Rob Johnson: They could accelerate foreign policy conflict to direct attention outwards
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington. And in Tuesday night elections, the Republicans had a blowout in the House, up 57 seats; they’re—made big gains in the Senate, although as far as things stand at the moment I’m talking, it looks like the Democrats will keep control of the Senate; and massacres in different parts of the country, places like Ohio, where the Republicans now have 13-to-5 control of Ohio’s House seats. Now joining us to talk about the issue of the day that everyone knows decided this election is Rob Johnson. Rob was formerly chief economist for the Senate Banking Committee, he’s been a hedge fund manager, and he’s now a senior fellow at the Roosevelt Institute. Thanks for joining us, Rob.
ROB JOHNSON, ROOSEVELT INSTITUTE: My pleasure.
JAY: So it was all about jobs and the economy, and people made a choice. How do you account for what went on Tuesday night?
JOHNSON: I think it’s what you might call standard political business cycle theory. When unemployment is very high, when people don’t have a sense that we’ll come back any time soon, they’re going to look—how do I say it?—look at the despair and register it at the voting booth. I think it’s no mystery when you look at Pennsylvania, when you look at Ohio. These places have just been in pain, and too much pain, for far too long, and it was reflected in the results tonight.
JAY: But do you think it had to be that there was nothing that President Obama could have done? Or is it really more about his policies, that he was seen to be, you know, not the fighter for the middle class. When he first—when—days after the inauguration, I remember that Vice President Biden was put in charge of a commission whose mission was to work for the middle class. I myself never heard of that commission again, and certainly he didn’t come into this election looking like the man who fought for the middle class.
JOHNSON: No. I think you must admit that he was dealt a very bad hand at the outset. After eight years of Bush and Cheney, people asked for great change. The economy was collapsing, the financial sector was on the edge of going over the cliff. But to refer to your question, the stimulus programs were not well designed in terms of composition. There was nothing tangible or long-term that resulted from the stimulus, where people could look up and say, that’s new, I see that bridge, my life is different, it’s getting better. Secondly, the stimulus program wasn’t big enough and didn’t last long enough, so that essentially the economy started to decelerate and stagnate right into the election. And that’s a recipe for disaster.
JAY: Now, you would have thought that in this kind of situation the bad guys would have been Wall Street. But when you hear the kind of things people are saying that are supporting the Tea Party and many of the Republican candidates, it’s all about government and essentially letting Wall Street off the hook, which is really hard to compute, given that there was so much anger about the kind of size of the bonuses executives were getting. It’s really hard to understand how this message gets converted the way it did, quite successfully.
JOHNSON: It is somewhat difficult, though at the end of July, Pew Research had a big poll which said to the American people, what do you think happened with the stimulus money? They said, in that poll result, large corporations, powerful people, and large financial institutions benefited; the middle class did not, and the poor did not. And when you looked at the kind of context of these surveys, what people in essence were saying is, I would rather shut off government if it will only back the rich and powerful than put a tax burden on my future or my children’s future, because the benefits in this broken political system do not transmit to the people in need. And I think in that context it’s not so much left or right, Republican or Democrat; it’s incumbents are out, challengers are in.
JAY: Now, President Obama gathered around him a pretty old guard Wall Street team of advisors. Does he not have to make some radical rupture with that team? And if he called you tomorrow morning and say, “Rob, what should I do?” what would you tell him?
JOHNSON: I think he does need to shake things up. On the other hand, Rahm Emanuel and Larry Summers have already left. It’s open to interpretation, though. Many will say, well, since the Republicans did well, Obama needs to turn to the right. Others will say, he deserted his base, the young people who brought him into office. Those young people cannot find jobs now. Those young people are looking for something to believe in. They’re looking for that hope. They’re looking for a kind of change that they didn’t see materialize in the first two years. So I think you’re right. They may need to do something drastic. We need to [bring] major changes in. But they may also do things like accelerate foreign policy conflict, going back to the time of Bismarck. Whenever things aren’t working right at home, we try to redirect the public’s energy abroad.
