Schiff vs. Henwood on Economic Crisis
This note was sent to TRNN from Doug Henwodd following the debate:
These figures come from the U.S. Bureau of Labor Statistics. The only thing
I did to them was to re-index the numbers so that the first quarter of 1964
= 100. The "compensation" measure includes fringe benefits, which have been
greatly inflated by health insurance premiums paid by employers. If you just
looked at direct pay, excluding fringe benefits, hourly pay would have been
up more like 9% over those 46 years (total, that is), not 78%. Productivity,
though, is up over 150% over the 1964-2010 period, meaning that total
compensation (including fringe benefits) is up only about half as much, and
direct pay is up not much more than 5% as much as productivity.
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay, coming to you today from New York City, Manhattan Neighborhood Network studio. The economic crisis continues to deepen. We’re told there’s a bit of a recovery, but most Americans are not feeling it. Unemployment still hovers around 9 or 10 percent officially; unofficially, probably more like 18 and 20 percent; in some urban areas, especially amongst young people, sometimes as high as 25 or 30 percent. Child poverty rates: according to the latest census data, 21 percent of children living in poverty in the United States. And the greatest income inequality in the industrialized world, and the largest gap between rich and poor in the United States since 1967, when the census department started taking such statistics. So how do we get out of this crisis? Well, today a debate, the first of the Real News debates for this year. Two very different visions on how to solve the problem. Do you have less government, cut taxes, and allow the private sector to produce, and if it produces more there’ll be more growth and more employment? Or do you need to have some kind of stimulus, do you need to increase people’s ability to buy stuff, do you have to strengthen demand, either through direct government stimulus or perhaps higher wages or by other means? And now joining us to debate this are—. Peter Schiff is the president and chief global strategist of Euro Pacific Capital. He’s a full-service, registered broker-dealer. He’s been very well recognized for his knowledge of foreign security markets, as well as currency and gold markets. And he’s the author of How an Economy Grows and Why It Crashes, and Crash Proof 2.0: How to Profit From the Economic Collapse, which was published in 2007, just before the big crash. And Doug Henwood, who’s the editor and publisher of Left Business Observer. He’s a contributing editor of The Nation and hosts a radio program called Behind the News on WBAI in New York City. He’s the author of the book published in 2003 After the New Economy. Thank you both for joining me. So, Doug, let’s start with the proponents of the stimulus argument, ’cause the critique of the stimulus argument is that it’s being paid for by, quote-unquote, "printing money", that if you start to stimulate without paying for the stimulus in some way, what you’re really doing is circulating too much money that eventually either becomes inflationary or it becomes a credibility crisis for the global economy in terms of whether they believe in the dollar or not. So if you do believe in stimulus, where is the point you can go? I mean, otherwise, why don’t you just hand—turn every American into a billionaire, print enough money, make everybody rich, and the economy grows?
DOUG HENWOOD, EDITOR, LEFT BUSINESS OBSERVER: I should run for office on that platform. But you need stimulus because there’s been a collapse of private demand and there’s been a collapse in private investment and in private consumption. The job market is in very terrible shape. And the idea is that the government, federal government, has to step in—oh, actually, I should say the state and local governments are in terrible shape, too, so there’s a collapse of that sector, too. So the only sector, really, that has the power or the capacity to generate any kind of spending is the federal government at this point. I don’t think you can borrow forever. I’m not advocating an endless deficit forever. I think we need several years of it, and then, after a while, presumably, the economy will begin to heal. And then you start paying down the debt by two methods in particular. I think we need to cut back on military spending rather drastically. We’re spending 6 or 7 percent of GDP. We could easily cut that back to 1 or 2 over time. And I think also taxing rich people. The rich have gained—well, it depends upon how you want to define the rich, but the top 1 percent of the population’s seen maybe half the benefits of economic growth over the last couple of decades. The bottom 90 percent has seen essentially nothing. The richest 13,000 households in this country have seen their incomes go up about 400 percent over the last couple of decades. Everyone else averaged about 10 percent or less. That kind of lopsidedness is not economically sustainable, and it’s not ethically justifiable, and that’s got to come to an end. So there’s plenty of money at the top end of society that could be used to pay down that debt over time. They will scream about how this will result in all sorts of horrible consequences, but they’ve had a pretty free run of it for the last two or three decades and things have not turned out very well. So I think we will have to listen to their screams.
