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  July 26, 2011

Austerity Road to 19th Century Capitalism

TRNN Replay - James Crotty: Right-wing billionaires use crisis to lower wages and weaken social safety net
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Professor Emeritus James R. Crotty teaches in the Department of Economics at the University of Massachusetts, Amherst. He is a Research Associate at PERI. He's a macro economist with broad interests whose research in theory and policy attempts to integrate the complementary analytical strengths of the Marxian and Keynesian traditions. His writings have appeared in such diverse journals as the American Economic Review, the Quarterly Journal of Economics, the Cambridge Journal of Economics, the Review of Radical Economics, Monthly Review, the Journal of Post Keynesian Economics, and the Journal of Economic Issues, and in many edited collections. His research interests include: economic methodology; the implications of radical uncertainty for macro theory and policy; theories of financial markets and their implications for understanding financial booms and crises; Marxian and Keynesian perspectives on investment theory; the structure and performance of the global neoliberal economy; theories of competition and their impact on theories of macro dynamics; the financialization of the non-financial firm; and the political economy of South Korea.


Austerity Road to 19th Century CapitalismPAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay, coming to you from the PERI institute in Amherst, Massachusetts. Now with the Republicans in control of the House and the drumbeats for austerity pounding away, what will that mean to the American economy? If there's no stimulus program and instead cuts in government spending, how will that affect things? Will it create room for growth? Or will it create double-dip recession or years of stagnation? Joining us now to help us understand all of this is James Crotty. He's a professor emeritus at the University of Massachusetts in Amherst, and he's a fellow at the PERI institute. Thanks for joining us.


JAY: If austerity is going to bring us�it's hard to imagine, at least in the short term, even under the theories of the people promoting austerity, if there's no more stimulus and there's smaller government, at least for some time, there's got to be at the very least the same unemployment we have, if not worse, and perhaps much worse. So the people promoting austerity know all of this. Why do they want an austerity regime?

CROTTY: Well, there are some economists who promote this because they actually believe that it's better to reduce the deficit than to stimulate the economy, and that through a kind of an arcane set of causal relationships, that this will actually boost growth. But it's completely an unbelievable scenario; it doesn't make any sense. The economics profession thought it had defeated this in the 1930s, with Keynes being the representative. And if you have a situation in which businesses are not investing very much, which is the case, in which consumers can't invest a lot, can't buy a lot, because their jobs are bad and incomes are not so good and they've lost a lot of money on their house and they've lost a lot of money in the stock market, and if we're running substantial trade deficits, which is bad for the economy, then the only actor in the whole scene who can create some kind of demand, put money in somebody's pockets, buy things, is the Federal Government.

JAY: In the last months of the Bush regime, the Republicans bought into a stimulus plan. They bought into a save-the-banks plan. What has changed in the psychology? 'Cause in that period everybody was for throwing public money to get out of the abyss. Now let's cut it all back and let's worry about the debt.

CROTTY: Well, first of all, Bush was the president, so that lots of people who now take the opposite position were supportive of the government's program. Secondly, it wasn't really a stimulus package, like unemployment compensation or building infrastructure or directing money to state and local governments so they don't have to lay all their workers off. It was�instead of that, it was a rescue of the large financial institutions. And the large financial institutions are one of the most powerful political players in the United States of America. All George Bush's friends are in the financial institutions, and he was certainly going to allow�or he didn't know how to do it, but he was going to follow the advice of people who were in positions of authority, like Treasury Secretary Paulson, an ex-Goldman CEO who said, we have to rescue the banks, we have to spend money on them; otherwise, they'll collapse and everything will go down the drain. And they did rescue the banks, and they thought that was okay to do. And the bankers, the top rainmakers in the banking system, made phenomenal amounts of money. So they crashed the system and they took the money that the government gave them and they paid [it] out in bonuses.

JAY: And President Obama did more or less the same.

CROTTY: President Obama did more or less the same, and he selected a set of advisors who supported these kinds of bailout policies without much of a quid pro quo.

JAY: So now we're in this period. We're hearing deficit cutting. We're hearing it from President Obama as well. He appointed his deficit commission, where the Republicans certainly are using this wave of this vote as the rationale for significant cuts in government spending. Every�they have to know this is going to lead, as I said, at least for a while, to more unemployment and deeper recession. So why do they want it? Why are they more worried about debt than they are recession?

CROTTY: It's curious, and it's true that Obama has swallowed the Kool-Aid and is essentially spouting similar things, that if we spend any money, we have to raise taxes on somebody to pay for the bill, which raising the taxes then kind of works against the stimulus in the short run.

JAY: Although not as much if this really is the top two percentile [inaudible]

CROTTY: No, not as much as if it really is the top two percentile. But it seems as if there's another set of factors that are operating here, and maybe some of them are ideological, which are operating against the idea of kicking the economy forward. I mean, one is a fear of debt in the future. One is if we don't start to deal with the deficit, then we're going to have large debts in the future and, you know, we won't be able to pay the interest rates. So one is a kind of a long-term view that we have to sacrifice the short run for the long run.

