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Paul Jay speaks to Thomas Ferguson about the urgent need for the Democrats to bring the economic
growth to the bulk of the population or loose the mid-term elections of 2010.

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay. We’re in Boston, Massachusetts, with Tom Ferguson, teacher of political economy at the University of Massachusetts in Boston. Thanks for joining us, Tom.


JAY: Recently, a couple of important elections. Republicans win two governor races. Does it have any real meaning?

FERGUSON: Well, probably not. Those particular two races don’t have all that much national impact. But the broader pattern’s pretty interesting. First thing I’d say is, if you study, like, the history of the Great Depression, you will see this pattern repeatedly: if you’re in, you’re out. And that seems to me a big part of the story. I mean, as I say, the Democrats were in in Virginia and in New Jersey, and they’re out. The other thing I see there, though, is it looks to me like electorates are—actually the single, broader US electorate’s probably polarizing. And you look at the New York City mayoral race, where, you know, the Democratic candidate was thought by nobody to have any chance at all of coming even close, and, you know, even the White House did their best to help Bloomberg underneath the table. For instance, they just wouldn’t campaign for the Democrat or help them. And Bloomberg nearly lost. He just barely won. That’s pretty interesting. And then, in that upstate New York election, I think I’m right that the Republicans have never lost that seat since the birth of the Republican Party back in the 1850s. And suddenly, you know, now, of course, there was no Republican finally running there. She had to pull out. But there was a conservative.

JAY: So essentially you’re saying if you’re in office and you’re not doing something that seems to alleviate the effects of the Depression,—

FERGUSON: You’re out.

JAY: —you’re out. So then what? What can be done if you’re sitting here as President Obama looking at this situation?

FERGUSON: I think the Democrats have one choice only, now: they need to do something to get economic growth to go up fast and actually reach down to the bulk of the population. If they don’t, they’re going to pay massively in November 2010. I mean, they’re going to cook their own goose. They’ve got to do something. They have to move. They’ve done essentially nothing thus far.

JAY: Okay. So if you read the press and you listen to the media, we’re already in a recovery. Yeah, unemployment hasn’t caught up yet. It’s just a matter of time till growth kicks in.

FERGUSON: Except if you actually look at that consensus, the “matter of time”, more or less everybody is saying three to four years. This is slow growth of aggregate demand that—you can hurry that along. I mean, all the notion that, you know, this economy is just going to recover automatically—I’m amazed that within just barely over a year after Lehman Brothers, we’d be standing around, hearing about the invisible hand working. You know, I can hardly believe it. But in any case—.

JAY: Is this in fact—.

FERGUSON: The only thing the invisible hand’s going to do for the Democrats is wave goodbye.

JAY: Wave goodbye.

FERGUSON: Yeah. If they wait, if these guys don’t get a jobs program going pretty fast, they’re gone, you know, in the Congress, a large number of them. Whether you’d see 1994 all over again I don’t know, but for sure a lot of those folks will lose. You’ll see Virginia and New Jersey written small in a lot of districts.

JAY: Now, what would a jobs program look like if they came to you and say, “What’s the jobs program”?

FERGUSON: We did actually just have this talk just as the president came in, and I said to you—like, I’m not claiming this was original. It wasn’t. Lots of people noticed. The program was too small.

JAY: The stimulus program.

FERGUSON: Yeah. They need to get—the original economic stimulus was too small, and they really need to do, you know, another $300 billion or $400 billion fairly fast. They need to be giving money out to the states. I mean, the states are looking at pretty desperate financial conditions. And if interest rates start to rise, which—and I get all this noise about how people have to—how the Fed in particular should start letting interest rates rise. If they actually start to do that, watch how that hits the state’s fiscal condition–which are– ’cause these guys are all borrowing, and if their rates go up, they’re going to have real trouble. You’ll see very substantial job losses. It’s sort of crazy. They’ve got to do something on that. You know, you could do other things. Nothing’s probably as effective as handing cash out to states to prevent, you know, massive job loss. That also stimulates further job creation, ’cause, I mean, the people on the state payrolls buy stuff, too. They actually do. They buy [inaudible]

JAY: Well, some people have been talking about a straightforward federal jobs program as there was in the 1930s.

FERGUSON: That’ll work fine. I mean, the truth is it doesn’t matter very much. I mean, as Keynes said, you can bury banknotes in bottles and put them in the ground if that’ll—. I mean, it’d be better if people actually did something sensible and you got a product out of it. But if that’s the only thing you’ll accept, fine.

JAY: So what’s holding the Obama administration back? He campaigned on this vision of a green economy, and you would think the two things jive together perfectly—a big jobs program as part of a green transformation.

FERGUSON: No, they asked their—rephrase the question. They asked for too little. And possibly, I mean, one view is they were worried about deficits. Now, it’s doubtful to me that the folks in the White House worry all that much about the current size of the deficit, but there’s certainly a lot of people outside the White House that, you know, worry about it. I mean, this sort of what might be called sort of traditional budget-balancing stuff is back in fashion. It’s sort of like evangelical religion: you know, it’s back up and seems to be running, you know, curiously at the precise—.

JAY: Well, it’s certainly overwhelming the health-care debate.

