Bob Pollin: When the movement is ready for specific demands, here are some suggestions - November 1, 2011
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Robert Pollin is Professor of Economics and founding Co-Director of the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst. His research centers on macroeconomics, conditions for low-wage workers in the U.S. and globally, the analysis of financial markets, and the economics of building a clean-energy economy in the U.S. Most recently, he co-authored the reports Job Opportunities for the Green Economy (June 2008) and Green Recovery(September 2008), exploring the broader economic benefits of large-scale investments in a clean-energy economy in the U.S. He has worked with the United Nations Development Programme and the United Nations Economic Commission on Africa on policies to promote to promote decent employment expansion and poverty reduction in Latin America and sub-Saharan Africa. He has also worked with the Joint Economic Committee of the U.S. Congress and as a member of the Capital Formation Subcouncil of the U.S. Competiveness Policy Council.
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington. In New York City and in Occupy movements around the United States and around the world, a lot of debate is taking place about what demands these movements should make. And there's some discussion that don't make demands too early. But everyone's more or less saying sooner or later the demands are going to have to get more specific. So what should those demands be? Well, we're having a series of discussions on The Real News about that. And now joining us is Bob Pollin. He's the codirector of the PERI institute in Amherst, Massachusetts. Thanks for joining us, Bob.ROBERT POLLIN, CODIRECTOR, POLITICAL ECONOMY RESEARCH INSTITUTE: Thank you very much for having me, Paul.JAY: So if you were going to draw up your list of demands you would suggest to the Occupy people, what would they be?POLLIN: Well, first of all, I respect the fact that they have not put out specific demands. The fact is, a lot of groups, a lot of organizations, including our own institute here, we have been putting out demands for a couple of years subsequent to the financial crisis and the mass unemployment, and they haven't succeeded nearly as well as we would like to change the agenda. On the other hand, the Occupy Wall Street movement has caught fire, has gotten a lot of attention, and has focused on some simple principles, that the well-being of the 99 percent is not being linked to the massive increase in the well-being of the 1 percent, and the 1 percent are the ones that have caused the crisis. So I think that they've done an excellent job, and I'm not the one to tell them now's the day when you start making demands. However, as you yourself said, unless we translate this kind of righteous anger into something specific, then we're not going to change the political system and we're not going to improve conditions for the 99 percent and the movement'll peter out. So what would be some basic demands? Well, you know, if the fundamental issues, it seems to me, are two, or maybe three, number one is mass unemployment, number two is inequality, and number three is the instability of the financial system and the crisis caused by financial instability. So you really need policies that interact around those three issues.JAY: So what--let's start with jobs. What would that look like?POLLIN: So Obama has put out his jobs proposal, and the Obama administration acknowledges that these aren't going to pass. As you and I have talked on several occasions, there's basic features of the Obama proposal which are quite good in principle, number one, that you protect the public sector at the state and local level. So, for example, they have a proposal for not laying off teachers--you know, really radical that we don't make our educational system dramatically worse. Okay, so that's a good one. You can generalize from that to say the state and local governments need to be supported through the federal government, that we need federal spending to continue to support jobs and programs, teachers, hospital workers, public safety workers, public amenities. These things should not be cut as they are being cut. So that's a simple one, and that's a jobs program. Another thing that the Obama administration proposed that was good is more spending on infrastructure. Yes, traditional infrastructure, more of that is needed. It is also a good source of job creation. One of the curious things in their proposals around infrastructure is they don't mention the word green anymore or environmental infrastructure or new green investments. And that, I think, is tied to the criticism from Republicans that this green stuff is a bunch of malarkey, it doesn't work, and we already have the example because of Solyndra, the solar energy company that got subsidies and has now failed. Well, in fact, the green infrastructure investments do work, on balance they are working, and they should be expanded. So those are the areas within the Obama proposal that are good, and they just need to be bigger than what Obama is talking about.JAY: When President Obama very early in his presidency talked about stimulus and creating jobs, he kept over and over talking about how this was primarily going to be done through the private sector. I think he once even