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Prof. 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.
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington.During most of President Obama's four years in office, the economic debate focused more on the issues of deficits and debt than it did jobs, even though the United States was in the midst of one of the worst unemployment crises since the 1930s. That discourse seems to change a little bit with the Occupy movement, but how much has it really affected policy?Now joining us to discuss both the Democrats and Republicans and what 2012 might look like, depending which one of them gives us our next president, is James Crotty. He's an emeritus professor at the department of economics, University of Massachusetts Amherst. And he's also a research associate at the PERI institute, and he joins us from there. Thank you, James.JAMES CROTTY, POLITICAL ECONOMY RESEARCH INSTITUTE: You're welcome.JAY: So let's start with President Obama and his latestâhis proposed budget. Is he still essentially buying the austerity narrative? Or has he changed his mind on this?CROTTY: I think it would be reasonable to say that President Obama has changed the narrative but not particularly changed what he's doing. His budget proposals, which in many cases are quite vagueâthey are kind of a general outline of what he might be doingâare focused heavily on tax cuts. So his main proposal for or one of his main proposals for the domestic economy is to eliminate part of the Bush or Bush-Obama tax cuts; that is, he wants to limit the deductions that you get from the tax cuts up to an income of $250,000 a year for a single person and $200,000 for a married couple. But that basically shaves about $1 trillion out of the cost of keeping the rest of the tax cuts there. The amount of the proportion of the tax cuts that remain after Obama has changed the rules a little for the upper income groups is about $4 trillion. So we save $1 trillion, and we keep or continue tax cuts of about $4 trillion, or 79 percent of the Bush tax cuts.Now, this doesn't make any sense, because we don't need these tax cuts. The peopleâmost of the people who get them don't need them. The people at the middle and bottom part of the income distribution get very little at all. And no sane person who's notâhasn't drunk the Kool-Aid of austerity would argue that the Clinton tax cuts, the Clinton tax rates were prohibitive or destructive or anything.So his proposal, compared to the Clinton tax rates, loses $4 trillion in revenues over the course of ten years. That's the projection. And this, of course, would create enormous pressure to cut social spending, public investment, and so on over the course of this period if we did that. And there's no reason to do it.JAY: Obama did have some tax increases at the upper end, and that does seem to differentiate him from the Republican budget. Are those increases significant?CROTTY: Well, the tax on millionaires, the Buffett tax, which is supposed to make people pay a minimum of 30 percent of their income, is a good thing and does help a little bit and does reinforce to some extent his belated backing of thisâof the 99 percent against the 1 percent in that rhetoric. But when he imposes that tax, he'sâalso proposes eliminating the alternative minimum tax, which raised a lot of money from these people anyway. So it's not so clear, reading the people who try and assess these (it's kind of complicated), that there'sâthere'll be much of a benefit, from net, from the millionaires tax and eliminating the alternative minimum tax.JAY: Because by cutting one he mitigates much how much he's really net gaining in the millionaires tax.CROTTY: That's right, because the alternative minimum tax was, initially, at least, designed to prevent really rich people from evading reasonable taxes, which is the same thing that the Buffett rule is supposed to do. So when you put one on and remove the other, it's not clear to me. I would have to see more data to know whether we come out with a net gain. But if we do have a net gain, the net isn't near as big as it would seem if they had also left the alternative minimum tax on.JAY: But it sounds good during an election campaign.CROTTY: It sounds very good during the election campaign. In fact, he'sâobviously he's a man who has supported a lot of the austerity rhetoric for much of his presidency and has been turning populist in his rhetoric for a number of months now. But, you know, when the election is over, if he's still president, the positions that he's laying out will probably be more like negotiating positions with the Republicans, and we've seen a rather disappointing performance by Obama when he negotiates with Republicans. So if this is the deal that he wants to start with, it'sâI'm not very hopeful about the deal that we get when he finishes negotiating with Republicans.JAY: If you compare Obama's economic policies to what we're seeing from the financial political elite of Europe or the Republican Party, do you find it a little, in your opinionâwhat's the word?