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TRNN Replay: Rob Johnson: For GOP and Dems easier to make people pay for crisis than confront big campaign funders

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in New York City. As I’ve been saying in some of my other interviews, in January 2009 President Obama met with some conservative columnists and apparently, according to David Brooks, reassured them that after some period of stimulus he would take on the big entitlement programs Medicare and Social Security. So this debate that was going on for several months past, will they be on the table or not, apparently, at least in President Obama’s mind, was settled quite some time ago, which means how much of all of what we’re seeing is somewhat a political theater–on the other hand, with some very real and serious repercussions. Now joining us to talk about all of this debt-ceiling debate is Rob Johnson. He’s a senior fellow at the Roosevelt Institute and is also the executive director of INET. Thanks for joining us.


JAY: So just let’s just start with what do you make of, first of all, President Obama, his administration’s role in all of this, how this negotiation’s going on? We’re told that there’s a bit of an uprising in Democrats in the House that there’s going to be a package that Obama is going to propose or agree to that would be mostly all about cuts and very little about revenue.

JOHNSON: Well, Barack Obama spent very little time in the Democratic Party [incompr.] what four years in the Senate. So even though he is the Democratic president, he’s always sought to rise above. President Obama appears to aspire to be the referee, the leader who is above it all, nonpartisan, as he says, the president of the United States, not particularly a Democrat in this–in the budget negotiations.

JAY: But if you go back to the promise, according to David Brooks, or the commitment he makes to these conservative pundits that he is going to take on entitlement programs, it seems he had quite a–he had a real agenda about all of this, even though he didn’t talk publicly about it. He certainly didn’t campaign on it.

JOHNSON: Well, when you say he didn’t campaign on it, not to the people. He may have campaigned to the fundraisers in the what you might call Robert Rubin wing of the Democratic Party, economic policy team that he brought in in, how do you say, lock, stock, and barrel, the whole group. They had always been in favor of entitlement cuts and cuts of teachers pensions and the various things that we see playing out in this slump.

JAY: Why is this wing of the Democratic Party wanting these cuts? I kind of fits–I understand from a straight Republican point of view, at least, you know, in terms of their ideological framework, it’s–they’ve always been in this sort of place. But why is this wing of the Democratic Party, why do they want these cuts?

JOHNSON: Well, what you might call the DLC (Democratic Leadership Council) wing of the Democratic Party view themselves as pragmatists. These are people who say you’ve got to raise money. They don’t say that out on Main Street. They talk nice, flowery, ideological stuff out on Main Street. But in the strategy room, you’ve got to be practical. You’ve got to raise money–the Chamber of Commerce, all those guys helping the other side. So when you’re going to do things to keep our fiscal accounts in balance, you’re not going to beat up Wall Street, you’re not going to beat up the military-industrial complex, you’re not going to beat up the medical complex.

JAY: ‘Cause when you’re saying raise money, you’ve got to raise campaign money.

JOHNSON: You’ve got to raise campaign money to keep the party vital, keep the party alive, keep the media budget that is necessary [crosstalk]

JAY: Because agenda item number one is get reelected.

JOHNSON: Get–that’s right. You know, if you’re not in power, it doesn’t matter. So to stay in power, you need money. To stay in power, you need money. You start busting the budget by handing out candy to all your friends–some would call corporate welfare. And when you’re doing that, you’ve got to be able to cut other places. When you screw up and you have a big bank bailout, you just spent what Simon Johnson says–40 percent of GDP will be the change in the debt-to-GDP ratio resulting from this crisis. When you use that much, everybody’s afraid how are we going to have what you might call capacity in reserve for the next crisis. So instead of going and taking on the tough, like, pharmaceutical industry, insurance industry, or something, what you start doing is what you might call using the logic of collective action and cutting those diffuse, weak interests, like senior citizens, like the people who have paid for Social Security and run a surplus all of these years, now get to run it down.

JAY: And what do you think, in terms of the–we’re told is opposition to this within the House, within the Democratic Party? And we saw that on the public option. I remember the press conference when the Progressive Democratic Caucus, the, like, 40, 50 of them came out in front of–on the Hill and said, we’re not going to vote for anything that doesn’t have a vigorous public option in health care. And then, when it–push came to shove, they did vote for the health care reform without the public option.

