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THE LIMITS OF STIMULUS

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I’m Paul Jay in New York. We’re joined again by Doug Henwood, who for almost 25 years has been editing Left Business Observer in New York City. Thanks for joining us, Doug.

DOUG HENWOOD, FOUNDER AND EDITOR, LEFT BUSINESS OBSERVER: Good to be here.

JAY: So in the first segment we talked about the dragons or demons of austerity seem to be more about either beating up Social Security or creating kind of a—or their own weddedness to an old kind of economic psychology or philosophy, at a time when we’re looking at perhaps decades of deflation rather than inflation. But talk about stimulus, because the critique is there is a point—you just can’t keep artificially stimulating, meaning you can’t just have state investment forever. Otherwise, why not just give everybody $1 billion and have a country with 300 billionaires, and everybody will spend? There’s a point where the currency won’t matter anymore; like, there won’t be credibility. So talk about stimulus. What are the limits of that?

HENWOOD: Stimulus, you know, in that sense is a short-term thing. It’s meant to inject some cyclical oomph into an economy that can’t get started. But I think that needs to be separated from some long-term concerns. I don’t think you should run giant deficits forever; I don’t think you should be, you know, running up the debt burden of the government forever. It’s not sustainable. You can’t keep borrowing forever. But also it means that you’re going to spend increasing amounts of government money on interest payments. And I think that, over the long term, borrowing money from rich people is a cowardly substitute for taxing them. That’s something we can think about in the longer term. And we could eliminate the deficit by increasing taxes in the top 5 percent of the population and cutting back in the Pentagon, and—you know, but there would be no debt problem. But, you know, that’s not the kind of thing that they talk about.

JAY: It’s not that there’s not enough wealth in the society. There is plenty of wealth.

HENWOOD: No, there’s plenty of money around; it’s just that some people don’t want to share it. But I think what we really need to do is think about long-term spending, the kinds of spending that will generate long-term growth. So you could look at the social side of that and the physical side of that. The social side of that would be education. I mentioned earlier that we have a problem with educational attainment. The younger generation is not staying in school any longer than the older generation. We’re the only country in the world, First World, for which that’s true. That’s not good. College has gotten very, very expensive, and a lot of people go deeply into debt. There’s less and less access for people in the bottom half of the population to college, and if they go there, they’re going to have to borrow a lot of money and emerge with an enormous debt to pay off when they leave. That’s not good. You can make college tuition free for everyone for rather small amounts of money. I think it’s about $80 billion a year, so it’s really not—it’s something that the public sector could easily manage if it wanted to.

JAY: Which many countries in the world have. I don’t think Americans understand that there are dozens and dozens of countries, including countries in the so-called Third World, where college education is free.

HENWOOD: Yeah. And we used to have the largest proportion of our population enrolled in college in the relevant age group. And we don’t. We’re, like, 12th or 13th now and really fallen way behind in that sort of thing. It’s a country that pioneered universal education, and all we’re doing is talking about, like, privatizing the school system and creating charter schools and, you know, just substituting tests for actual educational quality. So the educational system is a wreck. Now, I don’t think education—you know, there’s not a supply-side theory of job creation; just supplying educated workers isn’t going to create skilled work.

JAY: ‘Cause we’ve seen in places like the old Soviet Union, where you had an actual surplus of educated people, they were churning out all these university graduates, and there were no jobs for them.

HENWOOD: Which can cause social problems, because if you get a bunch of educated people and no jobs for them, then they’ll kick up a fuss. That may be why the American elite doesn’t want to educate the population. It’s easier to control them and easier to keep the population passive. This is something that the US system is rather good at, keeping the masses passive, for the last hundred years. But I think if we want to have some kind of more civilized society, a better attempt at self-governance, more democratic self-governance, and a better-skilled, more productive workforce, then we need to improve the educational levels. The physical infrastructure is a wreck. The transit systems in many cities are falling apart. Many cities don’t even have any transit systems. The upgrading of those would create short-term jobs, but also in the long term it would lower the cost of doing business and improve the quality of life for everybody. That would be a good long-term thing, too, investing in clean energy and new forms of transportation technology that will save the planet but also could generate enormous amounts of high-quality jobs.

JAY: So what do you make of the debate, which is you have one section, which you can hear on the left, which is there’s no problem running deficits, just essentially create the money—in Old World terms, print the money (I don’t think they actually have to literally print it anymore). But, at any rate, the Fed can just create money, the government can spend it, you can stimulate the heck out of the economy, and there’s no problem with that kind of growing debt versus sort of what you’ve been saying before is that there’s another place to go get money, which is, instead of borrowing it, you tax it. I mean, is there a real fight to be had there on the taxation front?

HENWOOD: We’re talking about taxing people. We’re talking about taking away real resources. We’re talking about taking away their third Jaguar or their fourth vacation house. So I think the people who say "just print the stuff" really want to avoid that political conflict, don’t even want to bring it up. They think that you can just sort of create this money out of thin air, and then you don’t have the social conflict necessary in even bringing up the idea of taxation, much less accomplishing it. That’s not going to work. That’s not good over a long term. That’s not—it’ll either create inflation or a debt crisis. You know, I think the austerity party is right in that sense, that over the long term you can’t keep running deficits and debts forever. You know, that’s not a good idea.

JAY: But there’s a point where people don’t believe your money anymore.

HENWOOD: Right. Yeah. And, you know, we’re a long way from being Argentina or Greece. But, you know, if we run deficits of 10 percent of GDP for ten years, then the distance to Argentina or Greece is much shorter. We cannot do that; that’s not wise. And I think, you know, the short—you know, over the next few years, yes, we need deficits and stimulus because the economy is in such bad shape, but we need to spend that money wisely. I mean, we need, certainly, to support unemployed people, provide income support, provide aid to the state and local governments who are in terrible shape. That’s over the course of a couple of years. But longer-term, we need to do the things I was talking about, because of social and physical investments that will have a really long-term payoff, and we need to do that by financing, but we need to finance that by taxing people who have plenty of money.

JAY: Okay. In the next segment of our interview, let’s talk more about what solutions might be good. Please join us for the next segment of our interview with Doug Henwood on The Real News Network.

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