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Bill Black: Most media treats austerity as a necessary solution, not a means to enforce the interests of finance

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

Bill Black is a white-collar criminologist. He was on the committee that investigated banking fraud in the Savings and Loan crisis, and he’s been an often critic of the media and how it covers the current financial and economic crisis. He recently wrote a piece about The New York Times journalists and how they don’t even read some of their own financial guys, like Krugman. And he now joins us to talk about his critique of The New York Times and the media. Thanks for joining us. Bill joins us from D.C., where he’s now visiting. Bill, I think I did the whole introduction, except to say that you’re also the author of the book The Best Way to Rob a Bank Is to Own One. Thanks for joining us again.


JAY: So talk a bit about your piece about The New York Times. And what was your point?

BLACK: Well, there were a series of articles in The New York Times covering the recent elections in Europe, particularly in France and Greece, but also mentioning Germany and England. And the common denominator in each of these elections was that the people rose up against the parties imposing Berlin’s austerity program, which has forced Europe back into recession and forced the periphery of Europe back into depression. And they rejected this soundly in these votes.

But the amazing thing was that The New York Times reporters were treating this like, well, these people must be financially illiterate, because everybody knows austerity is the only thing that can be done, and austerity must be done, and it’s good and such. So the more they destroy the economy, the more the New York Times reporters seem to think that destroying the economy is the objective.

And Paul Krugman has been very good. He is, after all, Nobel laureate in economics. He writes a regular column for The New York Times, and for months he’s been explaining how insane the austerity program is. But apparently the New York Times reporters don’t read their own Nobel prize winning economists.

JAY: Well, the same thing was happening here during the high tide of the super committee and all the focus on the American debt and deficit. The same thing was happening. The media was just presupposing that you need to have these kinds of cuts and they’re good for the economy, and this kind of notion that if you have austerity, it frees up the society for growth. I mean, that’s the argument, and I guess most journalists seem to buy into that. So what’s wrong with that?

BLACK: Well, it’s the opposite is true. If you’re in a recession, the problem is you don’t have sufficient demand to keep people employed. And so that typically means private-sector demand is seriously inadequate. Austerity means that you reduce public-sector demand at the same time that private-sector demand is already inadequate. Well, if you do that, then you have really inadequate demand and you have really severe unemployment, which is why unemployment has shot upward throughout Europe, why it’s over 20 percent in a number of the nations of the periphery, why youth unemployment is over 50 percent, why immigration is a leading strategy of European kids when they get their college degree. And it’s a policy that is tearing the European Union apart politically, and socially as well.

You know, this is the equivalent up bleeding a patient, and then, of course, they don’t get better, because you bled them, so you bleed them some more, and then you yell at them for—you know, what’s wrong with you? Why aren’t you recovering? And you bleed them some more. And, you know, pretty soon they’re pretty near death’s door and you’re—can’t understand why they’re not praising you and instead they’re voting you out of office.

JAY: But isn’t there some truth to the austerity argument? And by that I mean this, is that during these boom times, so much capacity is built, you know, whether it’s a real estate boom and so many buildings are being built, both residential and office buildings, or if it’s in the tech sector, this enormous capacity develops during a tech bubble, like, every bubble gives rise to a capacity which doesn’t have a heck of a lot to do with the level of any real sustained demand. So then if you want growth, don’t you have to then destroy this excess capacity that was created? And is that kind of not in a sense what the austerity plan is about is they do want to destroy excess capacity to then create again some room for some more bubbles? And I’m not saying this is a good system, but it’s not like it’s madness. There’s a logic to it, isn’t there?

BLACK: Well, I don’t know. That sounds pretty mad to me. But, no, I haven’t heard them attempt to explain it in that fashion. They certainly have said the equivalent of, you know, to change metaphors to Vietnam, you know, it became necessary to destroy Greece in order to save it. So their line is there simply is no alternative. It’s TINA. And they say it time after time after time: you must go down this path, even though this path is disastrous.

And indeed both Merkel, the chancellor of Germany, and Draghi, the head of the European Central Bank, have said that austerity will make unemployment worse. Indeed, Draghi has argued that that’s the good thing, because it’s only when Europeans are in—suffering enough that they will be willing to destroy the European system. And so they—in particular they want—and they’re open about it—they want to basically destroy the power of the unions so that they can get working class wages to fall sharply.