JAY: Peter, let me read back a quote from you [inaudible] interview you gave in The Gold Report in 2009. You wrote this: "… we need less government. We need sound monetary policy. We need higher interest rates. We need to allow businesses to fail. We need to allow companies to go out of business or bankrupt. We need to allow foreclosures to take place. We need to allow people to lose certain jobs. We can’t try and interfere with that. And to the extent that we do, we’re going to create this depression; and if we keep printing money, we’re going to have massive inflation on top of it." What I don’t hear in this pain (’cause in other interviews you’ve talked about we’re going to have to take the short-term pain) is any pain for the people who Doug says got so wealthy during the last period. There’s no talk about taxing wealthy people. And all of this talk leads to, one would think, at least in the short term, even more unemployment.
PETER SCHIFF, PRESIDENT, EURO PACIFIC CAPITAL: Well, first of all, I mean, wealthy people, I mean, are paying a lot of taxes. I mean, you can consider I’m wealthy, and I’m paying almost 50 percent of my income in taxes right now. That’s without higher taxes. So, I mean, that’s a lot of taxes. I mean, historically, I mean, that’s a lot of taxes. I mean, there are some people that got rich off of financial, you know, transactions that were in part made possible by government interference, by the Fed giving out cheap money. So I think a lot of people on Wall Street got rich based on what the government was doing, and I have a big problem with that.
JAY: Well, would you be okay with taxing that back?
SCHIFF: Well, look, I think that the government shouldn’t have bailed out all these Wall Street firms. We should have let them fail. A lot of the money that was earned on Wall Street in the last few years wouldn’t have been earned had the government allowed some of these banks to fail.
JAY: So would you be okay with taxing that back, the money that these—like, the bonuses that were received based on money that came from the government? Would you tax it back?
SCHIFF: You’re asking me if two wrongs make a right. They shouldn’t have made that money in the first place. So that’s what I believe. You know. But I don’t think we need higher taxes on wealthy people. I mean, you know, we need less government. I mean, you’re talking about the fact that private sector demand has collapsed. It’s collapsed for a reason. The government can’t bring it back by magic. You know, that demand was artificial. It was there because the Fed had interest rates too low. It was there because people were able to treat their homes like an ATM machine. People were buying things they couldn’t afford with money that we were borrowing from China or from Japan. We can’t try to re-create that phony economy.
JAY: So, Doug, isn’t that true?
HENWOOD: I’m not interested [inaudible] created that phony economy [inaudible] have to remember who created it. It was people like Reagan and Bush who created that phony economy. You know, we’ve been hearing this mantra about getting government out and cutting taxes on rich people for three decades now, and I think we have to declare this experiment a failure. And we’re always going to hear about how it wasn’t really tried and, you know, there were just too many perfections in the way this theory was applied to reality, but in fact this has been—dominated political discourse, this kind of thinking has dominated discourse and policy for three decades now, and we are now living in the wreckage of that, and it’s really time to move on to a new model. And I think it’s interesting that the Obama administration, despite all its talk about fundamental change, has pretty much signed on to that model. We’ve seen just recently that Obama doesn’t even want to stop—put a moratorium on foreclosures, even though their paperwork is all screwed up. This is bad policy and bad politics, and it’s just a slavish devotion to the dominant ideology.
SCHIFF: Well, I—.
JAY: Before [inaudible] doesn’t the Bush years more or less represent what you were talking about?
JAY: There was certainly less regulation.
SCHIFF: No, it represents the opposite. I mean, I agree with you on one thing, that Obama is repeating the mistakes of Bush, but mistakes are big government and central banking. I mean, the reason that I was one of the few people that accurately forecast the collapse of the real estate market, the worst recession since the Great Depression, double-digit unemployment, the bankruptcy of Freddie and Fannie, the collapse of many of the investment banks, is because I understood how the Federal Reserve and Congress were inflating this bubble, how their interference in the free market—whether it was with Freddie and Fannie guaranteeing mortgages and creating the moral hazards, or the government guarantees of bank accounts, or the cheap money by the Federal Reserve—none of this was a free market function. It was all the result of central government planning and central banking that distorted the economy, that got people to loan money that never should have been loaned, got people to gamble when the free market would have prevented it. And Obama is continuing those failed policies.
