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  • Will Obama, the Fed's QE3 or Romney's "Smaller Government" Create Jobs?

    Leo Panitch and Sam Gindin: As long as effective demand remains low and banks demand austerity to protect their assets, the crisis will deepen -   September 24, 12
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    Leo Panitch is the Canada Research Chair in Comparative Political Economy and a Distinguished Research Professor of Political Science at York University in Toronto. He is the author of many books, the most recent of which are: The Making of Global Gapitalism: the Political Economy of American Empire (Verso 2012); and,In and Out of Crisis: The Financial Meltdown and Left Alternatives (PM Press 2010). In addition to his university affiliation he is also a co-editor of the Socialist Register, whose 2013 volume is entitled The Question of Strategy.

     Sam Gindin is a respected academic and intellectual. Until recently he was a professor of political economy at York University. He regularly publishes in academic journals and has written numerous books. His latest is In and Out of Crisis: The Global Financial Meltdown and Left Alternatives.


    Will Obama, the Fed's QE3 or Romney's PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore.

    In the U.S. presidential elections, we're seeing essentially two competing economic theories about what to do about the crisis. From Romney and his cohorts we hear austerity measures, tax breaks, and such. On the other side, from President Obama, a little bit about stimulus, but in reality it's really about the Fed, quantitative easing, and introducing measures of such sort that are supposed to give liquidity and somehow lead to jobs. Well, will either of these scenarios actually be effective?

    Now joining us to talk about that and the U.S. presidential elections, sitting on our right, is Sam Gindin. Sam is the former assistant to the president of the Canadian Auto Workers. He's also the coauthor of the book The Making of Global Capitalism: The Political Economy of American Empire.

    And on our left—and I don't know whether he's—I should crack a joke about being left of Sam, because they probably both should be sitting on the left if I'm going to crack that joke—is Professor Leo Panitch. He's the Canadian research chair in comparative political economy. He's a distinguished research professor of political science at York University. And he's also the coauthor of the book The Making of Global Capitalism.

    Thanks, gentlemen, for joining us.



    JAY: So, Leo, kick us off. You have this debate about apparently these are the only two possible solutions to the crisis, at least in terms of mainstream political debate in the United States. What do you make of these two paths?

    PANITCH: Well, they look like great alternatives, but they are not nearly as extensive as you might think. You know, there's no doubt that the Republican economic strategy, which is, largely, cut the taxes on the rich and they'll invest, is particularly brainless in this context. The corporations are sitting on piles of cash. The Fed has dropped helicopters of money on the banking system.

    The problem is effective demand, not the need for further incentives to capital to invest. That's simply an expression, one of ideology in relation to free markets and against government, and on the other hand, ideology in relation to always giving capital its head.

    The Democrats have been partly hamstrung in terms of fiscal stimulus by the Republican majority in Congress, but they themselves are way more responsible, always, than the Republicans about balancing the budget. And the line they give on the need to balance the budget is that there might be a run on the dollar if they don't. In fact, that's not realistic; that's not about to happen. On the contrary, there's no concern about the value of the American dollar. Money is pouring in despite the fact that what you get on Treasury bills is actually less by way of interest than the rate of inflation.

    The main policy has been, as you said, one of relying on the Fed to engage in a very loose monetary policy in what is called quantitative easing. They're able to do that 'cause they're not worried about inflation. The reason they're not worried about inflation is that they've broken the backs of trade unionism for the last 30 years. And the main lesson to be learned from this is that neither quantitative easing nor tax cuts are actually going to take us out of this long stagnation that we've been in for the last five years since the crisis began and is continuing. It's going to entail massive government spending, massive public employment, direct public employment. Of course, it ought to be done on meeting people's social needs, on basic search infrastructure, etc., but neither party is putting that forward.

    JAY: Before we get into what that might look like, Sam, first of all, you've been in amongst workers and you've been working—you worked for a union for many years. In Canada—but I think my question—you'll find some of this in Canada as well—much of the American working class, especially in rural and outside the big cities, but even to some extent in the bigger cities, they seem to be willing or able to support some of the Republican economic policies. How do you explain that? 'Cause it seems on the face of it these can't be good for them.

    PANITCH: Well, even apart from supporting Republican policies, you find working class supporting neoliberal policies. And a lot of that is they're trying to survive and they haven't had much option. Workers respond to what kind of options they face, what kind of structures are out there that they can work through. And in trying to survive, workers have ended up finding individual solutions—looking for a tax cut that makes up for no wage increase; hoping the stock market goes up, because that'll improve their pensions; hoping their housing prices will rise, because maybe that'll help them with their retirement.

    So you find these individual solutions even culturally, people starting to live more at home as a way of saving some money. And people start losing a collective sense of struggle and a collective culture of resistance. And when they just look at, well, what are the realistic options that I have in the short term, you try to survive in the short term, you do things that actually end up reinforcing neoliberalism. And I think that's been a problem not just in the United States, but—and not just in rural areas, but throughout the States, in Canada, and in Europe as well.

    JAY: Leo, if you go back to the various alternatives President Obama had when he came into office—and it was such a, you know, apocalyptic moment, as—certainly that's the way it was described by his administration and by the media. It opened up, you would think, some other kinds of choices. But he was completely wedded that any stimulus money would have to either go, you know, fill a bit of a hole in states and municipalities. Otherwise, he wanted to accomplish everything through the private sector. And the idea of what you're talking about is a big public works program with a massive amount of government spending was never on the table for the Democratic Party. On the other hand, the other measures clearly haven't been effective. So what do you make out of what their interest is here?

