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Bill Black and James Henry join Paul Jay to discuss President Obama’s State of the Union

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay. On Tuesday night, President Obama delivered his sixth State of the Union address. It focused mostly on the economy and the accomplishments of his administration and an outlook for his final two years. Here’s a few clips from the address. ~~~ BARACK OBAMA, U.S. PRESIDENT: Tonight, after a breakthrough year for America, our economy is growing and creating jobs at the fastest pace since 1999. Our unemployment rate is now lower than it was before the financial crisis. More of our kids are graduating than ever before. More of our people are insured than ever before. And we are as free from the grip of foreign oil as we’ve been in almost 30 years. (…) And today, our younger students have earned the highest math and reading scores on record. Our high school graduation rate has hit an all-time high. More Americans finish college than ever before. We believed that sensible regulations could prevent another crisis, shield families from ruin, and encourage fair competition. Today, we have new tools to stop taxpayer-funded bailouts, and a new consumer watchdog to protect us from predatory lending and abusive credit card practices. And in the past year alone, about 10 million uninsured Americans finally gained the security of health coverage. (…) Since 2010, America has put more people back to work than Europe, Japan, and all advanced economies combined. (…) And let’s close the loopholes that lead to inequality by allowing the top one percent to avoid paying taxes on their accumulated wealth. We can use that money to help more families pay for childcare and send their kids to college. We need a tax code that truly helps working Americans trying to get a leg up in the new economy, and we can achieve that together. (…) [A]nd the State of the Union is strong. ~~~ JAY: So the state of the union is strong. Well, is it? Now joining us to talk about all of this, first of all, from Bloomington, Minnesota, is Bill Black. Bill’s an associate professor of economics and law at the University of Missouri-Kansas City. He’s a white-collar criminologist, a former financial regulator, and author of The Best Way to Rob a Bank Is to Own One. And he’s also a regular contributor to The Real News. Also joining us is, I think, from New York, James S. Henry. He’s a leading economist, attorney, and investigative journalist who’s written extensively about global issues. He also regularly joins us on The Real News. Thank you both, gentlemen. So, I guess, Bill, let me start with you. The state of the union is strong. So when he said that, what hit me, especially after some of the sort of sections of the speech talking about how many more jobs have been added in the United States than in Europe and Japan combined, that isn’t something to be so happy about. I mean, the fact–first of all, it’s questionable how strong the U.S. economy is, very questionable. But even if it is adding more jobs than the other economies, the fact that Europe’s going into a deeper recession, Japan’s in recession, bragging, essentially, about the economic disarray in Russia, the chaos–he didn’t mention it directly, but the chaos being caused by such low oil prices in many economies around the world–I mean, how can you have a strong American union in a global economy that seems to be melting down? BILL BLACK, ASSOC. PROF. ECONOMICS AND LAW, UMKC: So these are grave threats to the United States. And, of course, elsewhere in his speech he talked about the great advantages of free trade and how we strengthen each other. Well, of course, under that logic, if the rest of the world is going to hell in a hand cart and we’re trying to have them buy our goods and services, well, that’s very bad, because it’s going to be hard to sell our goods and services if they’re going into recession. But on top of that, the U.S. dollar is appreciating compared to virtually all these foreign currencies. And that means our goods and services are more expensive for them to purchase. So this is actually very bad news for the United States. The United States–as we’re talking, the numbers just came in on China. And, first, nobody should believe the numbers from China, because they pretty much lie about all their statistical things. But (B) they’re the worst in a quarter century, basically. So China’s growth, at a minimum, is slowing substantially, it appears, and quite possibly could be headed for a meltdown the way the U.S. and Europe did, because of their own property and banking problems. These are not good things when the rest of the world is in trouble. These are very bad things in an interconnected world for the United States. JAY: James, is the American economy at all immune to this? I mean, exports–in the last State of the Union message I can remember, President Obama was going on and on at how this would be an export-led recovery. Well, as Bill just said, how are you going to have an export-led growth with such an appreciated U.S. dollar? I mean, how much is this going to affect the U.S. economy? JAMES S. HENRY, SENIOR ECONOMIST, TAX JUSTICE NETWORK: Well, I think you’re just going to have a striking effect. You know, Europe has get one strategy to play with, which is the euro, and they’re in the act of depreciating that. And that’s going to affect our exports. China’s also basically focusing now on a more of a consumption-led strategy, and that’s going to reduce the demand, the trade that they engage in with us, and change the character of the trade that they engage in. So I don’t think Obama can be blamed for any of these things that are going on abroad. On the other hand, he has a propensity to take credit for all the good stuff that’s happened. And the United States has basically outperformed these other economies almost by default because they have had–the state of economic management in Europe has been catastrophic