JAY: Okay. So what's wrong with that if there's�is there anything wrong with that?

CROTTY: Yes, there's something terribly wrong with that, that basically if you have austerity policies now, if you don't support people who are unemployed, if you don't support infrastructural investment, if you don't support anything that will stimulate the economy now, what you get is a deeper or double-dip recession, and what you get out of that is no investment, 'cause it's not profitable. What you get is people who don't have jobs, people who lose their work skills, children [inaudible] school�.

JAY: Okay. So let's say, if you're sitting on mountains of cash, don't you say, well, so what, so what if there's another year or two years or three years of 20 percent unemployment?

CROTTY: There is an advantage, ideological and to some extent economic, for a lot of big players here. So what happens if you go through with austerity policies? You either have to cut expenditures or you have to raise taxes. The people pushing austerity policies are not pushing tax cuts or tax increases for the rich or for the corporations. In fact, they want to keep the Bush tax cuts going, which will cost $1 trillion, and they don't want to tax the rich, and they're proposing to cut corporate taxes. Okay?

JAY: But there is the drumbeat of an added value tax, which will hit ordinary people.

CROTTY: Well, that tax is okay. If I'm a billionaire, what do I care about a�?

JAY: A 5 percent sales tax.

CROTTY: I don't care at all. But there's a positive side for that, and the positive side is that they weaken the government, they weaken labor, right, they cut social programs, they make it harder to get unemployment, they make it more dangerous to be unemployed. So they have the workers basically weaker than ever and are going to have to work for any wage, and they can cut their costs and they can control their labor forces. And so for the corporations there is a real benefit, over the long run, of essentially weakening labor's power to get a decent or fair share of the income pie.

JAY: So is that the core objective here? And that doesn't mean there's only one objective; there may be many. But is this the core of what this austerity measures are about?

CROTTY: Well, there may be many cores. There may be many causes. It is the case that�it's a curious case. So we have the banking system deregulated, powerful, huge, bloated, the financial system, and then the financial system, the players in the financial system take these risks, they get all this money, they get these bonuses, they crash the United States economy, they crash the global economy. The global economy and the US economy are all in very difficult kind of situations, and [when] they lose tax revenue, right, they have to�the automatic stabilizers cut in, which means that there's payments that they have to make for unemployment compensation and so on, there's stimulus programs, which most of the countries around the world have tried. So a big deficit opened up. A big deficit means you have to borrow money from the large financial institutions. The large financial institutions who caused the problem in the first place and who were rescued by the governments now say to you, we'll only lend you the money on reasonable terms if you do a whole bunch of things which we say we want. We want austerity. We want to be sure we'll get our money back. We want to be sure there's no inflation, which might devalue the amount of money that we'll give you. So we want you to basically take out all of the problems that we created on the middle class and the working people, and we just get more and more business and richer and richer.

JAY: Is there a political agenda here, too? I mean, we know the Tea Party movement to a large extent may have had some�not may have, I think had some spontaneous beginnings, but over the course of this election to a large extent becoming part of Karl Rove's spider's web. We know Rand Paul's campaign received more than $1 million, apparently, of money funneled through Karl Rove's organizations. There are a lot of this other of Koch money and other right-wing billionaire money helping to fund not just general Republicans but focusing on the Tea Party. In other words, at this moment of economic crisis, instead of seeing a kind of workers left upsurge, they're actually creating a right upsurge. Is there some political advantage in the worse it gets, the more they can build a right-wing movement and accomplish some of the aims that they wanted to accomplish during the Bush-Cheney years?

CROTTY: This is especially true of neocons and really hard-right people like the Koch brothers. Okay? So they've been trying for decades�.

JAY: Let me just quickly say, for people that don't know, but Koch brothers are in the oil and gas business.

CROTTY: Among other things.

JAY: Among other things. And are multi-multibillionaires, and put a lot of money into this last election.

CROTTY: But have been doing it for decades. And what they want to do, basically, is to kind of roll back the victory of the working people after the Second World War. We're familiar with this from Reagan, right? They want to roll back the state. They want to roll back regulation. They don't want any interferences by the government on how they make their money or what they do with their money or how they treat their workers. They want a weak working force. They want no opposition. They want the 19th century. They want the power of the 19th century. And the fact that large financial institutions have created this devastating crisis is empowering them in the agenda everywhere. So if we look, for example, at Greece or Portugal or whatever, countries that really had difficulties meeting the debt requirements that came out of this crisis, they got money from the European community, they got money from the IMF, and in return for this, they essentially were told that they have to slash their spending, that they have to cut pensions, that they have to slash public workers, fire them and cut their wages. And public workers are the people who provide the social services that are part of the social welfare system. So you could, if you look at it from the Koch's perspective or from a long-term perspective of a lot of these really rich people, this is an opportunity for them, essentially, to defeat the forces that created the social welfare system, social democracy, a government which was basically looking to support the public. And to do that, they have to regulate and control business interests. So this may be an important historic moment.

JAY: Thanks for joining us.

CROTTY: You're welcome.

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

End of Transcript

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