âmore rational or less severe in terms of austerity? You see the Europeans don't want to barely move. Even on Wall Street you see people talking about the need for some stimulus. Do youâis there a differentiation there? Or do you think it's more optics?CROTTY: Well, no, I do think there is a differentiation. I mean, my take on this for a long time now has been that the Republicansâwell, first of all, as we've discussed here, my take is that we didn't just run into, in the United States, all of a sudden, a deficit problem that we had to deal with, that basically the right wing in the country has been engaged in a long, long struggle to defeat a social democracy that was created during the Roosevelt era. And so there's a whole history that they're trying to do this.Now, they continueâagain, mind youâis that in the current situation, because we have kind of run the economy into the grounds post-Ronald Reagan and essentially created the deficit problem post-Ronald Reagan and conservative economics, we're now in a situation in which the Republicans, moderate Republicans, are a shrinking proportion of the party, although very powerful in terms of money and so on. The Republican Party generally has taken the position that they want to destroy, they want to impose severe austerity and roll back the Roosevelt social welfare system and privatize Medicare and privatize Social Security and so on.So, relative to those people and relative to some of the people operating in Europeâespecially when they get control of countries' political processes, like they're doingâthey've done in Greece and are doing in Portugal, and Italy to some extent, and so forthâthe Obamaâwhat Obama and the Democrats seem to be striving for is a moderate or a less savage attack on social programs. But the narrative is largely the same: we've lived beyond our means (which isn't true), and the solutions therefore are going part of the way with the Republicans but nowhere near all the way. So it's a kind of a less savage, less intense assault on social democracy, but an assault nevertheless.JAY: It isn't true, because the big issues of debt are military spending, the recession, bank bailouts, and not living beyond our means. That'sâam I getting that right?CROTTY: Yes, absolutely. In terms of the causes of the recent rise in the deficits, if you remember that when we entered the Reagan era we didn't have any deficits to speak of, the debt-to-GDP ratio was 25 percent, and after Clinton left we still didn't have significant deficitsâ31 percent or something like that of GDP was our total debt in the hands of the public. So we've run up these massive deficits quite recently. And they come, clearly, from the Bush era tax cuts, which were substantial, maybe cost $3 trillion in revenue over a period of a decade; war expenditures ($1.5 trillion, maybe, over that period, with much more to come); the slow growth under the economic model we're operating on, which, you know, minimizes revenues; the deregulation of financial markets and the resulting insane gambling and borrowing and leveraging that the financial markets did (and everyone got paid fortunes to do it), and then they crashed the U.S. economy and the world, which led us to a serious recession, which cut tax revenues and kicked in automatic government expenditures like unemployment compensation and Medicaid payments and so on; and then, to meet that, the Obama government had to really implement some stimulus programs, which helped stop the collapse and kept us out of depression, I guess, but were neither large enough nor well-designed enough to really kickstart the economy, given how broken-down the economy's become since we entered the neoliberal era under President Reagan. So that's what caused the problems.The people talk about nondiscretionaryânondefense discretionary spending as being a problem, but it's way less than it was as a percent of GDP than it was under Ronald Reagan. That's not the problem. Medical costs are a problem, but everyone understands the solution to those is some kind of European-style or Canadian-style health care system. If we switch to a Canadian-style health care system, we'd save $10 trillion over a decade and everyone would be delighted. The Social Security problem is a moderate problem but fixable.So the whole idea that we live beyond our means, that the American public has been just sucking the Treasury dry and unwilling to pay for what it wants, is a narrative that's simply designed to confuse people and not let them know who their enemies are and who is operating against them and their children and grandchildren.JAY: Thanks for joining us, James.CROTTY: You're welcome.JAY: Thank you for joining us on The Real News Network.
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