James K. Galbraith teaches at the LBJ School of Public Affairs, The University of Texas at Austin. He is a Senior Scholar of the Levy Economics Institute and the Chair of the Board of Economists for Peace and Security. The son of a renowned economist, the late John Kenneth Galbraith, he writes occasional commentary for many publications, including Mother Jones, The Texas Observer, The American Prospect, and The Nation. He directs the University of Texas Inequality Project, an informal research group based at the LBJ School, and is President this year of the Association for Evolutionary Economics.
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington. In the first days of his presidency, President Obama met with a group of conservative journalists, had a nice dinner that apparently was very reassuring, according to David Brooks, one of the--a columnist who was at the dinner. Also George Will was there, William Kristol was there. David Brooks told NPR a few days later that the president had told them he was willing to, quote, tackle the big entitlement programs Medicare and Social Security. So for anyone who thought that these issues were not on the table and were asking President Obama to keep them off the table, they weren't listening, because apparently President Obama had always planned to take these issues on, and so he is, as the debt ceiling debate rages in Washington. Now joining us to talk about the current state of this debate and the proposal from the so-called Gang of Six is Professor James Galbraith. He's a professor of economics at the University of Texas Austin. He's also the author of the book The Predator State. Thanks for joining us, James.JAMES GALBRAITH, AUTHOR: Always a pleasure.JAY: So let's start with what's in this Gang of Six proposal. President Obama has endorsed it in general. He's still saying he's waiting for more specifics to endorse it completely, but he's given it a fairly bright green light. So what do you make of that and what do you make of the proposal?GALBRAITH: Well, I have, insofar as there are details, I have them in front of me. And the principle behind this proposal would appear to be that sacrifice should be shared proportionately by those who can afford to share it and those who can't afford to share it. That is to say, it should take out of the hides of the poor and the vulnerable, and at least it claims to take something from the wealthy as well, although we'll come back to that. This is not a principle that has ever been associated with the Democratic Party that I grew up in and remember. The Gang of Six proposal, which I read now, if CBO scored this plan, it would find net tax relief of approximately $1.5 trillion. In other words, this is not a plan for increasing taxes; it's a plan for cutting taxes. And the way they would cut taxes, by reducing marginal rates, particularly at the top of the scale, would in fact reduce them on the wealthy. So unless I have missed something, and I believe I have not, there is nothing specific in this plan that takes anything out of the pockets of the wealthy at all on a net basis. However, with respect to Social Security, there is the plan specifically would shift the cost of living adjustments in Social Security in a way that would impose a cumulative and increasing reduction in benefits relative to what they would be now. So that would affect today's near-elderly on an increasing basis as they got older and older and make it much more likely that they would find themselves out of resources, close to or in poverty when they reach the great old age that Social Security is designed to help them through.JAY: So we're talking about real cuts to social security and not-so-real increases in revenue, in taxes.GALBRAITH: Yeah. The new program for home care for the elderly, the CLASS Act, would be repealed entirely. And then there are large, numerically specified, but not specified in detail, large cuts in discretionary expenditures, much of which is in work that would in normal times be considered to be useful.JAY: Let's go back to this CLASS Act. Let's just explain to people what that is. That has to do with long-term home care, some kind of a sort of insurance program. People could pay some premiums, but there would be some cost to the federal government there.GALBRAITH: It is a program basically for working people, to provide greater access to home health care, yes.JAY: When they're older and, for example, can't take care of themselves due to illness or some kind of disability.GALBRAITH: It's something that Senator Kennedy worked on for many years, beginning as far back as 2003, and that has just taken effect.JAY: Now, one of the reports I've seen apparently says that the issue of off-shore taxes, that they're going to adopt a measure which says offshore profits of US companies will not be taxed. I guess they are to some extent now. Do you know about this?GALBRAITH: I saw the reference in the code toward a territorial tax system, and that would appear to be an allusion to that, yes.JAY: Now, I guess we don't know more detail about it, but coming is supposed to be more of a health care plan here. I don't think the elimination of the CLASS Act's the last word on this. But for them to get to the kind of numbers they're talking about, $3.7 trillion in cuts, they're going to have to take a bigger whack at Medicare than we seem to know. Am I right about that?GALBRAITH: Well, let's see if details ever emerge. I want to make a broader point here, which is that the approach of putting together a big deficit deal under the gun of the debt ceiling is terrible public policy. It is totally unnecessary. And it is something which is really being designed