Jeff Faux: Obama attitude towards debt and austerity policies accepts the same underlying assumptions as the Republicans
PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I’m Paul Jay in Baltimore. And we’re continuing our interview with Jeff Faux, who now joins us from Washington, D.C.
Jeff is the founder and now distinguished fellow of the Economic Policy Institute in Washington. His latest book is The Servant Economy: Where America’s Elite Is Sending the Middle Class.
Thanks for joining us again, Jeff.
JEFF FAUX, FOUNDER AND DISTINGUISHED FELLOW, ECONOMIC POLICY INSTITUTE: It’s great to be here.
JAY: So in part one we talked about–we asked the question, if the Republicans could pass all the legislation they want to pass, the Ryan budget and such, would that lead to growth. It might surprise you our guest said that it would not. And if you haven’t watched part one, you’ll probably want to go back and watch it before you continue. But now we’re going to ask the second question.
So if President Obama could pass all the legislation he wanted to–in other words, he controlled both houses of Congress–would that lead to growth and less inequality? Jeff?
FAUX: Well, if you–here’s where it gets interesting. And the Democrats have their own contradictions. If you ask yourself, well, what does Obama say he wants in his second term, his principal economic objective is to make a deal with the Republicans. Now, for Obama that means not quite as much austerity as the Republicans want. But he’s already passed the line where he’s essentially agreed that over the next ten years, the government contribution to growth is going to slow down, more or less.
The other priority that he’s got, immigration, immigration’s a good thing, but it’s not going to have much of an effect on economic growth here over the next ten years.
He says that he is for public spending on infrastructure and education and research and development, and that certainly is a good thing. The problem is that it is completely undermined by his austerity budget. And, you know, the discretionary–domestic discretionary part of the budget–I don’t want to get too much in the weeds here, but that’s the place where infrastructure and education and research and development come from. And his own proposal is to cut that as a percentage of the national budget by one half.
So while you get the impression that the Republicans–the Democrats know more about what the problem is, what they are promising is not enough to really do much about economic growth. Again, if nobody spends, nobody works. Foreigners aren’t buying our goods, consumers aren’t spending, and business is not investing because consumers aren’t spending. The government is the only one that’s left. Whether you like it or whether you don’t like it, you know, that’s the economic reality, so that the Democrats seem to understand that, the first year of the Obama administration, with their stimulus. And the numbers that we have on growth now show that that stimulus, the effect of that stimulus is pretty well gone.
So we have a Republican Party that just completely refuses to recognize how the economy works. We’ve got a Democratic Party that seems to recognize how the economy works, but really in the end doesn’t want to do anything about it.
And, you know, we talked about the Republican motivation, the business class motivation. You ask yourself: you know, what is going on with the Democrats that they think they can get away with, you know, another three years, maybe more, of this kind of anemic growth, which is declining–with declining wages, declining incomes, declining opportunities for young people? And if you look carefully at what they say, I think there are several things.
One is they think that they’re going to be okay, just like the bankers on the other side think they’re going to be okay. They’re going to be okay because the Democratic Party’s constituency is growing faster than the Republican Party’s, so that you have minorities, single women, immigrant groups that are growing faster than the white male base of the Republican Party. So the Democrats think that no matter what, they’re going to be doing okay in the future.
They also think, number two, that the Republicans will continue to scare the electorate. And so, I mean, that–if you’re sitting in the White House now and talking–having this conversation with Paul and Jeff, one of the things you might say is, look, we got reelected when the unemployment rate averaged 9 percent. So doesn’t that mean we can get away with a weak recovery? Now, get away with it means that the Democrats don’t have to discomfort the business people who are financing them.
JAY: I mean, that’s the point, too, is the Democratic Party represents, really, just another section of the business class. It’s not like it represents some other class.
FAUX: That’s right. And so you’ve got this situation in which both Democrats and the Republicans in some sense are doing okay. You know, if the electorate could reelect Obama with a 9 percent average unemployment rate, well, maybe they can elect his Democratic successor with an 8 percent unemployment rate.
JAY: I mean, it becomes good cop, bad cop, doesn’t it? But they really don’t have that fundamentally different interests, especially when you zero in on what we said in the first part of this interview, which is the only real change in demand that will be long-lasting and meaningful is if wages go up, which requires more unionization, and it requires a battle.
FAUX: That’s right. And while, you know, the Democrats give lip service to all that, it’s clear by what they have accepted, what they’re willing to do, that they’re not willing to fight for it.
And the first–you know, after the president got reelected, the liberal press was full of this, oh, it’s a new Obama, he’s, you know, out there, going to fight for us, he learned his lesson. And the first test of this was the organization of the Senate and the issue of the filibuster.
And, you know, there was a lot of talk in late November and December how the Democrats were going to get rid of this and they were going to allow the Senate to vote on important bills, you know, and pass them with 51 percent. Well, they opened the Senate, they reorganized it, and nothing happened. If you were president of the United States and you had gone through the last four years and you were seriously interested in changing the direction of this economy, you would have put all your political chits on changing that Senate rule. And they didn’t.
So I think that for the average American looking at this, you know, it’s–we have a two-party system, and that’s too bad, because both of them seem to be, you know, if not happy, at least content with the way things are going.
And, of course, the last thing that the Democrats do is promise that, you know, things will get better. If you look at the economic reports of the president and the projections of the White House over the last four years, every year they’ve promised a recovery in four years. You know, in 2009 they promised a recovery in 2013. So now we’re in 2013 and they’ve promised that by 2017 we will have 5 percent unemployment. Well, the reality is that if we take the rate of increase in employment in the labor market that we’ve had so far, since 2009, it will be 2022 before we get to 5 percent, and that’s assuming no more recession, no collapse of the new financial bubble. It assumes that Europe recovers.