JAY: Well, they’ve got a built-in ally with that, with the Republicans coming in, controlling the House, and wanting very much to make Iran the issue. If that’s the way Obama wants to go, he’ll have some help. But, again, if he asked you then, “If I was to do something dramatic,” says President Obama to you, “what should I do? Even if I have to get into a war with the Republican House, what should I be pushing?”
JOHNSON: I think he should be pushing a very, very strong domestic infrastructure plan. A couple of months ago he talked about a $50 billion plan. That’s maybe one-fifteenth of the size of what he needs, maybe one-twentieth. The United States is now falling way behind in research and development spending compared to the Chinese on clean energy, many parts of information technology, even biomedical engineering. We’re seeing more and more R&D spent in Asia and not in the United States. Education spending. Early-stage capital markets could be invigorated, ’cause those early-stage capital markets are what bring new firms and new jobs to the market. We need to transform and we need to believe that we’re going to transform this economy. My father is a physician, retired physician, and he often says, when people are in pain, the way you heal them is, first and foremost, convince them it’s transient. President Obama needs to step forward now and start fighting for a vision that will convince the American people that this pain and this dislocation that we’re mired in right now will come to an end in the not-too-distant future.
JAY: Well, you’d think the time to have really put out that vision was in ’09 when he had some clout to do it with. The pressure now is going to be, is the Republicans are going to say, well, we’ve got a mandate for no taxes, less taxes, smaller government, no stimulus. I mean, he has to go out and wage a war against what essentially the elections supposedly just told him.
JOHNSON: Well, he’s in a situation where what you might call the philosophy of the New Deal versus the economic philosophy of the time before that, with very little government involvement, is what’s at issue. At some level, people arguing about stimulus and its impact and so forth is all a sidebar. What they’re really arguing about is the scale and the scope of the role of government. Franklin Roosevelt convinced people that government could make a difference and could be a positive influence in their life to large portions of the population. The bailouts convinced people that Ronald Reagan was right when he said government is the problem, not the solution.
JAY: Well, the biggest argument is the deficit and the debt is the biggest problem, and if you deal with that, employment will come back. President Obama does not seem to have really taken that on, at least not in a way that’s effective. How would you take that on?
JOHNSON: I would say, when you look at debt or deficits, it’s always in relation to GDP growth. And when you have 10 percent unemployment, you’re not collecting tax revenue. When you’re allowing persistent unemployment, you’re allowing the skills of the American people to atrophy. That’s going to put you into deeper debt and deeper slump. You have to start a process of growing your way out and transforming the economy to again attract private investment and perhaps engage in some kind of readjustment—I’d say pretty substantial readjustment—of the US exchange rate vis-à-vis Asia. Right now, when you look at the campaign ads in Ohio, the demonization of China, which at some level is quite unfair, is getting traction. The US economy is struggling, and the Chinese are doing very, very well. But the Chinese are reinvesting in themselves, in their infrastructure, in high-speed trains, in education, and the United States is allowing these things to wither, in large part so that wealthy people don’t have to pay more taxes.
JAY: How concerned are you that what’s going to happen now is two years of paralysis in Washington? And then, if that’s the case, what are the possibilities we head into a very deep or deeper recession/depression?
JOHNSON: What I would say is, first of all, I’m very concerned. I think the baseline scenario now is one of prolonged stagnation, gridlock in the government, unless Obama essentially capitulates to the agenda of the right. But will we go into a deep downturn similar to 2007, ’08, early 2009? Not necessarily. We may just remain stagnant. Perhaps the best model is the so-called lost decade in Japan, where you have negligible growth, negligible inflation, or even modest deflation, and you just kind of bump along the bottom. The danger of that, as I alluded to previously, is the long-term, persistent unemployment allows the skills of many people in society to atrophy. And the United States, unlike Europe and Japan, does not have a strong safety net, so it probably foments more social unrest, kind of like what we saw in the formation of the protest movements and Tea Party as we approach this election.
JAY: Thanks very much for joining us, Rob.
JOHNSON: My pleasure.
JAY: And thank you for joining us on The Real News Network.
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