for the last five years. They’re still struggling with deflation and with very high unemployment there. So it’s sort of like, how is your backhand, compared to whose? And I think the problem with Obama’s perspective here is, on the one hand, he wants to claim credit for the United States’ relative performance. On the other hand, he’s trying to portray a kind of existential crisis for the middle class. And if there is an existential crisis for the middle class and he wants to really do something about it, the program that he has proposed tonight, which calls for increased taxes on the rich by $320 billion over ten years, and, on the other hand, spending about $17.5 billion a year for ten years on middle-class tax cuts, on helping people afford childcare on all these grants for community colleges, $6 billion a year for that program is really a drop in the bucket if you’re serious about education and paid sick leave. All of these programs he’s proposing, and the new taxes, don’t really rise to the level of addressing the crisis in the middle class, which we’ve seen as not just about unemployment. But it’s about the fact their incomes are not growing. All of the increased economic incomes as a result of any recovery the U.S. has had have been captured by the top 1 percent. JAY: Well, he does call for a rise in the minimum wage. How much effect would that have if it was passed? I mean, I think we should state something here is almost everything he said in the speech has to be passed by Congress, and in all likelihood almost nothing he said in the speech is going to be passed by Congress. To a large extent this is all just positioning. HENRY: The program is dead on arrival as far as that goes. But that’s not the point of the program. The point of the program is really to pitch a number of proposals that actually Republicans have been in favor of for some time. For example, the 28 percent tax rate on capital gains that he wants to restore was Reagan’s tax rate on capital gains. The investment incentives for IRA accounts are things that Republicans have supported. David Camp, a Republican who retired from Congress last year, was in favor of this tax on the banks. So a lot of these proposals may not be popular with congressional Republicans, but I think the point of his platform tonight is he really wants to isolate those folks and have it appear that the Democrats are the party of the middle class, the majority of Americans, and the Republicans in Congress are beholden to the plutocrats that are funding it. JAY: Bill, I mean, some of the numbers are correct. I mean, the United States is adding jobs at a faster pace than the other industrialized economies. Isn’t that significant? And why is that? BLACK: It is significant, and it is good thing. It’s just not close to a good enough thing either for the middle class or for the forgotten people in this speech, which is the bottom 35 percent of America–and a group that’s growing. And they’re hurting far more. And unlike his story about this resilient middle-class family that had to cut back and couldn’t do the vacation, well, if you’re a working-class family and you have to cut back, you’re not cutting back, well, we’re not going to take the vacation; you’re cutting back, well, our kids won’t be able to have a tutor to study, even though they’re not understanding mathematics, or we’re simply not going to feed our kids the same way. Let me build on what James was saying. There was a fundamental logical inconsistency at the heart of what Obama was saying, and it comes from the difference in Europe and the United States. And it’s an odd one because you would think Obama would be claiming credit. So Europe has decided to shoot itself not in the foot, but way higher up in the anatomy, through massive austerity and a real war against workers’ wages, in which it’s all–the whole theory is export-led recovery. And we can’t all be net exporters. You know? There’s this thing called mathematics that prevents that. So Obama, at the beginning, he seems to have forgotten he was the one proposing the stimulus and saying this deficit hysteria is insane, we have a recession because we don’t have enough demand to purchase goods and services, we don’t have enough demand, businesses won’t hire workers, add productive capacity, and such, so the government in these circumstances should buy things, increase demanded, and that will help the recovery. And so the deficit was too small, not too big. But you notice in the speech he presented it as, look what we’ve done! We’ve massively reduced the deficit. Well, yes, and that’s already something of a fiscal drag. And as I said, the reason we’re doing so much better than Europe is instead of stimulus they decided on austerity. But he’s right back into his mode that austerity’s great and treating the U.S. government with a sovereign currency, as if we were just some household in terms of our economics. JAY: James, there’s one of the proposals he talked about–we had it in one of the clips where he says there’s loopholes that protect accumulated income of the top one percentile; that needs to change. This has to do with his proposals to change the way the estate tax is exercised. Well, what are those proposals, and are they going to be very effective? HENRY: Well, I think the interesting proposal is the one to eliminate the stepped-up basis that you get. Say that you inherit something from your relatives who bought IBM shares in 1930 at $0.05 a share. Today they’re worth, obviously, a lot more. And when you inherit that, you don’t pay taxes on the increased value on the capital gain. His proposal, again, is an interesting one. It won’t get through this Congress, but it forces us to take a look at the estate tax. And I think it brings it back on the table. I mean, I think a more progressive approach to the estate tax and the problem of wealth inequality is to take a look at why do we really not have much higher taxation on, say, billionaires, when–you know, on a wealth basis, than