Fiscal Cliff "Crisis" Manufactured to Prey on the Weak
Rob Johnson: Real crisis is the cost of health care which has nothing to do with Medicare or Medicaid - December 13, 2012
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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 Baltimore. And now joining us is a new regular contributorâof course, he's been a contributor many times in the past, but he's going to be a regular weekly or biweekly contributor now. And that's Rob Johnson. Rob is executive director of the Institute for New Economic Thinking and a senior fellow and director of the global finance project, financial reform, for the Roosevelt Institute. Thanks for joining us.ROB JOHNSON, DIRECTOR, PROJECT ON GLOBAL FINANCE, ROOSEVELT INST.: My pleasure.JAY: And Rob's in New York. So what's on your mind this week, Rob?JOHNSON: I think this week we're zooming in on the fiscal cliff, which to me illustrates and underscores the despondency we should all feel about the process of governance in the United States. The Congress, the president, and all of the [incompr.] have manufactured an artificial crisis in order to do somewhat like Naomi Klein would suggest in her book Shock Doctrine, be able to force changes down the throat of our society that would not ordinarily be done. And they're doing it in the name of goodness. But what they're essentially doing is trying to tee up how to prey upon the weak again in some respects, particularly seniors and their health care services, and to a lesser extent Social Security. And, of course, they'll pay for this a little bit with the ritual of taxing the wealthy because Obama won the election, which underscores that John Boehner made a mistake. He should have taken the grand bargain last summer. They made a bet they could win the presidential election, and they came up empty. But I think right now we've got a serious problem in America, and that is health care costs. All you have to do is look at the United States' problems in health care and the cost of health care relative to every other OECD country and keep in mind that we're rated 37th in the quality of service by the World Health Organization. Almost all of the long-term budget problem you could do nothing else except take on the health-care industry. I'm there talking about pharmaceutical monopolies, insurance monopolies, and hospitalization monopolies. If you knock those costs downâand I'm not talking about some pie-in-the-sky thing; I'm talking about exactly the performance that you getâand you can take your pick, Canada, France, U.K., Germany, or Switzerlandâyou can knock your costs in half and have better-quality performance and have no budget problem and a lot happier people.JAY: The point here is if they were reallyâif the issue here really was debt reduction, that's what they would be focusing on.JOHNSON: That's what they would be focusing on. And there's a sidekicker to this, which is: the competitiveness of American industry as a place to hire (meaning new jobs) and produce relative to foreign direct investment would be fortified and enhanced if you could bring down the costs of private employer supplied health care. And we don't do that. Puts us at a competitive disadvantage. Honda has a big edge over Ford Motor Company in terms of their cost structure related to health care. And one of the most surprising things (but it's not, how you say, that surprising when you dig deep into political economy) is that American employers have not banded together to bring their lobby of pressure and power onto the process in government, and they've allowed the health-care lawyers and the health-care lobbyists and the pharmaceutical lobbyists and the insurance lobbyists to do as they please. And I think this is a disaster for America.JAY: So President Obama, I mean, first of all, he knows this, 'cause the math is pretty straightforward. But when he makes his health care legislation, he, number one, makes a deal with the pharmaceutical companies not to reduce their prices, and number two, he gives up on the public option, which would have in most people's estimation given a lot more clout to reducing the costs of health care. He has a bill now which some people say reduced the cost of health care, although there's debate on that. On the other hand, he's quite focused, it seems, on negotiating some kind of grand bargain on entitlements and has said so. Is thereâwhat's driving him?JOHNSON: Oh, I think what's driving him is a sense of realpolitik. I'm talking about comparative analysis with other countries shows it could be done and done easily as policy. In other words, it doesn't require a great stretch of the imagination or going out into the fog. You could replicate those systems and do a lot better than we're doing. What is impossible or very hard to believe is how we're going to get the structure of American politics, with lobbying, campaign contribution super PACs, into a place where those concentrated interests in the health industries and pharmaceutical industries and insurance