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PAUL JAY: Welcome to The Real News Network. I’m Paul Jay in Washington. And in Washington, the Progressive Congressional Caucus issued an alternative vision of what the budget should look like. Now joining us to talk about that budget and perhaps how realistic it is and is it missing anything is Bob Pollin. Bob’s the codirector of the PERI institute in Amherst, Massachusetts. Thanks for joining us. So let me just–we’ll just go through this progressive version of what the budget should look like, and you can tell us how realistic. It’s pretty general, but let us know if you think it’s realistic. Here’s point number one. Eliminate the deficit by 2021 without devastating Medicare, Medicaid, and social security. The CPC (Congressional Progressive Caucus) budget targets the true drivers of deficits: the Bush tax cuts, the wars overseas, and the causes and effects of the recent recession. By implementing a fair tax code, by building a resilient American economy, and by bringing our troops home achieves a budget surplus of over $30 billion by 2021. Alright. So what do you make of that? It’s kind of general, but–.

ROBERT POLLIN: I like the spirit of it. I think, you know, it is hitting on some key points. Number one, one of the big drivers, as they say, of our budget deficits, in addition to the recession, the long–now we’re going to shift and talk about the long-term deficit–is obviously the defense budget, the wars–Afghanistan, Iraq, now Libya. When Clinton left office, the military spending was 3 percent of GDP. It’s now 5 percent of GDP. If we say that the long-term problem of the deficit is that the long-term deficit by the Congressional Budget Office–they’re projecting as about 5 percent of GDP, and historically it’s been about 2 percent. So really what we’re talking about is lowering the long-term deficit from 5 to 2, 2.5, 3 percent. That’s all we’re talking about. Now, the military budget itself has gone from 3 percent under Clinton in 2000 to 5 percent, more or less, today, 4.8 percent. Okay. So if all we were to do was to bring the military budget back down to the Clinton-era level, that alone would essentially solve the long-term deficit problem. That alone. Now, even if you [crosstalk]

JAY: Going back to where it was at the beginning of the Clinton presidency.

POLLIN: No, at the end of the Clinton presidency.

JAY: Where was it at the beginning of the Clinton presidency?

POLLIN: I’m not sure, exactly, but it was in that range.

JAY: Around two.

POLLIN: Three percent of GDP. I think they got it down, actually, so it was probably 3.5 and they got it down to 3. In the year 2000, it was 3 percent of GDP. And now it’s 4.8 percent. So we have to put some of this in perspective. If we say the problem, again, the long-term problem, is that we project out a deficit at 5 percent of GDP, and we need to get it in the range of 2 to 3 percent, at least you could pull half of that out of the military budget, and you’d still be way beyond where the military budget was at the end of the Clinton administration.

JAY: And still be the country that spends more on weapons [crosstalk]

POLLIN: Than all the other countries of the world, yes.

JAY: –rest of the world put together, yeah.

POLLIN: So that gives some perspective, at least. And people say, well, you can’t do that, because we’d lose jobs if we cut the military. But that’s also false, because the military per dollar of expenditure creates far fewer jobs than, for example, putting the money in education or putting the money in clean energy. We create more jobs. If we moved it out of the public military and just incentivized private green investors, we would create about 50 percent more jobs.

JAY: Or public.

POLLIN: Yes, or public. We wouldn’t cut the government spending that way.

JAY: Right.

POLLIN: Now, so another premise that they say, well, okay, we have to deal–.

JAY: Just on that point, but you–if I understand your argument, every dollar of public spending on green has more effect than any public dollar spent on military.

POLLIN: Spending on green, public or private, create 50 percent more jobs per dollar of expenditure than military, public or private.

JAY: Okay. Let’s go to number two. I’m sure there’s other parts of number one you could go after, but let’s go on to number two: put America back to work and restore America’s competitiveness. The Congressional Progressive Caucus budget rebuilds our roads and bridges, ensuring that those who use it help pay for it. It rebuilds our education system by training more and better teachers, restoring schools, helping each student graduate, and support community colleges. Now, there has been an argument, some people have said, that more education in itself doesn’t create more jobs, except the hiring of new teachers; that you can wind up with a lot of educated people with no jobs.

POLLIN: Yeah. That’s why we have to have, number one, training people, educating them. But then we also have to worry about the demand, the job creation. We have to have job creation in the US economy. But it is also true the educational sector is a great source of job creation, because most of the spending is on people, on hiring people, and you can do it quickly.

