Bob Pollin: There is no evidence that austerity and cuts to social
programs creates jobs - November 25, 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. And in Washington, as most people that are following this story know by now, the supercommittee wasn't so super. It has been paralyzed between the Democrats and Republican partisan fighting. A lot of people are suggesting this whole thing has been not just a drama, but perhaps even a piece of theater, 'cause maybe it was rather predictable that this might happen given the state of relationships in Congress. What does this mean for the rest of us? Now joining us to unpack all of this is Bob Pollin. Bob joins us from Amherst, Massachusetts, where he is the codirector of the PERI institute. So what's your take on all of this?ROBERT POLLIN, CODIRECTOR, POLITICAL ECONOMY RESEARCH INSTITUTE: Well, as you said, I guess it was predictable that they wouldn't have reached an agreement, because they haven't reached an agreement for years over what to do about the fiscal deficit. That's predictable. It's predictable that they are still focusing on the fiscal deficit as the overriding problem in the economy, when obviously the real overriding problem in the economy is unemployment and getting out of this slump or even avoiding a double-dip recession. All that said, there are actually some small glimmers, positive things that will come out of this failure, which is the so-called automatic triggers. The automatic triggers included automatic cuts in health care, other domestic programs, and the military. The automatic triggers also means that the Bush tax cuts are not extended when they end in 2012, the extension of the high-end tax cuts. So the fact is, I can't think of any other way that we would have gotten rid of the Bush tax cuts and make even a small dent in the military budget. Those things are now scheduled to happen. That doesn't mean they will happen, but at least there is something that is going to come out of this that probably wouldn't have come out of any agreement.JAY: Yeah, I guess this issue of whether they really will happen is because in 2012 with a new Congress they could kind of just undo, un-trigger the trigger. They can unlock the gun if they want to, so it's not that binding a trigger.POLLIN: No, no, nothing happens until 2013.JAY: Well, let's just back up a step. And, you know, when we interview you, we've often talked about the Obama administration policies, 'cause he is the president, but let's talk first of all a little bit about the Republican position in all of this. Everybody's using the term jobs, jobs, jobs, and the Republicans are running on a platform of they're going to create more jobs. What do you make of how they plan to get there?POLLIN: Well, for one thing, they certainly are creatve in rhetoric. They don't call business people business people. They don't call--certainly don't call them capitalists. They call them "job creators", so that as long as you own a business, you are now, by definition, according to the Republicans, a job creator; so that it seems to me their entire agenda is premised around the idea of showering as many benefits as possible on business, job creators, wealthy people, since that's the way that they create jobs. Beyond that, I don't see that there's any agenda at all. It's the same agenda that they have always had, which is cut taxes on wealthy people. That was the agenda for George Bush under his entire eight years. Even if we want to think back a decade ago, it was only weeks after 9/11 in terms of Bush coming out with more tax cuts for the rich. Even then, even in a period where we're calling for national sacrifice and the Republicans were clamoring for war, he still wanted to cut taxes on the rich. So, as far as I can tell, there's no other agenda, the Republicans, other than cutting taxes on the rich and cutting social spending. The benefit of that is that it'll cheer up the rich people. They'll invest more to create jobs. And that's as far as it goes.JAY: So the main argument the Republicans are giving--and the thing is, this argument seems to be resonating amongst, you know, maybe close to half the voting population, so that includes--a lot of workers are buying into this argument, which is that it's getting government out of the way, getting government regulation of the way, getting government sucking, quote-unquote, money out of the economy out of the way. And so this idea is, like, you make room for the private sector to grow if you get rid of regulations and government spending. So, I mean, what's the actual research show about that?POLLIN: Well, we don't even have to--we can get to the research, but let's just look at the recent history. I mean, the biggest act of government with respect to regulation or deregulation in the last 20 years was deregulation of the financial market, and that was Democrats and Republicans joined hands. They finally agreed on something: let's let Wall Street do whatever they want. And we've seen the results of deregulation--absolutely calamitous. So, no, we cannot get government. As bad as--there's all kinds of problems with government. But letting the financial markets operate as they wish is a whole lot worse, and so that the first step we need is actually to enforce the regulations that are in place in terms of government's involvement in financial markets. And then, in terms of getting government out of the way, well, I mean, yes, we're doing that in the state and local governments: we're getting rid of unions, we're getting rid of teachers, we're getting rid of health-care workers, police, fire, public parks. No, that is not an agenda. It's not an agenda for maintaining some semblance of a decent society. And it is also a disastrous agenda for jobs. Government does pay people to work. State and local governments in combination are the biggest employer in the whole economy. So how are we going to get out of the jobs crisis if we keep cutting government jobs? And on top of that, the private sector is not investing in the economy.JAY: So it's kind of ironic: the Republicans are against government-created jobs stimulus, because--but on the other hand, when they're screaming about a potential 50 percent cut to the military budget, one of the arguments they're making is all the jobs are going to get lost. I mean--but I guess there's some truth to that, is there not? If there's that much less spending on military, it will be less employment, won't it?POLLIN: Yeah, now, first of all, it's not a 50--they may be saying a 50 percent cut to the military. It's a $50 billion per year cut over ten years, starting in 2013. Now that is--that sounds--$50 billion is real money. Sounds like a gigantic number. But we've got to remember that the military budget is over $700 billion. Its 4.7 percent of GDP. The Iraq War and Afghanistan War in 2010 were, combined, $170 billion. So we're supposedly ending both those wars. So what--that would mean that we could cut the military by $170 billion. But, actually, the cuts that would be triggered by the supercommittee's failure would only cut $50 billion, and that's only about--that's less than one-third of the budgets for Iraq and Afghanistan. So let's first of all keep in mind that the cuts to the military that are being proposed are quite modest. That said, the military, yes, the military budget right now is over $700 billion. Now, how can you spend $700 billion and not create many, many, many jobs? The military budget is responsible for generating about 7.5 million jobs in the economy. So, yes, it is a big source of job creation. However, if you--it is an inefficient source of job creation. If you transfer the military money into something like the green economy or education, if you spent on a green economy, you'd get 50 percent more jobs than you would with the military. If you spent on education, you get 2.5 times more jobs than you do spending on the military. So that argument has never been true, that the military is a good source of job creation.JAY: So, in the context of all this, what do you make of the Obama administration's role? 