industry could be defeated in the political process. And I think Obama probably doesn't believe that those people can be defeated, and he's not getting what I asked forâis all of the rest of industry to come in behind him to restore the public option, negotiate pharmaceutical prices, and put pressure on the hospitalization costs.JAY: So when you talk about the sort of elites around the world, not just American elites, obviously one of the most important elites now outside the United States is the Chinese elite. The Chinese government leadership just changed, and you essentially have two factions there, one related to the Communist Youth League and another related to what they call the princelings, the children of former communist leaders who've gotten very, very wealthy. I saw a report the other day in Asia which said that the 680 people who constitute the leading cabinet members, the administration, the Supreme Court, and the American Congress are worth collectively about $6.6Â billion. And the 680 most influential people in the governments of China are now worth $90Â billion. And so you have a very, very serious problem with what we call rent-seeking in China. And the change of their governance seemed to reflect a consolidation of power of the princelings at the expense of the reformers associated with the former Communist Youth League. And this bodes ill, I think, for a changing from American leadership to Chinese leadership, in the sense that the trust in legitimacy of governance is being questioned all over the planet, and China, as the rising, aspiring power, it's not clear that people will want to emulate that model or feel safe or trust in that model like they do, what you might say, [in] British law or American law historically.JAY: And there's another twist to talking about elites and the levels of corruption current-day in terms of the Libor scandal. We've done a few reports on this, how the London interest rates are set between banks, and that scandal broke publicly. But now also it turns out the same thing's going on in Europe. What's that about?JOHNSON: Well, I think the concentration of large power inside of a small number of financial institutions leads to all kinds of dealing that doesn't look anything like what you might say the farmer's market that's in the traditional economics model of economists. And when people get involved in price-setting and price-rigging [incompr.] Adam Smith in The Wealth of Nations spent a great deal of time talking about when businessmen can get together to conspire and they have monopoly power. And I think in this instance we're looking at another example of, behind the scenes, in those dark corners, how the financial markets aren't that [crosstalk]JAY: And what we're talking about here is what they're callingâisâthe Euribor, is it? And this is how European banks get together and set interest rates for interbanking loans in Europe. Is that it?JOHNSON: Libor, so-called London Interbank Offered Rate, is different than Euribor, which is the European Interbank Offered Rate, which is denominated in euro. But these daily auctions are set, and many, many contracts are tied to these rates. Regarding the Libor scandal, which has involved the chief executive of Barclays leaving and others, apparently there are now widespread lawsuits amongst people who held these contracts who felt that the cartel who organizedâfixed these rates too high and cost them a lot of money, and they want some clawback. But to me, whether you're talking about Chinese corruption, whether you're talking about an artificial cram-down of the American people through the fiscal cliff, or whether you're talking about Euribor, you're talking about things that are denigrating and diminishing trust in our society, its institutions and governance. And I don't think heightening the anxiety and the fears of people about the fairness of their institutions is doing anyone anywhere on the planet any good.JAY: So what can be done about it? I mean, isn't this part of the character? I mean, you know, in terms of where capitalism is these days, where parasitical finance seems to really beâdominate virtually everywhere, isn't this the natural outgrowth of that?JOHNSON: Well, it's a natural agenda for reform. It's a natural agenda for scrutiny all over the world that financial engineering, whether it relates to corporate governance, financial speculation, frontrunning, derivatives construction, where prices are akin to what my friend Tom Ferguson calls the Gosplan, Soviet-type pricing, meaning fictional pricing, fictional cash-capital ratios, all of these things are unfinished business, and my view is that people all over the planet know this, and it's increasing despondency. And when you don't fix things, you end up with social unrest. And that may be the next chapter that we have to visit in various places on the planet.JAY: Alright. Thanks for joining us, Rob.JOHNSON: My pleasure.JAY: And thank you for joining us on The Real News Network. 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