JAY: Now, the Chinese model, if I understand it correctly–and we were at an economic conference recently. It must have been every fourth sentence was something positive about the Chinese model. But the big story seems to be that the state facilitated the growth of all the economy because they focused on infrastructure and they just put all their dollars, more or less, in making sure there was an infrastructure for businesses to grow. You hear economists talking about it. It seems so obvious that the infrastructure in the United States is deteriorating, at best, and from all kinds of sections of the elite, very little real seriousness about doing anything about it. I don’t get–I actually don’t get that. You’d think even the right would see the need for more infrastructure.

POLLIN: Well, they may see the need, but they also see the need for lowering taxes for themselves, and that seems to be a bigger need, so that the infrastructure investment, the argument against it, such as it is, is that it takes away money from the private investment. Now, that isn’t really true. And I’ve done a little research on this, along with my colleagues at UMass. You know, the argument is: infrastructure takes away, that there’s a fixed pool of money, and either the private sector gets it or the public sector gets it. So every dollar that we go for public infrastructure is money lost to the real creative force in the economy, which is private investment. Now, the Chinese model belies that, and every other model, including the United States’, which is, if you have a decent public sector and you have a good public infrastructure, that enhances the opportunities for the private sector. The most obvious case, which is overwhelming, is the internet. The internet was created by public investment–40 years of investment in the military before it went public. And then they handed it over to the Bill Gateses of the world.

JAY: Which a lot of people question if that’s the right route to deal with public development. But anyway.

POLLIN: Fair enough.

JAY: But it did give rise to some growth in that sector. Yeah.

POLLIN: Fair enough. But the point is that without the massive public investments over a generation and a half–and not only in the internet; in all of the things that we take for granted: aviation, the computer, and of course the highway system. All of these things which are central to the economic competitiveness are things that were created by public investment. So we have to keep building the public investment, and that–the term that is in the economic literature, that crowds in, that creates more opportunity for the private sector. So every time we cut public infrastructure, not only is it bad for jobs, it’s bad for the private economy.

JAY: One of the libertarian critiques of this, which is interesting, is that the biggest pools of capital or the biggest monopolies, ’cause they have so much influence over government that when you have public investment to do these things, it’s done in a way that strengthens these big monopolies, and, in fact, small businesses often get pushed out. And that’s also partly their argument against regulation. Monopolies can afford the regulations and small business can’t. Like, how do you make sure that this public investment spurring the private sector benefits a wider sector of the economy versus just the biggest businesses?

POLLIN: Well, I mean, I think there’s–.

JAY: Or can you? Maybe you can’t.

POLLIN: There’s a point. You have big government. And who’s going to get to influence that? Who’s going to get the contracts? You know, you can try to do it fairly, but let’s face it, you know, the big firms are going to get the contracts. They’re going to have the inside deals. That’s–yes, that’s going to happen. At the same time, if you have a high-employment economy, a high-productivity economy, and money is spilling out through growth and innovation, that creates all kinds of opportunities for small businesses, precisely because people have more money in their pockets. And if we talk about creating, you know, cheap credit through government explicitly for small business and small business alone, there you have it. That’s new opportunity for small business.

JAY: Of course, you could do a policy which is a little further than where the United States is politically, but it’s what I think: if the public pays for it, the public should own it. Anyway.

POLLIN: Yup. No. And then the–you know, there are good models. Certainly in the area of green energy there are models of, you know, public investment, public owns it. Public owns the wind farms. How about that? Let’s go for that. I mean, if we’re going to subsidize it, why not have our own wind farms and run them and get the energy into the grid and get it out there? And, look, the Chinese are going to do it. I mean, the Chinese are going to build a renewable energy economy, and we are going to be left in the dust, unless we get serious about [incompr.]

JAY: Okay. Number three from the Congressional Progressive Caucus budget is end the Bush tax cuts and estate tax breaks and create fair tax brackets for millionaires and billionaires. I’m particularly interested in both of these, but I’m particularly interested in the estate tax, because it’s gone from, in 2001, 55 percent after $650,000 was exempted, now down to 35 percent after a $5 million exemption. Most of the states that could have had a state-imposed estate tax have actually let it disappear completely, including Wisconsin, which–we did a model here where we looked at just the nine billionaires that live in Wisconsin. If you just took their estate tax back to what it was in 1991, just add 20 percent to it, don’t allow any deductions (like, you can’t give it to foundations), you actually pay off the whole debt of Wisconsin, just with those nine estates.

POLLIN: Right.

JAY: So, anyway, what do you make of this?

