests, so they're left in this kind of mushy, you know, pandering to ordinary people. But they can't tell the truth, so it leaves this vacuum for these Republican trickle-down theories.

WEISBROT: Well, I think there's a lot of truth to that. I think you have, for example, you know, the—for years you had the Federal Reserve maintaining higher levels of unemployment than they could have had, for example. And that's a kind of a Wall Street policy. You know, they like to keep wages from rising too fast. They claim that it's going to be inflationary. Of course, it is to some degree, but the point is they don't make the same trade-offs that you or I would make when it comes to unemployment and inflation. So you have a lot of that. But I think in this particular case, I think that the administration was looking more to the media. They—I think that they probably knew that this wasn't going to work, it wasn't going to be enough, and it was in their own interest to have a stimulus that would at least get them through this election.

JAY: But one of the things that's driving a lot of public opinion, certainly at least half, and maybe if you look at this election more than half the voters who actually go to vote, is they believe that there's a real problem with too big a deficit, too big a debt. And isn't there? Isn't there some point where people do need to worry about big debt? And you can debate how it got there and what to do about it, but in terms of people's understanding of economics, they instinctively feel that this big debt is a real issue.

WEISBROT: Well, you know, that depends on the polls that you look at and how the question is asked. There was a New York Times–CBS poll last month that asked, what's the most important issue to you? And, you know, 60 percent of the people said either economy or jobs, and only 3 percent said the deficit.

JAY: So when they say "economy", you don't know if they don't mean "deficit", 'cause how do you separate those two?

WEISBROT: Well, that's true. Well, when they asked the deficit, you would get more than 3 percent if that's what they're thinking when they think "economy".

JAY: But they're doing exit polls. I heard of an exit poll Tuesday night in Indiana, at least, where something like close to 70 percent of people apparently said they supported the Tea Party movement. Now, I don't know if that just means they instinctively want something that fights government or they actually are on board with the idea of you don't get no government.

WEISBROT: I'm a little suspicious of that. I mean, maybe that's Indiana, but, again, the same New York Times–CBS poll had only 20 percent support for the Tea Party movement, which was almost exactly the same as for the Republican Party.

JAY: But the Republicans now, even though, I mean, I don't think there's any chance in hell if they were in power they would actually implement it, 'cause they never have in the past, but they're picking up all the Tea Party rhetoric of, you know, small government, low debt, and all of this.

WEISBROT: Yeah. Well—.

JAY: So people are voting for those ideas.

WEISBROT: In some places they are. I mean, most of what you're going to see in the House, we don't know the results yet, but we—.

JAY: But we do know at this point that the House is going to be controlled by the Republicans. We don't know the final numbers.

WEISBROT: That's right. But most of what you're seeing is what you would expect to see if you just did a—you know, if you just used the political science data for the past 50 years and you said, well, what do we expect to see in this election, how many seats would the Democrats lose if—just on the reason of where the economy is at, you know, and how many seats they started out with, basically. You expect probably over 40 seats they would lose. So it's not this huge wave that's going to change the country. I think there was a real turning point in 2006 and 2008. I think that was the end of an era of 40 years of rightward drift in this country. I don't think that's coming back. They lose the House. Okay. I mean, they could—don't get me wrong. The Democrats could lose the presidency and [inaudible]

JAY: Now, we've seen a rightward—I know the far right wants to call this administration left and all this, but this is a right-of-center Democratic administration on the whole.

WEISBROT: That's absolutely right. I mean—.

JAY: So—and there's been a kind of rightward—like, the center's moved right. Just the far right's moved off the meter.

WEISBROT: But I think you still don't see in this administration the rightward drift that you've seen in the prior ones. For example, I mean, under Clinton, you know, and he was the only Democrat other than Carter in that period, you know, he had huge structural right-wing changes—NAFTA, welfare reform, the WTO. There wasn't that much left for Bush to do in terms of structural change when he came in there. So Obama has not enacted a progressive agenda, but I think you see a stop, at least, of the real rightward motion.

JAY: So if you're an ordinary person watching this, and you may have voted Democrat, you may have voted Republican, but you don't really understand the economic argument, because on one side we're hearing you and others saying more stimulus, the other side saying government's out of control, the debt's out of control, how does an ordinary person come to terms with all of this?

WEISBROT: Well, first of all, it's not just the ordinary people. I mean, the elite is as economically as illiterate as anyone. And you can see this by all the talk you're already seeing before the election about how they're going to have to cut the deficit, that's going to be the major priority of the government, that should be the major priority. I mean, you see all this all over the editorials, the op-ed pages, and that's obviously wrong. I mean—.

JAY: Well, what happens if they do? If that's the emphasis and there's no more stimulus money, what's the bottom line? What happens?

WEISBROT: Well, you can see it. You can look at what's happening in Ireland and Spain and Latvia and all the European countries that are doing that. They're having disastrous results. It's just they're going either back into recession or they can't get out of—the economy can't really grow. And, I mean, I don't think they're going to do it right away, but you're going to see this momentum that will stop—that will try and stop the administration from enacting the stimulus that's actually needed. So economic illiteracy prevails at the highest levels of government, and not only government but the private sector. And so it isn't just a problem of ordinary people. If you take this question of debt, for example, I mean, debt isn't the problem facing this country right now, certainly not the federal debt. You know, we had a debt of 111 percent of GDP coming out of World War II, and what did we get as a result of that? We had the best growth and the most widely shared prosperity over the next 30 years than we've ever had. So the debt was not an impediment to growth. And furthermore, we're in a situation now where the government can actually spend money that's created by the Federal Reserve and it doesn't even cause inflation. The Federal Reserve has created over $1.2 trillion since 2007, and inflation right now is about 1.1 percent year over year. It's too low. Even the Fed says it's too low. So, in other words, they can create money and use that money—.

JAY: But this—here's a really good example of what I'm talking about, and we're not going to solve it now. You say this, but the—you know, I'm going to interview somebody later this evening, and people watching this are going to hear somebody on television, and they're going to get a whole line of argument of how this big debt is going to lead to a credibility crisis globally about the American dollar; eventually it has to lead to inflation, it's only a matter of time. So, like, how do people start to parse this?

WEISBROT: Well, the chair of the Federal Reserve is a conservative and a Republican, and he doesn't believe that this money is causing inflation. And he's about to embark on more money creation, using it to buy US Treasuries, and that's going to drive down long-term interest rates. But the problem is that won't do much good by itself. The other part of the government, the president of the Congress, has to take that money and spend it. But the Fed's doing its part. So the Fed knows—at least the chair and most of the Fed knows—that you can create money under these conditions without creating an inflation problem.

JAY: Well, with the Congress that's going to be elected now, it's very unlikely there's going to be any more stimulus spending. So I guess in the future we'll talk more about the consequences of all this. Thanks for joining us.

WEISBROT: Thank you.

JAY: And thank you for joining us on The Real News Network.

End of Transcript

DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


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