Rob Johnson: Obama infrastructure plan a good start but it is undermined by cuts to social programs - September 10, 2011
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Rob Johnson is President of the Institute for New Economic Thinking. He was previously Director of the Economic Policy Initiative at the Franklin and Eleanor Roosevelt Institute and is a regular contributor to the Institute's blog NewDeal 2.0. He serves on the UN Commission of Experts on Finance and International Monetary Reform.
Dr. Johnson was also a Managing Director at Soros Fund Management where he managed a global currency, bond and equity portfolio specializing in emerging markets. He was also a Managing Director at the Bankers Trust Company. Dr. Johnson has served as Chief Economist of the US Senate Banking Committee under the leadership of Chairman William Proxmire and was Senior Economist of the US Senate Budget Committee under the leadership of Chairman Pete Domenici. Dr. Johnson was an Executive Producer of Taxi to the Dark Side, an Oscar Winning documentary produced and directed by Alex Gibney.
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington. Thursday night in Washington, President Obama delivered his jobs speech. Here's a little excerpt from it.~~~PRES. BARACK OBAMA: The American Jobs Act will repair and modernize at least 35,000 schools. It will put people to work right now fixing roofs and windows, installing science labs and high-speed Internet in classrooms, all across this country. In addition to the trillion dollars of spending cuts I've already signed into law, it's a balanced plan that would reduce the deficit by making additional spending cuts, by making modest adjustments to health care programs like Medicare and Medicaid, and by reforming our tax code in a way that asks the wealthiest Americans and biggest corporations to pay their fair share.~~~JAY: Now joining us from California is Rob Johnson. He's a senior fellow at the Roosevelt Institute. Thanks for joining us again, Rob.ROB JOHNSON, ROOSEVELT INSTITUTE: My pleasure.JAY: So, first of all, have you got a sense of how much money is going to what? It wasn't--he didn't say any of that in the speech.JOHNSON: Well, my understanding is that there's going to be a plan outlined with quantitative numbers next Monday. But the indications are a $10 billion infrastructure bank; about $100 billion in infrastructure; $35 billion, $40 billion transferred to teachers through, basically, state and local government transfers; some payroll tax cuts--don't know the order of magnitude. But the various little bits and pieces that I picked up over the course of the day are a little bit over $300 billion, $330 billion [crosstalk] JAY: Some of the press is saying $450 billion, but it's not clear how they get to that number.JOHNSON: That's correct. And that might be that the infrastructure bank levers it 5 to 1 or something. And so we just have to await the details.JAY: So what's your main take of the speech?JOHNSON: Number one, it's a good statement by Obama about what he thinks matters, what constitutes a strong economy, what's needed to go forward. Number two, it's too small. This is not a little patch that expires in 2013 to get everybody elected with a bump. It should be a longer and bigger structural program. So I'm critical in that regard. Number three, the composition of the dollars is not creating the greatest impact when they are talking about cutting taxes, cutting taxes, and cutting taxes; we need real spending and infrastructure spending. And when they tell you they're worried about Social Security and they're cutting the payroll taxes, that's a bit of an awkward dilemma by itself. So overall I would say too small, composition's not right, but it's a step in the right direction.JAY: Well, a step in terms of the language, at any rate. The--but how it's being paid for, number one, is payroll tax, which is going to affect Social Security. And two, what do you--he again talks about cuts to Medicaid and Medicare as part of increasing this $1.5 trillion cuts that they're supposed to be doing. What do you make of that as a way to pay for all this?JOHNSON: Well, the cuts that we need are negotiated pharmaceutical prices rather than monopolies' pharmaceutical prices in Medicare. The cuts that we need are reduced insurance rates that single-payer would have afforded us that insurance monopolies state by state are just way too expensive compared to other nations and other developed-country health care plans. So I would say it's not the quality of services, it's not the age, it's the monopoly pricing and the costs that really have to be attacked. And I've seen no sign of either party in Congress or the president wanting to take that on.JAY: Now, in fact, President Obama made a deal with pharma when he negotiated the health care bill. And in this speech he says the problem is demographics--that's a threat to the cost of health care.JOHNSON: Well, the demographics tell you when it switches on. The demographics tell you when those monopoly costs hit the budget and put us into fiscal strife or accelerate the debt-to-GDP ratio. But it would accelerate much more slowly. As the paper Tom Ferguson and I wrote, we cite Dean Baker, who says if you had Canadian, German, French, or UK health plans as a percentage of GDP rather than the American plan, which is 7 percent of GDP less, you don't have a crisis. So a cheaper plan (and, by the way, World Health Organization rates those plans higher in terms of delivery than the current American health care system, for lower cost--much better value), then you don't have a budget crisis. But [nobody's] taking on those concentrated interests in the health care industry right now.JAY: Yeah, there's no mention of any of that. Now, to a large extent this was a political speech. You know, most analysts are saying a lot of this [incompr.] stimulus money is unlikely to get passed by the House. What he probably will get is the tax cut, because the tax cuts, you know, sort of play into the Republican narrative anyway. But--so--but if that's the case, that this is more a political speech, maybe the beginning of the 2012 election campaign, how do you rate it?JOHNSON: Well, I read it that Obama says, as he often used to say, I get it, that this suffering and this stress and this level of employment is unacceptable. Now, the Republicans will match him and say, we get it too. You've got to remember not just Republican, not just Democrat, all these people are now what you call incumbents up for reelection with plummeting approval ratings, so they all want to take a little sting out of the economy. Whose beak gets salted? Which special interests? Which sectors? Taxes versus spending and all those things will be fought about, but they all share an interest. But Obama's the one that stepped forward and set the tone, that said we have to focus on employment, and I think he'll get a little