used the number 90 percent would be done through the private sector. But that hasn't worked, because the private sector doesn't want to invest in new capacity and hiring, because the real demand is so low. And that scenario hasn't changed. So the only really effective parts of the stimulus has been through states and municipalities--in other words, direct public jobs program. So doesn't that suggest that only a big public jobs program is going to actually be effective?POLLIN: Well, the easiest thing in terms of stimulus is, as you said, to do exactly reverse of what's going on at the state and local level, because state and local level--state and local governments are the biggest single employer in the country combined, and they're getting cut. So of course we are going to be--continue to be mired in a jobs crisis as long as state and local governments are forced into austerity. So yes, at the very least, maintain spending for state and local governments as a jobs program, as well as a public welfare program. Secondly, expand them. I mean, the most efficient way to increase jobs is actually spending on education, because almost all the spending takes place within communities, almost all the spending is for people, is hiring people to do more things. So, yeah, expand and don't cut education. So that's a direct jobs program. Now, the thing with the other things, the private investment, you know, most of the economy is still private. So if we're going to ignore programs to incentivize the private sector, it's just going to be a lot harder to get a stimulus going. And the best example of that is something you and I have talked about before, but the problem only gets worse, which is that the commercial banks, the private banks, aren't lending any money, and instead they're getting cash for free. The number is now up to $1.6 trillion that they're sitting on, more than 10 percent of GDP--absolutely unprecedented amount of cash that they're sitting on.JAY: Just to remind everybody, this is "sitting on" meaning they got cash practically at zero percent from the Fed.POLLIN: They are getting and continue to get. And Ben Bernanke has pledged that he will continue to keep the interest rate for commercial banks at close to zero for the next two years. So they can get as much money as they want for free. Now, somebody has to figure out the other half of the equation, which is: don't just give the banks the money, but force the banks to make loans into the communities for, yeah, private businesses, for small businesses especially. And that stuff hasn't happened at all. And unless that happens in conjunction with direct public spending, the kind of thing you just mentioned, then the public spending initiative is going to be stymied, because the multiplier effects of more people having money translating into more investment in the private sector will not happen until you get the private money also flowing into the economy.JAY: And what do you make of this proposal some people have made for a massive public infrastructure bank? So I would--I don't know. Either you force the big banks to give the public infrastructure bank money, or the Fed does it directly. I'm not sure what the mechanism would be.POLLIN: Well, you know, I'm for it, except the problem is we spend a lot of time talking about a new institution, a public infrastructure bank. There's also talk about a green bank. I'm not against it. But that still doesn't solve the basic problem, which is getting the money out into the hands of people that are actually going to do the investment. And that--we can do that within the existing banking structure. We just have to force the banks--whether we call them regular banks, infrastructure banks, green banks, we have to force them to make loans. And if they're not going to make loans and they're going to continue to get public subsidies and they're going to continue to get bailed out, well, then, let's stop bailing them out, let's call them failed banks, let the FDIC reorganize it, and then start having the banks put money back into the communities.JAY: So let's move on to the next piece of this. And the two kind of connect with each other, too, because, I mean, if the banks are going to just sit on all this money, then this issue of taxing the upper stratum, whether you're taxing the 1 percent on income--I know you've been an advocate for a long time of the financial transaction tax, or even some kind of clawback tax, which I think you've talked about, too. If these banks won't lend, then you have to find a way to tax this cash they're sitting on back. So talk a bit about this whole issue of how one might recapture some of this money.POLLIN: Well, it--what you call--I like the term the clawback tax. I hadn't used that term myself with respect to the banks. The idea there is very simple, and it's been proposed by people, even Republicans, which is to--number one, right now the banks are getting themselves, they're earning interest on this $1.6 trillion that they're sitting on. When they deposit at the Federal Reserve, they earn interest. It's a low interest rate. It's one quarter of one percent, 0.0025. But still they're getting a return, and they're borrowing for free. And so the incentive is, well, just pile up as much money as you can, and you just earn interest, and it's totally risk-free, it's cost-free. So, number one, let's get rid of