JAY: But doesn’t that have a lot to do with the extent that the private sector controls the federal government? Like, these policies weren’t happening in a political vacuum.
SCHIFF: Well, look, I do agree that there are large businesses that are able to, you know, get regulations passed.
JAY: [inaudible] the Fed is mostly private bankers.
SCHIFF: Well, like, for example, look, I own a brokerage firm, right, and I am struggling to survive all these rules and regulations that cost me a fortune. Now, why are those rules and regulations there? Because some of the largest brokerage firms in the country want them there, because having all these regulations makes it harder for smaller firms to compete with these gigantic firms that have the economies of scale to handle all the regulatory burden. Smaller firms can’t do it. So you do have certain special interests that control Washington, but that’s not capitalism. You can call it fascism or corporatism, but it’s not a free market. But the problem rests in Washington. What we need to do is remove all these barriers to production and economic growth. Right now we’re running an economy that’s—all we do is borrow money and spend it.
HENWOOD: [inaudible] assume that all these sorts of financial adventurism should be allowed to rip, and anything the government does to get in the way of it is a bad thing. Maybe it shouldn’t be done. But we’ve also seen, in the last couple of decades, finance has been able to do pretty much what it wanted. There’s been a deregulation of absolutely everything, starting in the mid ’70s [inaudible] deregulation of interest rates, late ’70s, early ’80s. We saw the elimination of all these lines of business regulations. And for the last couple of decades, finance has been able to do pretty much what it wanted to. There’s been a proliferation of hedge funds, the shadow banking system. These are all pretty—some of these are [inaudible] There’s been no inhibition of innovation [inaudible] creation of financial entities. They’ve been able to do whatever they wanted to.
SCHIFF: Congress has spent the last decade writing legislation, not repealing it. I mean, these guys are passing one law after another. To say that we have less regulation now than we had a decade ago or a generation ago is preposterous.
HENWOOD: [inaudible] preposterous.
SCHIFF: Talk—speak to a small businessman. Businesses are shutting down in this country every day because they can’t survive the costs of the regulations. That’s the reason we’re so uncompetitive. That’s the reason so many jobs—.
HENWOOD: How did the housing bubble get so inflated? Part of it was that banks were allowed to create completely opaque securities [inaudible] scrutiny or disclosure.
SCHIFF: It was because the government guaranteed the mortgages. Why was Freddie and Fannie guaranteeing mortgages? And why was the Federal Reserve giving away money at 1 percent? That’s why we had a housing bubble.
JAY: Okay. Hang on. Let him answer what you said [inaudible]
HENWOOD: I’m not going to deny that we have a system of socialism for the rich in this country, and it’s a very toxic combination of allowing finance to do whatever it wants to in an expansion and then bail them out when they go bust. I think that, you know, we had to have some kind of financial bailout or the financial system would have imploded. Ben Bernanke made his academic reputation studying the Great Depression and its financial mechanisms in the propagation of it. It’s what made the Great Depression great was that the 10,000 banks collapsed. And he wanted to prevent a rerun of it. You know, but most—
JAY: Let him finish the point. Let them finish [inaudible]
HENWOOD: —nobody with any kind of responsibility or with any kind of human sympathy would want to let this process of bankruptcy and failure run to the point where you get a 25 percent unemployment rate like we had in 1932. That’s just—.
SCHIFF: We’re at 18 percent now, I think, or 17 percent.
HENWOOD: No, we’re talking about comparing by the same definition. What we have now is almost 10 percent. It would be 25 if we were to going to rerun the Great Depression.
SCHIFF: No, but I’m saying, if [inaudible] count—.