anyone who inherits large sums? It’s these dynasties that are really threatening democracy. And yet, under the current system, there is a very limited degree to which people are taxed on extreme wealth. So the good thing about his proposal to get rid of the stepped-up basis is that it reopens the debate about wealth taxes and, I think, allows us to have, maybe, an intelligent discussion about that issue. Once again, he’s talking about $320 billion of tax increases over ten years, $32 billion a year. It’s nothing, a drop in the bucket, compared to–if we really have a middle-class crisis on our hands, we need to invest in education, we need to start taxing extreme wealth. Let’s do so. I mean, we really–there’s a lot more wealth on the table that’s not being affected. JAY: President Obama, if I’m correct, in the first two years of his administration, when they controlled both houses, he made a deal with the Republicans, didn’t he, which essentially left the estate taxes down around slightly more than the cuts that George Bush had introduced and nowhere near as high as it were even in the Clinton years. He made a great compromise on that. And that would have been the time to actually have serious estate taxes. HENRY: Where were these policies? I mean, I don’t think a large enough, but where were these policies that he’s outlined tonight in 2010? All of them could have been on the table at the point where he had support in Congress to pass these things for a much more progressive tax reform. But not only is the program too small, but he won’t be able even to pass this one. So the best you can say: there are a few good ideas, things like paid sick leave, which California has adopted. It actually pays for itself, because if people don’t have paid sick leave, they go to work, they make other people sick, and the cumulative effect is offset by the paid costs of the paid sick leave. So that’s a great idea. But where were these ideas 40 years ago? JAY: Yeah, the same thing with the community college idea, which two years of free community college, sure, it’s great, but it’s never going to pass, and when it could’ve passed, he didn’t talk about it. Bill, he talks about their–or let me quote here: “we have new tools to stop taxpayer-funded bailouts”. That’s a great accomplishment of his administration, right? BLACK: Yeah. We essentially have no new tools, and we have the too-big-to-fail banks are much, much bigger than when the administration started. And so there is zero chance that those banks are going to go through just some regular receivership and we nail the creditors, because they saw what happened to Lehman when Lehman Brothers went down with the general creditors taking major losses. And the result was horrific: no banking regulator, no president is going to risk doing that again. So they simply pretend that these systemically dangerous institutions, which are now still there but much bigger, will somehow mystically, when they fail–I mean, notice I didn’t say if–when the next one fails, they’re telling us it will cause a global systemic crisis. JAY: So in the final analysis, this is about political positioning, ’cause almost none of this, as I said, is actually going to pass. So what do we have? We have President Obama that ran, who campaigns sort of with a lot of progressive rhetoric, governed from the center right, and I guess he’s going to go out with some progressive rhetoric. Is there more here than that? HENRY: I don’t think it’s progressive rhetoric. All of these proposals that he’s making have a lot of appeal to Republican base. That’s the irony. I mean, the bank tax, even the capital gains reforms, and certainly some of the tax expenditures he’s talking about, actually are–you can trace them back to [incompr.] moderate Republican roots. What’s missing here is anything that does justice–and seriously–to the fact that we have 23 percent of kids in poverty, to the fact that we have the highest levels of wealth inequality since the nineteen-teens, that we have a world economy that is teetering on the edge of another recession, and we basically have a president who’s trying to save his own self-image here and go out on a note of having fought the good fight when it’s four years too late. JAY: Bill, final words? BLACK: Yeah, he’s in legacy mode, and presidents get very dangerous when they’re in legacy mode. They want something famous. So it appears now it’s going to be these trade deals, which will do the opposite of what he promised. And by the way, they were not drafted by the American government. They were drafted in secret by lobbyists to the largest corporations and trade associations. You had access to documents that were–not only was the public denied access, but members of Congress were routinely denied access to those. And we still don’t know even which lobbyists drafted these bills or actually what the bills contain. It’s an outrage of democratic government, and it’s an outrage substantively. JAY: Okay. HENRY: And that’s not just a progressive point of view. A lot of moderate conservative economists that I talk to cannot figure out why these trade deals are being pushed so hard, except for the corporate lobbyists. JAY: Thank you both, gentlemen. BLACK: Thank you. JAY: And thank you for joining us on The Real News Network.


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William K. Black, author of The Best Way to Rob a Bank is to Own One, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.

Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.

Black developed the concept of "control fraud" frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.

James S. Henry is an investigative economist and lawyer, a Global Justice Fellow at Yale University, and a Senior Advisor at the Tax Justice Network. Previously, James served as Chief Economist at the international consultancy firm McKinsey & Co. As an investigative journalist his work has appeared in numerous publications like Forbes, The Nation and The New York Times.