as a kind of political lever to get policy changes through, to get cuts in Social Security, to get cuts in health care which could not be defended on their own merits and which are not necessary for any economic reason. So the premise on which this whole thing is being sold, which is that this deal or any deal is either necessary for the economy or a good thing if tied to the debt ceiling, both of those claims are completely false, in my view.JAY: What do you make of President Obama's role in this? As I said in my introduction, he had apparently more or less agreed to this idea or believed in this idea of an overhaul of Medicare and Social Security, and taking on entitlement programs, and the whole logic that there was a need to do this for the sake of the economy, right from the very beginning of his presidency. So he doesn't seem to have resisted this kind of discourse or assumptions that more or less have been more pushed by the Republicans. But he seems to have certainly been part of it.GALBRAITH: Well, let's just look at what's going on and what's gone on inside the Democratic Party. The Democratic Party for a long time has had two broad wings: a traditional Rooseveltian Democratic wing with a strong backing of labor, strongly invested in the New Deal and the Great Society and Social Security, Medicare, and Medicaid, in programs that have provided a great deal of insurance and safety to the working population. And the other part of the Democratic Party which has provided it with its money and with its financial leadership has come largely from Wall Street. It's come from the investment banks, it's come from the commercial banks. President Obama has made it very clear that he is 100 percent allied with the financial wing of the Democratic Party. And that wing has always had it in for Social Security and Medicare. It is always, for whatever reason--possibly it's the financial interests of that sector of the economy, insurance companies and so forth, who would have more business if these programs were curtailed--is intent upon enacting substantial reductions and cuts in these programs. That's a split [which] really has nothing to do with the Republicans very much, but it is something which is a chasm between the leadership of the Democratic Party, the president, who claims to be a Democrat, and the traditional values and the traditional voting base of the Democratic Party, whose interests are absolutely against this deal.JAY: So where does that leave that wing of the Democratic Party that is not an extension of Wall Street? And what do you think they need to be doing?GALBRAITH: The Democratic wing of the Democratic Party, as it was once called, yes.JAY: Well, so where does that leave them? What can they do?GALBRAITH: Well, I think that they have to send a very clear message that they won't put up with this, and it has to be--. I think progressives in the Congress, the Democratic leadership in the House of Representatives, for example, should just say no. They should say that the only way out of the debt ceiling impasse is the straightforward way of passing a clean increase of the debt ceiling, because the full faith and credit of the United States government is not to be trifled with, it is not to be made a political football. And they [incompr.] that the Democratic leadership in the Congress will not agree to a process which makes all future budget decisions essentially hostage to future debt ceiling increases is a terrible precedent for the framing of economic policy decisions. So I think what would happen if the Democrats made it very clear that they were not going to play this game is that the purpose of--that the process of getting a deal would collapse. The Republicans are not going to, you know, bail out the president on this. And then the Congress would face the clean-cut choice between its constitutional responsibility to support the obligations of the United States and raise the debt ceiling, and the political games which certain factions have been playing. [crosstalk]JAY: So what do you make of Obama's argument that he can't--.GALBRAITH: What?JAY: What do you make of Obama's argument that he can't allow this to go past the deadline because the consequences are so apocalyptic and he has to bend to these Republican pressure? I mean, what's the choice here? What if the Republicans don't cave?GALBRAITH: Then the responsibility for that is on them. But I think the fact is that the Republican Party, like the financial wing of the Democratic Party, will yield to pressure from the financial sector if the financial sector really gets nervous about the economic consequences of not passing a clean debt ceiling extension. And the financial sector, assuming those consequences really are serious--and I think there is reason to be worried about that--the financial sector will certainly deliver the message that the financial stability of the country depends upon their acting, and this charade of long-term budget deals will fail and hopefully go away. And that seems to be--that is the only way forward which would preserve the integrity of Social Security, Medicare, and Medicaid, programs which are extraordinarily valuable, effective, efficient, and that do no harm to the national economy. So, I mean, cutting Medicare, Social Security, and Social Security and--Medicare, Medicaid, and Social Security is not going to do anything to help the borrowing power of the United States Treasury. It's not going to reduce interest rates by a single basis point.JAY: Thanks very much for joining us, James.GALBRAITH: Okay.JAY: And thank you for joining us on The Real News Network.
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