HENWOOD: And no one wants to let that process run, because it’s cruel and destructive and would also result in a great deal of political turmoil. And if we had a capitalist class that was capable of thinking beyond the next quarter or the next—you know, next week’s profit report, they would be aware of the fact that they have to stabilize the system for their own sake. Otherwise, their whole thing is going to [inaudible]
SCHIFF: Yeah. Well, unfortunately, unfortunately, because we are following this Keynesian model of stimulus, we’re going to have something worse than the Great Depression: we’re going to have more people unemployed, but the unemployed and the employed alike are going to watch their cost of living run up, because we’re going to have runaway inflation, even hyperinflation, in a depression.
JAY: Okay. Let’s deal with the issue of that. So the people that have agreed with your economic theory have been predicting hyperinflation and inflation for at least a couple of years, if not longer. Where is it?
SCHIFF: Well, you’re seeing it. Look at—the price of gold is at an all-time record high. Silver’s at a 30 year high. The dollar’s hitting record lows against a number of foreign currencies [inaudible]
JAY: But we haven’t seen it—but in terms of prices, we haven’t [inaudible]
SCHIFF: Well, corn prices are up 60 percent in the last three months.
HENWOOD: But actual consumer prices are on the verge of deflation.
SCHIFF: No, they’re not. Consumer prices are rising.
HENWOOD: Well, look at the example of Japan. Japan is now in deflation and has been in deflation for a couple [inaudible] and they spent just the same way the United States has been spending. They had a massive Bank of Japan bailout, massive stimulus spending, and they still have deflation.
SCHIFF: You have to understand that given—okay, given the economic contraction that we’ve had, consumer prices should have fallen substantially, and that would have been very helpful to the economy if we could have brought down the cost of living. You know, not just housing prices coming down, but if we had food prices coming down and energy prices coming down, that would have been a plus. The reason that prices didn’t fall is the government created all this inflation. And so it prevented prices from falling, and that’s distorting the economy. But ultimately it’s not just going to be that inflation prevents prices from falling; it’s going to send them ballistic, and that is coming. Just because you haven’t seen it yet, you know, you can’t—if you’re looking for a train, you can’t wait to see the caboose to realize that the train is coming; you’ve got to move out of the way long before the caboose comes. And you’re going to see much higher consumer prices. They’re going to be spiraling out of control. It’s going to be worse than anything we saw in the 1970s. And we’re not in a position now to do anything about it, because how is the Federal Reserve going to substantially tighten money supply, increase interest rates, when it’s got the federal government with, you know, $14-15 trillion national debt as an adjustable rate mortgage financed with Treasury bills? It’s got all the banks leveraged up—.
JAY: But if you read the business press and you even listen, for example, to interviews with the Chinese prime minister, who was on TV being interviewed recently, they’re worried about deflation.
SCHIFF: That’s a ruse. That’s a straw man. You know, first of all, falling prices is a good thing.
HENWOOD: No, prices fell by 25 percent between 1929 and 1932. That’s one of the things that created the Great Depression.
SCHIFF: No. No, but—.
JAY: Let’s assume that there’s a point at which, if the government simply increases the currency, that there is a point where that could become inflationary. Let’s assume that’s the case. Then why isn’t the issue then if there is enough wealth in the society either to pay for infrastructure investment or stimulus—. It’s not that America doesn’t have the wealth. The money’s there. Why not tax it at the upper levels, and not go into debt, not just print money, not create debt [inaudible] Why not go where the money is?
SCHIFF: Well, the money won’t be here anymore. I mean, the tax rates are already very high. I said I’m already paying 50 percent tax. And, you know, you raise my taxes much more than that, I’m done. I’m not going to work at all. I have 125 employees. What if I just retire because I don’t—.
HENWOOD: [inaudible] We had—in the 1950s and 1960s we had top marginal tax rates of 80 percent, and the economy was sounder and [inaudible]
SCHIFF: No. Nobody paid those taxes, because they had all kinds of deductions that don’t exist anymore.
HENWOOD: No, the effective tax rate. You look in the Congressional Budget Office analysis, the effective tax rate was higher then than it is now. And Bush cut top tax rates vary dramatically, and we had the weakest expansion of any since the end of World War II.