    PANITCH: Well, initially, although I think even the Bush administration would have done it, they coordinated, of course, a massive stimulus on the part of the G-20 states in 2009 when they really thought the whole global economy was collapsing around their ears. And that was coordinated with Europe, with China, with Japan, etc. And it was probably the biggest peacetime stimulus in American history.

    As I say, I'm not sure that even the Bush administration wouldn't have done it, although they probably would have put more emphasis on indirect measures. And as you say very rightly, the main effect of that was to offset the amount of deficits, layoffs, cutbacks that the states were doing, or to give them subsidies so they wouldn't do that kind of thing.

    Not all of it was indirect. There was some attempt to do things like build the railway in California so that it wouldn't take 26 hours to go from L.A. to Portland by train. But they didn't get very far with that, and almost all of it was either state or municipal subsidies or indirect expenditure.

    And that reflected the nature of what the Democratic Party especially had become in the '80s and '90s. It, you know, was a party which, like the Labour Party in Britain with the Third Way, was trying to cut a deal always with this very dynamic global capitalism, and especially with Wall Street. And you could see, in terms of who Obama appointed, he appointed the same guys who had been in Clinton's Treasury and who were the handmaidens of the globalized financial capitalism of the '80s and '90s. The most left-wing financial adviser he appointed was Paul Volcker, and Paul Volcker had been responsible for breaking the backs of the unions in the early 1980s. So, you know, that was the nature of the administration.

    And you see it continuing today, insofar as the mayor of Chicago, who after all was Rahm Emanuel, who was Obama's right-hand man, has just—is squaring off against the teachers in Chicago, determined to break the teachers union. I think he's now finding he's in an unfortunate situation.

    But you can see the extent to which who we elected, for all of the rhetoric, or who got elected, for all of the rhetoric, was really not breaking with the policy of the Democrats through the '80s and '90s.

    GINDIN: Just to reinforce what Leo is saying, where the Obama administration was successful at the beginning and the Fed and the Treasury were successful was really in saving the financial system. That was the first goal, to prevent a total collapse of the financial system. And then you get into the harder question of now how do you really get the economy going.

    And that's where the relationship to Wall Street and to the banks becomes so important, because the limit on stimulating the economy is that if you're trying to maintain the confidence of the banks, the banks are sitting—they're worried about any kind of stimulus as maybe leading to inflation and therefore devaluating their assets. So the banks are insisting that in terms of defending the confidence of the banks so that they might lend, you actually have to have austerity. And that's the contradiction that they're living through.

    JAY: Yeah, because any measure—measures like you're proposing, which massive government expenditure, public works program, which would really reduce unemployment, would probably be a pressure for higher wages. And it seems to me that any solution that might lead to higher wages is simply off the table, even if it means high unemployment. And, in fact—.

    PANITCH: Exactly. Exactly. And the reason that public sector workers now are being broken or being targeted is precisely because insofar as they hold on to their level of wages, their benefits, this is a bad example for the private sector. And they're determined, having broken the unions and the private sector, that they're finally going to break the unions in the public sector. Now, as I say, you know, this is much worse in the case, obviously, of the Republicans, and it's not as if there isn't any distinction to be made. There is a distinction to be made. And much greater popular pressures, union pressures, labor pressures, etc. can be exerted on the Democrats.

    That said, their main orientation, as Sam says, has been one in which they are beholden to the confidence of financial markets.

    JAY: Sam, talk a bit about the trade union leadership, in the United States especially. I mean, they see their numbers drastically plummeting. I heard a story the other day from a trade union leader who I actually don't put in this camp, because this leader, I think, actually is—their union is trying to accomplish a few things and is not so beholden to the Democratic Party. But she said to me she'd been talking to another trade union leader who said, well, our numbers are going down, but it's just cyclical. You know, I said, well, yeah, in the next cycle they'll lose the rest of their numbers. They seem to not be able to shift their course as being an appendage of the Democratic Party. Even all these measures are leading to their own demise.

    GINDIN: No, absolutely. I mean, we really have to appreciate the extent of the defeat of the labor movement over the last 30 years. It isn't just, you know, a defeat over the last five years or ten years; it's really been a profound defeat. And you can't understand that without, you know, the corresponding defeat of the left—the absence of a left also reinforces that defeat of the unions. If unions are going to change, it's going to have to come from below. But it's very difficult for fragmented rank-and-file workers to make links, to develop the resources, to just develop a larger perspective, to get back some sense of collective memory of what was possible, without the existence of a left. So that becomes very difficult.

    And I think that for the leaders themselves, yeah, they keep hoping that if you just change the administration, if you just get out of this recession, things can kind of return to normal. And it just isn't going to happen. I mean, the key thing for unions to understand is how much and how profoundly things have really changed.

    And one of the dilemmas here is that unions themselves are sectional organizations. They represent specific groups of workers, not the class. And at one moment in history, in the '50s, early '60s, you could fight on your own, make some gains, and some of them would spread to other workers. That's over today. If you don't start thinking about how you actually take this on in a class way and in the public sector actually be serious about the fact that you're actually confronting the state, what does that mean? You just can't do this one-by-one. If that doesn't get on the agenda, you know, what you said earlier is going to happen. Unions have nowhere to go but down.

    JAY: Alright. We're going to do another—a part two of this interview where we're going to continue the discussion and talk a little bit more about if in fact there was a government that wanted to actually deal with unemployment in the most effective way, what would that look like, and perhaps some other policy measures too. So please join us for part two of our interview with Leo Panitch and Sam Gindin on The Real News Network.


    DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


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