that 0.25 percent interest payments to the banks. Number two is to tax the banks on what we would call their excess reserves. So if they're sitting on $1.6 trillion--and let's say that to be very safe they have to hold, let's say, $600 billion in reserves to cover their potential losses. Okay? That's--I know that's excessive, but let's say that's the number. That still leaves $1 trillion. Well, so keep taxing the banks on that $1 trillion and keep raising the rate, the tax rate, until they figure out how to put money into communities. After all, small businesses are getting turned down for loans at--about 60 percent is the rate. Now, if you just reduce that rate of getting turned down from 60 percent to 40 percent, you would have a recovery, you would have the beginnings of an economic recovery--of course, joined with the spending by the public sector.JAY: But if you can't get them to do it, in the sense that they're not motivated to do it, then if you are going to have the various forms of taxation to tax the excess reserves and such, there are existing institutions that could loan this money into the economy, are there not, like small business development loans, community banks. I mean, isn't there all kinds of ways to take advantage of existing--even co-op banks, credit unions? I mean, isn't there an infrastructure there? You wouldn't have to create a whole new thing, but do something that has some public interest mandate, and don't rely on the big banks.POLLIN: Well, first of all, I agree with you. We already have the infrastructure in general. And that's why I say creating a new infrastructure--an investment bank, an infrastructure bank, a green bank, it's not that I'm against it, but if we're talking about meeting an immediate crisis, these things do not get created quickly enough. So you're making a good point. That is, the commercial banks have $1.6 trillion. If they're not going to start making loans--. Well, the Federal Reserve itself--this has even been proposed, that the Federal Reserve itself, through their regional banks--. You know, the Federal Reserve has 12 district banks around the country, and then they have sub-district banks that work within the regional banks. They themselves can start making loans directly to the public, as opposed to just lending to the commercial banks.JAY: Which in fact they did, to some extent. We know some of the major American corporations got some money at the same time the banks were getting it.POLLIN: So this is something that the Federal Reserve could do. The other thing that--what you just said, which is to start getting reserves moved into the nonprofitable financial institutions, such as credit unions, cooperatives, that could be done. Again, you know, we'd be starting at a small base because they don't have the money right now. The money is sitting with the commercial banks. So anything that we want to do on a big scale quickly we have to engage with the commercial banks. And it's time to rough them up. I mean, the Occupy Wall Street movement is making a very powerful point about the failures of our financial system. So, as a demand of the Occupy Wall Street movement, let's force the banks that have the money now, that got the money for free, to do something positive for the economy with that money. I think that would be a very powerful movement, and I think they would be extremely vulnerable.JAY: Well, let's just go back to something you said earlier, which is that the whole issue of building a green economy, green infrastructure, it's been--it's just been dropped from all the language from--coming from the Obama administration. And, you know, there seemed to be such a linkage between rebuilding the economy based on green investment. So what does your research show you in terms of what would be the advantages of that route? And what do you make of the fact that Obama seems to have just given up on it?POLLIN: Solyndra may have failed, but there are other parts of the green--. You know, the overall green stimulus was supposed to have been, total, $100 billion. There are other parts to the stimulus that have been quite successful, in particular the investments in building retrofits. Building retrofits, unlike solar energy investments, are operating with known technologies, there's nothing fancy, the rates of return are high, you get your payback in three years, four years, and you get big energy-efficiency savings. The energy-efficient building investment areas is such a--I think, such a promising area that I myself have been investing in the area. And, in fact, I started a company myself that works in this area. And so the government has pursued those, and they're a big source of job creation, because basically you're hiring construction workers to make a building operate better. And these things have worked. And my own research with my coauthors has not only predicted that it would work in advance, but we've gotten the data back from the stimulus program, we've analyzed it, and we showed that it is working, it is creating jobs, and exactly the way we say it would. So another great demand, very specific demand for the Occupy Wall Street movement--create jobs, defend the environment.JAY: Alright. Thanks very much for joining us, Bob.POLLIN: Thank you for having me.JAY: And thank you for joining us on The Real News Network.
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