SCHIFF: And here is the problem. Let me interrupt [inaudible] When the government—.
HENWOOD: Yes, but [inaudible] real-world experience of your line of thinking that I think we need to pronounce it a disaster now.
SCHIFF: And here is—. No. And—. No, it’s not a disaster. And the problem is, when you raise taxes on a businessman, on an entrepreneur, the money that you’re taking away and giving to government isn’t money that he was going to spend; it’s money that he was going to invest.
JAY: But doesn’t it depend what level you’re talking about? Like, if you’re a multibillionaire, it’s quite a different thing than if you’re a medium-sized businessman.
SCHIFF: Well, whatever, yes. But even if you’re a billionaire, any money that the government takes from a wealthy person is just going to spend it. The wealthy person is going to invest it to grow the economy, to produce goods and services, to provide employment opportunity. A socialist model of just taking money from the wealthy and redistributing it to the rest of the economy is going to impoverish the economy. You’re not going to grow the economy by taking money away from the people who are going to grow it, who are going to make the investments, who are going to employ people. Sending money to Washington is a complete waste. They’re just going to blow it on politically popular spending programs. But it’s not going to improve the economy.
HENWOOD: You know, it’s very interesting that the country that we’re borrowing the most from and the country with the most rapid growth rates perhaps in all of economic history is China. China has a very large state sector. The state thoroughly dominates the economy. And they’ve had massive infrastructure spending. They’ve—the last couple of years, they’ve built thousands of miles of high-speed rail. We can’t even build any right now. And, you know, they have succeeded in producing extremely dramatic rates of economic growth.
SCHIFF: Well, the reason for that—.
HENWOOD: And any American business person would look at China and say this is a nightmare of state regulation and state domination of the economy. But it’s been very, very successful.
SCHIFF: No. Look, look, how—are you investing a lot of money in Chinese companies?
SCHIFF: Alright. I am, alright? I’m doing a lot of investment. I’m doing banking activity for Chinese companies, I’m raising money for Chinese companies, and I can tell you that there is more economic freedom in China than there is here. China is succeeding because they’re more capitalistic than America. I don’t care what, you know—.
JAY: But there is a bigger stimulus program, in terms of per capita, my understanding.
SCHIFF: No. And—.
JAY: And the Chinese prime minister, who was just here, interviewed on Fareed Zakaria’s show, was actually praising the Obama stimulus plan, saying—and these are the guys who hold more American T-bonds and [inaudible] T-bills—.
SCHIFF: Yeah, you know, the Chinese foreign reserves now are closing on $3 trillion. I mean, the Chinese government is stimulating our economy more than their own, but it’s stimulating it the wrong way. They’re allowing our government to go deeper into debt by buying our bonds. They’re allowing Americans to buy things they can’t afford by artificially suppressing their currency. But at some point the Chinese are going to come to their senses, they’re going to stop buying our Treasuries, they’re going to let their currency rise, and that is going to dramatically benefit the Chinese people, because all of a sudden their products are going to become more affordable to them, and the Chinese will buy their own products, and Americans are going to have to go without these products, because we won’t be able to afford to import them, and we lack the ability to produce them ourselves because the government has taxed and regulated our factories out of business.
HENWOOD: No, the government has not taxed and regulated factories out of business.
SCHIFF: Sure they have.
HENWOOD: It’s that investors want to go to cheaper environments. They try to save money on wages.
HENWOOD: It’s got nothing to do with taxes or regulations.
SCHIFF: Yes, it is.
HENWOOD: It’s all about the wage difference between the—
SCHIFF: No, it’s not.
HENWOOD: —wait—between, you know, Michigan and China or Michigan and Mexico.
SCHIFF: No, it’s not. Well, again, a real-world example. I’m moving some of my business offshore. It’s not because of wages. I couldn’t care less. I’m trying to reduce my regulatory burden and my taxes.
JAY: Okay. I want to shift gears a bit. There’s a point where government stimulus doesn’t change the basic scenario, which is if wages are too low, not enough people have well-paid jobs, and they have to borrow money, you can keep spending government money. How does that ever change the scenario that there isn’t a real demand in the economy versus just the government in one way or the other—frankly, even if it taxed the money to get the stimulus, it’s still not changing [inaudible]
HENWOOD: Well, no, you’re right about that. I would say two things.
