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Economist Heiner Flassbeck says the worst way to pursue public spending would be through the failed model of public-private partnerships

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SHARMINI PERIES, TRNN: It’s the Real News Network. I’m Sharmini Peries coming to you from Baltimore. Donald Trump has been calling for cutting taxes, lighter banking regulations along with infrastructure spending as his key policies boosting the US economy. Trump reiterated his plans to simplify the tax system as well as cut taxes and create jobs in a 60 minutes interview aired on Friday with Lesley Stahl. Let’s have a look: DONALD TRUMP: And there was a major tax bill lowering taxes in this country. We’re going to substantially simplify and lower the taxes— PERIES: Joining us now to talk about all of these economic consequences of a Donald Trump presidency is Heiner Flassbeck. Heiner Flassbeck is Director of Flassbeck-Economics, a consultancy for global macroeconomic questions and the editor of Macroscope an internet magazine. He’s also coauthor of the new book Against the Troika: Crisis and Austerity in the Eurozone which he cowrote with Costas Lapavitsas. Heiner so good to have you back with us. HEINER FLASSBECK: Thank you for inviting me. PERIES: Heiner, how can Trump implement tax cuts that he’s talking about in that clip and spend more money on infrastructure as he’s proposing to do. FLASSBECK: First of all let’s see. Tax cuts doesn’t mean very much as long as you don’t know who’s going to be the beneficiary of the tax cuts. As far as I see he’s planning tax cuts for companies that is really a bad idea and it’s clearly contradictory to the other idea of spending money for infrastructure. I will explain that in a minute. So tax cuts, as such doesn’t mean very much. He says we simply taxes. Every good conservative politician for the last hundred years says that we’re going to simplify taxes. Unfortunately, it’s never getting simpler because it’s not simple. It’s not simple to define what is a dollar earned or what is a euro earned. The tax rates as such are very simple. You can take a simplify the tax rates but the main question is what is a dollar earned and that is never simple in our complex society. The other thing that he’s planning to do is spending money. That is in principle a good idea depending a bit on what he’s going to spend but in principle, the US is in a situation where indeed there is a lot of money around. Under the capital markets you find as much money as you want under the capital markets. Investing in the infrastructure is principally a good idea. I could imagine that he will go for a very large investment spending program in the way the way more or less as Reagan did in the 80’s which will have some consequences but the first one will be a positive one. It will create jobs and it will create growth for the US economy for the next 5, 6, 7, maybe 10 years. PERIES: Heiner, when Trump is talking about building infrastructure, is he talking about using public funds to build things or is he talking about borrowing money to build things? And who does it benefit at the end of the day anyway? I mean immediate it has an impact in terms of jobs and so forth. But on the long run this type of thing usually benefits the corporations for the next hundred years like building roads and charging us toll or building airports that they benefit from at the end of the day. Of course, it has some public value. FLASSBECK: The point is rather simple. You can do it either way or the other way. It’s also talking about public-private partnership which is really a bad idea because it never works. They tried it in UK, they tried it in Europe and Germany. It never works. That would be the worst of all ideas to go for public investment but even if he does it in a proper way so that the government is spending money on infrastructure, let’s say airports or railways. What it is that can definitely have a positive effect on the economy. A long-term effect, different question but first of all, will create roads, it will create jobs and it will create incomes. So far, if it does that, consistently and at a large scale, then he can succeed in producing good. You see the point is in US economy as well as many other European economies we have a structure problem. What we call a structure problem which is that the company sector nowadays for the last 5-6 years is a net saver which creates a strange kind of market economy. It’s not market economy anymore because the original idea is that private households are saving and the companies are taking money and they’re investing the money. Now the companies are also net savers. For a huge closed economy like the United States that implies, really implies either you get the company sector back to a net data position but that obviously doesn’t work if you cut taxes for the companies that then it would maybe be better to increase taxes. But nobody has ever tried that. Nobody has ever tried a policy to bring their economy sector back into a data position. But if you don’t do that, then the only alternative is indeed that the government spend its money and takes it from the capital market. Interest rates are zero for government taking money from the capital market and doing useful things, there is no cost. There is no cost involved because governments never pay back their debt. It’s a stupid idea that governments would pay back their debt. They never do that and if they have zero interest rates the cost is zero. You can do a lot of good with a cost of zero, then you should do it. But you should obviously do other things like education where the government can spend a lot of money and environment protection in general and so on. So there is an enormous amount of things there that can be done and there’s no amount of money that can be used. PERIES: Alright, now traditionally the republican party has been against and is against sort of deficit in the public treasury. So does that mean that we’re going to be faced with cuts in other areas like social spending in order to create this money for public infrastructure? FLASSBECK: No I don’t think so. If I look back at the history of the republican party then they were also, they forgot all the principles in