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A wide ranging interview with Rob Johnson on austerity, taxes, money and politics

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington. And across America the debate continues: how much government cutting to cut? Everyone, if you listen to that, is–everyone meaning the leadership of the Republican Party, the Democratic Party, and most of the media–everyone seems to think it’s just a debate about how much government cutting, not if. Now joining us is someone who challenges all of that, and it’s Rob Johnson. He joins us from New York City. Rob is the executive director of the Institute for New Economic Thinking. He’s also a senior fellow at the Roosevelt Institute, and for many years before that was a currency trader on Wall Street. Thanks for joining us, Rob.


JAY: What do you make of this sort of somewhat a change in narrative? Before the G-20 conference, before the last November elections, the Democratic Party, President Obama, was more or less defending the stimulus programs. They seem to have given up all of it now, and now it’s just a debate about not if but how much cutting.

JOHNSON: Well, I think where we are is that they pick up in the polls that people do not trust government. They didn’t like the bailouts and the bonuses afterwards. The American people didn’t like that they didn’t see any tangible progress coming out of the stimulus program, ’cause everything was supposed to be what you might call shovel-ready. There may be good reasons for that. But when you don’t have anything to hold up like Franklin Roosevelt did, with the [Oakland] Bay Bridge and the Triborough Bridge and other things, people say, what are you doing with my money? What are you doing with my children’s tax burden? So that anger, that rage, and that mistrust in government is inhibiting our ability to make the proper public investments that our society sorely needs.

JAY: Now, there’s obviously many features to this question, but one of the underlying assumptions is the government is spending too much, the debt is too big, and that’s really the fundamental challenge. And you don’t agree with that underlying assumption, is that right?

JOHNSON: Not at all. We have nearly 10 percent unemployment. We have nearly 10 percent more of what you might call underemployment or discouraged workers, people not even looking for employment anymore. When 15 to 20 percent of your economy is idle–idle resources do not pay taxes. More important than the tax rate, more important than excessive spending, it’s that we are tolerating massive amounts of idle resources for a prolonged period of time, and that is what’s keeping us in this budget hole.

JAY: The argument you’ll get from people that say that you need to both cut taxes and spending, and particularly cut government spending, is that government programs, government spending, doesn’t lead to job creation, and they essentially say it takes money away from the private sector that would then invest it, and there, that’s how you would have your growth. So they’re saying growth through cutting.

JOHNSON: I do not believe that for one minute for a large country, in particular a large country which has excess capacity everywhere. Capacity utilization rates of 70 percent suggest to me that there is no crowding out going on, that investment won’t take place until demand picks up. Why would you invest when you have idle capacity? So I think they’re completely misguided in that particular sense of crowding out. Crowding out is something that is germane to the challenges we face when the economy’s overheating and inflationary. That’s not the problem we have right now.

JAY: The other thing that doesn’t get talked about, except during–a few months ago, when there was a debate about whether to extend the Bush tax cuts, there was some debate then about the issue of taxing, particularly taxing the upper end of the income scale. That debate also seems to be over. But there’s an enormous amount of wealth in the society. It may be the government’s debt is big, but it’s not that there isn’t enormous riches in America. And one of the taxes which we’ve talked about on The Real News and has not gotten too much focus, but I’m wondering what your take is on it, is the question of the estate tax, which to some extent crosses some of the ideological lines, because we’ve talked to libertarians who support the idea. What do you make of a serious estate tax? Because you could say to people that are so worried about the debt, well, if you want to go lower the debt, then go where the money is and pay it down.

JOHNSON: I’ve always argued that the people who suffer the most from a lack of estate tax are the children of the millionaires and billionaires. The emotional problems, the weight, the burden that comes from–how would I say?–having wealth that you didn’t earn and not taking the test of life is quite formidable. And people sometimes laugh at my statement because they say, anybody would want to win the lottery. But I see a lot of people experiencing a great deal of dysfunction and disorientation when they receive too much wealth. Second dimension is it’s demoralizing to the entire society when where you were born, you know, by luck, where–it’s the old Joan Baez song “There But For Fortune”. We’re in a very, very awkward situation when we try to advertise our system as a dynamic meritocracy and how much money you received at birth is the key determinant to how well you’re doing. Those are inconsistent principles and, like I said, very demoralizing.

JAY: Now, if we look at what’s happening in Wisconsin and across the country, many of the states that are on the verge of bankruptcies, municipalities on the verge of bankruptcies, you’ve talked before in some of our earlier interviews about the sort of end of the countercyclical, I guess you could say, policy, where–. Could you talk about what that is? And how did that affect states?

