The US Fiscal Deficit: Scare Stories vs Reality 2
Pollin: It will take a powerful movement to push for better economic policy
PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I’m Paul Jay, and we’re joined again by Bob Pollin. He’s the cofounder of the PERI institute, which is the Political Economy Research Institute. Thanks for joining us.
ROBERT POLLIN, CODIRECTOR, POLITICAL ECONOMY RESEARCH INSTITUTE: Glad to be here.
JAY: I should add again you’re at the University of Massachusetts in Amherst. So in your article there’s a lot of big "ifs". You’re saying for this stimulus to work, number one, they have to take on military spending. They have to have a real reform of the costs of the health-care system and a serious tax on Wall Street. And you also talk about taxing the rich would be a fairly quick way to deal with some of the deficit problems.
JAY: But I think it’s pretty certain there’s very little political will on the part of the Democrats and zero interest on the part of Republicans for passing any of this. So it’s not being just pessimistic to say it’s unlikely any of this is going to happen. Maybe, maybe some savings if they really do pull out of Iraq. I don’t personally believe much is happening in Afghanistan. I mean, all that’s been announced is some troops may start leaving, I think in 2011, but that doesn’t mean anything unless there’s some major deal with the Taliban. So let’s say there’s no big movements on this. So then what?
POLLIN: An economic recovery by itself, by definition, means more revenue coming in to the government, because an economic recovery means people have jobs, it means businesses are getting money in, and property taxes are rising, so you’re getting government revenue increasing. And so that in itself will make up most of the gap in the fiscal deficit, even if there are no tax increases, even if there’s no cut in the military.
JAY: Okay, another big "if": is there going to be that kind of recovery? Like, why should one believe there’s going to be?
POLLIN: Okay. Of course, nobody knows. I mean, there was a big jump in GDP this past quarter—5.7 percent—but that could stop.
JAY: And people are suggesting that so much of that’s about the stimulus.
POLLIN: Just inventories having run down, so the businesses didn’t buy any inventories, so now this last quarter they had to restock. So whether there’s going to be a sustainable recovery, that’s where we get back to the deficit. We do need more deficit spending to push spending into the economy to create jobs. The government has to take the lead, and that will help push the economy back into growth.
JAY: So what did you think of Obama’s State of the Union speech, what he’s saying he’s going to do?
POLLIN: If you tick down all the things that he says he’s going to do in terms of categories, he said a lot of the right things. And the very first thing he said: we’re going to keep building the clean-energy economy. And, you know, in the interest of full disclosure, I am doing work with the Energy Department on implementing the green parts of the stimulus, and there’s a lot of really interesting, exciting things there. He said we are going to provide credit for small businesses. The problem is he’s talking too small. The number he said for the small businesses was $30 billion. Well, small businesses over the last quarter actually were paying down their debt. They didn’t borrow at all. Meanwhile, the banks are sitting on $840 billion in cash reserves. Now, if you put, say, $700 billion of the $840 billion back into the economy, that alone would move the economy back into very healthy growth. So the question is: how do you get that money? The federal government has to use its powers, including its ownership of AIG, its ownership of Fannie Mae and Freddie Mac, to push credit into the hands of businesses and getting them to invest.
JAY: There’s something else that could drive the recovery, which is a direct jobs program, which he seems ideologically opposed to, the idea that the government should actually hire people the way that it was done in 1930s.
POLLIN: Well, I mean, again, he did say that, in my view. There’s another thing: he really emphasized investments in energy conservation. Great—it’s a fabulous idea. I’m all for it. But why don’t we start with the government? I mean, the government has, according to some rough calculations I did, about $400 billion worth of buildings that they own that could be retrofitted. Now, you make up the spending in three years. You get the energy savings. You make it up entirely. So over a three-year period, there’s no deficit at all, because you’ve made up for your spending in lower energy costs. So why not start there?
JAY: So why not? Why aren’t they doing it?
POLLIN: ‘Cause it seems too bold. I mean, Obama actually even said energy conservation is sexy. He went to Home Depot and he said people should come here and start buying the caulking equipment, ’cause it’s sexy, ’cause saving money is sexy. He said that. This has been his emphasis. And whether it’s sexy or not, it’s a really good thing to do, and it does create a lot of jobs, especially in construction, where there’s two million construction workers that have been idle due to the recession.
JAY: But instead of more stimulus, really, in the sense that the kind of money he wants to do for small business he’s just going to pull out of what the banks are repaying, so it’s not really kind of new stimulus money. And then, on the green program, if you take the example of high-speed trains, it sounds great, big investment in high-speed trains, but the critique of it is that it’s little bits of money all over the country, ’cause it looks politically good, but no real model of how high-speed trains could actually work that could then be replicated, so you wind up with kind of something that’s just good rhetoric. And I guess that’s the question is what’s in the state of the union, great-sounding rhetoric, when the real substance, like what’s really—of the State of the Union message, what’s going to be passable, easily passable in the Congress, it’s going to be the freeze on spending. So you can wind up with a freeze and not a heck of a lot of stimulus, and add to that no EFCA, like, no Employee Free Trade Act, so nothing on the side that—something that might increase wages. So where do you end up with all that?
POLLIN: What you need is a left movement to push the progressive Democrats to have some power over Obama. And it may happen, especially after the election in Massachusetts, where now the message is very clear: if the Democrats keep coming off as the weak, establishment, pro-Wall Street party, they’re very likely to get wiped out in another ten months, especially if we’re at 10 percent, 9 percent unemployment.
JAY: I mean, the ball, one would think, is really to a large extent in the hands of the trade union leaders. I mean, if anyone has some leverage with this White House—there wouldn’t be a President Obama if it hadn’t been for the unions, but at the moment they seem still very, very reluctant to even distance themselves [inaudible]
POLLIN: Well, Trumka did go talk to Obama, and he got that feature of the health-care bill out of that, where we’re going to tax the programs that a lot of workers fought for to get, which were good health-insurance coverage, and he got that taken out. So that’s one example.
JAY: So if Obama were to ask you, "Quickly, what are the things I should do?" what would they be?
POLLIN: I’d say, everything you said in your speech other than the freeze on spending, do it. But now let’s figure out that means, yes, clean-energy investments, credit for small businesses, support for state and local governments, education, health care, public safety—all great ideas. Unemployment insurance. Excellent. Let’s do all those things. But now let’s get serious about how big you have to make these programs, and then where do we get the money in terms of, yes, the fiscal deficit, but to force the financial system to start lending. So they’re borrowing at zero percent from the Fed, essentially, and they’re just sitting on it.
JAY: Well, we’ll see whether he does any of this.
JAY: Thanks for joining us.
POLLIN: Thank you.
JAY: Thank you for joining us on The Real News Network.
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