So we’re facing a pretty grim three years, and I would say ten years. And the answer seems to be, wait, chill out, it’s going to get okay. And, Paul, it reminds me of the neighborhood where I grew up. There was a tavern that for 20 years had a sign in the window. It said, free beer tomorrow.
JAY: Or from the Popeye commercial: I’ll gladly pay you Tuesday for a hamburger today.
But if I were, again, a billionaire and I was looking after my own billions of dollars, I think I might say to the Keynesians in the Democratic Party or outside the Democratic Party, your Keynesianism is not going to save this situation, you’re not going to create this kind of demand in a long-term way, because if it’s just government spending, there is some point where you can’t keep doing it or it will be inflationary. I know people are saying now, oh, look at all the money the Fed’s throwing into the banks, it’s not inflationary. But isn’t it not inflationary because it’s not getting into the economy, they’re not lending it to anybody, it’s sitting just making the banks’ books look better and propping up the image of the financial system? But all the money they’re creating, if it doesn’t actually get into people’s hands to spend, of course it won’t be inflationary. But if you get government spending in a way that actually is meaningful to demand and puts pressure on the labor market so wages go up, then it seems to me that probably would be inflationary, and me sitting on my billions is saying, I don’t want you to do anything that makes my billions worth less than they are now, and you ain’t–as I said in part one–you ain’t really willing to let wages go up anyway.
FAUX: Right. Well, first on the question of inflation, the most–if you’re really worried about inflation, pumping money into the economy in a way that does not produce more goods in the long run is going to create inflation, which is defined as more money chasing fewer goods.
So the answer to, well, you can’t go forever on government spending is of course you can’t go forever on government spending. Franklin Roosevelt had this metaphor of priming the pump. And that’s the whole point here. That is, you spend the money to get confidence up, to get money in people’s pockets, and when they go out to spend, they’re spending it on things that can then motivate businesses to invest. I mean, it is a simple idea, and I think, you know, 99 percent of the American population over 12 years, oh, has no problem getting it. But so far they have not been willing to explain that.
And so you get all these crazy stories about how we’re ruining the future when–you know, by government spending at the same time people are talking about cutting Social Security, cutting Medicare, so those 30- and 40-year-olds who retire, you know, when they get to that age are going to have less and less of a retirement. We’re using monetary policy alone. And what’s that–what that’s doing right now is, of course, as we all know, driving interest rates down. That’s good in a sense if there was demand for more goods and services, but, you know, it’s bad for people who are trying to retire and expecting that they would get, you know, 5 percent on their little savings, and now they’re getting 0.5 percent.
JAY: But the thing with the priming the pump, though, in earlier periods you didn’t have this kind of globalization where American workers could be played against workers all around the world, ’cause now you can produce virtually at American levels of production quality, maybe not quite productivity, but it’s getting close. You know, in Latin America and Asia you can threaten American workers’ wages in a way you couldn’t before. There’s a–the unions were never so weak as they are now, as you pointed out. Militancy amongst the working class has never been so weak and workers so disarmed, you could say. And we’ve seen periods where–you know, both during the Clinton period and even during the Bush period, where there was this credit bubble. You know, even though, you know, you could say it still primed the pump in a way, the credit bubble, you still–wages were kind of stagnant. You know. And you know the argument better than I do is what–since the early ’70s there hasn’t been a serious rise in wages. So, I mean, what I’m saying is if you don’t couple the stimulus with changes in labor legislation so that unions can actually organize and in a sustainable way fight and create higher wages, then the stimulus alone isn’t going to do it.
FAUX: That’s right. Well, you know, Keynes understood that, and he said, you know, this works to the extent that you can minimize the inflow and outflow of goods. He was not against trading with other countries. As a matter of fact, the World Trade Organization was his idea. But he warned countries about having too much of their economy in exports and imports for this exact reason, so that because it prevents or it makes it more difficult, the government, from spending to stimulus.
So you need a package. And it’s not–this is not rocket science. You need a package that is stimulative of the private sector in spending. You need a package that certainly does not expand the foreign element in our economy, expand trade. As a matter of fact, you need a package to contract it and you need a package to provide for a better bargaining position for the American worker. And it’s not just union members. You know, unions were never a majority of the workforce, but the wage increases that unions got affected the rest of the economy. And, you know, if you were working in [incompr.] you got a increase, you went to the local restaurant and spent it. And if the unions were strong, employers were willing or felt they were forced to increase the wages of nonunion shops because they were afraid of unions. Unions were the engine, really, the long-term engine of economic growth in the 20th century in this country. And by undercutting them, essentially we are taking a critical part of that engine and throwing it away.
JAY: Yeah. I think it’s pretty obvious both the Democratic Party and the Republican Party have no intention of going back to or creating a situation where the unions can come back in strength. So I think it’s rather obvious if workers’ wages are going to go up, they’re going to be having to organize and do this themselves. If they’re waiting for either party to do it, then they’re dreaming.
FAUX: Right. And they’ve got to–I mean, it takes, you know, changes in the law, too. But I think the labor movement and other, you know, movements and what we call the sort of mainstream left need to face the brutal fact that the Democratic Party is not going to pull us out of this. So they’re going to have to start organizing. They’re going to have to start knocking off Democrats who are, you know, favoring austerity. And without some new force in this game, both Republicans and Democrats are united for another ten years of hard times. I don’t think this country’s going to be able to stand without some eruption of social tension.
JAY: Alright. Thanks for joining us, Jeff.
JAY: Thank you for joining us on The Real News.
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