JAY: How does it change the basic demand scenario?
HENWOOD: Well, first of all, I’d say two things. One is I would not want to talk just in terms of stimulus. The stimulus is just a short-term cyclical thing. But I think we also need real serious long-term infrastructure spending, real serious spending on energy, research, and development, ways of creating environmentally clean technologies. And that’s not going to happen without large amounts of government spending and government [inaudible]
SCHIFF: Where’s the government going to get the money?
HENWOOD: The government has the money.
SCHIFF: Well, how? They don’t have nothing. They have a printing press.
JAY: Well, how—where is the government going to get the money?
HENWOOD: It can tax it. Tax.
SCHIFF: For who?
HENWOOD: People like you.
JAY: Well, maybe not you. I don’t know. Are you in the top 2 percentile?
JAY: Okay, people like you.
HENWOOD: So I think that that kind of spending, that spending on really long-term infrastructure, high speed rail, but also the research and development on clean energy.
SCHIFF: [inaudible] like, a five-year plan.
HENWOOD: Well, we could use a five-year plan.
JAY: The Chinese have such things. [inaudible]
SCHIFF: Yeah, let’s not copy what they do wrong. Let’s copy what they do right.
HENWOOD: But to get to your other point, we do need to get wages up. I mean, one of the reasons that we have such rampant borrowing by the household sector, by the general public over the last couple of decades is because wages have gone nowhere, and in order to maintain some semblance of a middle-class standard of living and some degree of social respectability, people have borrowed. That’s not sustainable.
SCHIFF: Do you employ anybody?
HENWOOD: Very, very part-time and very small.
SCHIFF: [inaudible] raise their pay?
HENWOOD: I pay one person very, very generously.
SCHIFF: Look, I can tell you, look, [inaudible] I employ, you know, 125 people or so. The only way for wages to rise is if your employees become more productive. I mean, you can’t just get higher wages.
HENWOOD: No, productivity has skyrocketed for the last couple of decades, and wages have gone nowhere.
JAY: Oh, come on, you know that that’s the case.
SCHIFF: No, a worker has to be more productive. You just can’t—.
HENWOOD: No, this is absolutely rock-solid fact. Productivity is up. If you graph it too, you’ll have, like—.
SCHIFF: No, it’s not. That’s what—so how do you think wages go up? How do you think someone gets [inaudible]
JAY: No, but hang on. This is a point of fact which we can clarify. My understanding is productivity practically doubled from the 1990s, where wages more or less were stable.
SCHIFF: No. Well, that’s the way the government keeps track of productivity.
JAY: Is that true or not?
SCHIFF: No, I don’t think we’ve become more productive. Look at our trade deficit. If we were more productive—. But if you look at the individual, on a micro level, if I’m going to employ someone somebody, right, and I’m going to hire somebody, and I’m going to pay them, let’s say, $30,000 a year, and they want a raise to $40,000, well, they have to be able to provide to me more output, more productivity, so I can afford to pay them more.
JAY: I don’t know the brokerage business, but I do know in manufacturing that the United States is still the biggest manufacturing country in the world. It still surpasses China. Number two,—.
SCHIFF: Well, I don’t know what we’re manufacturing, because we have a—you know, we are not—.
JAY: Many things.
JAY: Many things. But the point is is that far less people are manufacturing almost the same amount of goods as they did 10 years ago. I mean, as I understand it, these are pretty straightforward statistics.
SCHIFF: I think they’re manufacturing a lot less stuff.
HENWOOD: This is absolutely orthodox truth. There’s just no denying the fact that productivity in manufacturing, but also some of the service sector, has increased enormously over the last couple of decades and wages have gone absolutely nowhere.
SCHIFF: Well, some of it is the way they—you know, ’cause—you know how come the productivity is higher? Because they outsource all their production to other countries, and that’s helping the productive figures ’cause they don’t have American—.
