Who Benefits from Austerity?
Bob Pollin fields the question: are the very rich hunkering down for a long recession and to protect their assets, are more concerned about debt than high unemployment
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore. And welcome to this week’s edition of The PERI Report with Bob Pollin, who now joins us from Amherst, Massachusetts.
Bob is cofounder and codirector of the Political Economy Research Institute and a professor of economics at UMass Amherst. And his new book is Back to Full Employment.
Thanks for joining us again, Bob.
PROF. ROBERT POLLIN, CODIRECTOR, PERI: Very glad to be on. Thank you, Paul.
JAY: Alright. Well, let me kick this off with a question, then. If anyone looking at the evidence of what the sequester cuts and more austerity is going to lead to, it’s more than obvious—if you didn’t know already, just look at Europe—this does not lead to growth. It probably leads to deeper recession, and perhaps really deep recession, depending how far these cuts go. What is in it for the people that are promoting the cuts? And I include in that President Obama, because it seems to me he buys the basic narrative, it’s just he wants less cuts rather than the other side that wants more cuts. You know, some people have said they want to lower wages. Well, to a large extent they’ve already won the wage war. They want to undo the New Deal. Well, I guess there’s still a little bit of that left. So is that what this is about? I mean, what’s in it for the people that are pushing this?
POLLIN: Well, I think there are two types of arguments that are out there. Let’s take the one that takes itself seriously, that the deficit hawks, the hard-line deficit hawks have said that we have been facing a absolute fiscal calamity if we didn’t take these kinds of actions. If I want to take one leading figure, Professor John Taylor at Stanford, you know, absolutely a eminent macroeconomist, real-world macroeconomist who was in the Bush administration, a top adviser to Romney, Taylor and others like him have made the argument that we are facing—Taylor himself said we’re facing the destruction of the United States as an entity if we didn’t make massive cuts to get government debt down. Now, he’s wrong, and we can go through why he’s wrong. We have before. We can go through it again. But I think that John Taylor and some people like him believe that, and so that whatever might happen with the recession, they would say, okay, well, that’s a short-term problem, but at least we are not going to destroy the country through building up overwhelming debt. So that’s one argument.
The other argument that I think motivates a lot more people is the second thing you said, which is: whatever else happens in the next year, they’re very happy to see social spending, New Deal type programs, support for people that aren’t well off, support for public school, support for teachers, support for union members all get slammed. And that is exactly what is going to happen. It’s already been happening, of course, but it’s going to happen even more, because one of the biggest areas of the sequester cut is state—support for state and local governments. State and local governments basically do three things: education, health care, public safety—and also the fourth thing [incompr.] social support for families. So those things are all going to get cut, and that is going to be accompanying what has already been happening, as we’ve seen in states like Michigan, Wisconsin, Indiana, Ohio, which is a tax on public sector unions, a tax on union in general. So this is all moving things in the same direction, and it’s happening under a liberal Democratic president.
JAY: So I—I mean, the only place—if I’m a pensioner, my interest rates are too low right now. I can’t make any money on any of my investments. On the other hand, if I’m afraid of inflation because I have a house and I don’t want to lose my asset—. But of course on a bigger scale people that own a lot of stuff are very, very worried about inflation. And that seems to be why they keep talking about the budget cut, ’cause they’re afraid that if somehow the world loses confidence in the American dollar, that means their assets will be worth less. But this whole scenario seems rather farfetched in any visible time frame.
POLLIN: The inflation argument, really there’s nothing to support it. I mean, we’ve been hearing this argument from deficit hawks for four years. It could be that some day inflation is going to accelerate. If inflation starts to accelerate, there can be adjustments made. But the increase in the federal deficits have not caused any—I mean zero—inflationary pressure over four years. If you take John Taylor, John Taylor says, look, look at—the deficit is rising. The deficit shot up, of course, from 2 percent to 10 percent of GDP. That’s true. But that was because of the recession. The year before the recession, 2007, under Bush, even with all the Bush tax cuts, which I don’t like, the deficit was still 2 percent of GDP or actually a little bit less. So, obviously, the whole reason for the spike in the deficit was the recession. The deficit has come down. But the John Taylors of the world say, look, government debt is rising as a share of GDP.
Now, what if—what if John Taylor says, we project this out, this pattern out? Well, the country will be ruined. He says this very thing in a book called First Principles, John Taylor, 2012 book.
Now, of course, the fact that we had the most severe recession since the 1930s, which led to the spike in the deficit, is not going to be a pattern that’s going to go on for the next 35 years. It’s preposterous to think that. But here’s what a leading conservative macroeconomist is saying. And that is the kind of argument—if we want to say there’s a principled argument behind all this austerity, that is the argument that is being given, that whatever else, we must stop seeing the deficit and government debt increase. But as I said, that’s the only principled argument, and it doesn’t hold up at all [crosstalk]
JAY: I mean, what if their logic is, we are into ten, 15 years of this kind of stagnant economy, that there is a long-term global recession in place and there won’t be growth, which means there won’t be new tax revenues, and then the only way to deal with this increasing deficit is through higher taxes, and they don’t want to pay it? So the only alternative to not paying higher taxes or having more and more debt, which they don’t want, is these cuts.
POLLIN: Okay. So the notion that we would be in recession or something akin to recession for the next decade, let’s be clear on that. That would be an entirely new historical phenomenon. I mean, even during the 1930s, we got out of it by 1941. So what—if that’s the argument that’s being made, that’s saying that whatever tools we have to bring an economy out of recession, they don’t exist at all. Whatever even free-market mechanisms to push an economy forward doesn’t exist at all. So, therefore, the only thing that we can do is live under austerity. We’re in a new world that’s something that no one has ever seen before. I don’t really accept that view.
The alternative view is the best way to get out of a recession when the private sector isn’t spending is for the government to spend. Moreover, as we’ve talked about before, in the U.S. today, when the government borrows money, we’re borrowing at 1 percent. So this is exactly the right time to invest more in the types of things that’ll bring the economy into a healthy growth trajectory, including, in particular, investments in state and local governments in areas such as education and infrastructure, including in the green economy. Money is cheap now. Put the money in, create the jobs, and create a virtuous cycle of new investments creating new jobs, and building up the private economy, as well as advancing public investments.
JAY: Alright. Well, we’ve been saying this. We’ll see if anybody’s listening. We’re going to ask John Taylor, who you cite, and his book, and see if he’ll come on and discuss, debate this with you, Bob.
POLLIN: I would love to have him on.
JAY: Alright. Well, Mr. Taylor, if you’re watching—but if you’re not, we’re going to phone you.
Thanks very much, Bob.
POLLIN: Okay. Thank you.
JAY: And thank you for watching us on The Real News Network.
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