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Bill Black: President Obama offered up “reform” of medicare and social security, that is cuts at a time of deep recession

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay.

President Obama delivered his State of the Union speech Tuesday night in Washington. And, of course, if you watched American news media, all the discussion was about the bargain with the Republicans. Would he have the grand bargain? Well, some people have suggested what’s being talked about is a grand betrayal.

At any rate, here’s what President Obama had to say on the issue of, quote, reforming Medicare and Social Security.


BARACK OBAMA, U.S. PRESIDENT: Now, some in Congress have proposed preventing only the defense cuts by making even bigger cuts to things like education and job training, Medicare and Social Security benefits. That idea is even worse.

Yes, the biggest driver of our long-term debt is the rising cost of health care for an aging population. And those of us who care deeply about programs like Medicare must embrace the need for modest reforms—otherwise, our retirement programs will crowd out the investments we need for our children, and jeopardize the promise of a secure retirement for future generations.

Most Americans—Democrats, Republicans, and independents—understand that we can’t just cut our way to prosperity. They know that broad-based economic growth requires a balanced approach to deficit reduction, with spending cuts and revenue, and with everybody doing their fair share. On Medicare, I’m prepared to enact reforms that will achieve the same amount of health care savings by the beginning of the next decade as the reforms proposed by the bipartisan Simpson–Bowles Commission.


JAY: When I said some people suggested it might be more of a grand betrayal than a grand bargain, well, that some people is Bill Black. And Bill now joins us from Kansas City, Missouri.

Bill’s an associate professor of economics and law at the University of Missouri–Kansas City. And he’s also the author of the book The Best Way to Rob a Bank Is to Own One.

Thanks for joining us, Bill.


JAY: So, from what you heard, what do you think? Bargain? Betrayal? What do you make of it?

BLACK: Well, it’s both, right? He wants to call it a grand bargain, and it is the betrayal of the safety net. And he has said that he is open to making cuts in both Medicare and Social Security. As the clip you just ran indicates, it’s quite vague on Medicare what he has in mind, but he’s clearly opened the door there, and in Social Security as well. And so we have the great betrayal.

And more to the point, why are we doing any of these things? We are still with massive unemployment compared to where we should be at for a fully employed economy. So the last thing you want is austerity, and cutting Medicare and Medicaid and Social Security simply adds to the austerity. It’s the insanity that he said was insanity. Remember when he said that if the cuts were to occur, it would cost us in reduced growth and increased unemployment? To be more blunt, it would throw us back into recession.

But that’s exactly what Obama is promising. He’s saying we should be cutting spending, we should be cutting the safety net. And that makes no sense given what we ought to be doing, which is the opposite. We have too little stimulus, not too much.

JAY: Well, isn’t his argument that, one, he still wants to raise more taxes on the wealthy, although I thought he’d already kind of made his deal on that at the end of his term, last term? So I’m not sure what he plans for it this term. But his basic argument, if I understand it correctly, is he’s talking about very modest cuts or reforms now, increasingly as he supposes the economy comes back. Then you start having more and more reforms to Medicare and Social Security, because—I don’t know—because the deficit has to come down, he says. So what’s wrong with that?

BLACK: Okay. So the first thing is, he said, well, economists tell us we need these $2 trillion in cuts. That’s simply not true. I’m sure there are some economists that say that, but most economists say exactly the opposite, that this kind of austerity is precisely what threw the Eurozone back into a gratuitous recession, so it’s the last thing we want to do.

Second, his rationale, as you’ve just shown, was that the reason that the budget is out of control, allegedly, is because we have an ageing population. But that’s not true. Our population is actually younger than many European nations, but we have—we spend roughly twice as much on health care as does the typical European advanced nation. And, again, that has nothing to do with the fact that we’re older, because we’re actually younger than those European nations, and has everything to do with trying to do this provision through private insurance companies, which is absolutely insane. And if you stop it, you can not only slow the increase; you could—by getting down to European levels of costs, you could dramatically reduce the amount of money we spend on health care costs.

And by the way, health budget isn’t paid just by the public sector; it’s primarily the private sector in America. So if he’s postulating that we’re going to have these incredible increases in health care costs and they’re going to continue for 30 years, forget about Medicare and Medicaid. Every business in America will collapse that has health insurance under those kinds of cost increases. So, again, what we really need is a more efficient way of doing that, which is to say, we need public sector involved more, not less, in providing health care.