And the theory on that is, well, if we have working class wages fall sharply, then we can export a lot to the rest of the world, and then we can use that money that comes in to pay the sovereign debts. And the problem there, of course, is we can’t all be net exporters. Your export is my import. And the fact that Germany is a major net exporter does not mean, hey, the rest of Europe can just follow it. It’s quite the opposite. If Germany is a big net exporter, then it’s much harder for the rest of Europe to become net exporters. And, of course, the world can’t become net exporters.

So all this means that they’ve set in motion a competition to see which nation in Europe can slash working-class wages the most. So the Irish are slashing their wages so they can outcompete the Portuguese. Portuguese are doing this so they can outcompete the Spanish, who are doing the same so they can outOcompete the Italians, who are doing it so they can outcompete the Turks. We call this the road to Bangladesh strategy, because that’s basically where the dynamic leaves off.

But there’s another really weird paradox in all of this, because after all, who was it that argued that there was—you know, you could use a reserve army of the unemployed to force wages down to basically just, you know, Third World-minus levels? Oh, that would have been Marx. Right? So we have the Germans, in the name of ultraconservative economics, adopt Marxian concept of a parody of capitalism.

JAY: Well, he wasn’t advocating it; he was just analyzing it.

BLACK: Exactly. But they’ve actually said, yes, that’s what we want capitalism to be, what Marx says. We want to create a reserve army of the unemployed so large that we can crush the unions and reduce working-class wages.

JAY: So how different is this than in the United States?

BLACK: Well, it’s very different than in the United States, but it’s not clear that it’s going to be different enough. In other words, the United States has more powerful automatic stabilizers, countercyclical fiscal policies than does Europe, and we had more stimulus than Europe. And in combination, while that stimulus is deeply inadequate, it’s been sufficient to have a weak recovery, whereas, as I said, German—the Berlin consensus has forced the entire eurozone back into recession.

Now, people have been correctly noting in the United States a difference between what’s happening in employment in the private sector and in the public sector. We’ve had continuing moderate growth in private sector [employment], but because there’s been a holocaust, especially in state and local government, in terms of employment, we have unemployment in the public sector being very bad. And the public sector disproportionately has female and minority workers, so disproportionately women and minorities are hurt by this.

Now, remarkably, Republicans are trying to take advantage of this and say, see, the people losing their jobs are women. But that’s really bad history, and for reasons that pass all understanding, the Obama administration is letting them get away with it. People need to remember that when the stimulus bill was first proposed, it had had a really brilliant idea, and a really brilliant bipartisan idea, because it was a Republican idea, and that was revenue sharing. Everybody knew that we should be running a substantial stimulus package to get any kind of economic recovery, and everybody knew that the state and local governments, unlike the federal government, cannot run any meaningful deficits. And that meant there was going to be a tremendous loss of jobs, and therefore demand, in the states. And the way to fix it was to have revenue sharing, which is a good Republican idea. And Obama proposed it. And again for reasons that pass all understanding, the Republicans and the conservative Democrats, called the blue dogs, decided to kill that Republican idea, revenue sharing. And the result has been a gratuitous financial crisis in state and local governments across this nation.

JAY: And in terms of the war on wages in the United States, it’s at the state level that they’re—and at the municipal level where they—when they go after public-sector jobs, they’re essentially going after the most unionized sector of the economy. And if you want to generally lower wages in the society, that’s the place to hit, ’cause if you can weaken unions in the public sector, you’re going to wind up weakening wage rates across the board.

BLACK: Well, it’s the only thing left that has strong unions in many parts of the nation. And, of course, it’s come with the demonization campaign is well. You know, those terrible teachers, you know, teaching your third-grade class, because while they don’t make as much money, they have better pensions and such. They only focus on the pension. And then you say, see, see, they’re greedy SOBs and such and you have to slash their wages. So, as you say, it’s the pretext for the attack on unions, and they’d rather attack the union than reduce the crisis and employ people. It’s really cynical, nasty politics.

But people have forgotten that the Obama administration actually had a really good idea that would have prevented this disaster. I don’t understand why the administration doesn’t yell about this every day and enlist the state and local governments as allies.

JAY: This is the idea of more revenue sharing with the states and municipal governments.

BLACK: Yeah. I’d be proposing it every week if I were a Democratic president.

JAY: Alright. Well, thanks very much 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

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.