FERGUSON: Well, yeah. But, I mean, one has to say that much of the discussion about the deficit is really a coded way of saying “I don’t like health care” or “I don’t like transportation changes” or whatever. I mean, that is to say, if you don’t like the health-care bill, one of the most effective ways to trash it out is start talking about costs, and then everybody goes into that. We can go there if you want. It’s extremely instructive if you look at the way the health-care debate has run. There’s a couple of wonderful studies which show you how every time the possibility of a public program gets trashed out by some surprise congressional vote, the stocks of the main insurers go way up. Now, if people really worried about deficits and all that, and then they had some theory that linked deficits to, say, the health of the stock market or something like that, which is the implication of what might be called the Wall Street Journal view of these things, then the whole stock market would be falling. In fact, what you see is, yeah, the stock market’s been going great guns. And the health-care debate’s not about the sort of future shape of the whole economy; it’s about the producers in that industry, whether they can continue making really large profits, you know, the pharmaceuticals and the insurers, though insurers are the ones for which very well documented—.

JAY: So back to this issue of deficit, then. I mean, there’s three ways the government can raise money. They can borrow it, either domestically or internationally; they can get China or Japan or someone to buy more T-bills.

FERGUSON: Yeah. But right there, though, let’s get clear on one point. The US cannot run out of dollars. We’re not in the condition of Ecuador or Brazil, which has to borrow on a foreign currency. We can always lend ourselves dollars if we have to. You don’t need to the Chinese for anything if it really comes to that.

JAY: Well, the other thing you can do is, well, you can borrow domestically.


JAY: You can print.


JAY: Or tax.


JAY: And they’re allergic to tax.

FERGUSON: Well, yeah, except when it comes to taxing, like, health-care benefits for blue-collar workers that they’ve already negotiated. Then suddenly all these folks who are opposed to taxes just seem somehow—I mean, to take David Leonhardt of The New York Times or something, I mean, how many times does he keep saying, “Oh, that’s the way to cure the health-care problem”? You know, it’s like, is that the only tax I think Leonhardt ever seems to like?

JAY: In between borrowing, either domestically or internationally, and just printing, they’re doing both now. The Fed’s printing like mad. They’re also borrowing. How do they decide when they’re going to print and when they’re going to borrow?

FERGUSON: Well, if you want, I think the answer to that question is you’ll have to ask Ben Bernanke. But I think it’s pretty straightforward. I mean, the Fed wants to hold interest rates very low. They’re basically at zero. So, I mean, that they decide what they’re in effect printing by that target. Then the federal government has got a fiscal policy of its own, and, you know, they borrow to cover the spending they’ve done. And so nobody brings those targets into harmonization except after the fact. I mean, somebody has to adjust a little bit.

JAY: The argument that’s coming from the Republicans and various economists is there’s a limit to how much you can either print or borrow. There’s a point at which the currency gets debased. Is there not such a point? And what’s the point?

FERGUSON: Well, for sure. Look, you can for sure debase a currency. You know, the US is nowhere near that. They’re not having any trouble selling US debt internationally. You know, the speculative views about what they might have happen or not, I mean, my reading—. I mean, there’s a view out because of this relatively new book by [Carmen] Rogoff and [Kenneth] Reinhart on financial crashes that you have a really serious problem with deficits. My reading of their evidence is a little different. They don’t have much evidence on countries, big countries whose currencies are—they’re so big that their currencies are used outside of them. In the case they do, the lesson I pulled out of that book was straightforward: you will have your deficit explode if you don’t keep up your GDP. In other words, you have to sort of unleash your inner Keynes, or you will soon have your inner paranoia. It’ll be Halloween there. I mean, basically, the way deficits really soar in the case of a country like the US is if you just sit there and do nothing, and then tax collections go to pieces, and then the deficits get really very large. You’d be better off stimulating the economy and increasing tax collections. I mean, take a case like California, where the unemployment rate is probably now 14 or 15 percent, well above the national average, you know, if we’re 10.2. Now, picture a situation where you are trying to get people employed in California and the state is cutting back massively on its employment. That’s a situation you now face. And that’s going to—California is leading the way, but there are plenty more that are coming. In that type of situation, you’re going to just crush aggregate demand if you don’t do something. You can talk all you want about sort of pious schemes that will get people back to work, but if your state—. This happened, actually, in the Great Depression. Lots of people have made the point that the federal folks were trying to expand, the state and local payrolls were contracting, so the net governmental impact was pretty small or negative in good chunks of the 1930s. They should block that from happening now.

JAY: The argument that you’re hearing, though, is that the stimulus package, like, two-thirds of it is still left to be spent. [inaudible]

FERGUSON: No. Now most of that’s out the door. I think they’re now down—. Somebody said to me the other day they thought it was maybe $400 billion left. That’s not a lot. They will spend through that in the next few months. All the states, I should observe, are getting warnings. They’re all issuing—. I mean, I sort of try to follow the state, local politics around the country, and all the governor—so, by the way, we don’t have any fiscal stimulus coming in for the fiscal year that will start in the summer of 2010. That point, you’re looking at really disastrous cutbacks. But in states like California they’re happening now.

JAY: In the next segment of our interview, let’s look what happened not on the stimulus side but on the banking side.


JAY: Please join us for the next segment of our interview with Tom Ferguson.


Please note that TRNN transcripts are typed from a recording of the program; The Real News Network cannot guarantee their complete accuracy.

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Thomas Ferguson is Professor of Political Science at the University of Massachusetts, Boston and a Senior Fellow of the Roosevelt Institute. He received his Ph.D. from Princeton University and taught formerly at MIT and the University of Texas, Austin. He is the author or coauthor of several books, including Golden Rule (University of Chicago Press, 1995) and Right Turn (Hill & Wang, 1986). Most of his research focuses on how economics and politics affect institutions and vice versa. His articles have appeared in many scholarly journals, including the Quarterly Journal of Economics, International Organization, International Studies Quarterly, and the Journal of Economic History. He is a long time Contributing Editor to The Nation and a member of the editorial boards of the Journal of the Historical Society and the International Journal of Political Economy.