JAY: But that thread runs throughout all of the speech and all of the policy issues. I mean, he was wedded to private-sector solution, meaning private insurance companies, on health care. He gave up on the public option rather easily. In this speech, he talks about infrastructure projects, but he doesn’t say—he won’t add a dime to the deficit. So where’s the money coming from? Essentially, he’s talking about some kind of public private sector partnership. What does that mean? Privatization? Toll roads? I don’t know. When it comes to climate change, it’s all about market-based solutions, which is back to, what, cap and trade and financialization of the issue. On every point, he won’t look at a strengthened public sector.

BLACK: Well, it’s actually more incoherent than that, because he frequently talks about public sector needing job programs and such, but he says we need a smaller public sector. Why does he say that? From everything, every point he made requires the conclusion that we need a larger public sector or the conclusion that we need massive cuts in military spending and a retasking for military spending. But you’ll note that that is not what he said.

And in the other area, of course, that I talk about a great deal, not a word about accountability for the banksters who caused the crisis. Not a single word. They are going to get off scot-free. That policy is going to continue. Indeed, if you listen carefully, he attacked the regulators, the banking regulators, said that there are too many banking regulations and they are—he claimed they were preventing the recovery of the nation by preventing sound lending, which, again, is ludicrous. It is the Republican meme on all of this, and, you know, the Ruben—which is essentially a Republican lens on all of these issues as well.

So it makes no sense. He tells us at one point that austerity is a disaster, we must avoid it, and then he proposes massive austerity. He tells us that the problem is that our nation is older. In fact, it’s younger than Europe. He does nothing to actually slow the rise in health care costs.

And I particularly loved—now, you know, I’m a university professor, but his point on education. Now, first, University of Missouri–Kansas City, very good under this. Lots of bang for the buck, his theory. But listen to what he said. He said we can’t keep subsidizing with the government when education, higher education costs keep going up. But, of course, he’s reversed the situation. Tuition is going up precisely because the public subsidies at the state levels have largely disappeared. University of Kansas told my spouse, who is a faculty member as well, that they now get 5 percent of their total budget from the state of Kansas.

So what you’ve seen is the massive withdrawal of state funding for higher education. So of course tuition goes up, and Obama says, look, look, we can’t keep subsidizing this thing. And, of course, under his own logic, yes, it’s exactly education that needs subsidizing, because that, he says, is the future of America.

Now, he also says we should be asking ourselves every day three questions. I’ve got a question we should be asking instead, and that is: why don’t we give a job to every American who wants to work and is able to work? ‘Cause we could do that next week. Why haven’t we renewed the reduction in the withholding on Social Security? Right? That was the huge—that’s our most regressive tax in America, and that was the most beneficial in terms of stimulus, and the administration let it die without a fight and such.

So reverse everything he said. He says that he wants to deal with the fact that in America productivity has increased massively but wages haven’t. Well, ask yourself why that could be true. That can only be true if the corporate situation now crushes unions and makes sure that all of the gains from productivity go to business and the shareholders instead of employees. That tells you that the so-called free market system is in no way free and isn’t working for workers and needs fundamental change. But Obama has none of that.

Fundamentally, we don’t have remotely enough demand. That’s what a recession is all about. We are still weakly coming out of a recession, with our European trading partners going back into recession. And so we need, if we want to employ people, far more demand.

Obama is going to reduce demand, and then claim if we have some training programs, that will reverse everything. That simply doesn’t work economically. You can have all the training programs you want. If you don’t have sufficient demand to hire the workers and you refuse to allow the government as the employer of last resort to hire the workers, you have millions of people unable to work.

And that is terrible socially, in terms of what it does to people and what it does to families. It has forced record numbers of people onto food stamps. We have an enormous crisis. And yes, I agree, the middle class has been shafted for decades, but people below the middle class have been shafted for decades as well, and their plight is vastly worse than the plight [inaud.]

JAY: Right. Thanks for joining us, Bill.

BLACK: Thank you.

JAY: And thank you for joining us on The Real News Network.


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William K. Black, author of The Best Way to Rob a Bank is to Own One, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.

Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.

Black developed the concept of "control fraud" frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.