the very moment that that president took over as if every day so to say remember I mentioned already Ronald Reagan who spent enormous amounts of money out of debt from the capital market on the military. Think of George W. who spent enormous amounts on wars in the Middle East. It all came from the capital market. It was not money that was raised through taxation. It all came from the capital market. Now if you don’t do it for these dangerous things, but you spent the money for investment and as I said, we have this new situation where the government is forced to spend with money from the capital market. That is a very new situation in that whole history of capitalism so to say. In this situation it makes absolutely sense that the government takes this money and spends it. The critical question is for what? But I am absolutely sure that the republicans have no problem with spending money that they take from the capital market. That is just their rhetoric but in the end it will not stop them. PERIES: Alright and then there is also a question of the republicans who have been trying to push through various austerity measures in the United States. Cuts to social programs, such as healthcare. Also in terms of social security and so forth. Do you expect that the Trump government will be making cutbacks to these areas in order to create more money for other things that they’re interested in like military spending? FLASSBECK: I think that’s not a question of money. Money is not the main reason. If they do these cuts, it’s for ideological reasons because they want to cut the government back and they want a lead government, a small government, they want to keep the government out of the markets and so on that is purely ideological point. But for money they don’t need it. They said that the money is easily available and could be used. The restriction they will run into, that is for us, for Europe and for the rest of the world an interesting question. If they do it like Reagan they will run into certain restriction after time because with this additional growth in the United States the current account deficit will explode as it did in the middle of the 80’s and then comes the question, what about free trade? Are they keeping the republicans their traditional free trade ideas or is Trump overtaking that and say well let’s the others should not benefit from our boom and we stop them and we that talked the dollar down in the international market which is always a possibility for US government. Or we indeed erect protectionist barriers which could be for China and for Germany, really big problem because those are the biggest surplus countries. PERIES: And finally Heiner, what do you expect the global reaction to this kind of shift in American governance from an Obama presidency to a Trump presidency? FLASSBECK: Well I think in Europe they’re trying to find out what is going on. They will be surprised in my view how quick a government could do things that I described with money from the capital market. In Europe, they are absolutely shy to do that. They have a phobia against any kind of government debt although were are in the same situation then the United States with what I described as company sector being under saving site. So, it is absolutely necessary everywhere in the world to spend money. The big fight should be for what the money has spent. But I will not recommend anyone to fight the spending of money as such. As you said, climate change is extremely important. You can spend billions and trillions of dollars if you want but the problem is with Trump that he will sort of say the whole thing will be overlaid by a brewery extremely conservative ideology concerning the role of the government in general in healthcare and in social services, the role of the unions and so on. But from the purely macro picture, I think he will produce something that from the other side is called the New Deal. PERIES: And also this kind of shift to the right in terms of ideology is something that Europe is rather concerned about as well in terms of their own politics. What is your reaction to it? FLASSBECK: Well didn’t you say the right wing, as in Europe clapping their hands because they’re happy that they saw such a revolution so to say in the United States, they’re waiting for the next election. We will see. But the big danger is indeed that Europe breaks apart because nationalists are taking over, so do you say, copying some of the ideas they say. Some of the ideas are not wrong. Some of the ideas are right. To spend money is a reasonable idea at this very situation in particular in Europe much more than the United States. So it is as it has been in the last century. So, the grown people take the right ideas and they do it with the big big collateral damage on the side. PERIES: Alright Heiner, thank you so much for joining us today. FLASSBECK: You’re welcome. PERIES: And thank you for joining us on the Real News Network.


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Dr. Heiner Flassbeck graduated in April 1976 in economics from Saarland University, Germany,
concentrating on money and credit, business cycle theory and general philosophy of
science; obtained a Ph.D. in Economics from the Free University, Berlin, Germany in
July 1987. 2005 he was appointed honorary professor at the University of Hamburg.

Employment started at the German Council of Economic Experts, Wiesbaden
between 1976 and 1980, followed by the Federal Ministry of Economics, Bonn until
January 1986; chief macroeconomist in the German Institute for Economic Research
(DIW) in Berlin between 1988 and 1998, and State Secretary (Vice Minister) from
October 1998 to April 1999 at the Federal Ministry of Finance, Bonn, responsible for
international affairs, the EU and IMF.

Worked at UNCTAD since 2000; from 2003 to December 2012 he was Director
of the Division on Globalisation and Development Strategies. He was the principal
author of the team preparing UNCTAD's Trade and Development Report, with
specialization in macroeconomics, exchange rate policies, and international finance.
Since January 2013 he is Director of Flassbeck-Economics, a consultancy for global
macroeconomic questions ( Co-authored ACT NOW! The Global Manifesto for Economic Policy published in 2013 in Germany.