'Cause to a large extent they seem to have kind of joined in the argument that the deficit's the main problem, although they add to that--and this is why they're deadlocked--that there does need to be some kind of revenue increase from taxation. So it's kind of a mix of some of the Republican argument with a little bit of the Democrat argument there.POLLIN: Well, and, you know, the more they talk in those terms, the more we forget the real issue, which to his credit Obama did raise a couple months ago after the last deficit debate fiasco, was that we need to create jobs. I mean, how could it be more obvious that we need to create jobs in this economy? And the focus on the fiscal deficit is a second-order problem that gets solved if we solve the jobs problem.JAY: So, if you look at, you know, the paralysis in Washington--and essentially we're already in the 2012 election campaign. In fact, this seems to be much more about positioning in the election campaign than it is about either dealing with the deficit or, more importantly, dealing with unemployment. This is all just about political positioning now. So what's likely to happen over the next, you know, year, more or less?POLLIN: Well, I think the economy is going to stay deadlocked in terms of policy. I mean, Obama is still proposing his jobs measure. And the one thing that I think still actually may pass, as you and I discussed when it was first proposed, is the cut to the payroll tax. Everybody seems to like the cut the payroll tax: number one, because it's a tax cut; number two, the Republicans love it if you're going to do tax cuts, because it is a cut--the other term for the payroll tax is the Social Security tax. So the more we start taking money out of Social Security, the more the Republicans are going to like that. And that's why, as you and I discussed a couple of months ago, I think it's a very, very dangerous move by the Obama administration to pursue this idea of deepening cuts to Social Security revenue.JAY: So if you were--in a word, if there was a policy that needed to be done right now that isn't, what's that policy? Like, when we--everyone's talking about jobs. But when you say jobs, what do you mean?POLLIN: Let's assume that we aren't getting a lot of stimulus out of the Congress--not that we--I think we should, but let's assume for now that we're not. So what are some cheap ways that we can aggressively pursue job creation? One-point-six trillion dollars, 10 percent, fully 10 percent of US GDP is sitting with commercial banks not doing anything. Now, on top of that, or, let's say, in addition to that, the nonfinancial corporations are sitting on $2 trillion in liquid assets. And there was an article in The New York Times just today about what the nonfinancial corporations are doing with their money. Mainly they are engaging in sophisticated financial engineering, buying back their own stocks to raise the stock price and give themselves more shares, proportionally, of their own stock. The nonfinancial corporations, the banks have tons of money. The point is is to push them to move that money into the economy.JAY: And how do you do that?POLLIN: Well, the first way--I would say that the easiest way is stop paying the banks to hold their money at the Fed. The banks--the Fed could do this tomorrow. In fact, they even discussed this. The banks are getting paid not a lot, but they're--you know, when it's $1.6 trillion, they're getting 0.25 percent in interest to just do nothing, sit on the money. And at least get rid of that. Then, okay, let's tax the banks and get them to put money into lending for small businesses. Republicans should like that. Why shouldn't they? They're for business. Let's give it to small businesses who actually proportionately are bigger job creators. If we're going to use the term job creators, more money--the more money that goes into small businesses, you create proportionately more jobs. So let's do these things that actually can be done cheaply.JAY: So it seems to me the point or importance of what you're saying about how to do this is that it actually doesn't really require Congress. So the Fed could do it--maybe with some direct presidential intervention. But it seems to me a lot of what you're saying, the Fed could just do.POLLIN: The Fed can take--the very first step the Fed could do tomorrow, literally tomorrow, no exaggeration, is to say: you know what? We are not going to pay 0.25 percent interest on your $1.6 trillion in cash warrants. Now, that is not going to totally change the economy overnight, but it will send a very strong signal, and it'll also publicize the fact that it's still underrecognized that the Fed has been conducting extremely accommodative anti-recession policies by the textbook--that is, they've set the interest rate at close to zero that they control. But these policies have been almost entirely worthless, in that it has just meant the banks piling up cash and not moving it into the economy. So the Fed can take that action. The Obama administration--and just as a tiny step, a first step--can say, okay, we're going to give out loan guarantees strictly to small businesses. We're going to approve the terms and encourage the small businesses to start lending, borrowing, and the banks to start lending to them, and just make this a big deal, because that's what has locked up the economy. The small businesses on net have not borrowed a dime for three years, and meanwhile the banks are sitting on $1.6 trillion in excess cash.JAY: So all that, of course, requires taking on Wall Street, and neither party seems willing to do it.POLLIN: That requires taking on the banks, taking on the corporations, taking on Wall Street, and saying there is not a shortage of money in this economy. There is a shortage of money going into job creation. There is excess money sitting at the banks, excess money continually going into speculation.JAY: Thanks area much for joining us, Bob.POLLIN: Okay. Thank you very much.JAY: And thank you for joining us on The Real News Network.
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