HENWOOD: The people at the Bureau of Labor Statistics know what they’re doing. They make every effort to account for [inaudible]
SCHIFF: They don’t know what they’re doing. They don’t do that. If you fire an American worker and then outsource that job abroad, that’s no longer counted as wages. Even though foreign people are working, you’re just paying a bill to a company that’s outsourcing that. And so it doesn’t look like wages, but it is.
JAY: Okay. But I want to get really clear on one thing, ’cause we’re going to check this afterwards, and we’re going to put this up for people to see, and if we’re wrong, we’ll say so. But my understanding is productivity—if you look at the graph, productivity has gone like this and wages have gone like this.
SCHIFF: No. I know. Government claims of productivity has risen. I just don’t buy it. I think it’s statistical aberration. You know? I don’t believe that we’ve become more productive. If we were more productive—.
JAY: Why don’t you believe it? What do you base your belief on?
SCHIFF: Because, empirically, we are running a trade deficit now of almost $50 billion a month, half a trillion dollars a year. If we are so productive, where’s all the stuff we’re producing? Why aren’t we selling it all around the world? Why do we have a massive trade deficit if we’re so productive?
JAY: Well, I mean,—.
HENWOOD: Because everything on the shelves at Wal-Mart comes from China, right?
SCHIFF: Well, because China’s more productive. Where’s all the stuff we’re producing? Where’s all the stuff we’re putting on Wal-Mart shelves?
JAY: But one would think it’s being—most of the American production gets consumed in the United States. It doesn’t have to be exports.
SCHIFF: But then why are we importing [inaudible]
JAY: But then—but—well, do you not—do you not—.
SCHIFF: If we can produce stuff, why do we need imports?
JAY: But hold on, hold on. Do you not accept what I thought was a fact, that the United States is still the biggest manufacturing country in the world?
SCHIFF: Well, per capita there’s no way we are, but—.
JAY: Well, not per capita. Absolute numbers.
SCHIFF: But I know—. That might be the case, ’cause we manufacture, you know, aircraft, so certain things that are big. But I know that—.
HENWOOD: We still manufacture cars here.
SCHIFF: We manufacture some. We don’t manufacture nearly as many as we used to. We don’t manufacture—.
HENWOOD: No, the auto sector’s not dead, and we do manufacture lots and lots of stuff, and there’s no question about it.
SCHIFF: But we export—I mean, China exports more than we do now, Germany exports more than we do, even though we’re a bigger economy.
HENWOOD: Well, that—yeah.
SCHIFF: I mean, we’re a much bigger economy than they are, yet they export more than we do.
HENWOOD: The bigger an economy gets, the less likely it is to export. Just—that’s just, you know, arithmetic fact.
JAY: Okay let’s go to—so I’m unemployed. I’m watching this debate. I want to know what kind of public policy should I be demanding that’s in my interest. So start.
HENWOOD: Well, I think—as I was saying earlier, I think what we need is to create industries for the longer term. I don’t think we’re going to get low-wage industry back in the United States. I’m not a protectionist in that sense. But I think we need to get really advanced environmentally sophisticated technologies going in this country.
SCHIFF: How [inaudible] going to do that?
HENWOOD: We need to be producing, you know, solar panels. We need to be producing all kinds of energy infrastructure. And the government can do that. The computer industry would not exist if it had not been for Pentagon subsidies in the 1950s and 1960s. The pharmaceutical industry in United States has been a long beneficiary of public policy through assistance to research and development, fundamental research and product development. The industries in which the United States is still strong—computers, R&D, computers, rather, and pharmaceuticals, and even agribusiness and aerospace—are all areas in which the government has been very, very active. And I think we need to extend that model to developing new technologies and new green technologies that can create high-wage jobs and bring manufacturing back, and also save us from climate crisis.
JAY: Same question. I’m unemployed. I’m watching this debate. What policy should I be demanding in my interest?
SCHIFF: Well, free-market policies. I mean, if you want to get a job, you know, there needs to be incentives for somebody to hire you. You know, in order for somebody to hire somebody else, they need to be able to make a profit, and they need capital because labor—workers usually lack their own capital, so they want access to somebody else’s capital. So you have to have policies that allows capital formation, that allows for incentives, that allows for profits. So you want less government regulation, you want lower taxes, so that jobs can be created. I mean, people are not—.