JOHNSON: Well, when the activity slows down and you have idle resources–. The states usually have a balanced-budget requirement. When they lose tax revenue because of these idle resources in the bottom of the cycle–or bottom of a slump, let’s call it currently, ’cause we don’t know when we turn up–you then have to start cutting back expenditure. When you start cutting back expenditure to keep the budget balanced, you amplify the downward pressure and make more resources idle, which reduces tax revenue further. So you’re kind of shooting yourself in the foot.

JAY: There are even some states, I think (I’m not sure how many), that have caps, that if you have a surplus within a certain year, some states say you can’t have more than 2 percent surplus without returning money to taxpayers. So there’s actually no way to build up a reserve for a downturn in the cycle.

JOHNSON: Yes. And I think what’s unfortunate in the United States–and I mentioned at the outset this lack of trust–there’s also a lack of understanding that public resources–roads, bridges, science research, schools–these public goods are part of what nourishes us all and part of what enhances productivity and part of what crowds in investment, making the United States a better platform for investment when compared to other nations.

JAY: And some of your work, you’ve talked about debt-to-GDP ratio. There’s a lot of talk about that, that we’re heading into such dangerous territory that the faith in the US dollar, faith in the US economy–and we’re at sort of historic apocalyptic moment in this debt-to-GDP ratio. What do you make of that argument?

JOHNSON: Well, first of all, as Tom Ferguson and I wrote about in our paper on the “World Upside Down”, we’ve seen Great Britain operate with a debt-to-GDP ratio of roughly 200 percent. So I don’t see that there’s any magic threshold. What I think you do need is full utilization of resources, a vibrant economy, a vision of how you’re going to be orderly and move forward, be dynamic, so that the debt, whatever it is, can be serviced. Obviously, less debt is better than more, all things considered, but you have to look at what’s on the asset side of the balance sheet. We do need public infrastructure in order to make this a productive platform to inspire private investment and inspire the kind of growth in dynamism and revenue; growth, as a matter of fact, growth that is abusive of the environment is not healthy. We have a lot of retooling to do in that regard. So we need a kind of growth that is quality and development, rather than just letting things rip and creating difficulties for all of us in exhausting our sustainable resources. So I’m looking at it right now and saying you can’t do this without a vibrant public sector. You do see, as you look around the world, places like Singapore, the Scandinavian countries, and Germany, where the public sector is proven to work well, and those economies are doing better than the United States. And most surprisingly, while I’m not always in love with their form of government, everybody’s jealous of how well the Chinese are doing. The Chinese have tremendous amounts of public investment in infrastructure and science and building their education. America doesn’t seem at this point to be able to learn from their example.

JAY: So what would happen to President Obama and his administration? They were defending their stimulus programs up to some point, and now they seem to have really completely adopted the austerity narrative themselves and really, as I said in the beginning, just fight about how much.

JOHNSON: Well, number one, I think in the United States you’ve got to raise $1 billion to run for president. I think they turned a corner after the shellacking they took in the midterm election, and they realize they’ve got to raise $1 billion. So raising taxes on the affluent isn’t going to be conducive to that when the other party doesn’t want to do it. Secondly, subsidies to corporations, particularly multinational corporations, who do not depend upon healthy and well-educated American workers, because their production is done abroad, means that–how do we say?–cutting spending is really of no cost to their balance sheets or to their income statements. I think that Obama is quite aware, in the aftermath of the Citizens United decision in the Supreme Court, that unbridled, unprecedented amounts of money will be brought to bear in this election. And so they’re essentially sculpting policy not to inspire voters, not to take care of the weak, but actually to invigorate the contributions from the strong.

JAY: So it’s fundamentally about how you’re going to raise money to get reelected.

JOHNSON: Yes. I think money politics is overpowering in the logic of anyone who wants to survive. I wouldn’t demonize Obama. This is a structural problem for senators, for congressmen, and for the president of the United States or anyone who wants to challenge him.

JAY: Thanks very much for joining us, Rob.

JOHNSON: My pleasure.

JAY: And thank you for joining us on The Real News Network. And don’t forget our donate button here, ’cause if you don’t do that, we can’t do this.

End of Transcript

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Dr. Robert A. Johnson - Executive Director of The Institute New Economic Thinking (INET) and a senior fellow at the Roosevelt Institute. Dr. Johnson served on the United Nations Commission of Experts on International Monetary Reform under the Chairmanship of Joseph Stiglitz. He is also the Director of Economic Policy for the Franklin and Eleanor Roosevelt Institute (FERI) in New York. Dr. Johnson was previously a managing director at Soros Fund Management where he managed a global currency, bond and equity portfolio specializing in emerging markets. Prior to that time, Johnson was a managing director of Bankers Trust Company managing a global currency fund. He also served as Chief Economist of the U.S. Senate Banking Committee under the leadership of Chairman William Proxmire (D. Wisconsin) and before that, he was Senior Economist of the U.S. Senate Budget Committee under the leadership of Chairman Pete Domenici (R. New Mexico).