JOHNSON: I would say the logic of money in politics is very strong. And those people, that progressive Caucus, represent [what] you might call the other human issues. But the logic of survival in Congress and strength of party means they often get rolled, they often get defeated, to the detriment of a large portion of the population and to the benefit of a very small proportion that essentially is the wealthy.

JAY: So let’s talk about sort of underpinnings of the substance of the argument, which is that the debt’s getting too big, and because you have to fill this hole.

JOHNSON: Given that we’re on The Real News Network, we should talk about the fake debt crisis first, right?

JAY: Okay.

JOHNSON: I don’t think that we have an acute problem with default anytime in the next 15 to 20 years. I think the biggest danger to what you might call, say, public solvency of America is out-of-control, runaway medical care costs coupled with the demographics of the baby boom. But you can go two directions to cut that deficit. You can reduce the cost of medical services by eliminating monopolies in pharmaceuticals, monopolies in insurance, monopolies in hospital costs and hospital systems, or you can cut back the quality of services. Obama passed a health care bill where he essentially codified all the monopoly practices, which was the bad thing. And the good thing is he brought about 47 million people who were uninsured onto the scrolls. These people are now covered. But that’s something that’s on the budget, and that’s something that portends, as I mentioned, with the demographics of the baby boom, to be a real source of concern, a potential debt problem 20, 30 years out.

JAY: One of the things President Obama did during the whole health care passing of his legislation is he made a deal with pharma.


JAY: So tell us a little bit about what that deal was and how codified is that deal. I mean, can that deal be undone?

JOHNSON: The deal was that medical care that comes from this what you might [incompr.] upcoming–whatever they call it, the American ACC–ACCRA, the health care bill, will not allow negotiated prices, things like generic drugs from Canada, negotiated prices in large bulk for senior citizens. And so the pharmaceutical guys will make enormous profits. The pharmaceutical lobby agreed to put forward many, many millions of dollars in advertising and to support this bill, provided their pricing monopoly was protected.

JAY: And agreed not to put millions of dollars of advertising against it.

JOHNSON: Against it. That’s right. That’s right. So that, coupled with dropping the public option, which would have created competition in the insurance industry, made medical care much more expensive in America. And you can go to data from the OECD. On a per capita basis, American medical care right now is more than double the cost of the OECD average, more than double the cost of Germany, France, and the Netherlands. All three of those countries, and Switzerland, are in the top ten of the best quality health care, according to the World Health Organization. America’s running around number 38 in that ranking while paying twice as much.

JAY: Now, the deal that the president made with pharma at that point is never talked about anymore. But is it–I mean, can that deal be undone? It’s not a piece of legislation, right?

JOHNSON: What do they say? Never say never. I mean, the contours of the legislation about not negotiating on pharmaceutical prices could be challenged in the future. On the other hand, if we stay with this structure of money politics, it’s much easier to block than to pass. When you think about things going through House committee, Senate committee, House floor, Senate floor, conference committee, passage back to the president, there are a lot of notes for interventions, to stop things from changing. That’s in a positive sense called checks and balances. But it allows vested interests a great deal of ability to obstruct progress. So I would say the pharma guys have a pretty good chance of holding on to their pricing power.

JAY: Are in fact the real negotiations about security, Social Security, not to leave the money there but to use the money elsewhere?

JOHNSON: Much of what happened in recent years is the Social Security system, when the baby boom was in its prime working years, ran big surpluses. And those surpluses were used, were, you might say, consolidated with much larger deficits in the other categories–military spending, tax cuts, wars, and what have you. So now, as that demographics reverses, Social Security can be for itself, but it’s not going to be cross-subsidizing everything else. And how you say the temptation to cut their benefits, to continue the cross-subsidy, is part of the logic of this politics of concentrated interests against the diffuse interests of the population.

JAY: So when you look at the polling, it looks like the majority of polls show that Americans would rather tax the wealthy than make cuts to social programs. They would rather see much bigger cuts to the military. There was a recent poll came out (I think it was from the University of Maryland) with significant majority for taxing the wealthy, massive cuts on the military side. None of this is getting through into the politics.

JOHNSON: Politics of the United States in this crisis period does not represent the people. It represents a very narrow segment of the population who does the fundraising.

JAY: Thanks for joining us. And thank you for joining us on The Real News Network.

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).