JAY: Now, what happens to me in the meantime? Because if I understand it correctly, we’re going to go through quite a period of pain, and I don’t think the top 2 percentile is going to be feeling the pain quite the way me the unemployed person is. So what are you going to do for me?
SCHIFF: Well, there’s nothing the government can do for anybody.
JAY: Wall Street banks are sitting on something like $1 trillion, most of it which came at practically zero interest rates from the Fed. And they’re just sitting on it. It’s not circulating. If anything—.
SCHIFF: They’re loaning it to the government. They’re buying bonds.
JAY: Well, they may buy bonds. A lot of them are just—if they’re buying bonds, it’s a way they can get liquid again fast.
SCHIFF: Right. Well, that’s what they’re doing.
JAY: They’re sitting, waiting for a crash. I mean, they’re sitting, waiting for the economy to, quote-unquote, "bottom out"—and maybe they would even like to push it into more bottoming out, ’cause what more would you want if you’re sitting on cash? And now’s just wait to buy up on the cheap.
HENWOOD: Yeah. Well, they’ve got oodles of money and they don’t want to share it, but the economy is very weak and there’s not much prospect of recovery anytime soon, so nobody wants to lend money in that situation, which is—you know, this is—we’re back to what Keynes was writing about in 1936: when private investors do not want to lend because of their fear of risk or fear of a stagnant economy, the government has to step in and act; otherwise, we’ll just be stuck in this kind of high-unemployment equilibrium indefinitely.
SCHIFF: Well, the reason the economy is stagnating is because the government is acting. Well—.
HENWOOD: Now, also, your question earlier about what to do for the unemployed person, and I was talking about longer-term stuff, but, you know, we also have, like, very short-term immediate needs for people who are unemployed, who, you know, [are] going to get thrown out of their houses and can’t put food on the table. You know, we need better unemployment benefits and we need job creation programs. The stimulus bill, I think, was very defective in that it didn’t focus enough on long-term infrastructure, but there was also no direct job creation.
SCHIFF: The free market is the best way to create jobs and get rid of these government barriers. And we don’t want more unemployment benefits. We’ll just subsidize unemployment even more. A lot of people—I know a lot of people. People talk to me all the time. People are deliberately not working because they want to collect their unemployment checks. It’s more lucrative.
HENWOOD: Oh, that is such utter nonsense.
SCHIFF: No, it’s not nonsense.
HENWOOD: The unemployment check is $300 a week. You cannot live on that unless you have to.
SCHIFF: No, because if you get a job, and by the time you finish paying taxes and paying the expenses to get back and forth to work, the unemployment—.
HENWOOD: You’ll make a lot more than $300 a week.
SCHIFF: No. And a lot of the people who are collecting the unemployment benefits have jobs on the side. They’re just working illegally ’cause they don’t want to give up those benefits.
SCHIFF: I get emails all the time from people who tell me that either they’re doing it or friends are doing it. They know a lot of people that are taking unemployment benefits. I did it myself.
SCHIFF: Yeah, I did it myself. I was unemployed once myself. I didn’t even look for a job.
JAY: So you think the unemployment rate will go down if there were not unemployment benefits?
SCHIFF: Absolutely. People would be taking jobs. I mean, I’ve talked to businessmen—.
HENWOOD: People will be eating bugs if [inaudible]
SCHIFF: No. I’ve talked to businessmen who say they can’t find anybody to take jobs, because they’d rather have unemployment. Now, yes—.
HENWOOD: This is just the whining of the—
SCHIFF: No, it’s not.
HENWOOD: [inaudible] the revolt of the haves back in the 1970s. We’re back here again.
JAY: Okay. We’re not going to come to an agreement here, but I think we’ve laid out what the different positions are very well. So thank you very much, Peter.
SCHIFF: Yes, sir.
JAY: Thank you, Doug.
HENWOOD: Thank you.
JAY: And thank you for watching. And I guess you’ll make up your own mind what’s good for you in terms of economic policy. Thanks very much for joining us on The Real News Network.
End of Transcript
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