POLLIN: Well, I mean, yes, if we raise taxes on rich people, or even affluent people, you know, that has been lost over the last generation. The estate tax, the highest marginal tax rates [incompr.] highest marginal tax rates in the 1950s were 90 percent.

JAY: And those are supposed to be the good ol’ days.

POLLIN: Yeah, and the economy was functioning far better. Now, the one big one that they’ve–missing, which I’ve argued for a lot, is taxing Wall Street transactions. Taxing Wall Street, even a small tax, 0.5 percent per sale–and you can divide it among the seller and the buyer for stocks, and then you can keep it going lower for bonds and derivatives–would itself generate somewhere in the range of, I mean, conservatively, $200 billion a year. So that also is more than 1 percent of GDP. So that–if we cut the military half from 5 percent to 4 percent of GDP and [crosstalk]

JAY: Wall Street tax.

POLLIN: –that also would eliminate the long-term deficit problem right there.

JAY: So that really goes back to something President Obama said, which I think is really true, except that he doesn’t seem to follow his own logic. There’s one line in his speech. Here’s President Obama speaking about the Republican budget and what he thinks the real objective is.


BARACK OBAMA: This vision is less about reducing the deficit than it is about changing the basic social compact in America.


JAY: So what you’re proposing seems rather simple and straightforward. They’re not that big of cuts in the military, a little bit on the tax side, a Wall Street tax.

POLLIN: Right.

JAY: Which means it’s relatively simple to get there if you actually–if that’s really what it’s about.

POLLIN: It’s not a big deal.

JAY: But if President Obama really believes that’s not what it’s about, then why does he seem to be buying into the underlying logic that it is what it’s about?

POLLIN: Well, we’re sitting in Washington. That’s the logic of Wall Street and the Washington consensus, K Street lobbyists. I mean, I agree with this. He says, you know, we have to change the social compact. I agree. We can’t let Wall Street dominate everything that happens in the economy. Yes, they should be taxed modestly. It’s a sales tax. Think of it as a sales tax. If we go to the store and we buy things, we pay a sales tax. On transactions on Wall Street, they don’t pay any tax.

JAY: Well, this is part of the problem of the whole discourse here now is that he’s saying they want to change the social compact as if the existing social compact is okay. But that’s what gave us the crisis.

POLLIN: That’s right.

JAY: It’s just they’re opening up space for him to say that because they’ve so pushed–they being the Republicans–so pushed the discourse to the right that it sounds like keeping the status quo is a good thing.

POLLIN: No, keeping the status quo won’t work. And, in fact, another issue, which of course seems unrelated but is not, is regulating Wall Street, because if we keep running a casino financial system, we’ll have another crisis, and the deficit will blow up again, and then we’ll say, oh, the problem again is that we’re paying teachers too much, and we will have forgotten that what really is driving the economy is the Wall Street casino. So there is a very close interrelationship between having serious regulations on Wall Street and running an economy with a decent social compact. And a link between those two premises is taxing Wall Street, because the tax on Wall Street doesn’t just raise revenue. It does slow down the casino, because they have to pay something. And you can modulate that tax. If you want to slow down the casino more, you raise the tax more; if you want to raise more revenue, you lower the tax. So it’s a very important tool. And, you know, the European Parliament just endorsed it, just two weeks ago. This could be a major feature of a new social compact, which would be a decent economy.

JAY: Okay. Well, keep talking, ’cause–.

POLLIN: Keep talking.

JAY: Keep talking louder, ’cause we’re not hearing it from this administration.

POLLIN: Yeah. Okay. Well, I mean, they know it. They know it. And, by the way, I was in a discussion at the IMF last fall. The IMF itself, the International Monetary Fund, is not hostile to the idea of some kind of tax on financial markets.

JAY: Well, this is where you get money in politics in America. Thanks for joining us.

POLLIN: Okay. Thank you.

JAY: And thank you for joining us on The Real News. And you might want to mention some of these proposals to the people you might be voting for in the future. Thanks for joining us. And don’t forget the donate button. If you don’t do that, we can’t do this.

End of Transcript

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Robert Pollin

Robert Pollin is Professor of Economics at the University of Massachusetts in Amherst. He is the founding co-Director of the Political Economy Research Institute (PERI). His research centers on macroeconomics, conditions for low-wage workers in the US and globally, the analysis of financial markets, and the economics of building a clean-energy economy in the US. His latest book is Back to Full Employment. Other books include: A Measure of Fairness: the Economics of Living Wages and Minimum Wages in the United States, and Contours of Descent: US Economic Fractures and the Landscape of Global Austerity.