bit of a bump from that. And I think if he stays on it and he keeps fighting, he will get, how would I say, more credit than Congress will going into the presidential election year. So it's good political tactics. I wish it was a little bit larger public policy, meaning the Sputnik moment he spoke about at the State of the Union.JAY: Yeah, talk a little bit more about this. This didn't feel like a Sputnik moment.JOHNSON: No. This feels like a political game. But Obama's very clever. He comes out and he talks about corruption and bridges to nowhere and the people don't trust the government, and he talks about the people hiring the Congress to do a job and that they're not doing their job. So at some level he's running against Washington, talking about being responsive to the people. But he's not really rebuilding America, though I'll give him credit: he did say this is the first of many actions that will be necessary to rebuild America. So at least he's acknowledging understanding the logic that this isn't enough and it isn't sufficient.JAY: So if you go beyond the DC theater, how dangerous a moment are we actually in in terms of the economy? This--you know, this was--the reason this speech is being given is not--is partly because of the crashes, the market crash, the crisis in Europe, generally a feeling around the globe that the global economy's heading into much deeper recession. I didn't get a sense of the real nature of the danger from this speech. How dangerous do you think it is?JOHNSON: I think there are several dimensions to the danger, the first of which is the potential for contagion associated with the European crisis that propagates through the entire world banking system. It's like a Lehman moment that would originate in Europe. I don't think that that's entirely, how would I say, the most probable outcome, but there's enough smoke there to think there may be a fire. And that is dangerous. That can harm the whole world in a synchronized way, just like 2008 did. The second dimension, which Christine Lagarde spoke about as she came into the IMF, is this notion of doing austerity all over the world into a slump in a synchronized manner can really make a depression out of a mild, what you might say, growth recession. And I think that's a big danger as well. I think the attempt to protect creditors--bankers and bondholders--from not experiencing restructuring and putting all of these economies through the wringer is very, very bad policy. It's very bad policy in each country, and it--because of what you might call the cross-reinforcement effects, it's very bad policy for the whole world.JAY: So if President Obama was to exercise some leadership here, shouldn't he have addressed some of these kinds of issues? 'Cause that's the real nature of the danger is in what you were talking about, it seems to me.JOHNSON: Well, I would say that President Obama today is talking to people about jobs and a domestic political agenda in America. I think those international ramifications heighten the anxiety, I think those international spillovers from fiscal austerity are important, but they're not the first order of business that he wanted to communicate today. I think there are lots of places where he should speak and exercise leadership in the world community much stronger on financial regulation, much stronger on what Andrew Sheng at the INET Conference in Bretton Woods called the Godzilla banks, and much more coordinated macroeconomic policies. I do not give our central bankers and finance ministers much--well, I say, I'd give them very low marks since the time of the Toronto G-20 meeting.JAY: Now, if this is primarily a political speech, in the sense that a lot of what he's proposing, if the pundits are right, is not going to pass, did you find there's a rallying of people to go into, like, a charge for a different direction for the economy here? He kept emphasizing over and over again how this is something Republicans should agree to.JOHNSON: Yes.JAY: And maybe that is the case; this is really a plan Republicans would agree to. I'm not sure people are going to get very inspired by all this.JOHNSON: Well, what he wants to say is this is something Republicans have voted for. Don't be so extreme. This is something needed. Do it now. This is something that we all care about, and we share these values. And if you don't, I'm going to go to every corner of this country and argue with you. He is issuing a challenge in this, what you might call, deep slump, that it is unacceptable to have this level of unemployment. Now, I think the Republicans will counter that by saying, yes, but not the way you want to solve it. You're doing the same old, you know, Keynesian or whatever. Republicans have an upper hand here, which is, in the aftermath of the bailouts and bonuses and after 40 years of rhetoric, starting with Ronald Reagan, about government is the problem, people are very, very leery of government as a solution, even though there are an awful lot of things government has to do or our society begins to wither.JAY: So what's--given the reality of the politics here, what do you--how does this play out over the next 14 months? I mean, in terms of the economy.JOHNSON: I would say in the next couple of months the Republicans will seize the initiative and pass something at some level that will match Obama in sharing concern about jobs, because it's reflected in the polls and they've got a lot of incumbents, particularly in the House. So I think they will seek to what you might call come close to him to get something done. But he kind of preconceded on the size, the magnitude, the need for out-year cuts in entitlements, and the composition, which included a lot of tax cuts relative to spending. I heard Eric Cantor say today--I was listening on the radio as I was driving home, and listening to the speech, and Eric Cantor apparently told a journalist that he does not like the infrastructure bank, 'cause it's just another Fannie and Freddie for roads and bridges and subject to lots of corruption. So you're going to see the Republicans take a lot of issue with the particular components here.JAY: So, Rob, in a word, how does this all end up?JOHNSON: Well, I think you're in a place where Obama's going to ask for more entitlement cuts in order to create more tax cuts. And all the spending increases, infrastructure bank, and so forth will be somewhat resisted. It will be very interesting to see how the what you might call Pelosi Democrats relate to this, because at some level it looks like Republicans want entitlement cuts and want tax cuts. And everybody wants more stimulus now. And essentially the price of stimulus now is going to be doing a more Republican agenda.JAY: Thanks very much for joining us, Rob.JOHNSON: [inaud.] pleasure.JAY: And thank you for joining us on The Real News Network.
End of Transcript
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